Abakada v. Executive Secretary PDF

EN BANC
[G.R. No. 168056. September 1, 2005.]
ABAKADA GURO PARTY LIST (Formerly AASJAS) OFFICERS

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

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

represented by its President, ROSARIO ANTONIO; PETRON
DEALERS' ASSOCIATION represented by its President, RUTH E.
BARBIBI; ASSOCIATION OF CALTEX DEALERS' OF THE
PHILIPPINES represented by its President, MERCEDITAS A.
GARCIA; ROSARIO ANTONIO doing business under the name and
style of "ANB NORTH SHELL SERVICE STATION"; LOURDES
MARTINEZ doing business under the name and style of "SHELL
GATE — N. DOMINGO"; BETHZAIDA TAN doing business under
the name and style of "ADVANCE SHELL STATION";
Copyright 1994-2019 CD Technologies Asia, Inc. Jurisprudence 1901 to 2019 Third Release 1
REYNALDO P. MONTOYA doing business under the name and
style of "NEW LAMUAN SHELL SERVICE STATION"; EFREN
SOTTO doing business under the name and style of "RED FIELD
SHELL SERVICE STATION"; DONICA CORPORATION
represented by its President, DESI TOMACRUZ; RUTH E.
MARBIBI doing business under the name and style of "R&R
PETRON STATION"; PETER M. UNGSON doing business under
the name and style of "CLASSIC STAR GASOLINE SERVICE
STATION"; MARIAN SHEILA A. LEE doing business under the
name and style of "NTE GASOLINE & SERVICE STATION";
JULIAN CESAR P. POSADAS doing business under the name and
style of "STARCARGA ENTERPRISES"; ADORACION MAÑEBO
doing business under the name and style of "CMA MOTORISTS
CENTER"; SUSAN M. ENTRATA doing business under the name
and style of "LEONA'S GASOLINE STATION and SERVICE
CENTER"; CARMELITA BALDONADO doing business under the
name and style of "FIRST CHOICE SERVICE CENTER";
MERCEDITAS A. GARCIA doing business under the name and
style of "LORPED SERVICE CENTER"; RHEAMAR A. RAMOS
doing business under the name and style of "RJRAM PTT GAS
STATION"; MA. ISABEL VIOLAGO doing business under the
name and style of "VIOLAGO-PTT SERVICE CENTER";
MOTORISTS' HEART CORPORATION represented by its
Vice-President for Operations, JOSELITO F. FLORDELIZA;
MOTORISTS' HARVARD CORPORATION represented by its
MOTORISTS' HERITAGE CORPORATION represented by its
PHILIPPINE STANDARD OIL CORPORATION represented by its
ROMEO MANUEL doing business under the name and style of
"ROMMAN GASOLINE STATION"; ANTHONY ALBERT CRUZ
III doing business under the name and style of "TRUE SERVICE
STATION", petitioners, vs. CESAR V. PURISIMA, in his capacity as
Secretary of the Department of Finance and GUILLERMO L.
PARAYNO, JR., in his capacity as Commissioner of Internal
Revenue, respondents.
[G.R. No. 168463. September 1, 2005.]

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

HON. EDUARDO R. ERMITA, in his capacity as the Executive
Secretary; HON. MARGARITO TEVES, in his capacity as Secretary
of Finance; HON. JOSE MARIO BUNAG, in his capacity as the OIC
Commissioner of the Bureau of Internal Revenue; and HON.
ALEXANDER AREVALO, in his capacity as the OIC Commissioner
of the Bureau of Customs, respondents.
Carlos G. Banigued and Laura Victoria Yuson-Layug for petitioners in G.R.

No. 168461.
Eugenio H. Villareal, Dionisio B. Marasigan, Ma. Rosalie Taguian, Agustin C.
Bacungan III and Roland Allan C. Abarguez for petitioners in G.R. No. 168463.
Samson S. Alcantara, Ed Vincent S. Albano and Rene B. Gorospe for
petitioners in 168056.
Luis Ma. Gil L. Gana for petitioners in G.R. No. 168207.
The Solicitor General for public respondents.
SYLLABUS
1. TAXATION; VALUE-ADDED TAX (VAT); TAX ON SPENDING OR

CONSUMPTION. — The VAT is a tax on spending or consumption. It is levied on
the sale, barter, exchange or lease of goods or properties and services. Being an
indirect tax on expenditure, the seller of goods or services may pass on the amount of
tax paid to the buyer, with the seller acting merely as a tax collector. The burden of
VAT is intended to fall on the immediate buyers and ultimately, the end-consumers.
In contrast, a direct tax is a tax for which a taxpayer is directly liable on the
transaction or business it engages in, without transferring the burden to someone else.
Examples are individual and corporate income taxes, transfer taxes, and residence
taxes. ACcTDS
2. POLITICAL LAW; LEGISLATIVE DEPARTMENT; POWER OF

INTERNAL REGULATION AND DISCIPLINE ARE INTRINSIC IN ANY
LEGISLATIVE BODY. — It should be borne in mind that the power of internal
regulation and discipline are intrinsic in any legislative body for, as unerringly
elucidated by Justice Story, "[i]f the power did not exist, it would be utterly
impracticable to transact the business of the nation, either at all, or at least with
decency, deliberation, and order." Thus, Article VI, Section 16 (3) of the Constitution
provides that "each House may determine the rules of its proceedings." Pursuant to
this inherent constitutional power to promulgate and implement its own rules of
procedure, the respective rules of each house of Congress provided for the creation of
a Bicameral Conference Committee.
3. ID.; SEPARATION OF POWERS; EXPANDED JURISDICTION OF

THE SUPREME COURT CANNOT APPLY TO QUESTIONS REGARDING
ONLY INTERNAL OPERATION OF CONGRESS. — [O]ne of the most basic and
inherent power of the legislature is the power to formulate rules for its proceedings
and the discipline of its members. Congress is the best judge of how it should conduct
its own business expeditiously and in the most orderly manner. It is also the sole
concern of Congress to instill discipline among the members of its conference
committee if it believes that said members violated any of its rules of proceedings.
Even the expanded jurisdiction of this Court cannot apply to questions regarding only
the internal operation of Congress, thus, the Court is wont to deny a review of the
internal proceedings of a co-equal branch of government.
4. ID.; LEGISLATIVE DEPARTMENT; CONGRESS FINDS THE

PRACTICES OF THE BICAMERAL CONFERENCE COMMITTEE TO BE VERY
USEFUL FOR PURPOSES OF PROMPT AND EFFICIENT LEGISLATIVE
ACTION. — [A]s far back as 1994 or more than ten years ago, in the case of
Tolentino vs. Secretary of Finance, the Court already made the pronouncement that
"[i]f a change is desired in the practice [of the Bicameral Conference Committee] it
must be sought in Congress since this question is not covered by any constitutional
provision but is only an internal rule of each house." To date, Congress has not seen
it fit to make such changes adverted to by the Court. It seems, therefore, that Congress
finds the practices of the bicameral conference committee to be very useful for
purposes of prompt and efficient legislative action.
5. ID.; ID.; ID.; MANDATED TO SETTLE THE DIFFERENCES

BETWEEN THE DISAGREEING PROVISIONS IN THE HOUSE BILL AND THE
SENATE BILL. — Under the provisions of both the Rules of the House of
Representatives and Senate Rules, the Bicameral Conference Committee is mandated
to settle the differences between the disagreeing provisions in the House bill and the
Senate bill. The term "settle" is synonymous to "reconcile" and "harmonize." To
reconcile or harmonize disagreeing provisions, the Bicameral Conference Committee
may then (a) adopt the specific provisions of either the House bill or Senate bill, (b)
decide that neither provisions in the House bill or the provisions in the Senate bill
would be carried into the final form of the bill, and/or (c) try to arrive at a
compromise between the disagreeing provisions.
6. TAXATION; REPUBLIC ACT NO. 9337 (EXPANDED

VALUE-ADDED TAX LAW); THE STAND-BY AUTHORITY OF THE
PRESIDENT IS STILL TOTALLY WITHIN THE SUBJECT OF WHAT RATE OF
VALUE-ADDED TAX SHOULD BE IMPOSED ON THE TAXPAYERS. — The
so-called stand-by authority in favor of the President, whereby the rate of 10% VAT
wanted by the Senate is retained until such time that certain conditions arise when the
12% VAT wanted by the House shall be imposed, appears to be a compromise to try
to bridge the difference in the rate of VAT proposed by the two houses of Congress.
Nevertheless, such compromise is still totally within the subject of what rate of VAT
should be imposed on taxpayers.
7. POLITICAL LAW; LEGISLATIVE DEPARTMENT; BICAMERAL

CONFERENCE COMMITTEE; IT IS WITHIN ITS POWER TO INCLUDE IN ITS
REPORT AN ENTIRELY NEW PROVISION THAT IS NOT FOUND EITHER IN
THE HOUSE BILL OR IN THE SENATE BILL. — All the changes or modifications
made by the Bicameral Conference Committee were germane to subjects of the
provisions referred to it for reconciliation. Such being the case, the Court does not see
any grave abuse of discretion amounting to lack or excess of jurisdiction committed
by the Bicameral Conference Committee. In the earlier cases of Philippine Judges
Association vs. Prado and Tolentino vs. Secretary of Finance, the Court recognized
the long-standing legislative practice of giving said conference committee ample
latitude for compromising differences between the Senate and the House. Thus, in the
Tolentino case, it was held that: . . . it is within the power of a conference committee
to include in its report an entirely new provision that is not found either in the House
bill or in the Senate bill. If the committee can propose an amendment consisting of
one or two provisions, there is no reason why it cannot propose several provisions,
collectively considered as an "amendment in the nature of a substitute," so long as
such amendment is germane to the subject of the bills before the committee. After all,
its report was not final but needed the approval of both houses of Congress to become
valid as an act of the legislative department. The charge that in this case the
Conference Committee acted as a third legislative chamber is thus without any basis.
EHSTcC
8. ID.; ID.; "NO-AMENDMENT RULE"; CANNOT BE TAKEN TO

MEAN THAT THE INTRODUCTION BY THE BICAMERAL COMMITTEE OF
AMENDMENTS AND MODIFICATIONS TO DISAGREEING PROVISIONS IN
BILLS THAT HAVE BEEN ACTED UPON BY BOTH HOUSES OF CONGRESS
IS PROHIBITED. — The Court reiterates here that the "no-amendment rule" refers
only to the procedure to be followed by each house of Congress with regard to bills
initiated in each of said respective houses, before said bill is transmitted to the other
house for its concurrence or amendment. Verily, to construe said provision in a way
as to proscribe any further changes to a bill after one house has voted on it would lead
to absurdity as this would mean that the other house of Congress would be deprived
of its constitutional power to amend or introduce changes to said bill. Thus, Art. VI,
Sec. 26 (2) of the Constitution cannot be taken to mean that the introduction by the
Bicameral Conference Committee of amendments and modifications to disagreeing
provisions in bills that have been acted upon by both houses of Congress is
prohibited.
9. ID.; ID.; CONSTITUTION DOES NOT CONTAIN ANY

PROHIBITION OR LIMITATION ON THE EXTENT OF THE AMENDMENTS
THAT MAY BE INTRODUCED BY THE SENATE TO THE HOUSE REVENUE
BILL. — Since there is no question that the revenue bill exclusively originated in the
House of Representatives, the Senate was acting within its constitutional power to
introduce amendments to the House bill when it included provisions in Senate Bill
No. 1950 amending corporate income taxes, percentage, excise and franchise taxes.
Verily, Article VI, Section 24 of the Constitution does not contain any prohibition or
limitation on the extent of the amendments that may be introduced by the Senate to
the House revenue bill.
10. ID.; ID.; REVENUE BILLS; THE SENATE CAN INTRODUCE

AMENDMENTS WITHIN THE PURPOSES OF THOSE BILLS. — Notably
therefore, the main purpose of the bills emanating from the House of Representatives
is to bring in sizeable revenues for the government to supplement our country's
serious financial problems, and improve tax administration and control of the
leakages in revenues from income taxes and value-added taxes. As these house bills
were transmitted to the Senate, the latter, approaching the measures from the point of
national perspective, can introduce amendments within the purposes of those bills. It
can provide for ways that would soften the impact of the VAT measure on the
consumer, i.e., by distributing the burden across all sectors instead of putting it
entirely on the shoulders of the consumers.
11. ID.; PRINCIPLE OF SEPARATION OF POWERS; ELUCIDATED. —

The principle of separation of powers ordains that each of the three great branches of
government has exclusive cognizance of and is supreme in matters falling within its
own constitutionally allocated sphere. A logical corollary to the doctrine of separation
of powers is the principle of non-delegation of powers, as expressed in the Latin
maxim: potestas delegata non delegari potest which means "what has been delegated,
cannot be delegated. This doctrine is based on the ethical principle that such as
delegated power constitutes not only a right but a duty to be performed by the
delegate through the instrumentality of his own judgment and not through the
intervening mind of another.
12. ID.; LEGISLATIVE DEPARTMENT; CONGRESS IS PROHIBITED

FROM DELEGATING THOSE WHICH ARE STRICTLY, OR INHERENTLY
AND EXCLUSIVELY, LEGISLATIVE. — With respect to the Legislature, Section
1 of Article VI of the Constitution provides that "the Legislative power shall be vested
in the Congress of the Philippines which shall consist of a Senate and a House of
Representatives." The powers which Congress is prohibited from delegating are those
which are strictly, or inherently and exclusively, legislative. Purely legislative power,
which can never be delegated, has been described as the authority to make a complete
law — complete as to the time when it shall take effect and as to whom it shall be
applicable — and to determine the expediency of its enactment. Thus, the rule is that
in order that a court may be justified in holding a statute unconstitutional as a
delegation of legislative power, it must appear that the power involved is purely
legislative in nature — that is, one appertaining exclusively to the legislative
department. It is the nature of the power, and not the liability of its use or the manner
of its exercise, which determines the validity of its delegation.
13. ID.; ID.; ID.; EXCEPTIONS. — Nonetheless, the general rule barring
delegation of legislative powers is subject to the following recognized limitations or
exceptions: (1) Delegation of tariff powers to the President under Section 28 (2) of
Article VI of the Constitution; (2) Delegation of emergency powers to the President
under Section 23 (2) of Article VI of the Constitution; (3) Delegation to the people at
large; (4) Delegation to local governments; and (5) Delegation to administrative
bodies. aIcDCH
14. ID.; ID.; TESTS OF VALID DELEGATION. — In every case of
permissible delegation, there must be a showing that the delegation itself is valid. It is
valid only if the law (a) is complete in itself, setting forth therein the policy to be
executed, carried out, or implemented by the delegate; and (b) fixes a standard — the
limits of which are sufficiently determinate and determinable — to which the delegate
must conform in the performance of his functions. A sufficient standard is one which
defines legislative policy, marks its limits, maps out its boundaries and specifies the
public agency to apply it. It indicates the circumstances under which the legislative
command is to be effected. Both tests are intended to prevent a total transference of
legislative authority to the delegate, who is not allowed to step into the shoes of the
legislature and exercise a power essentially legislative.
15. ID.; ID.; ID.; THE LEGISLATURE MAY DELEGATE TO

EXECUTIVE OFFICERS OR BODIES THE POWER TO DETERMINE CERTAIN
FACTS OR CONDITIONS ON WHICH THE OPERATION OF A STATUTE IS
MADE TO DEPEND. — Clearly, the legislature may delegate to executive officers
or bodies the power to determine certain facts or conditions, or the happening of
contingencies, on which the operation of a statute is, by its terms, made to depend, but
the legislature must prescribe sufficient standards, policies or limitations on their
authority. While the power to tax cannot be delegated to executive agencies, details as
to the enforcement and administration of an exercise of such power may be left to
them, including the power to determine the existence of facts on which its operation
depends.
16. ID.; ID.; ID.; ID.; RATIONALE. — The rationale for this is that the
preliminary ascertainment of facts as basis for the enactment of legislation is not of
itself a legislative function, but is simply ancillary to legislation. Thus, the duty of
correlating information and making recommendations is the kind of subsidiary
activity which the legislature may perform through its members, or which it may
delegate to others to perform. Intelligent legislation on the complicated problems of
modern society is impossible in the absence of accurate information on the part of the
legislators, and any reasonable method of securing such information is proper. The
Constitution as a continuously operative charter of government does not require that
Congress find for itself every fact upon which it desires to base legislative action or
that it make for itself detailed determinations which it has declared to be prerequisite
to application of legislative policy to particular facts and circumstances impossible for
Congress itself properly to investigate.
17. ID.; STATUTORY CONSTRUCTION; THE USE OF THE WORD

"SHALL" IN A STATUTE DENOTES AN IMPERATIVE OBLIGATION AND IS
INCONSISTENT WITH THE IDEA OF DISCRETION. — No discretion would be
exercised by the President. Highlighting the absence of discretion is the fact that the
word shall is used in the common proviso. The use of the word shall connotes a
mandatory order. Its use in a statute denotes an imperative obligation and is
inconsistent with the idea of discretion. Where the law is clear and unambiguous, it
must be taken to mean exactly what it says, and courts have no choice but to see to it
that the mandate is obeyed.
18. TAXATION; REPUBLIC ACT NO. 9337; IT IS THE MINISTERIAL

DUTY OF THE PRESIDENT TO IMMEDIATELY IMPOSE THE 12% RATE
UPON THE EXISTENCE OF ANY OF THE CONDITIONS SPECIFIED BY
CONGRESS. — Thus, it is the ministerial duty of the President to immediately
impose the 12% rate upon the existence of any of the conditions specified by
Congress. This is a duty which cannot be evaded by the President. Inasmuch as the
law specifically uses the word shall, the exercise of discretion by the President does
not come into play. It is a clear directive to impose the 12% VAT rate when the
specified conditions are present. The time of taking into effect of the 12% VAT rate is
based on the happening of a certain specified contingency, or upon the ascertainment
of certain facts or conditions by a person or body other than the legislature itself.
19. POLITICAL LAW; EXECUTIVE DEPARTMENT; SECRETARY OF

FINANCE AS THE ALTER EGO OF THE PRESIDENT; EXPLAINED. — When
one speaks of the Secretary of Finance as the alter ego of the President, it simply
means that as head of the Department of Finance he is the assistant and agent of the
Chief Executive. The multifarious executive and administrative functions of the Chief
Executive are performed by and through the executive departments, and the acts of
the secretaries of such departments, such as the Department of Finance, performed
and promulgated in the regular course of business, are, unless disapproved or
reprobated by the Chief Executive, presumptively the acts of the Chief Executive. The
Secretary of Finance, as such, occupies a political position and holds office in an
advisory capacity, and, in the language of Thomas Jefferson, "should be of the
President's bosom confidence" and, in the language of Attorney-General Cushing, is
"subject to the direction of the President." ESCcaT
20. TAXATION; REPUBLIC ACT NO. 9337; SECRETARY OF FINANCE

BECOMES THE MEANS OR TOOL BY WHICH THE LEGISLATIVE POLICY IN
THE VALUE-ADDED TAX IS DETERMINED AND IMPLEMENTED; CASE AT
BAR. — In the present case, in making his recommendation to the President on the
existence of either of the two conditions, the Secretary of Finance is not acting as the
alter ego of the President or even her subordinate. In such instance, he is not subject
to the power of control and direction of the President. He is acting as the agent of the
legislative department, to determine and declare the event upon which its expressed
will is to take effect. The Secretary of Finance becomes the means or tool by which
legislative policy is determined and implemented, considering that he possesses all
the facilities to gather data and information and has a much broader perspective to
properly evaluate them. His function is to gather and collate statistical data and other
pertinent information and verify if any of the two conditions laid out by Congress is
present. His personality in such instance is in reality but a projection of that of
Congress. Thus, being the agent of Congress and not of the President, the President
cannot alter or modify or nullify, or set aside the findings of the Secretary of Finance
and to substitute the judgment of the former for that of the latter.
21. ID.; ID.; CONGRESS DID NOT DECLARE THE POWER TO TAX
BUT THE MERE IMPLEMENTATION OF THE LAW. — Congress simply granted
the Secretary of Finance the authority to ascertain the existence of a fact, namely,
whether by December 31, 2005, the value-added tax collection as a percentage of
Gross Domestic Product (GDP) of the previous year exceeds two and four-fifth
percent (2-4/5%) or the national government deficit as a percentage of GDP of the
previous year exceeds one and one-half percent (1-1/2%). If either of these two
instances has occurred, the Secretary of Finance, by legislative mandate, must submit
such information to the President. Then the 12% VAT rate must be imposed by the
President effective January 1, 2006. There is no undue delegation of legislative power
but only of the discretion as to the execution of a law. This is constitutionally
permissible. Congress does not abdicate its functions or unduly delegate power when
it describes what job must be done, who must do it, and what is the scope of his
authority; in our complex economy that is frequently the only way in which the
legislative process can go forward. . . . Congress did not delegate the power to tax but
the mere implementation of the law. The intent and will to increase the VAT rate to
12% came from Congress and the task of the President is to simply execute the
legislative policy. That Congress chose to do so in such a manner is not within the
province of the Court to inquire into, its task being to interpret the law.
22. POLITICAL LAW; JUDICIAL DEPARTMENT; SUPREME COURT

DOES NOT RULE ON ALLEGATIONS WHICH ARE MANIFESTLY
CONJECTURAL. — The insinuation by petitioners Pimentel, et al. that the President
has ample powers to cause, influence or create the conditions to bring about either or
both the conditions precedent does not deserve any merit as this argument is highly
speculative. The Court does not rule on allegations which are manifestly conjectural,
as these may not exist at all. The Court deals with facts, not fancies; on realities, not
appearances. When the Court acts on appearances instead of realities, justice and law
will be short-lived.
23. ID.; STATUTORY CONSTRUCTION; WHERE THE PROVISION OF

THE LAW IS CLEAR AND UNAMBIGUOUS, THE LAW MUST BE TAKEN AS
IT IS. — Under the common provisos of Sections 4, 5 and 6 of R.A. No. 9337, if any
of the two conditions set forth therein are satisfied, the President shall increase the
VAT rate to 12%. The provisions of the law are clear. It does not provide for a return
to the 10% rate nor does it empower the President to so revert if, after the rate is
increased to 12%, the VAT collection goes below the 2-4/5 of the GDP of the
previous year or that the national government deficit as a percentage of GDP of the
previous year does not exceed 1-1/2%. Therefore, no statutory construction or
interpretation is needed. Neither can conditions or limitations be introduced where
none is provided for. Rewriting the law is a forbidden ground that only Congress may
tread upon. Thus, in the absence of any provision providing for a return to the 10%
rate, which in this case the Court finds none, petitioners' argument is, at best, purely
speculative. There is no basis for petitioners' fear of a fluctuating VAT rate because
the law itself does not provide that the rate should go back to 10% if the conditions
provided in Sections 4, 5 and 6 are no longer present. The rule is that where the
provision of the law is clear and unambiguous, so that there is no occasion for the
court's seeking the legislative intent, the law must be taken as it is, devoid of judicial
addition or subtraction.
24. TAXATION; BASIC PRINCIPLE; FISCAL ADEQUACY,

EXPLAINED. — The principle of fiscal adequacy as a characteristic of a sound tax
system was originally stated by Adam Smith in his Canons of Taxation (1776), as: IV.
Every tax ought to be so contrived as both to take out and to keep out of the pockets
of the people as little as possible over and above what it brings into the public
treasury of the state. It simply means that sources of revenues must be adequate to
meet government expenditures and their variations. DHITcS
25. POLITICAL LAW; JUDICIAL DEPARTMENT; WHETHER THE

LAW IS INDEED SUFFICIENT TO ANSWER THE STATE'S ECONOMIC
DILEMMA IS NOT FOR THE COURT TO JUDGE. — Congress passed the law
hoping for rescue from an inevitable catastrophe. Whether the law is indeed sufficient
to answer the state's economic dilemma is not for the Court to judge. In the Fariñas
case, the Court refused to consider the various arguments raised therein that dwelt on
the wisdom of Section 14 of R.A. No. 9006 (The Fair Election Act), pronouncing
that: . . . policy matters are not the concern of the Court. Government policy is within
the exclusive dominion of the political branches of the government. It is not for this
Court to look into the wisdom or propriety of legislative determination. Indeed,
whether an enactment is wise or unwise, whether it is based on sound economic
theory, whether it is the best means to achieve the desired results, whether, in short,
the legislative discretion within its prescribed limits should be exercised in a
particular manner are matters for the judgment of the legislature, and the serious
conflict of opinions does not suffice to bring them within the range of judicial
cognizance. In the same vein, the Court in this case will not dawdle on the purpose of
Congress or the executive policy, given that it is not for the judiciary to "pass upon
questions of wisdom, justice or expediency of legislation."
26. ID.; CONSTITUTIONAL LAW; BILL OF RIGHTS; DUE PROCESS

AND EQUAL PROTECTION CLAUSES; TO INVOKE VIOLATION THEREOF,
THERE IS A NEED FOR PROOF OF SUCH PERSUASIVE CHARACTER AS
WOULD LEAD TO SUCH A CONCLUSION. — The doctrine is that where the due
process and equal protection clauses are invoked, considering that they are not fixed
rules but rather broad standards, there is a need for proof of such persuasive character
as would lead to such a conclusion. Absent such a showing, the presumption of
validity must prevail.
27. TAXATION; VALUE-ADDED TAX; INPUT TAX AND OUTPUT

TAX; DEFINED. — Input Tax is defined under Section 110 (A) of the NIRC, as
amended, as the value-added tax due from or paid by a VAT-registered person on the
importation of goods or local purchase of good and services, including lease or use of
property, in the course of trade or business, from a VAT-registered person, and
Output Tax is the value-added tax due on the sale or lease of taxable goods or
properties or services by any person registered or required to register under the law.
28. ID.; REPUBLIC ACT NO. 9337; THE EXCESS INPUT TAX IS
RETAINED IN A BUSINESS'S BOOKS OF ACCOUNTS AND REMAINS
CREDITABLE IN THE SUCCEEDING QUARTER/S. — Petitioners' argument is
not absolute. It assumes that the input tax exceeds 70% of the output tax, and
therefore, the input tax in excess of 70% remains uncredited. However, to the extent
that the input tax is less than 70% of the output tax, then 100% of such input tax is
still creditable. More importantly, the excess input tax, if any, is retained in a
business's books of accounts and remains creditable in the succeeding quarter/s. This
is explicitly allowed by Section 110 (B), which provides that "if the input tax exceeds
the output tax, the excess shall be carried over to the succeeding quarter or quarters."
In addition, Section 112 (B) allows a VAT-registered person to apply for the issuance
of a tax credit certificate or refund for any unused input taxes, to the extent that such
input taxes have not been applied against the output taxes. Such unused input tax may
be used in payment of his other internal revenue taxes.
29. ID.; ID.; IN COMPUTING THE VALUE-ADDED TAX PAYABLE,

THREE POSSIBLE SCENARIOS MAY ARISE. — [T]he input tax is the tax paid by
a person, passed on to him by the seller, when he buys goods. Output tax meanwhile
is the tax due to the person when he sells goods. In computing the VAT payable, three
possible scenarios may arise: First, if at the end of a taxable quarter the output taxes
charged by the seller are equal to the input taxes that he paid and passed on by the
suppliers, then no payment is required; Second, when the output taxes exceed the
input taxes, the person shall be liable for the excess, which has to be paid to the
Bureau of Internal Revenue (BIR); and Third, if the input taxes exceed the output
taxes, the excess shall be carried over to the succeeding quarter or quarters. Should
the input taxes result from zero-rated or effectively zero-rated transactions, any excess
over the output taxes shall instead be refunded to the taxpayer or credited against
other internal revenue taxes, at the taxpayer's option.
30. ID.; ID.; A PERSON CAN CREDIT HIS INPUT TAX ONLY UP TO
THE EXTENT OF 70% OF THE OUTPUT TAX. — Section 8 of R.A. No. 9337
however, imposed a 70% limitation on the input tax. Thus, a person can credit his
input tax only up to the extent of 70% of the output tax. In layman's term, the
value-added taxes that a person/taxpayer paid and passed on to him by a seller can
only be credited up to 70% of the value-added taxes that is due to him on a taxable
transaction. There is no retention of any tax collection because the person/taxpayer
has already previously paid the input tax to a seller, and the seller will subsequently
remit such input tax to the BIR. The party directly liable for the payment of the tax is
the seller. What only needs to be done is for the person/taxpayer to apply or credit
these input taxes, as evidenced by receipts, against his output taxes. ISAaTH
31. ID.; ID.; INPUT TAX IS NOT A PROPERTY OR A PROPERTY

RIGHT WITHIN THE CONSTITUTIONAL PURVIEW OF THE DUE PROCESS
CLAUSE. — The input tax is not a property or a property right within the
constitutional purview of the due process clause. A VAT-registered person's
entitlement to the creditable input tax is a mere statutory privilege. The distinction
between statutory privileges and vested rights must be borne in mind for persons have
no vested rights in statutory privileges. The state may change or take away rights,
which were created by the law of the state, although it may not take away property,
which was vested by virtue of such rights.
32. ID.; ID.; TAXABLE TRANSACTIONS WITH THE GOVERNMENT

ARE SUBJECT TO A 5% RATE. — As applied to value-added tax, this means that
taxable transactions with the government are subject to a 5% rate, which constitutes
as full payment of the tax payable on the transaction. This represents the net VAT
payable of the seller. The other 5% effectively accounts for the standard input VAT
(deemed input VAT), in lieu of the actual input VAT directly or attributable to the
taxable transaction. The Court need not explore the rationale behind the provision. It
is clear that Congress intended to treat differently taxable transactions with the
government. This is supported by the fact that under the old provision, the 5% tax
withheld by the government remains creditable against the tax liability of the seller or
contractor[.]
33. POLITICAL LAW; JUDICIAL DEPARTMENT; SUPREME COURT

WILL NOT ENGAGE IN A LEGAL JOUST WHERE PREMISES ARE
UNCERTAIN. — Petitioners also argue that by imposing a limitation on the
creditable input tax, the government gets to tax a profit or value-added even if there is
no profit or value-added. Petitioners' stance is purely hypothetical, argumentative, and
again, one-sided. The Court will not engage in a legal joust where premises are what
ifs, arguments, theoretical and facts, uncertain. Any disquisition by the Court on this
point will only be, as Shakespeare describes life in Macbeth, "full of sound and fury,
signifying nothing." What's more, petitioners' contention assumes the proposition that
there is no profit or value-added. It need not take an astute businessman to know that
it is a matter of exception that a business will sell goods or services without profit or
value-added. It cannot be overstressed that a business is created precisely for profit.
34. CONSTITUTIONAL LAW; BILL OF RIGHTS; EQUAL PROTECTION

CLAUSE; THE POWER OF THE STATE TO MAKE REASONABLE AND
NATURAL CLASSIFICATION FOR THE PURPOSES OF TAXATION HAS
LONG BEEN ESTABLISHED. — The equal protection clause under the
Constitution means that "no person or class of persons shall be deprived of the same
protection of laws which is enjoyed by other persons or other classes in the same
place and in like circumstances." The power of the State to make reasonable and
natural classifications for the purposes of taxation has long been established. Whether
it relates to the subject of taxation, the kind of property, the rates to be levied, or the
amounts to be raised, the methods of assessment, valuation and collection, the State's
power is entitled to presumption of validity. As a rule, the judiciary will not interfere
with such power absent a clear showing of unreasonableness, discrimination, or
arbitrariness.
35. ID.; ID.; ID.; DOES NOT REQUIRE THE UNIVERSAL

APPLICATION OF THE LAWS ON ALL PERSONS OR THINGS WITHOUT
DISTINCTION. — The equal protection clause does not require the universal
application of the laws on all persons or things without distinction. This might in fact
sometimes result in unequal protection. What the clause requires is equality among
equals as determined according to a valid classification. By classification is meant the
grouping of persons or things similar to each other in certain particulars and different
from all others in these same particulars.
36. TAXATION; THE RULE OF UNIFORMITY DOES NOT DEPRIVE

CONGRESS OF THE POWER TO CLASSIFY SUBJECTS OF TAXATION. —
Uniformity in taxation means that all taxable articles or kinds of property of the same
class shall be taxed at the same rate. Different articles may be taxed at different
amounts provided that the rate is uniform on the same class everywhere with all
people at all times. In this case, the tax law is uniform as it provides a standard rate of
0% or 10% (or 12%) on all goods and services. Sections 4, 5 and 6 of R.A. No. 9337,
amending Sections 106, 107 and 108, respectively, of the NIRC, provide for a rate of
10% (or 12%) on sale of goods and properties, importation of goods, and sale of
services and use or lease of properties. These same sections also provide for a 0% rate
on certain sales and transaction. Neither does the law make any distinction as to the
type of industry or trade that will bear the 70% limitation on the creditable input tax,
5-year amortization of input tax paid on purchase of capital goods or the 5% final
withholding tax by the government. It must be stressed that the rule of uniform
taxation does not deprive Congress of the power to classify subjects of taxation, and
only demands uniformity within the particular class. HAaDTE
37. ID.; REPUBLIC ACT NO. 9337 IS EQUITABLE; EQUIPPED WITH A

THRESHOLD MARGIN. — R.A. No. 9337 is also equitable. The law is equipped
with a threshold margin. The VAT rate of 0% or 10% (or 12%) does not apply to
sales of goods or services with gross annual sales or receipts not exceeding
P1,500,000.00. Also, basic marine and agricultural food products in their original
state are still not subject to the tax, thus ensuring that prices at the grassroots level
will remain accessible. . . . It is admitted that R.A. No. 9337 puts a premium on
businesses with low profit margins, and unduly favors those with high profit margins.
Congress was not oblivious to this. Thus, to equalize the weighty burden the law
entails, the law, under Section 116, imposed a 3% percentage tax on VAT-exempt
persons under Section 109 (v), i.e., transactions with gross annual sales and/or
receipts not exceeding P1.5 Million. This acts as a equalizer because in effect, bigger
businesses that qualify for VAT coverage and VAT-exempt taxpayers stand on
equal-footing. Moreover, Congress provided mitigating measures to cushion the
impact of the imposition of the tax on those previously exempt. Excise taxes on
petroleum products and natural gas were reduced. Percentage tax on domestic carriers
was removed. Power producers are now exempt from paying franchise tax.
38. ID.; BASIC PRINCIPLE; PROGRESSIVITY; ELUCIDATED. —

Progressive taxation is built on the principle of the taxpayer's ability to pay. This
principle was also lifted from Adam Smith's Canons of Taxation, and it states: I. The
subjects of every state ought to contribute towards the support of the government, as
nearly as possible, in proportion to their respective abilities; that is, in proportion to
the revenue which they respectively enjoy under the protection of the state. Taxation
is progressive when its rate goes up depending on the resources of the person
affected.
39. ID.; REPUBLIC ACT NO. 9337; VALUE-ADDED TAX IS AN
ANTITHESIS OF PROGRESSIVE TAXATION. — The VAT is an antithesis of
progressive taxation. By its very nature, it is regressive. The principle of progressive
taxation has no relation with the VAT system inasmuch as the VAT paid by the
consumer or business for every goods bought or services enjoyed is the same
regardless of income. In other words, the VAT paid eats the same portion of an
income, whether big or small. The disparity lies in the income earned by a person or
profit margin marked by a business, such that the higher the income or profit margin,
the smaller the portion of the income or profit that is eaten by VAT. A converso, the
lower the income or profit margin, the bigger the part that the VAT eats away. At the
end of the day, it is really the lower income group or businesses with low-profit
margins that is always hardest hit.
40. ID.; ID.; THE CONSTITUTION DOES NOT REALLY PROHIBIT THE
IMPOSITION OF INDIRECT TAXES, LIKE THE VAT. — Nevertheless, the
Constitution does not really prohibit the imposition of indirect taxes, like the VAT.
What it simply provides is that Congress shall "evolve a progressive system of
taxation." The Court stated in the Tolentino case, thus: The Constitution does not
really prohibit the imposition of indirect taxes which, like the VAT, are regressive.
What it simply provides is that Congress shall 'evolve a progressive system of
taxation.' The constitutional provision has been interpreted to mean simply that 'direct
taxes are . . . to be preferred [and] as much as possible, indirect taxes should be
minimized.' (E. FERNANDO, THE CONSTITUTION OF THE PHILIPPINES 221
(Second ed. 1977)) Indeed, the mandate to Congress is not to prescribe, but to evolve,
a progressive tax system. Otherwise, sales taxes, which perhaps are the oldest form of
indirect taxes, would have been prohibited with the proclamation of Art. VIII, §17 (1)
of the 1973 Constitution from which the present Art. VI, §28 (1) was taken. Sales
taxes are also regressive. Resort to indirect taxes should be minimized but not avoided
entirely because it is difficult, if not impossible, to avoid them by imposing such taxes
according to the taxpayers' ability to pay. In the case of the VAT, the law minimizes
the regressive effects of this imposition by providing for zero rating of certain
transactions (R.A. No. 7716, §3, amending § 102 (b) of the NIRC), while granting
exemptions to other transactions. (R.A. No. 7716, §4 amending §103 of the NIRC)
PANGANIBAN, C.J., separate opinion:
1. POLITICAL LAW; JUDICIAL DEPARTMENT; JUDICIARY HAS

BOTH THE POWER AND THE DUTY TO STRIKE DOWN CONGRESSIONAL
ACTIONS THAT ARE DONE IN PLAIN CONTRAVENTION OF THE
CONSTITUTIONAL CONDITIONS, RESTRICTIONS OR LIMITATIONS. — In
fine, the enrolled bill doctrine applies mainly to the internal rules and processes
followed by Congress in its principal duty of lawmaking. However, when the
Constitution imposes certain conditions, restrictions or limitations on the exercise of
congressional prerogatives, the judiciary has both the power and the duty to strike
down congressional actions that are done in plain contravention of such conditions,
restrictions or limitations. Insofar as the present case is concerned, the three most
important restrictions or limitations to the enrolled bill doctrine are the "origination,"
"no-amendment" and "three-reading" rules which I will discuss later. Verily, these
restrictions or limitations to the enrolled bill doctrine are safeguarded by the expanded
constitutional mandate of the judiciary "to determine whether or not there has been a
grave abuse of discretion amounting to lack or excess of jurisdiction on the part of
any branch or instrumentality of the government." Even the ponente of Tolentino, the
learned Mr. Justice Vicente V. Mendoza, concedes in another decision that each
house "may not by its rules ignore constitutional restraints or violate fundamental
rights, and there should be a reasonable relation between the mode or method of
proceeding established by the rule and the result which is sought to be attained." IHCSET
2. ID.; LEGISLATIVE DEPARTMENT; BICAMERAL CONFERENCE

COMMITTEE (BCB); SUPREME COURT MAY EXERCISE CERTIORARI
REVIEW TO FIND OUT WHETHER THE CONSTITUTIONAL CONDITIONS,
RESTRICTIONS AND LIMITATIONS ON LAW-MAKING HAVE BEEN
VIOLATED. — The Bicameral Conference Committee (BCC) created by Congress
to iron out differences between the Senate and the House of Representatives versions
of the E-VAT bills is one such "branch or instrumentality of the government," over
which this Court may exercise certiorari review to determine whether or not grave
abuse of discretion has been committed; and, specifically, to find out whether the
constitutional conditions, restrictions and limitations on law-making have been
violated.
3. ID.; ID.; ID.; FIVE OPTIONS IN PERFORMING ITS FUNCTIONS. —

In general, the BCC has at least five options in performing its functions: (1) adopt the
House version in part or in toto, (2) adopt the Senate version in part or in toto, (3)
consolidate the two versions, (4) reject non-conflicting provisions, and (5) adopt
completely new provisions not found in either version.
4. ID.; ID.; ID.; IN ADOPTING THE HOUSE VERSION OF THE

REVENUE BILL IN PART OR IN TOTO, THERE IS NO PROCEDURAL
IMPEDIMENT SINCE IT HAD PASSED THE THREE-READING
REQUIREMENT. — [T]he BCC had the option of adopting the House bills either in
part or in toto, endorsing them without changes. Since these bills had passed the
three-reading requirement under the Constitution, it readily becomes apparent that no
procedural impediment would arise. There would also be no question as to their
origination, because the bills originated exclusively from the House of
Representatives itself.
5. ID.; ID.; REVENUE BILL; IN THE SENATE, THE REWRITING IS

LIMITED BY THE "GERMANE" PRINCIPLE. — While in the Senate, the House
version may, per Tolentino, undergo extensive changes, such that the Senate may
rewrite not only portions of it but even all of it. I believe that such rewriting is limited
by 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"
principle requires a legal — not necessarily an economic or political — interpretation.
There must be an "inherent logical connection." What may be germane in an
economic or political sense is not necessarily germane in the legal sense. Otherwise,
any provision in the Senate version that is entirely new and extraneous, or that is
remotely or even slightly connected, to the vast and perplexing subject of taxation,
would always be germane. Under this interpretation, the origination principle would
surely be rendered inutile.
6. ID.; ID.; ID.; SENATE IS NOT PROHIBITED TO FILE A

SUBSTITUTE BILL IN ANTICIPATION OF ITS RECEIPT OF THE BILL FROM
THE HOUSE. — To repeat, in Tolentino, the Court said that the Senate may even
write its own version, which in effect would be an amendment by substitution. The
Court went further by saying that "the Constitution does not prohibit the filing in the
Senate of a substitute bill in anticipation of its receipt of the bill from the House, so
long as action by the Senate as a body is withheld pending receipt of the House bill."
After all, the initiative for filing a revenue bill must come from the House on the
theory that, elected as its members are from their respective districts, the House is
more sensitive to local needs and problems. By contrast, the Senate whose members
are elected at large approaches the matter from a national perspective, with a broader
and more circumspect outlook.
7. ID.; ID.; BICAMERAL CONFERENCE COMMITTEE; ITS REPORT

WILL NOT BECOME A FINAL VALID ACT OF THE LEGISLATIVE
DEPARTMENT UNTIL IT OBTAINS THE APPROVAL OF BOTH HOUSES OF
CONGRESS. — As a third option, the BCC may reach a compromise by
consolidating both the Senate and the House versions. It can adopt some parts and
reject other parts of both bills, and craft new provisions or even a substitute bill. I
believe this option is viable, provided that there is no violation of the origination and
germane principles, as well as the three-reading rule. After all, the report generated by
the BCC will not become a final valid act of the Legislative Department until the
BCC obtains the approval of both houses of Congress.
8. TAXATION; REPUBLIC ACT NO. 9337; "STANDBY AUTHORITY"
OF THE PRESIDENT, THERE WAS REALLY NO "DELEGATION" TO SPEAK
OF SINCE THERE WAS MERELY A DECLARATION OF AN
ADMINISTRATIVE, NOT A LEGISLATIVE FUNCTION. — In the computation of
the percentage requirements in the alternative conditions under the law, the amounts
of the VAT collection, National Deficit, and GDP — as well as the interrelationship
among them — can easily be derived by the finance secretary from the proper
government bodies charged with their determination. The law is complete and
standards have been fixed. Only the fact-finding mathematical computation for its
implementation on January 1, 2006, is necessary. Once either of the factual and
mathematical events provided in the law takes place, the President has no choice but
to implement the increase of the VAT rate to 12 percent. This eventuality has been
predetermined by Congress. The taxing power has not been delegated by Congress to
either or both the President and the finance secretary. What was delegated was only
the power to ascertain the facts in order to bring the law into operation. In fact, there
was really no "delegation" to speak of; there was merely a declaration of an
administrative, not a legislative, function. I concur with the ponencia in that there was
no undue delegation of legislative power in the increase from 10 percent to 12 percent
of the VAT rate.
9. ID.; ID.; THE SECRETARY OF FINANCE IS NOT AN ALTER EGO

OF CONGRESS BUT OF THE PRESIDENT. — The secretary of finance is not an
alter ego of Congress, but of the President. The mandate given by RA 9337 to the
secretary is not equipollent to an authority to make laws. In passing this law,
Congress did not restrict or curtail the constitutional power of the President to retain
control and supervision over the entire Executive Department. The law should be
construed to be merely asking the President, with a recommendation from the
President's alter ego in finance matters, to determine the factual bases for making the
increase in VAT rate operative. Indeed, as I have mentioned earlier, the fact-finding
condition is a mere administrative, not legislative, function. SDHacT
10. POLITICAL LAW; LEGISLATIVE DEPARTMENT; THE

LEGISLATURE DOES NOT HAVE THE POWER TO IMPLEMENT LAWS. —
The ponencia states that Congress merely delegates the implementation of the law to
the secretary of finance. How then can the latter be its agent? Making a law is
different from implementing it. While the first (the making of laws) may be delegated
under certain conditions and only in specific instances provided under the
Constitution, the second (the implementation of laws) may not be done by Congress.
After all, the legislature does not have the power to implement laws. Therefore,
congressional agency arises only in the first, not in the second. The first is a
legislative function; the second, an executive one.
11. ID.; ID.; THE RIGHT TO SELECT THE MEASURE AND OBJECTS
OF TAXATION DEVOLVES UPON THE CONGRESS. — Petitioners' argument is
that because the GDP does not account for the economic effects of so-called
underground businesses, it is an inaccurate indicator of either economic growth or
slowdown in transitional economies. Clearly, this matter is within the confines of
lawmaking. This Court is neither a substitute for the wisdom, or lack of it, in
Congress, nor an arbiter of flaws within the latter's internal rules. Policy matters lie
within the domain of the political branches of government, outside the range of
judicial cognizance. "[T]he right to select the measure and objects of taxation
devolves upon the Congress, and not upon the courts, and such selections are valid
unless constitutional limitations are overstepped." Moreover, each house of Congress
has the power and authority to determine the rules of its proceedings.
12. TAXATION; REPUBLIC ACT NO. 9337; THE AMENDMENTS

MADE BY THE BICAMERAL CONFERENCE COMMITTEE REGARDING
INCOME TAXES ARE NOT LEGALLY GERMANE TO THE SUBJECT
MATTER OF THE HOUSE BILLS. — Amendments on Income Taxes. I respectfully
submit that the amendments made by the BCC (that were culled from the Senate
version) regarding income taxes are not legally germane to the subject matter of the
House bills. Revising the income tax rates on domestic, resident foreign and
nonresident foreign corporations; increasing the tax credit against taxes due from
nonresident foreign corporations on intercorporate dividends; and reducing the
allowable deduction for interest expense are legally unrelated and not germane to the
subject matter contained in the House bills; they violate the origination principle.
13. ID.; ID.; ID.; IT IS INCONCEIVABLE HOW THE PROVISIONS

THAT INCREASE CORPORATE INCOME TAXES CAN BE CONSIDERED AS
MITIGATING MEASURES FOR INCREASING THE VALUE-ADDED TAX. —
One, an income tax is a direct tax imposed on actual or presumed income — gross or
net — realized by a taxpayer during a given taxable year, while a VAT is an indirect
tax not in the context of who is directly and legally liable for its payment, but in terms
of its nature as "a tax on consumption." The former cannot be passed on to the
consumer, but the latter can. It is too wide a stretch of the imagination to even relate
one concept with the other. In like manner, it is inconceivable how the provisions that
increase corporate income taxes can be considered as mitigating measures for
increasing the VAT and, as I will explain later, for effectively imposing a maximum
of 3 percent tax on gross sales or revenues because of the 70 percent cap. Even the
argument that the corporate income tax rates will be reduced to 30 percent does not
hold water. This reduction will take effect only in 2009, not 2006 when the 12 percent
VAT rate will have been implemented.
14. ID.; ID.; ID.; TAXES ON INTERCORPORATE DIVIDENDS ARE

FINAL BUT THE INPUT VALUE-ADDED TAX IS GENERALLY CREDITABLE.
— [T]axes on intercorporate dividends are final, but the input VAT is generally
creditable. Under a final withholding tax system, the amount of income tax that is
withheld by a withholding agent is constituted as a full and final payment of the
income tax due from the payee on said income. The liability for the tax primarily rests
upon the payor as a withholding agent. Under a creditable withholding tax system,
taxes withheld on certain payments are meant to approximate the tax that is due of the
payee on said payments. The liability for the tax rests upon the payee who is
mandated by law to still file a tax return, report the tax base, and pay the difference
between the tax withheld and the tax due.
15. ID.; ID.; ID.; INPUT VALUE-ADDED TAX CREDITS ARE

DIFFERENT FROM TAX CREDITS ON DIVIDENDS RECEIVED BY
NONRESIDENT FOREIGN CORPORATIONS. — From this observation alone, it
can already be seen that not only are dividends alien to the tax base upon which the
VAT is imposed, but their respective methods of withholding are totally different.
VAT-registered persons may not always be nonresident foreign corporations that
declare and pay dividends, while intercorporate dividends are certainly not goods or
properties for sale, barter, exchange, lease or importation. Certainly, input VAT
credits are different from tax credits on dividends received by nonresident foreign
corporations. CSaITD
16. ID.; ID.; ID.; ITEMIZED DEDUCTIONS FROM GROSS INCOME

PARTAKE OF THE NATURE OF A TAX EXEMPTION. — [I]temized deductions
from gross income partake of the nature of a tax exemption. Interest — which is
among such deductions — refers to the amount paid by a debtor to a creditor for the
use or forbearance of money. It is an expense item that is paid or incurred within a
given taxable year on indebtedness in connection with a taxpayer's trade, business or
exercise of profession. 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 the applicable percentage of interest income subject to final tax. To
assert that reducing the allowable deduction in interest expense is a matter that is
legally related to the proposed VAT amendments is too far-fetched. Interest expenses
are not allowed as credits against output VAT. Neither are VAT-registered persons
always liable for interest.
17. ID.; ID.; THE BICAMERAL CONFERENCE COMMITTEE HAD THE

OPTION OF RETAINING OR MODIFYING THE NO PASS-ON PROVISIONS
AND DETERMINING THEIR EXTENT OR OF DELETING THEM
ALTOGETHER. — No Pass-on Provisions. I agree with the ponencia that the BCC
did not exceed its authority when it deleted the no pass-on provisions found in the
congressional bills. Its authority to make amendments not only implies the power to
make insertions, but also deletions, in order to resolve conflicting provisions. The no
pass-on provision in House Bill (HB) No. 3705 referred to the petroleum products
subject to excise tax (and the raw materials used in the manufacture of such products),
the sellers of petroleum products, and the generation companies. The analogous
provision in Senate Bill (SB) No. 1950 dealt with electricity, businesses other than
generation companies, and services of franchise grantees of electric utilities. In
contrast, there was a marked absence of the no pass-on provision in HB 3555. Faced
with such variances, the BCC had the option of retaining or modifying the no pass-on
provisions and determining their extent, or of deleting them altogether. In opting for
deletion to resolve the variances, it was merely acting within its discretion. No grave
abuse may be imputed to the BCC.
18. ID.; NATIONAL INTERNAL REVENUE CODE; VALUE-ADDED

TAX (VAT); THERE IS NO HARD AND FAST RULE THAT 100 PERCENT OF
THE INPUT TAXES WILL ALWAYS BE ALLOWED AS A TAX CREDIT. —
Indeed, the tax credit method under our VAT system is not only practical, but also
principally used in almost all taxing jurisdictions. This does not mean, however, that
in the eyes of Congress through the BCC, our country can neither deviate from this
method nor modify its application to suit our fiscal requirements. The VAT is usually
collected through the tax credit method (and in the past, even through the cost
deduction method or a mixture of these two methods), but there is no hard and fast
rule that 100 percent of the input taxes will always be allowed as a tax credit.
19. ID.; REPUBLIC ACT NO. 9337; SINCE THE UNUTILIZED INPUT
VALUE-ADDED TAX CAN BE CARRIED TO SUCCEEDING QUARTERS. —
Since the unutilized input VAT can be carried over to succeeding quarters, there is no
undue deprivation of property. Alternatively, it can be passed on to the consumers;
there is no law prohibiting that. Merely speculative and unproven, therefore, is the
contention that the law is arbitrary and oppressive. Laws that impose taxes are
necessarily burdensome, compulsory, and involuntary. The deferred input tax account
— which accumulates the unutilized input VAT — remains an asset in the accounting
records of a business. It is not at all confiscated by the government. By deleting
Section 112 (B) of the Tax Code, Congress no longer made available tax credit
certificates for such asset account until retirement from or cessation of business, or
changes in or cessation of VAT-registered status. This is a matter of policy, not
legality. The Court cannot step beyond the confines of its constitutional power, if
there is absolutely no clear showing of grave abuse of discretion in the enactment of
the law.
20. ID.; ID.; THERE IS NO VESTED RIGHT IN A DEFERRED INPUT

TAX ACCOUNT. — That the unutilized input VAT would be rendered useless is
merely speculative. Although it is recorded as a deferred asset in the books of a
company, it remains to be a mere privilege. It may be written off or expensed
outright; it may also be denied as a tax credit. There is no vested right in a deferred
input tax account; it is a mere statutory privilege. The State may modify or withdraw
such privilege, which is merely an asset granted by operation of law. Moreover, there
is no vested right in generally accepted accounting principles. These refer to
accounting concepts, measurement techniques, and standards of presentation in a
company's financial statements, and are not rooted in laws of nature, as are the laws
of physical science, for these are merely developed and continually modified by local
and international regulatory accounting bodies. To state otherwise and recognize such
asset account as a vested right is to limit the taxing power of the State. Unlimited,
plenary, comprehensive and supreme, this power cannot be unduly restricted by mere
creations of the State. DEScaT
21. ID.; ID.; THERE IS NO VIOLATION OF THE EQUAL PROTECTION

CLAUSE SINCE THE LAW APPLIES EQUALLY TO ALL BUSINESSES. — That
the unutilized input VAT would also have an unequal effect on businesses — some
with low, others with high, input-output ratio — is not a legal ground for invalidating
the law. Profit margins are a variable of sound business judgment, not of legal
doctrine. The law applies equally to all businesses; it is up to each of them to
determine the best formula for selling their goods or services in the face of stiffer
competition. There is, thus, no violation of the equal protection clause. If the
implementation of the 70 percent cap would cause an ad infinitum deferment of input
taxes or an unequal effect upon different types of businesses with varying profit
margins and capital requirements, then the remedy would be an amendment of the law
— not an unwarranted and outright declaration of unconstitutionality.
22. ID.; INCOME TAX; ADDITIONAL IMPOSITION AND

ASSUMPTION ARE WITHIN THE POWER OF CONGRESS TO MAKE. — The
matter of business establishments shouldering 30 percent of output tax and remitting
the amount, as computed, to the government is in effect imposing a tax that is
equivalent to a maximum of 3 percent of gross sales or revenues. This imposition is
arguably another tax on gross — not net — income and thus a deviation from the
concept of VAT as a tax on consumption; it also assumes that sales or revenues are on
cash basis or, if on credit, given credit terms shorter than a quarter of a year.
However, such additional imposition and assumption are also arguably within the
power of Congress to make. The State may in fact choose to impose an additional 3
percent tax on gross income, in lieu of the 70 percent cap, and thus subject the income
of businesses to two types of taxes — one on gross, the other on net. These
impositions may constitute double taxation, which is not constitutionally proscribed.
23. ID.; REPUBLIC ACT NO. 9337; REDUCTION OF TAX CREDITS IS

A QUESTION OF ECONOMIC POLICY, NOT OF LEGAL PERLUSTRATION. —
RA 9337 was enacted precisely to achieve the objective of raising revenues to defray
the necessary expenses of government. The means that this law employs are
reasonably related to the accomplishment of such objective, and not unduly
oppressive. The reduction of tax credits is a question of economic policy, not of legal
perlustration. Its determination is vested in Congress, not in this Court. Since the
purpose of the law is to raise revenues, it cannot be denied that the means employed is
reasonably related to the achievement of that purpose. Moreover, the proper
congressional procedure for its enactment was followed; neither public notice nor
public hearings were denied.
24. ID.; ID.; PRIVATE ENTERPRISES ARE NOT DISCOURAGED. —

[P]rivate enterprises are not discouraged. Tax burdens are never delightful, but with
the imposition of the 70 percent cap, there will be an assurance of a steady cash flow
to the government, which can be translated to the production of improved goods,
rendition of better services, and construction of better facilities for the people,
including all private enterprises. Perhaps, Congress deems it best to make our
economy depend more on businesses that are easier to monitor, so there will be a
more efficient collection of taxes. Whatever is expected of the outcome of the law, or
its wisdom, should be the sole responsibility of the representatives chosen by the
electorate.
25. ID.; ID.; ID.; THE PROFIT MARGIN RATES OF VARIOUS

INDUSTRIES GENERALLY DO NOT CHANGE. — The profit margin rates of
various industries generally do not change. However, the profit margin figures do,
because these are obviously monetary variables that affect business, along with the
level of competition, the quality of goods and services offered, and the cost of their
production. And there will inevitably be a conscious desire on the part of those who
engage in business and those who consume their output to adapt or adjust accordingly
to any congressional modification of the VAT system.
26. ID.; NATIONAL INTERNAL REVENUE CODE; VALUE-ADDED

TAX; THE VAT SYSTEM CAN ALWAYS BE MODIFIED TO SUIT MODERN
FISCAL DEMANDS. — In addition, it is contended that the VAT should be
proportional in nature. I submit that this proportionality pertains to the rate
imposable, not the credit allowable. Private enterprises are subjected to a proportional
VAT rate, but VAT credits need not be. The VAT is, after all, a human concept that is
neither immutable nor invariable. In fact, it has changed after it was adopted as a
system of indirect taxation by other countries. Again unlike the laws of physical
science, the VAT system can always be modified to suit modern fiscal demands. The
State, through the Legislative Department, may even choose to do away with it and
revert to our previous system of turnover taxes, sales taxes and compensating taxes, in
which credits may be disallowed altogether.
27. ID.; REPUBLIC ACT NO. 9337; NO-AMENDMENT RULE WAS NOT
VIOLATED SINCE THERE WAS NO NEW PROVISION INSERTED IN THE
APPROVED BILL. — The no-amendment rule in the Constitution was not violated
by the BCC, because no completely new provision was inserted in the approved bill.
The amendments may be unpopular or even work hardship upon everyone (this writer
included). If so, the remedy cannot be prescribed by this Court, but by Congress.
28. POLITICAL LAW; SEPARATION OF POWERS; THE COURT IS

DEFERENTIAL TO THE ACTIONS TAKEN BY THE OTHER BRANCHES OF
GOVERNMENT. — "[T]he Court — as a rule — is deferential to the actions taken
by the other branches of government that have primary responsibility for the
economic development of our country." Thus, in upholding the Philippine ratification
of the treaty establishing the World Trade Organization (WTO), Tañada v. Angara
held that "this Court never forgets that the Senate, whose act is under review, is one of
two sovereign houses of Congress and is thus entitled to great respect in its actions. It
is itself a constitutional body, independent and coordinate, and thus its actions are
presumed regular and done in good faith. Unless convincing proof and persuasive
arguments are presented to overthrow such presumption, this Court will resolve every
doubt in its favor." As pointed out in Cawaling Jr. v. Comelec, the grounds for nullity
of the law "must be beyond reasonable doubt, for to doubt is to sustain." Indeed,
"there must be clear and unequivocal showing that what the Constitutions prohibits,
the statute permits." HEDCAS
CHICO-NAZARIO, J., concurring opinion:
1. POLITICAL LAW; LEGISLATIVE DEPARTMENT; ENROLLED

BILL DOCTRINE; EXPLAINED. — Under the said doctrine, the enrolled bill, as
signed by the Speaker of the House of Representatives and the Senate President, and
certified by the Secretaries of both Houses of Congress, shall be conclusive proof of
its due enactment.
2. ID.; JUDICIAL DEPARTMENT; IT IS MORE PRUDENT FOR THE

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

ATTRIBUTE GOOD FAITH AND ACCORD UTMOST RESPECT TO THE ACTS
OF A CO-EQUAL BRANCH OF GOVERNMENT. — [T]his Court must attribute
good faith and accord utmost respect to the acts of a co-equal branch of government.
While it is true that its jurisdiction has been expanded by the Constitution, the
exercise thereof should not violate the basic principle of separation of powers. The
expanded jurisdiction does not contemplate judicial supremacy over the other
branches of government. Thus, in resolving the procedural issues raised by the
petitioners, this Court should limit itself to a determination of compliance with, or
conversely, the violation of a specified procedure in the Constitution for the passage
of laws by Congress, and not of a mere internal rule of proceedings of its Houses.

COMMITTEE; CREATION THEREOF IS AUTHORIZED BY THE RULES OF
BOTH HOUSES OF CONGRESS. — It bears emphasis that most of the irregularities
in the enactment of Rep. Act No. 9337 concern the amendments introduced by the
Bicameral Conference Committee. The Constitution is silent on such a committee, it
neither prescribes the creation thereof nor does it prohibit it. The creation of the
Bicameral Conference Committee is authorized by the Rules of both Houses of
Congress. That the Rules of both Houses of Congress provide for the creation of a
Bicameral Conference Committee is within the prerogative of each House under the
Constitution to determine its own rules of proceedings.
5. ID.; ID.; ID.; A CREATION OF NECESSITY AND PRACTICALITY

CONSIDERING THAT OUR CONGRESS IS COMPOSED OF TWO HOUSES. —
The Bicameral Conference Committee is a creation of necessity and practicality
considering that our Congress is composed of two Houses, and it is highly improbable
that their respective bills on the same subject matter shall always be in accord and
consistent with each other. Instead of all their members, only the appointed
representatives of both Houses shall meet to reconcile or settle the differences in their
bills. The resulting bill from their meetings, embodied in the Bicameral Conference
Report, shall be subject to approval and ratification by both Houses, voting
separately.
6. ID.; ID.; ID.; BOTH HOUSES HAD THE POWER TO AMEND THEIR
RESPECTIVE RULES TO CLARIFY OR LIMIT EVEN FURTHER THE SCOPE
OF THE AUTHORITY WHICH THEY GRANTED THERETO. — It does perplex
me that members of both Houses would again ask the Court to define and limit the
powers of the Bicameral Conference Committee when such committee is of their own
creation. In a number of cases, this Court already made a determination of the extent
of the powers of the Bicameral Conference Committee after taking into account the
existing Rules of both Houses of Congress. In gist, the power of the Bicameral
Conference Committee to reconcile or settle the differences in the two Houses'
respective bills is not limited to the conflicting provisions of the bills; but may include
matters not found in the original bills but germane to the purpose thereof. If both
Houses viewed the pronouncement made by this Court in such cases as extreme or
beyond what they intended, they had the power to amend their respective Rules to
clarify or limit even further the scope of the authority which they grant to the
Bicameral Conference Committee. Petitioners' grievance that, unfortunately, they
cannot bring about such an amendment of the Rules on the Bicameral Conference
Committee because they are members of the minority, deserves scant consideration.
That the majority of the members of both Houses refuses to amend the Rules on the
Bicameral Conference Committee is an indication that it is still satisfied therewith. At
any rate, this is how democracy works — the will of the majority shall be controlling.
cSHATC
7. ID.; ID.; ID.; ID.; IF WE HAVE ONE CODE FOR ALL OUR
NATIONAL INTERNAL REVENUE TAXES, THEN THERE IS NO REASON
WHY WE CANNOT HAVE A SINGLE STATUTE AMENDING PROVISIONS
THERETO. — Although House Bills No. 3555 and 3705 were limited to the
amendments of the provisions on VAT of the National Internal Revenue Code of
1997, Senate Bill No. 1950 had a much wider scope and included amendments of
other provisions of the said Code, such as those on income, percentage, and excise
taxes. It should be borne in mind that the very purpose of these three Bills and,
subsequently, of Rep. Act No. 9337, was to raise additional revenues for the
government to address the dire economic situation of the country. The National
Internal Revenue Code of 1997, as its title suggests, is the single Code that governs
all our national internal revenue taxes. While it does cover different taxes, all of them
are imposed and collected by the national government to raise revenues. If we have
one Code for all our national internal revenue taxes, then there is no reason why we
cannot have a single statute amending provisions thereof even if they involve
different taxes under separate titles. I hereby submit that the amendments introduced
by the Bicameral Conference Committee to non-VAT provisions of the National
Internal Revenue Code of 1997 are not unconstitutional for they are germane to the
purpose of House Bills No. 3555 and 3705 and Senate Bill No. 1950, which is to raise
national revenues.
8. TAXATION; NATIONAL INTERNAL REVENUE CODE OF 1997;

VALUE-ADDED TAX (VAT); INPUT VAT NOT A PROPERTY TO WHICH THE
TAXPAYER HAS VESTED RIGHTS. — I adhere to the view that the input VAT is
not a property to which the taxpayer has vested rights. Input VAT consists of the
VAT a VAT-registered person had paid on his purchases or importation of goods,
properties, and services from a VAT-registered supplier; more simply, it is VAT paid.
It is not, as averred by petitioner petroleum dealers, a property that the taxpayer
acquired for valuable consideration. A VAT-registered person incurs input VAT
because he complied with the National Internal Revenue Code of 1997, which
imposed the VAT and made the payment thereof mandatory; and not because he paid
for it or purchased it for a price.
9. ID.; ID.; ID.; VAT-REGISTERED PERSON IS ALLOWED TO

CREDIT HIS INPUT VAT AGAINST HIS OUTPUT VAT. — Generally, when one
pays taxes to the government, he cannot expect any direct and concrete benefit to
himself for such payment. The benefit of payment of taxes shall redound to the
society as a whole. However, by virtue of Section 110 (A) of the National Internal
Revenue Code of 1997, prior to its amendment by Rep. Act No. 9337, a
VAT-registered person is allowed, subject to certain substantiation requirements, to
credit his input VAT against his output VAT. . . . The crediting of the input VAT
against the output VAT is a statutory privilege, granted by Section 110 of the
National Internal Revenue Code of 1997. It gives the VAT-registered person the
opportunity to recover the input VAT he had paid, so that, in effect, the input VAT
does not constitute an additional cost for him. While it is true that input VAT credits
are reported as assets in a VAT-registered person's financial statements and books of
account, this accounting treatment is still based on the statutory provision recognizing
the input VAT as a credit. Without Section 110 of the National Internal Revenue
Code of 1997, then the accounting treatment of any input VAT will also change and
may no longer be booked outright as an asset. Since the privilege of an input VAT
credit is granted by law, then an amendment of such law may limit the exercise of or
may totally withdraw the privilege.
10. ID.; ID.; ID.; OUTPUT VAT; ELUCIDATED. — Output VAT is the
VAT imposed by the VAT-registered person on his own sales of goods, properties,
and services or the VAT he passes on to his buyers. Hence, the VAT-registered
person selling the goods, properties, and services does not pay for the output VAT;
said output VAT is paid for by his consumers and he only collects and remits the
same to the government.
11. ID.; REPUBLIC ACT NO. 9337; IMPOSITION OF THE 70% CAP ON
INPUT VAT CREDITS, IS A LEGITIMATE EXERCISE BY CONGRESS OF ITS
LAW-MAKING POWER. — The amendment of Section 110 of the National Internal
Revenue Code of 1997 by Rep. Act No. 9337, which imposed the 70% cap on input
VAT credits, is a legitimate exercise by Congress of its law-making power. To say
that Congress may not trifle with Section 110 of the National Internal Revenue Code
of 1997 would be to violate a basic precept of constitutional law — that no law is
irrepealable. There can be no vested right to the continued existence of a statute,
which precludes its change or repeal. It bears to emphasize that Rep. Act No. 9337
does not totally remove the privilege of crediting the input VAT against the output
VAT. It merely limits the amount of input VAT one may credit against his output
VAT per quarter to an amount equivalent to 70% of the output VAT. What is more,
any input VAT in excess of the 70% cap may be carried-over to the next quarter. It is
certainly a departure from the VAT crediting system under Section 110 of the
National Internal Revenue Code of 1997, but it is an innovation that Congress may
very well introduce, because — VAT will continue to evolve from its pioneering
original structure. Dynamically, it will be subjected to reforms that will make it
conform to many factors, among which are: the changing requirements of government
revenue; the social, economic and political vicissitudes of the times; and the
conflicting interests in our society. In the course of its evolution, it will be injected
with some oddities and inevitably transformed into a structure which its revisionists
believe will be an improvement overtime. TCEaDI
12. ID.; ID.; PETROLEUM DEALER'S RIGHT TO THE INPUT VAT

CREDIT IS NOT VESTED. — [A]ssuming for the sake of argument, that the input
VAT credit is indeed a property, the petroleum dealers' right thereto has not vested. A
right is deemed vested and subject to constitutional protection when — ". . . [T]he
right to enjoyment, present or prospective, has become the property of some particular
person or persons as a present interest. The right must be absolute, complete, and
unconditional, independent of a contingency, and a mere expectancy of future benefit,
or a contingent interest in property founded on anticipated continuance of existing
laws, does not constitute a vested right. So, inchoate rights which have not been acted
on are not vested." . . . It should be remembered that prior to Rep. Act No. 9337, the
petroleum dealers' input VAT credits were inexistent — they were unrecognized and
disallowed by law. The petroleum dealers had no such property called input VAT
credits. It is only rational, therefore, that they cannot acquire vested rights to the use
of such input VAT credits when they were never entitled to such credits in the first
place, at least, not until Rep. Act No. 9337. My view, at this point, when Rep. Act
No. 9337 has not yet even been implemented, is that petroleum dealers' right to use
their input VAT as credit against their output VAT unlimitedly has not vested, being a
mere expectancy of a future benefit and being contingent on the continuance of
Section 110 of the National Internal Revenue Code of 1997, prior to its amendment
by Rep. Act No. 9337.
13. ID.; ID.; ALLOWS THE TAXPAYER TO CARRY-OVER TO THE

SUCCEEDING QUARTERS ANY EXCESS INPUT VAT. — Rep. Act No. 9337,
while imposing the 70% cap on input VAT credits, allows the taxpayer to carry-over
to the succeeding quarters any excess input VAT. The petroleum dealers presented a
situation wherein their input VAT would always exceed 70% of their output VAT,
and thus, their excess input VAT will be perennially carried-over and would remain
unutilized. Even though they consistently questioned the 70% cap on their input VAT
credits, the petroleum dealers failed to establish what is the average ratio of their
input VAT vis-à-vis their output VAT per quarter. Without such fact, I consider their
objection to the 70% cap arbitrary because there is no basis therefor.
14. ID.; ID.; 70% CAP ON INPUT VAT CREDITS WAS NOT IMPOSED
BY CONGRESS ARBITRARILY. — I find that the 70% cap on input VAT credits
was not imposed by Congress arbitrarily. Members of the Bicameral Conference
Committee settled on the said percentage so as to ensure that the government can
collect a minimum of 30% output VAT per taxpayer. This is to put a VAT-taxpayer,
at least, on equal footing with a VAT-exempt taxpayer under Section 109 (V) of the
National Internal Revenue Code, as amended by Rep. Act No. 9337. The latter
taxpayer is exempt from VAT on the basis that his sale or lease of goods or properties
or services do not exceed P1,500,000; instead, he is subject to pay a three percent
(3%) tax on his gross receipts in lieu of the VAT. If a taxpayer with presumably a
smaller business is required to pay three percent (3%) gross receipts tax, a type of tax
which does not even allow for any crediting, a VAT-taxpayer with a bigger business
should be obligated, likewise, to pay a minimum of 30% output VAT (which should
be equivalent to 3% of the gross selling price per good or property or service sold).
The cap assures the government a collection of at least 30% output VAT, contributing
to an improved cash flow for the government. Attention is further called to the fact
that the output VAT is the VAT imposed on the sales by a VAT-taxpayer; it is paid
by the purchasers of the goods, properties, and services, and merely collected through
the VAT-registered seller. The latter, therefore, serves as a collecting agent for the
government. The VAT-registered seller is merely being required to remit to the
government a minimum of 30% of his output VAT collection.
15. ID.; ID.; COURT'S DISCRETION CANNOT SUBSTITUTE THAT OF

THE CONGRESS. — [W]e cannot substitute our discretion for Congress, and even
though there are provisions in Rep. Act No. 9337 which we may believe as unwise or
iniquitous, but not unconstitutional, we cannot strike them off by invoking our power
of judicial review. In such a situation, the recourse of the people is not judicial, but
rather political. If they severely doubt the wisdom of the present Congress for passing
a statute such as Rep. Act No. 9337, then they have the power to hold the members of
said Congress accountable by using their voting power in the next elections.
DAVIDE, JR., C.J. separate, concurring and dissenting opinion:
1. POLITICAL LAW; LEGISLATIVE DEPARTMENT; IT WAS

BEYOND THE AMBIT OF THE AUTHORITY OF THE SENATE TO PROPOSE
AMENDMENTS TO REVENUE BILLS NOT COVERED BY THE HOUSE BILLS.
— It must be noted that the House Bill initiated amendments to provisions pertaining
to VAT only. Doubtless, the Senate has the constitutional power to concur with the
amendments to the VAT provisions introduced in the House Bills or even to propose
its own version of VAT measure. But that power does not extend to initiation of other
tax measures, such as introducing amendments to provisions on corporate income
taxes, percentage taxes, franchise taxes, and excise taxes like what the Senate did in
these cases. It was beyond the ambit of the authority of the Senate to propose
amendments to provisions not covered by the House Bills or not related to the subject
matter of the House Bills, which is VAT. To allow the Senate to do so would be
tantamount to vesting in it the power to initiate revenue bills — a power that
exclusively pertains to the House of Representatives under Section 24, Article VI of
the Constitution [.]
2. ID.; ID.; BICAMERAL CONFERENCE COMMITTEE; LEGISLATIVE

CUSTOM SEVERELY LIMITS THE FREEDOM WITH WHICH NEW SUBJECT
MATTER CAN BE INSERTED INTO THE CONFERENCE BILL. — In Philippine
Judges Association v. Prado, the Court described the function of conference
committee in this wise: "A conference committee may deal generally with the subject
matter or it may be limited to resolving the precise differences between the two
houses. Even where the conference committee is not by rule limited in its jurisdiction,
legislative custom severely limits the freedom with which new subject matter can be
inserted into the conference bill." The limitation on the power of a conference
committee to insert new provisions was laid down in Tolentino v. Secretary of
Finance. There, the Court, while recognizing the power of a conference committee to
include in its report an entirely new provision that is not found either in the House bill
or in the Senate bill, held that the exercise of that power is subject to the condition
that the said provision is "germane to the subject of the House and Senate bills." CaSAcH
3. ID.; ID.; ID.; NEW PROVISIONS ON PERCENTAGE AND EXCISE

TAXES INSERTED IN THE AMENDMENTS FOR THE VALUE-ADDED TAX
HAS NO LEG TO STAND ON. — In the present cases, the provisions inserted by
the BCC, namely, Sections 121 (Percentage Tax on Banks and Non-Bank Financial
Intermediaries) and 151 (Excise Tax on Mineral Products) of the NIRC, as amended,
are undoubtedly germane to SB No. 1950, which introduced amendments to the
provisions on percentage and excise taxes — but foreign to HB Nos. 3555 and 3705,
which dealt with VAT only. Since the proposed amendments in the Senate bill
relating to percentage and excise taxes cannot themselves be sustained because they
did not take their root from, or are not related to the subject of, HB Nos. 3705 and
3555, in violation of Section 24, Article VI of the Constitution, the new provisions
inserted by the BCC on percentage and excise taxes would have no leg to stand on. I
understand very well that the amendments of the Senate and the BCC relating to
corporate income, percentage, franchise, and excise taxes were designed to "soften the
impact of VAT measure on the consumer, i.e., by distributing the burden across all
sectors instead of putting it entirely on the shoulders of the consumers" and to
alleviate the country's financial problems by bringing more revenues for the
government. However, these commendable intentions do not justify a deviation from
the Constitution, which mandates that the initiative for filing revenue bills should
come from the House of Representatives, not from the Senate. After all, these aims
may still be realized by means of another bill that may later be initiated by the House
of Representatives.
PUNO, J., concurring and dissenting opinion:
1. POLITICAL LAW; JUDICIAL DEPARTMENT; POWER OF

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

JUDGMENT BASED ON HYPOTHETICAL FACTS. — It is manifest that the
constitutional challenge to Sections 4 to 6 of R.A. No. 9337 cannot hurdle the
requirement of ripeness. These sections give the President the power to raise the VAT
rate to 12% on January 1, 2006 upon satisfaction of certain fact-based conditions.
We are not endowed with the infallible gift of prophesy to know whether these
conditions are certain to happen. The power to adjust the tax rate given to the
President is futuristic and may or may not be exercised. The Court is therefore
beseeched to render a conjectural judgment based on hypothetical facts. Such a
supplication has to be rejected.

COMMITTEE; HAS LIMITED POWERS AND CANNOT BE ALLOWED TO ACT
AS IF IT WERE A "THIRD HOUSE" OF CONGRESS. — In Tolentino v. Secretary
of Finance, I ventured the view that a Bicameral Conference Committee has limited
powers and cannot be allowed to act as if it were a "third house" of Congress. I
further warned that unless its roving powers are reigned in, a Bicameral Conference
Committee can wreck the lawmaking process which is a cornerstone of the
democratic, republican regime established in our Constitution. The passage of time
fortifies my faith that there ought to be no legal u-turn on this preeminent principle.
CcTIDH
4. ID.; ID.; ID.; ITS ONLY POWER CAN GO NO FURTHER THAN

SETTLING DIFFERENCES IN THEIR BILLS OR JOINT RESOLUTIONS. — I
respectfully submit that it is only by strictly following the contours of powers of a
Bicameral Conference Committee, as delineated by the rules of the House and the
Senate, that we can prevent said Committee from acting as a "third" chamber of
Congress. Under the clear rules of both the Senate and House, its power can go no
further than settling differences in their bills or joint resolutions. . . . Under both
rules, it is obvious that a Bicameral Conference Committee is a mere agent of the
House or the Senate with limited powers. The House contingent in the Committee
cannot, on its own, settle differences which are substantial in character. If it is
confronted with substantial differences, it has to go back to the chamber that created it
"for the latter's appropriate action." In other words, it must take the proper
instructions from the chambers that created it. It cannot exercise its unbridled
discretion. Where there is no difference between the bills, it cannot make any change.
Where the difference is substantial, it has to return to the chamber of its origin and
ask for appropriate instructions. It ought to be indubitable that it cannot create a new
law, i.e., that which has never been discussed in either chamber of Congress. Its
parameters of power are not porous, for they are hedged by the clear limitation that
its only power is to settle differences in bills and joint resolutions of the two chambers
of Congress.
5. TAXATION; REPUBLIC ACT NO. 9337'S DELETION OF THE "NO

PASS ON PROVISION" ON BOTH THE SALES OF ELECTRICITY AND
PETROLEUM PRODUCTS BY THE BICAMERAL CONFERENCE COMMITTEE
IS NOT WARRANTED BY THE RULES OF EITHER THE SENATE OR THE
HOUSE. — In the guise of reconciling disagreeing provisions of the House and the
Senate bills on the matter, the Bicameral Conference Committee deleted the "no pass
on provision" on both the sales of electricity and petroleum products. This action by
the Committee is not warranted by the rules of either the Senate or the House. As
aforediscussed, the only power of a Bicameral Conference Committee is to reconcile
disagreeing provisions in the bills or joint resolutions of the two houses of Congress.
The House and the Senate bills both prohibited the passing on to consumers of the
VAT on sales of electricity. The Bicameral Conference Committee cannot override
this unequivocal decision of the Senate and the House. Nor is it clear that there is a
conflict between the House and Senate versions on the "no pass on provisions" of the
VAT on sales of petroleum products. The House version contained a "no pass on
provision" but the Senate had none. Elementary logic will tell us that while there may
be a difference in the two versions, it does not necessarily mean that there is a
disagreement or conflict between the Senate and the House. The silence of the Senate
on the issue cannot be interpreted as an outright opposition to the House decision
prohibiting the passing on of the VAT to the consumers on sales of petroleum
products. Silence can even be conformity, albeit implicit in nature. But granting for
the nonce that there is conflict between the two versions, the conflict cannot escape
the characterization as a substantial difference. The seismic consequence of the
deletion of the "no pass on provision" of the VAT on sales of petroleum products on
the ability of our consumers, especially on the roofless and the shirtless of our
society, to survive the onslaught of spiraling prices ought to be beyond quibble. The
rules require that the Bicameral Conference Committee should not, on its own, act on
this substantial conflict. It has to seek guidance from the chamber that created it. It
must receive proper instructions from its principal, for it is the law of nature that no
spring can rise higher than its source. The records of both the Senate and the House
do not reveal that this step was taken by the members of the Bicameral Conference
Committee. They bypassed their principal and ran riot with the exercise of powers
that the rules never bestowed on them.
6. ID.; ID.; CONSTITUTIONALLY OBNOXIOUS ARE THE ADDED

RESTRICTIONS ON LOCAL GOVERNMENT'S USE OF INCREMENTAL
REVENUE FROM THE VALUE-ADDED TAX. — Even more constitutionally
obnoxious are the added 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. . . . These amendments did not harmonize conflicting
provisions between the constituent bills of R.A. No. 9337 but are entirely new and
extraneous concepts which fall beyond the median thereof. They transgress the limits
of the Bicameral Conference Committee's authority and must be struck down. I
cannot therefore subscribe to the thesis of the majority that "the changes introduced
by the Bicameral Conference Committee on disagreeing provisions were meant only
to reconcile and harmonize the disagreeing provisions for it did not inject any idea or
intent that is wholly foreign to the subject embraced by the original provisions."
7. POLITICAL LAW; LEGISLATIVE DEPARTMENT; BICAMERAL

CONFERENCE COMMITTEE; TEST OF GERMANENESS IS OVERLY BROAD
AND IS THE FOUNTAINHEAD OF MISCHIEF. — The test of germaneness is
overly broad and is the fountainhead of mischief for it allows the Bicameral
Conference Committee to change provisions in the bills of the House and the Senate
when they are not even in disagreement. Worse still, it enables the Committee to
introduce amendments which are entirely new and have not previously passed
through the coils of scrutiny of the members of both houses. The Constitution did not
establish a Bicameral Conference Committee that can act as a "third house" of
Congress with super veto power over bills passed by the Senate and the House. We
cannot concede that super veto power without wrecking the delicate architecture of
legislative power so carefully laid down in our Constitution.
8. ID.; ID.; CLEAR INTENT OF OUR FUNDAMENTAL LAW IS TO

INSTALL A LAW-MAKING STRUCTURE COMPOSED ONLY OF TWO
HOUSES. — The clear intent of our fundamental law is to install a lawmaking
structure composed only of two houses whose members would thoroughly debate
proposed legislations in representation of the will of their respective constituents. The
institution of this lawmaking structure is unmistakable from the following provisions:
(1) requiring that legislative power shall be vested in a bicameral legislature; (2)
providing for quorum requirements; (3) requiring that appropriation, revenue or tariff
bills, bills authorizing increase of public debt, bills of local application, and private
bills originate exclusively in the House of Representatives; (4) requiring that bills
embrace one subject expressed in the title thereof; and (5) mandating that bills
undergo three readings on separate days in each House prior to passage into law and
prohibiting amendments on the last reading thereof. A Bicameral Conference
Committee with untrammeled powers will destroy this lawmaking structure. At the
very least, it will diminish the free and open debate of proposed legislations and
facilitate the smuggling of what purports to be laws. aIHCSA
9.
ID.; ID.; IN A REPUBLICAN FORM OF GOVERNMENT, LAWS
CAN ONLY BE ENACTED BY ALL THE DULY ELECTED
REPRESENTATIVES OF THE PEOPLE. — It cannot be overemphasized that in a
republican form of government, laws can only be enacted by all the duly elected
representatives of the people. It cuts against conventional wisdom in democracy to
lodge this power in the hands of a few or in the claws of a committee. It is for these
reasons that the argument that we should overlook the excesses of the Bicameral
Conference Committee because its report is anyway approved by both houses is a
futile attempt to square the circle for an unconstitutional act is void and cannot be
redeemed by any subsequent ratification.
10. ID.; JUDICIAL DEPARTMENT; POWER OF JUDICIAL REVIEW;

WHEN THE VIOLATIONS AFFECT PRIVATE RIGHTS OR IMPAIR THE
CONSTITUTION, THE COURT HAS ALL THE POWER TO STRIKE THEM
DOWN. — Neither can we shut our eyes to the unconstitutional acts of the Bicameral
Conference Committee by holding that the Court cannot interpose its checking
powers over mere violations of the internal rules of Congress. In Arroyo, et al. v. de
Venecia, et al., we ruled that when the violations affect private rights or impair the
Constitution, the Court has all the power, nay, the duty to strike them down.
YNARES-SANTIAGO, J., concurring and dissenting opinion:
1. POLITICAL LAW; LEGISLATIVE DEPARTMENT; THE

RULE-MAKING POWER OF CONGRESS SHOULD TAKE ITS BEARINGS
FROM THE CONSTITUTION. — Indeed, Section 16 (3), Article VI of the 1987
Constitution explicitly allows each House to determine the rules of its proceedings.
However, the rules must not contravene constitutional provisions. The rule-making
power of Congress should take its bearings from the Constitution. If in the exercise of
this rule-making power, Congress failed to set parameters in the functions of the
committee and allowed the latter unbridled authority to perform acts which Congress
itself is prohibited, like the passage of a law without undergoing the requisite
three-reading and the so-called no-amendment rule, then the same amount to grave
abuse of discretion which this Court is empowered to correct under its expanded
certiorari jurisdiction. Notwithstanding the doctrine of separation of powers,
therefore, it is the duty of the Court to declare as void a legislative enactment, either
from want of constitutional power to enact or because the constitutional forms or
conditions have not been observed. When the Court declares as unconstitutional a law
or a specific provision thereof because procedural requirements for its passage were
not complied, the Court is by no means asserting its ascendancy over the Legislature,
but simply affirming the supremacy of the Constitution as repository of the sovereign
will. The judicial branch must ensure that constitutional norms for the exercise of
powers vested upon the two other branches are properly observed. This is the very
essence of judicial authority conferred upon the Court under Section 1, Article VII of
the 1987 Constitution.
2. ID.; ID.; BICAMERAL CONFERENCE COMMITTEE; ITS

AUTHORITY WAS LIMITED TO THE RECONCILIATION OF DISAGREEING
PROVISIONS OF THE RESOLUTION OF DIFFERENCES OR
INCONSISTENCIES. — I fully subscribe to the theory advanced in the Dissenting
Opinion of Chief Justice Hilario G. Davide, Jr. in Tolentino v. Secretary of Finance
that the authority of the bicameral conference committee was limited to the
reconciliation of disagreeing provisions or the resolution of differences or
inconsistencies. Thus, it could only either (a) restore, wholly or partly, the specific
provisions of the House bill amended by the Senate bill, (b) sustain, wholly or partly,
the Senate's amendments, or (c) by way of a compromise, to agree that neither
provisions in the House bill amended by the Senate nor the latter's amendments
thereto be carried into the final form of the former. Otherwise stated, the Bicameral
Conference Committee is authorized only to adopt either the version of the House bill
or the Senate bill, or adopt neither. It cannot, as the ponencia proposed, "try to arrive
at a compromise," such as introducing provisions not included in either the House or
Senate bill, as it would allow a mere ad hoc committee to substitute the will of the
entire Congress and without undergoing the requisite three-reading, which are both
constitutionally proscribed. To allow the committee unbridled discretion to overturn
the collective will of the whole Congress defies logic considering that the bills are
passed presumably after study, deliberation and debate in both houses. A lesser body
like the Bicameral Conference Committee should not be allowed to substitute its
judgment for that of the entire Congress, whose will is expressed collectively through
the passed bills.
3. ID.; ID.; ID.; THE PROVISIONS OF THE CONSTITUTION SHOULD

READ INTO THE RULES AS IMPOSING LIMITS ON WHAT THE COMMITTEE
CAN OR CANNOT DO. — When the Bicameral Conference Committee goes
beyond its limited function by substituting its own judgment for that of either of the
two houses, it violates the internal rules of Congress and contravenes material
restrictions imposed by the Constitution, particularly on the passage of law. While
concededly, the internal rules of both Houses do not explicitly limit the Bicameral
Conference Committee to a consideration only of conflicting provisions, it is
understood that the provisions of the Constitution should be read into these rules as
imposing limits on what the committee can or cannot do. As such, it cannot perform
its delegated function in violation of the three-reading requirement and the
no-amendment rule. TDCaSE
4. ID.; ID.; ID.; ID.; "COMPROMISING THE DISAGREEING

PROVISIONS" BY SUBSTITUTING IT WITH ITS OWN VERSION CLEARLY
VIOLATE THE THREE-READING REQUIREMENT. — Thus, before a bill
becomes a law, it must pass three readings. Hence, the ponencia's submission that
despite its limited authority, the Bicameral Conference Committee could
"compromise the disagreeing provisions" by substituting it with its own version —
clearly violate the three-reading requirement, as the committee's version would no
longer undergo the same since it would be immediately put into vote by the respective
houses. In effect, it is not a bill that was passed by the entire Congress but by the
members of the ad hoc committee only, which of course is constitutionally infirm.
5. ID.; ID.; ID.; ID.; NO-AMENDMENT RULE SHOULD BE

CONSTRUED AS A PROHIBITION FROM INTRODUCING AMENDMENTS
AND MODIFICATIONS TO NON-DISAGREEING PROVISIONS OF THE
HOUSE AND SENATE BILLS. — I disagree that the no-amendment rule referred
only to "the procedure to be followed by each house of Congress with regard to bills
initiated in each of said respective houses" because it would relegate the
no-amendment rule to a mere rule of procedure. To my mind, the no-amendment rule
should be construed as prohibiting the Bicameral Conference Committee from
introducing amendments and modifications to non-disagreeing provisions of the
House and Senate bills. In sum, the committee could only either adopt the version of
the House bill or the Senate bill, or adopt neither. As Justice Reynato S. Puno said in
his Dissenting Opinion in Tolentino v. Secretary of Finance, there is absolutely no
legal warrant for the bold submission that a Bicameral Conference Committee
possesses the power to add/delete provisions in bills already approved on third
reading by both Houses or an ex post veto power.
SANDOVAL-GUTIERREZ, J., concurring and dissenting opinion:
1. POLITICAL LAW; LEGISLATIVE DEPARTMENT; UNDUE

DELEGATION OF LEGISLATIVE POWER; POWER OF TAXATION CANNOT
BE DELEGATED BY THE CENTRAL LEGISLATIVE BODY TO THE
EXECUTIVE OR JUDICIAL DEPARTMENT OF THE GOVERNMENT. —
Taxation is an inherent attribute of sovereignty. It is a power that is purely legislative
and which the central legislative body cannot delegate either to the executive or
judicial department of government without infringing upon the theory of separation of
powers. The rationale of this doctrine may be traced from the democratic principle of
"no taxation without representation." The power of taxation being so pervasive, it is
in the best interest of the people that such power be lodged only in the Legislature.
Composed of the people's representatives, it is "closer to the pulse of the people and .
. . are therefore in a better position to determine both the extent of the legal burden the
people are capable of bearing and the benefits they need." Also, this set-up provides
security against the abuse of power. As Chief Justice Marshall said: "In imposing a
tax, the legislature acts upon its constituents. The power may be abused; but the
interest, wisdom, and justice of the representative body, and its relations with its
constituents, furnish a sufficient security." Consequently, Section 24, Article VI of
our Constitution enshrined the principle of "no taxation without representation" by
providing that "all . . . revenue bills . . . shall originate exclusively in the House of
Representatives, but the Senate may propose or concur with amendments." This
provision generally confines the power of taxation to the Legislature.
2. ID.; ID.; ID.; ID.; EXCEPTIONS. — Of course, the rule which forbids
the delegation of the power of taxation is not absolute and inflexible. It admits of
exceptions. Retired Justice Jose C. Vitug enumerated such exceptions, to wit: (1)
delegations to local governments (to be exercised by the local legislative bodies
thereof) or political subdivisions; (2) delegations allowed by the Constitution; and (3)
delegations relating merely to administrative implementation that may call for some
degree of discretionary powers under a set of sufficient standards expressed by law.
3. TAXATION; REPUBLIC ACT NO. 9337; THE LEGISLATURE

ABDICATED ITS POWER WHEN IT GRANTED THE PRESIDENT THE
STANDBY AUTHORITY TO INCREASE THE VALUE-ADDED TAX FROM
10% TO 12%. — R.A. No. 9337, in granting to the President the stand-by authority
to increase the VAT rate from 10% to 12%, the Legislature abdicated its power by
delegating it to the President. This is constitutionally impermissible. The Legislature
may not escape its duties and responsibilities by delegating its power to any other
body or authority. Any attempt to abdicate the power is unconstitutional and void, on
the principle that potestas delegata non delegare potest. As Judge Cooley enunciated:
"One of the settled maxims in constitutional law is, that the power conferred upon the
legislature to make laws cannot be delegated by that department to any other body or
authority. Where the sovereign power of the state has located the authority, there it
must remain; and by the constitutional agency alone the laws must be made until the
Constitution itself is changed. The power to whose judgment, wisdom, and patriotism
this high prerogative has been entrusted cannot relieve itself of the responsibility by
choosing other agencies upon which the power shall be devolved, nor can it substitute
the judgment, wisdom, and patriotism of any other body for those to which alone the
people have seen fit to confide this sovereign trust."
4. POLITICAL LAW; LEGISLATIVE DEPARTMENT; TAX RATES OR

VALUE-ADDED TAX RATES IS NOT ONE OF THE ENUMERATIONS THAT
MAY BE FIXED BY THE PRESIDENT. — [I]t is not allowed by the Constitution.
Section 28 (2), Article VI of the Constitution enumerates the charges or duties, the
rates of which may be fixed by the President pursuant to a law passed by Congress[.] .
. . Noteworthy is the absence of tax rates or VAT rates in the enumeration. If the
intention of the Framers of the Constitution is to permit the delegation of the power to
fix tax rates or VAT rates to the President, such could have been easily achieved by
the mere inclusion of the term "tax rates" or "VAT rates" in the enumeration. It is a
dictum in statutory construction that what is expressed puts an end to what is implied.
Expressium facit cessare tacitum. This is a derivative of the more familiar maxim
express mention is implied exclusion or expressio unius est exclusio alterius.
Considering that Section 28 (2), Article VI expressly speaks only of "tariff rates,
import and export quotas, tonnage and wharfage dues and other duties and imposts,"
by no stretch of imagination can this enumeration be extended to include the VAT.
5. ID.; ID.; TEST TO DETERMINE WHETHER A STATUTE

CONSTITUTES AN UNDUE DELEGATION OF LEGISLATIVE POWER OR
NOT. — In testing whether a statute constitutes an undue delegation of legislative
power or not, it is usual to inquire whether the statute was complete in all its terms
and provisions when it left the hands of the Legislature so that nothing was left to the
judgment of any other appointee or delegate of the legislature. IAEcCT
6. TAXATION; REPUBLIC ACT NO. 9337; ALLOWS THE PRESIDENT

TO DETERMINE FOR HERSELF WHETHER THE VALUE-ADDED TAX
SHALL BE INCREASED OR NOT AT ALL. — The two conditions set forth by law
would have been sufficient had it not been for the fact that the President, being at the
helm of the entire officialdom, has more than enough power of control to bring about
the existence of such conditions. Obviously, R.A. No. 9337 allows the President to
determine for herself whether the VAT rate shall be increased or not at all. The
fulfillment of the conditions is entirely placed in her hands. If she wishes to increase
the VAT rate, all she has to do is to strictly enforce the VAT collection so as to
exceed the 2-4/5% ceiling. The same holds true with the national government deficit.
She will just limit government expenses so as not to exceed the 1-1/2% ceiling. On
the other hand, if she does not wish to increase the VAT rate, she may discourage the
Secretary of Finance from making the recommendation. That the President's exercise
of an authority is practically within her control is tantamount to giving no conditions
at all. I believe this amounts to a virtual surrender of legislative power to her. It must
be stressed that the validity of a law is not tested by what has been done but by what
may be done under its provisions.
7. POLITICAL LAW; CONSTITUTIONAL LAW; BILL OF RIGHTS;

SUBSTANTIVE DUE PROCESS, ELUCIDATED. — Substantive due process
requires the intrinsic validity of the law in interfering with the rights of the person to
his property. The inquiry in this regard is not whether or not the law is being enforced
in accordance with the prescribed manner but whether or not, to begin with, it is a
proper exercise of legislative power. To be so, the law must have a valid
governmental objective, i.e., the interest of the public as distinguished from those of a
particular class, requires the intervention of the State. This objective must be pursued
in a lawful manner, or in other words, the means employed must be reasonably related
to the accomplishment of the purpose and not unduly oppressive.
8. TAXATION; BASIC PRINCIPLES; FISCAL ADEQUACY;

EXPLAINED. — One of the principles of sound taxation is fiscal adequacy. The
proceeds of tax revenue should coincide with, and approximate the needs of,
government expenditures. Neither an excess nor a deficiency of revenue vis-à-vis the
needs of government would be in keeping with the principle.
9. ID.; ID.; NOT TO BE EXERCISED AT ONE'S WHIM. — Equating the

grant of authority to the President to increase the VAT rate with the grant of
additional allowance to a studious son is highly inappropriate. Our Senators must
have forgotten that for every increase of taxes, the burden always redounds to the
people. Unlike the additional allowance given to a studious son that comes from the
pocket of the granting parent alone, the increase in the VAT rate would be shouldered
by the masses. Indeed, mandating them to pay the increased rate as an award to the
President is arbitrary and unduly oppressive. Taxation is not a power to be exercised
at one's whim.
10. POLITICAL LAW; LEGISLATIVE DEPARTMENT; ANY REVENUE

MUST BEGIN OR START SOLELY AND ONLY IN THE HOUSE. — With the
foregoing definitions in mind, it can be reasonably concluded that when Section 24,
Article VI provides that revenue bills shall originate exclusively from the House of
Representatives, what the Constitution mandates is that any revenue statute must
begin or start solely and only in the House. Not the Senate. Not both Chambers of
Congress. But there is more to it than that. It also means that "an act for taxation
must pass the House first." It is no consequence what amendments the Senate adds.
11. ID.; ID.; SENATE COULD NOT PROPOSE TAX MATTERS NOT
INCLUDED IN THE HOUSE BILLS. — Clearly, Senate Bill No. 1950 is not based
on any bill passed by the House of Representatives. It has a legislative identity and
existence separate and apart from House Bills No. 3555 and 3705. Instead of
concurring or proposing amendments, Senate Bill No. 1950 merely "takes into
consideration" the two House Bills. To take into consideration means "to take into
account." Consideration, in this sense, means "deliberation, attention, observation or
contemplation. Simply put, the Senate in passing Senate Bill No. 1950, a tax measure,
merely took into account House Bills No. 3555 and 3705, but did not concur with or
amend either or both bills. As a matter of fact, it did not even take these two House
Bills as a frame of reference. . . . Thus, I am of the position that the Senate could not,
without violating the germaneness rule and the principle of "exclusive origination,"
propose tax matters not included in the House Bills.
CALLEJO, SR., J., concurring and dissenting opinion:
1. POLITICAL LAW; LEGISLATIVE DEPARTMENT; TWO

DISTINCTIONS BETWEEN THE U.S. FEDERAL CONSTITUTION'S AND OUR
CONSTITUTION'S PRESCRIBED CONGRESSIONAL PROCEDURE FOR
ENACTING LAWS. — Two distinctions are readily apparent between the two
procedures: 1. Unlike the US Federal Constitution, our Constitution prescribes the
"three-reading" rule or that no bill shall become a law unless it shall have been read
on three separate days in each house except when its urgency is certified by the
President; and 2. Unlike the US Federal Constitution, our Constitution prescribes the
"no-amendment" rule or that no amendments shall be allowed upon the last reading of
the bill.
2. ID.; ID.; "THREE-READING" AND "NO-AMENDMENT" RULES;

MECHANISMS INSTITUTED TO REMEDY THE "EVILS" INHERENT IN A
BICAMERAL SYSTEM OF LEGISLATURE. — The "three-reading" and
"no-amendment" rules, absent in the US Federal Constitution, but expressly mandated
by Article VI, Section 26 (2) of our Constitution are mechanisms instituted to remedy
the "evils" inherent in a bicameral system of legislature, including the conference
committee system. Sadly, the ponencia's refusal to apply Article VI, Section 26 (2) of
the Constitution on the Bicameral Conference Committee and the amendments it
introduced to R.A. No. 9337 has "effectively dismantled" the "three-reading rule" and
"no-amendment rule." ISDCHA
3. ID.; ID.; ID.; RATIONALE. — At this point, it is well to recall the

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

OR LEAVE IT" STANCE VIS-À-VIS CONFERENCE COMMITTEE REPORTS
OPEN THE POSSIBILITY OF AMENDMENTS. — This "take it or leave it" stance
vis-à-vis conference committee reports opens the possibility of amendments, which
are substantial and not even germane to the original bills of either house, being
introduced by the conference committees and voted upon by the legislators without
knowledge of their contents. This practice cannot be countenanced as it patently runs
afoul of the essence of Article VI, Section 26 (2) of the Constitution. Worse, it is
tantamount to Congress surrendering its legislative functions to the conference
committees.
5. ID.; ID.; ID.; RATIFICATION BY CONGRESS DID NOT CURE THE

UNCONSTITUTIONAL ACT THEREOF OF DELETING THE "NO PASS ON
PROVISION." — That both the Senate and the House of Representatives approved
the Bicameral Conference Committee Report which deleted the "no pass on
provision" did not cure the unconstitutional act of the said committee. As succinctly
put by Chief Justice Davide in his dissent in Tolentino, "[t]his doctrine of ratification
may apply to minor procedural flaws or tolerable breaches of the parameters of the
bicameral conference committee's limited powers but never to violations of the
Constitution. Congress is not above the Constitution."
6. ID.; ID.; ENROLLED BILL DOCTRINE; EXPLAINED. — Under the

"enrolled bill doctrine," the signing of a bill by the Speaker of the House and the
Senate President and the certification of the Secretaries of both houses of Congress
that it was passed are conclusive of its due enactment.
AZCUNA, J., concurring and dissenting opinion:
1. TAXATION; REPUBLIC ACT NO. 9337; THERE IS NO

ABDICATION BY CONGRESS OF ITS POWER TO FIX THE RATE OF THE
TAX SINCE THE RATE INCREASE PROVIDED UNDER THE LAW IS
DEFINITE AND CERTAIN TO OCCUR. — Republic Act No. 9337, the E-VAT
law, is assailed as an unconstitutional abdication of Congress of its power to tax
through its delegation to the President of the decision to increase the rate of the tax
from 10% to 12%, effective January 1, 2006, after any of two conditions has been
satisfied. The two conditions are: (i) Value-added tax collection as a percentage of
percent (2-4/5%); or (ii) National government deficit as a percentage of GDP of the
previous year exceeds one and one-half percent (1-1/2%). A scrutiny of these
"conditions" shows that one of them is certain to happen on January 1, 2006. . . .
Accordingly, there is here no abdication by Congress of its power to fix the rate of the
tax since the rate increase provided under the law, from 10% to 12%, is definite and
certain to occur, effective January 1, 2006. All that the President will do is state
which of the two conditions occurred and thereupon implement the rate increase.
2. ID.; ID.; A PROPER IMPLEMENTATION OF THE EXPANDED

VALUE-ADDED TAX SHOULD CAUSE ONLY THE APPROPRIATE
INCREMENTAL INCREASE IN PRICES. — [T]he Court required respondents to
submit a copy of the rules to implement the E-VAT, particularly as to the impact of
the tax on prices of affected commodities, specially oil and electricity. For the onset
of the law last July 1, 2005 was confusing, resulting in across-the-board increases of
10% in the prices of commodities. This is not supposed to be the effect of the law, as
was made clear during the oral arguments, because the law also contains provisions
that mitigate the impact of the E-VAT through reduction of other kinds of taxes and
duties, and other similar measures, specially as to goods that go into the supply chain
of the affected products. A proper implementation of the E-VAT, therefore, should
cause only the appropriate incremental increase in prices, reflecting the net
incremental effect of the tax, which is not necessarily 10%, but possibly less,
depending on the products involved. TcHDIA
3. POLITICAL LAW; LEGISLATIVE DEPARTMENT; NECESSARY

LEEWAY SHOULD BE GIVEN TO CONGRESS AS LONG AS THE CHANGES
ARE GERMANE TO THE BILL BEING CHANGED. — For my part, I would rather
give the necessary leeway to Congress, as long as the changes are germane to the bill
being changed, the bill which originated from the House of Representatives, and these
are so, since these were precisely the mitigating measures that go hand-on-hand with
the E-VAT, and are, therefore, essential — and hopefully sufficient — means to
enable our people to bear the sacrifices they are being asked to make. Such an
approach is in accordance with the Enrolled Bill Doctrine that is the prevailing rule in
this jurisdiction. (Tolentino v. Secretary of Finance, 249 SCRA 628 [1994]). The
exceptions I find are the provisions on corporate income taxes, which are not germane
to the E-VAT law, and are not found in the Senate and House bills.
TINGA, J., dissenting opinion:
1. TAXATION; REPUBLIC ACT NO. 9337 (E-VAT LAW); WILL
EXTERMINATE OUR COUNTRY'S SMALL TO MEDIUM ENTERPRISES. —
The E-VAT Law, as it stands, will exterminate our country's small to medium
enterprises. This will be the net effect of affirming Section 8 of the law, which
amends Sections 110 of the National Internal Revenue Code (NIRC) by imposing a
seventy percent (70%) cap on the creditable input tax a VAT-registered person may
apply every quarter and a mandatory sixty (60)-month amortization period on the
input tax on goods purchased or imported in a calendar month if the acquisition cost
of such goods exceeds One Million Pesos (P1,000,000.00).

JUDICIAL REVIEW; TAXES MAY BE INHERENTLY PUNITIVE, BUT WHEN
THE FINE LINE BETWEEN DAMAGE AND DESTRUCTION IS CROSSED, THE
COURTS MUST STEP FORTH AND CUT THE HANGMAN'S NOOSE. — Taxes
may be inherently punitive, but when the fine line between damage and destruction is
crossed, the courts must step forth and cut the hangman's noose. Justice Holmes once
confidently asserted that "the power to tax is not the power to destroy while this Court
sits," and we should very well live up to this expectation not only of the revered
Holmes, but of the Filipino people who rely on this Court as the guardian of their
rights. At stake is the right to exist and subsist despite taxes, which is encompassed in
the due process clause.
3. ID.; LEGISLATIVE DEPARTMENT; POWER TO ASCERTAIN THE

FACTS OR CONDITIONS AS THE BASIS OF THE TAKING INTO EFFECT OF
A LAW MAY BE DELEGATED BY CONGRESS. — As the majority correctly
points out, the power to ascertain the facts or conditions as the basis of the taking into
effect of a law may be delegated by Congress, and that the details as to the
enforcement and administration of an exercise of taxing power may be delegated to
executive agencies, including the power to determine the existence of facts on which
its operation depends.
4. TAXATION; REPUBLIC ACT NO. 9337; THERE IS CLEARLY NO

DELEGATION OF THE LEGISLATIVE POWER TO TAX BY CONGRESS TO
THE EXECUTIVE BRANCH SINCE THE PRESIDENT IS NOT GIVEN ANY
DISCRETION IN REFUSING TO RAISE THE VALUE-ADDED TAX TO 12%. —
At first blush, it does seem that the assailed provisions are constitutionally deficient.
It is Congress, and not the President, which is authorized to raise the rate of VAT
from 10% to 12%, no matter the circumstance. Yet a closer analysis of the proviso
reveals that this is not exactly the operative effect of the law. The qualifier "shall"
denotes a mandatory, rather than discretionary function on the part of the President to
raise the rate of VAT to 12% upon the existence of any of the two listed conditions.
Since the President is not given any discretion in refusing to raise the VAT rate to
12%, there is clearly no delegation of the legislative power to tax by Congress to the
executive branch. The use of the word "shall" obviates any logical construction that
would allow the President leeway in not raising the tax rate. More so, it is accepted
that the principle of constitutional construction that every presumption should be
indulged in favor of constitutionality and the court in considering the validity of the
'statute in question should give it such reasonable construction as can be reached to
bring it within the fundamental law. While all reasonable doubts should be resolved in
favor, of the constitutionality of a statute, it should necessarily follow that the
construction upheld should be one that is not itself noxious to the Constitution.
5. POLITICAL LAW; LEGISLATIVE DEPARTMENT; UNDUE

DELEGATION OF LEGISLATIVE POWER; ENACTMENT OF A LAW SHOULD
BE DISTINGUISHED FROM ITS IMPLEMENTATION. — The enactment of a law
should be distinguished from its implementation. Even if it is Congress which
exercises the plenary power of taxation, it is not the body that administers the
implementation of the tax. Under Section 2 of the National Internal Revenue Code
(NIRC), the assessment and collection of all national internal revenue taxes, and the
enforcement of all forfeitures, penalties and fines connected therewith had been
previously delegated to the Bureau of Internal Revenue, under the supervision and
control of the Department of Finance. SHCaEA
6. ID.; ID.; IT IS NOT THE LAW BUT THE REVENUE BILL WHICH IS
REQUIRED BY THE CONSTITUTION TO "ORIGINATE EXCLUSIVELY" IN
THE HOUSE OF REPRESENTATIVES. — Still, the origination clause deserves
obeisance in this jurisdiction, simply because it is provided in the Constitution. At the
same time, its proper interpretation is settled precedent, as enunciated in Tolentino:
To begin with, it is not the law — but the revenue bill — which is required by the
Constitution to "originate exclusively" in the House of Representatives. It is important
to emphasize this, because a bill originating in the House may undergo such extensive
changes in the Senate that the result may be a rewriting of the whole. The possibility
of a third version by the conference committee will be discussed later. At this point,
what is important to note is that, as a result of the Senate action, a distinct bill may be
produced. To insist that a revenue statute — and not only the bill which initiated the
legislative process culminating in the enactment of the law — must substantially be
the same as the House bill would be to deny the Senate's power not only to "concur
with amendments" but also to" propose amendments." It would be to violate the
coequality of legislative power of the two houses of Congress and in fact make the
House superior to the Senate. The vested power of the Senate to "propose or concur
with amendments" necessarily implies the ability to adduce transformations from the
original House bill into the final law. Since the House and Senate sit separately in
sessions, the only opportunity for the Senate to introduce its amendments would be in
the Bicameral Conference Committee, which emerges only after both the House and
the Senate have approved their respective bills.
7. ID.; ID.; "NO-AMENDMENT RULE"; REFERS ONLY TO THE

PROCEDURE TO BE FOLLOWED BY EACH HOUSE OF CONGRESS WITH
REGARD TO BILLS INITIATED IN THE HOUSE CONCERNED. — The majority
points out that the "no amendment rule" refers only to the procedure to be followed by
each house of Congress with regard to bills initiated in the house concerned, before
said bills are transmitted to the other house for its concurrence or amendment. I agree
with this statement. Clearly, the procedure under Section 26 (2), Article VI only
relates to the passage of a bill before the House and Senate, and not the process
undertaken afterwards in the Bicameral Conference Committee. Indeed, Sections 26
and 27 of Article VI, which detail the procedure how a bill becomes a law, are silent
as to what occurs between the passage by both houses of their respective bills, and the
presentation to the President of "every bill passed by the Congress." Evidently,
"Congress" means both Houses, such that a bill approved by the Senate but not by the
House is not presented to the President for approval. There is obviously a need for
joint concurrence by the House and Senate of a bill before it is transmitted to the
President, but the Constitution does not provide how such concurrence is acquired.
This lacuna has to be filled, otherwise no bill may be transmitted to the President.
8. ID.; ID.; GERMANENESS STANDARD; SHOULD BE

APPRECIATED IN ITS NORMAL BUT TOTAL SENSE. — The germaneness
standard which should guide Congress or the Bicameral Conference Committee
should be appreciated in its normal but total sense. In that regard, my views contrast
with that of Justice Panganiban, who asserts that provisions that are not "legally
germane" should be stricken down. The legal notion of germaneness is just but one
component, along with other factors such as economics and politics, which guides the
Bicameral Conference Committee, or the legislature for that matter, in the enactment
of laws. After all, factors such as economics or politics are expected to cast a
pervasive influence on the legislative process in the first place, and it is essential as
well to allow such "non-legal" elements to be considered in ascertaining whether
Congress has complied with the criteria of germaneness. Congress is a political body,
and its rationale for legislating may be guided by factors other than established legal
standards. I deem it unduly restrictive on the plenary powers of Congress to legislate,
to coerce the body to adhere to judge-made standards, such as a standard of "legal
germaneness." The Constitution is the only legal standard that Congress is required
to abide by in its enactment of laws.
9. TAXATION; REPUBLIC ACT NO. 9337; IT WOULD BE MYOPIC TO

CONSIDER THAT THE SUBJECT MATTER OF THE HOUSE BILL IS SOLELY
THE VALUE-ADDED TAX SYSTEM RATHER THAN THE GENERATION OF
REVENUE. — The Bicameral Conference Committee, in evaluating the proposed
amendments, necessarily takes into account not just the provisions relating to the
VAT, but the entire revenue generating mechanism in place. If, for example,
amendments to non-VAT related provisions of the NIRC were intended to offset the
expanded coverage for the VAT, then such amendments are germane to the purpose
of the House and Senate Bills. Moreover, it would be myopic to consider that the
subject matter of the House Bill is solely the VAT system, rather than the generation
of revenue. The majority has sufficiently demonstrated that the legislative intent
behind the bills that led to the E-VAT Law was the generation of revenue to counter
the country's dire fiscal situation. The mere fact that the law is popularly known as the
E-VAT Law, or that most of its provisions pertain to the VAT, or indirect taxes, does
not mean that any and all amendments which are introduced by the Bicameral
Conference Committee must pertain to the VAT system. EacHSA
10. ID.; ID.; RESTRICTIONS ON THE USE BY LOCAL GOVERNMENT

UNITS OF THEIR INCREMENTAL REVENUE FROM THE VAT ARE ALIEN
TO THE PRINCIPAL PURPOSE OF REVENUE GENERATION. — I do believe
that the test of germaneness was violated by the E-VAT Law in one regard. Section
21 of the law, which was not contained in either the House or Senate Bills, imposes
restrictions on the use by local government units of their incremental revenue from
the VAT. These restrictions are alien to the principal purposes of revenue generation,
or the purposes of restructuring the VAT system. I could not see how the provision,
which relates to budgetary allocations, is germane to the E-VAT Law. Since it was
introduced only in the Bicameral Conference Committee, the test of germaneness is
essential, and the provision does not pass muster. I join Justice Puno and the Chief
Justice in voting to declare Section 21 as unconstitutional.
11. ID.; ID.; THE "NO PASS ON" PROVISIONS ADOPTED BY THE
HOUSE ESSENTIALLY DIFFERS FROM THAT OF THE SENATE
NECESSARILY REQUIRED THE CORRECTIVE RELIEF FROM THE
BICAMERAL CONFERENCE COMMITTEE. — Moreover, the fact that the nature
of the "no pass on" provisions adopted by the House essentially differs from that of
the Senate necessarily required the corrective relief from the Bicameral Conference
Committee. The Committee could have either insisted on the House version, the
Senate version, or both versions, and it is not difficult to divine that any of these steps
would have obtained easy approval. Hence, the deletion altogether of the "no pass on"
provisions existed as a tangible solution to the possible impasse, and the Committee
should be accorded leeway to implement such a compromise, especially considering
that the deletion would have remained germane to the law, and would not be
constitutionally prohibited since the prohibition on amendments under Section 26 (2),
Article VI does not apply to the Committee.

JUDICIAL REVIEW; THE SUPREME COURT CANNOT SIMPLY DECREE TO
CONGRESS WHAT LAW OR PROVISIONS TO ENACT. — An outright
declaration that the deletion of the two elementally different "no-pass on" provisions
is unconstitutional, is of dubious efficacy in this case. Had such pronouncement
gained endorsement of a majority of the Court, it could not result in the ipso facto
restoration of the provision, the omission of which was ultimately approved in both
the House and Senate. Moreover, since the House version of the "no pass on" is quite
different from that of the Senate, there would be a question as to whether the House
version, the Senate version, or both versions would be reinstated. And of course, if it
were the Court which would be called upon to choose, such would be way beyond the
bounds of judicial power. Indeed, to intimate that the Court may require Congress to
reinstate a provision that failed to meet legislative approval would result in a blatant
violation of the principle of separation of powers, with the Court effectively dictating
to Congress the content of its legislation. The Court cannot simply decree to Congress
what laws or provisions to enact, but is limited to reviewing those enactments which
are actually ratified by the legislature.
13. ID.; ID.; ID.; IT IS THE DUTY OF THE COURTS TO NULLIFY

LAWS THAT CONTRAVENE THE DUE PROCESS CLAUSE OF THE BILL OF
RIGHTS. — It is the duty of the courts to nullify laws that contravene the due process
clause of the Bill of Rights. This task is at the heart not only of judicial review, but of
the democratic system, for the fundamental guarantees in the Bill of Rights become
merely hortatory if their judicial enforcement is unavailing. Even if the void law in
question is a tax statute, or one that encompasses national economic policy, the courts
should not shirk from striking it down notwithstanding any notion of deference to the
executive or legislative branch on questions of policy. Neither Congress nor the
President has the right to enact or enforce unconstitutional laws.
14. ID.; CONSTITUTIONAL LAW; BILL OF RIGHTS; BY NO MEANS

THE ONLY CONSTITUTIONAL YARDSTICK BY WHICH THE VALIDITY OF
A TAX LAW CAN BE MEASURED. — The Bill of Rights is by no means the only
constitutional yardstick by which the validity of a tax law can be measured.
Nonetheless, it stands as the most unyielding of constitutional standards, given its
position of primacy in the fundamental law way above the articles on governmental
power. If the question lodged, for example, hinges on the proper exercise of
legislative powers in the enactment of the tax law, leeway can be appreciated in favor
of affirming the legislature's inherent power to levy taxes. On the other hand, no
quarter can be ceded, no concession yielded, on the people's fundamental rights as
enshrined in the Bill of Rights, even if the sacrifice is ostensibly made "in the national
interest." It is my understanding that "the national interests," however comported,
always subsumes in the first place recognition and enforcement of the Bill of Rights,
which manifests where we stand as a democratic society.
15. ID.; ID.; ID.; DUE PROCESS; PURPOSE. — The constitutional

safeguard of due process is embodied in the fiat "No person shall be deprived of life,
liberty or property without due process of law." The purpose of the guaranty is to
prevent governmental encroachment against the life, liberty and property of
individuals; to secure the individual from the arbitrary exercise of the powers of the
government, unrestrained by the established principles of private rights and
distributive justice; to protect property from confiscation by legislative enactments,
from seizure, forfeiture, and destruction without a trial and conviction by the ordinary
mode of judicial procedure; and to secure to all persons equal and impartial justice
and the benefit of the general law.
16. ID.; ID.; ID.; ID.; MAY BE UTILIZED TO STRIKE DOWN A

TAXATION STATUTE. — In Magnano Co. v. Hamilton, the U.S. Supreme Court
recognized that the due process clause may be utilized to strike down a taxation
statute, "if the act be so arbitrary as to compel the conclusion that it does not involve
an exertion of the taxing power, but constitutes, in substance and effect, the direct
exertion of a different and forbidden power, as, for example, the confiscation of
property." Locally, Sison v. Ancheta has long provided sanctuary for persons assailing
the constitutionality of taxing statutes. . . . Sison pronounces more concretely how a
tax statute may contravene the due process clause. Arbitrariness, confiscation,
overstepping the state's jurisdiction, and lack of a public purpose are all grounds for
nullity encompassed under the due process invocation. ADHaTC
17. ID.; ID.; ID.; ID.; IT IS DIFFICULT TO PUT INTO QUANTIFIABLE

TERMS HOW ONEROUS A TAXATION STATUTE MUST BE BEFORE IT
CONTRAVENES THE DUE PROCESS CLAUSE. — It is difficult though to put
into quantifiable terms how onerous a taxation statute must be before it contravenes
the due process clause. After all, the inherent nature of taxation is to cause pain and
injury to the taxpayer, albeit for the greater good of society. Perhaps whatever
collective notion there may be of what constitutes an arbitrary, confiscatory, and
unreasonable tax might draw more from the fairy tale/legend traditions of absolute
monarchs and the oppressed peasants they tax. Indeed, it is easier to jump to the
conclusion that a tax is oppressive and unfair if it is imposed by a tyrant or an
authoritarian state.
SUPREME COURT IS NOT IMPOTENT FROM DECLARING A PROVISION OF
LAW AS VIOLATIVE OF THE DUE PROCESS CLAUSE IF IT IS CLEAR THAT
ITS IMPLEMENTATION WILL CAUSE THE ILLEGAL DEPRIVATION OF
LIFE, LIBERTY OR PROPERTY. — If there is cause to characterize my arguments
as speculative, it is only because the E-VAT Law has yet to be implemented. No
person as of yet can claim to have sustained actual injury by reason of the
implementation of the assailed provisions in G.R. No. 168461. Yet this should not
mean that the Court is impotent from declaring a provision of law as violative of the
due process clause if it is clear that its implementation will cause the illegal
deprivation of life, liberty or property without due process of law. This is especially
so if, as in this case, the injury is of mathematical certainty, and the extent of the loss
quantifiable through easy reference to the most basic of business practices.
19. ID.; CONSTITUTIONAL LAW; BILL OF RIGHTS; DUE PROCESS;

CLEAR AND PRESENT DANGER TEST SQUARELY APPLIES THERETO. —
Indeed, the Court has long responded to strike down prospective actions, even if the
injury has not yet even occurred. One of the most significant legal principles of the
last century, the "clear and present danger" doctrine in free speech cases, in fact
emanates from the prospectivity, and not the actuality of danger. The Court has not
been hesitant to nullify acts which might cause injury, owing to the presence of a
clear and present danger of a substantive evil which the State has the right to prevent.
It has even extended the "clear and present danger rule" beyond the confines of
freedom of expression to the realm of freedom of religion, as noted by Justice Puno in
his ponencia in Estrada v. Escritor. Justice Teodoro Padilla goes further in his
concurring opinion in Basco v. PAGCOR, and asserts that the clear and present
danger test squarely applies to the due process clause: "The courts, as the decision
states, cannot inquire into the wisdom, morality or expediency of policies adopted by
the political departments of government in areas which fall within their authority,
except only when such policies pose a clear and present danger to the life, liberty or
property of the individual." I see no reason why the clear and present danger test
cannot apply in this case, or any case wherein a taxing statute poses a clear and
present danger to the life, liberty or property of the individual. The application of this
standard frees the Court from inutility in the face of patently unconstitutional tax laws
that have been enacted but are yet to be fully operational.
20. ID.; STATUTORY CONSTRUCTION; ANY PROVISION OF LAW

THAT DIRECTLY CONTRADICTS THE CONSTITUTION IS UNWISE. — In the
same vein, the claim that my arguments strike at the wisdom, rather than the
constitutionality of the law are misplaced. Concededly, the assailed provisions of the
E-VAT law are basically unwise. But any provision of law that directly contradicts
the Constitution, especially the Bill of Rights, are similarly unwise, as they run
inconsistent with the fundamental law of the land, the enunciated state policies and
the elemental guarantees assured by the State to its people. Not every unwise law is
unconstitutional, but every unconstitutional law is unwise, for an unconstitutional law
contravenes a primordial principle or guarantee on which our polity is founded.

THE COURT IS EMPOWERED TO STRIKE DOWN THE LAW IF THE POLICY
OF THE LAW AND/OR THE MEANS BY WHICH SUCH POLICY IS
IMPLEMENTED RUN COUNTER TO THE CONSTITUTION. — The Separate
Opinion of Justice Panganiban notes that "[t]he Court cannot step beyond the confines
of its constitutional power, if there is absolutely no clear showing of grave abuse of
discretion in the enactment of the law." This, I feel, is an unduly narrow view of
judicial review, implying that such merely encompasses the procedural aspect by
which a law is enacted. If the policy of the law, and/or the means by which such
policy is implemented run counter to the Constitution, then the Court is empowered to
strike down the law, even if the legislative and executive branches act within their
discretion in legislating and signing the law. It is also asserted that if the
implementation of the 70% cap imposes an unequal effect on different types of
businesses with varying profit margins and capital requirements, then the remedy
would be an amendment of the law. Of course, the remedy of legislative amendment
applies to even the most unconstitutional of laws. But if our society can take cold
comfort in the ability of the legislature to amend its enactments as the defense against
unconstitutional laws, what remains then as the function of judicial review? This
legislative capacity to amend unconstitutional laws runs concurrently with the judicial
capacity to strike down unconstitutional laws. In fact, the long-standing tradition has
been reliance on the judicial branch, and not the legislative branch, for salvation from
unconstitutional laws. EDIHSC
22. TAXATION; NATIONAL INTERNAL REVENUE CODE (NIRC);

VALUE-ADDED TAX (VAT); ELUCIDATED. — VAT is distinguishable from the
standard excise or percentage taxes in that it is imposable not only on the final
transaction involving the end user, but on previous stages as well so long as there was
a sale involved. Thus, VAT does not simply pertain to the extra percentage paid by
the buyer of a fast-food meal, but also that paid by restaurant itself to its suppliers of
raw food products. This multi-stage system is more acclimated to the vagaries of the
modern industrial climate, which has long surpassed the stage when there was only
one level of transfer between the farmer who harvests the crop and the person who
eats the crop. Indeed, from the extraction or production of the raw material to its final
consumption by a user, several transactions or sales materialize. The VAT system
assures that the government shall reap income for every transaction that is had, and
not just on the final sale or transfer. The European Union, which has long required its
member states to apply the VAT system, provided the following definition of the tax
which I deem clear and comprehensive: The principle of the common system of value
added tax involves the application to goods and services of a general tax on
consumption exactly proportional to the price of the goods and services, whatever the
number of transactions that take place in the production and distribution process
before the stage at which tax is charged. On each transaction, value added tax,
calculated on the price of the goods or services at the rate applicable to such goods or
services, shall be chargeable after deduction of the amount of value added tax borne
directly by the various cost components.
23. ID.; ID.; ID.; GENERALLY NOT INTENDED TO BE A TAX ON

VALUE-ADDED BUT RATHER AS A TAX ON CONSUMPTION. — There is
another key characteristic of the VAT — that no matter how many the taxable
transactions that precede the final purchase or sale, it is the end-user, or the consumer,
that ultimately shoulders the tax. Despite its name, VAT is generally, not intended to
be a tax on value added, but rather as a tax on consumption. Hence, there is a
mechanism in the VAT system that enables firms to offset the tax they have paid on
their own purchases of goods and services against the tax they charge on their sales of
goods and services. Section 105 of the NIRC assures that "the amount of tax may be
shifted or passed on to the buyer transferee or lessee of the goods, properties or
services." The assailed provisions of the E-VAT law strike at the heart of this
accepted principle.
24. ID.; ID.; ID.; REMITTANCE OF THE TAX ON A PER

TRANSACTION BASIS IS IMPOSSIBLE. — And there is one final basic element
of the VAT system integral to this disquisition: the mode by which the tax is remitted
to the government. In simple theory, the VAT payable can be remitted to the
government immediately upon the occurrence of the transaction, but such a demand
proves excessively unwieldy. The number of VAT covered transactions a modern
enterprise may contract in a single day, plus the recognized principle that it is the final
end user who ultimately shoulders the tax; render the remittance of the tax on a per
transaction basis impossible. Thus, the VAT is delivered by the purchaser not directly
to the government but to the seller, who then collates the VAT received and remits it
to the government every quarter. The process may seem simple if cast in this manner,
but there is a wrinkle, due to the offsetting mechanism designed to ultimately make
the end consumer bear the cost of the VAT.
25. ID.; ID.; ID.; INPUT TAX; DEFINED. — This mechanism is employed
through the introduction of two concepts, the input tax and the output tax. Section 110
(A) of the National Internal Revenue Code defines the input tax as the VAT due from
or paid by a VAT-registered person on the importation of goods or local purchase of
goods and services in the course of trade or business, from a VAT registered person.
26. ID.; ID.; ID.; ALLOWS FOR A MECHANISM BY WHICH THE

BUSINESS IS ABLE TO RECOVER THE INPUT VALUE-ADDED TAX THAT IT
PAID. — Since VAT is a final tax that is supposed to be ultimately shouldered by the
end consumer, the VAT system allows for a mechanism by which the business is able
to recover the input VAT that it paid. This comes into play when the business, having
transformed the raw materials into consumer goods, sells these goods to the public.
As widely known, the consumer pays to the business an additional amount of 10% of
the purchase price as VAT. As to the business, this VAT payments it collects from the
consumer represents output VAT, which is formally described under Section 110 (A)
of the NIRC as "the value-added tax due on the sale or lease of taxable goods or
properties or services by" by any VAT-registered person. The output VAT collected
by the business from the consumers accumulates, until the end of every quarter, when
the enterprise is obliged to remit the collected output VAT to the government. This is
where the crediting mechanism comes into play. Since the business is entitled to
recover the prepaid input VAT, it does so in every quarter by applying the amount of
prepaid input VAT against the collected output VAT which is to be remitted. If the
output VAT collected exceeds the prepaid input VAT, then the amount of input VAT
is deducted from the output VAT, and it is entitled to remit only the remainder as
output VAT to the government. . . . On the other hand, if the input VAT prepaid
exceeds the output VAT collected, then the business need not remit any amount as
output VAT for the quarter. Moreover, the difference between the input VAT and the
output VAT may be credited as input VAT by the business in the succeeding quarter.
DHaEAS
27. ID.; REPUBLIC ACT NO. 9337; ALL HOPE FOR

ENTREPRENEURIAL STABILITY IS DASHED WITH THE IMPOSITION OF
THE 70% CAP. — 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 government every quarter at
least 30% of the output VAT collected from customers, or roughly 3% of the amount
of gross sales. Thus, if a quarterly gross sales of Y Business totaled P1,000,000, and
Y is prudent enough to keep its capital expenses down 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 government P30,000, thus wiping out the profit
margin for the quarter. Y would be entitled to credit the excess input VAT it prepaid
for the next quarter, but the continuous operation of the 70% cap obviates whatever
benefits this may give, and cause the accumulation of the unutilized creditable input
VAT which should be returned to the business. . . . The 70% cap is not merely an
unwise imposition. It is a burden designed, either through sheer heedlessness or cruel
calculation, to kill off the small and medium enterprises that are the soul, if not the
heart, of our economy. It is not merely an undue taking of property, but constitutes an
unjustified taking of life as well.
28. ID.; ID.; THE MAJORITY FAILS TO CONSIDER TIME VALUE FOR
MONEY. — The majority fails to consider one of the most important concepts in
finance, time value for money. Simply put, the value of one peso is worth more today
than in 2006. Money that you hold today is worth more because you can invest it and
earn interest. By reason of the 70% cap, the amount of input VAT credit that remains
unutilized would continue to accumulate for months and years. The longer the amount
remains unutilized, the higher the degree of its depreciation in value, in accordance
with the concept of time value of money. Even assuming that the business eventually
recovers the input VAT credit, the sum recovered would have decreased in practical
value.
29. ID.; ID.; THE EFFECT OF THE 70% CAP IS TO EFFECTIVELY

IMPOSE A TAX AMOUNTING TO 3% OF GROSS REVENUE. — Only stable
businesses with substantial cash flows, or extraordinarily successful enterprises will
be able to remain in operation should the 70% cap be retained. The effect of the 70%
cap is to effectively impose a tax amounting to 3% of gross revenue. The amount may
seem insignificant to those without working knowledge of the ways of business, but
anybody who is actually familiar with business would be well aware the profit
margins of the retailing and distribution sectors typically amount to less than 1% of
the gross revenues. A taxpayer has to earn a margin of at least 3% on gross revenue in
order to recoup the losses sustained due to the 70% cap. But as stated earlier, profits
are chancy, and the entrepreneur does not have full control of the conditions that lead
to profit.
30. ID.; ID.; THE EFFECT OF THE 70% CAP REMAINS CONSTANT
REGARDLESS OF AN INCREASE IN VOLUME OF THE GOODS SOLD. —
Even more galling is the fact that the 70% cap, oppressive as it already is to the
business establishment, even limits the options of the business to recover the
unutilized input VAT credit. During the deliberations, the argument was raised that
the problem presented by the 70% cap was a business problem, which can only be
solved by business. Yet there is only one viable option for the enterprise to resolve the
problem, and that is to increase the selling price of goods. It would be incorrect to
assume that increase the volume of the goods sold could solve the problem, since for
items with the same purchasing cost, the effect of the 70% cap remains constant
regardless of an increase in volume.
31. ID.; ID.; BASIC ITEMS OF EXPENDITURE CANNOT SIMPLY BE
REDUCED AS TO DO SO WILL IMPAIR THE ABILITY OF THE BUSINESS TO
OPERATE ON A DAILY BASIS. — It is easy to admonish both the consumer and
the enterprise to cut back on expenditures to survive the new E-VAT Law. However,
this can be realistically expected only of the consumer. The small/medium enterprise
cannot just cut back easily on expenditures in order to survive the implementation of
the E-VAT Law. For such businesses, expenditures do not normally contemplate
unnecessary expenses such as executive perks which can be dispensed with or without
injury to the enterprises. These expenditures pertain to expenses necessary for the
survival of the enterprise, such as wages, overhead and purchase of raw materials.
Those three basic items of expenditure cannot simply be reduced, as to do so will
impair the ability of the business to operate on a daily basis. And reduction of
expenditures is not the exclusive antidote to these impositions under the E-VAT Law,
as there must also be a corresponding increase in the amount of gross sales. To do so
though, would require an increase in the selling price, dampening consumer
enthusiasm, and further impairing the ability of the enterprise to recover from the
E-VAT Law. This is your basic Catch-22 situation — no matter which means the
enterprise employs to recover from the E-VAT Law, it will still go down in flames.
32. ID.; ID.; THE 70% CAP DOES NOT INCREASE THE
GOVERNMENT'S REVENUE. — And what legitimate, germane purposes does this
lethal 70% cap serve? It certainly does not increase the government's revenue since
the unutilized creditable input VAT should be entered in the government books as a
debt payable as it is supposed to be eventually repaid to the taxpayer, and so on the
contrary it increases the government's debts. I do see that the 70% cap temporarily
allows the government to brag to the world of an increased cash flow. But this
situation would be akin to the provincial man who borrows from everybody in the
barrio in order to show off money and maintain the pretense of prosperity to visiting
city relatives. The illusion of wealth is hardly a legitimate state purpose, especially if
projected at the expense of the very business life of the country.
33. ID.; ID.; THE REFUND OR TAX CREDIT CERTIFICATE MAY

ONLY BE ISSUED UPON THE TWO INSTANCES. — This provision, which could
have provided foreseeable and useful relief to the VAT-registered person, was deleted
under the new E-VAT Law. At present, the refund or tax credit certificate may only
be issued upon two instances: on zero-rated or effectively zero-rated sales, and upon
cancellation of VAT registration due to retirement from or cessation of business. This
is the cruelest cut of all. Only after the business ceases to be may the State be
compelled to repay the entire amount of the unutilized input tax. It is like a macabre
form of sweepstakes wherein the winner is to be paid his fortune only when he is
already dead. Aanhin pa ang damo kung patay na ang kabayo. SaHcAC
34. ID.; ID.; INABILITY TO IMMEDIATELY CREDIT THE

UNUTILIZED INPUT VALUE-ADDED TAX COULD CAUSE SUCH PREPAID
AMOUNT TO BE RECOGNIZED IN THE ACCOUNTING BOOKS AS A LOSS.
— Moreover, the inability to immediately credit or otherwise recover the unutilized
input VAT could cause such prepaid amount to actually be recognized in the
accounting books as a loss. Under international accounting practices, the unutilized
input VAT due to the 70% cap would not even be recognized as a deferred asset. The
same would not hold true if the 70% cap were eliminated. Under the International
Accounting Standards, the unutilized input VAT credit is recognized as an asset "to
the extent that it is probable that future taxable profit will be available against which
the unused tax losses and unused tax credits can be utili[z]ed". Thus, if the immediate
accreditation of the input VAT credit can be obtained, as it would without the 70%
cap, the asset could be recognized. However, the same Standards hold that "[t]o the
extent that it is not probable that taxable profit will be available against which the
unused tax losses or unused tax credits can be utilised, the deferred tax asset is not
recognised." As demonstrated, the continuous operation of the 70% cap precludes the
recovery of input VAT prepaid months or years prior. Moreover, the inability to claim
a refund or tax credit certificate until after the business has already ceased virtually
renders it improbable for the input VAT to be recovered. As such, under the
International Accounting Standards, it is with all likelihood that the prepaid input
VAT, ostensibly creditable, would actually be reflected as a loss. What heretofore
was recognized as an asset would now, with the imposition of the 70% cap, be now
considered as a loss, enhancing the view that the 70% cap is ultimately confiscatory
in nature.
35. ID.; ID.; UNUTILIZED INPUT VALUE-ADDED TAX CREDIT MAY

BE RECOGNIZED AS AN ASSET. — Tellingly, the BIR itself has recognized that
unutilized input VAT is one of those assets, corporate attributes or property rights
that, in the event of a merger, are transferred to the surviving corporation by operation
of law. Assets would fall under the purview of property under the due process clause,
and if the taxing arm of the State recognizes that such property belongs to the
taxpayer and not to the State, then due respect should be given to such expert opinion.
Even under the International Accounting Standards I adverted to above, the unutilized
input VAT credit may be recognized as an asset "to the extent that it is probable that
future taxable profit will be available against which the unused tax losses and unused
tax credits can be utilised". If not probable, it would be recognized as a loss. Since
these international standards, duly recognized by the Securities and Exchange
Commission as controlling in this jurisdiction, attribute tangible gain or loss to the
VAT credit, it necessarily follows that there is proprietary value attached to such gain
or loss.
36. ID.; ID.; PREPAID INPUT TAX REPRESENTS UNUTILIZED

PROFIT. — Moreover, the prepaid input tax represents unutilized profit, which can
only be utilized if it is refunded or credited to output taxes. To assert that the input
VAT is merely a privilege is to correspondingly claim that the business profit is
similarly a mere privilege. The Constitution itself recognizes the right to profit by
private enterprises. As I stated earlier, one of the enunciated State policies under the
Constitution is the recognition of the indispensable role of the private sector, the
encouragement of private enterprise, and the provision of incentives to needed
investments. Moreover, the Constitution also requires the State to recognize the right
of enterprises to reasonable returns on investments, and to expansion and growth.
This, I believe, encompasses profit.
37. ID.; ID.; AMORTIZATION PLAN WILL PROVE ESPECIALLY

FATAL TO START-UPS AND OTHER NEW BUSINESSES. — However, this
amortization plan will prove especially fatal to start-ups and other new businesses,
which need to purchase capital goods in order to start up their new businesses. It is a
known fact in the financial community that a majority of businesses start earning
profit only after the second or third year, and many enterprises do not even get to
survive that long. The first few years of a business are the most crucial to its survival,
and any financial benefits it can obtain in those years, no matter how miniscule, may
spell the difference between life and death. For such emerging businesses, it is
already difficult under the present system to recover the prepaid input VAT from the
output VAT collected from customers because initial sales volumes are usually low.
With this further limitation, diminishing as it does any opportunity to have a
sustainable cash flow, the ability of new businesses to survive the first three years
becomes even more endangered.
38. ID.; ID.; EXISTING SMALL TO MEDIUM ENTERPRISES ARE

IMPERILED BY THE 60 MONTH AMORTIZATION RESTRICTION. — Even
existing small to medium enterprises are imperiled by this 60 month amortization
restriction, especially considering the application of the 70% cap. The additional
purchase of capital goods bears as a means of adding value to the consumer good, as a
means to justify the increased selling price. However, the purchase of capital goods in
excess of P1,000,000.00 would impose another burden on the small to medium
enterprise by further restricting their ability to immediately recover the entire prepaid
input VAT (which would exceed at least P100,000.00), as they would be compelled to
wait for at least five years before they can do so. Another hurdle is imposed for such
small to medium enterprise to obtain the profit margin critical to survival. For some
lucky enterprises who may be able to survive the injury brought about by the 70%
cap, this 60 month amortization period might instead provide the mortal head wound.
39. ID.; ID.; INCREASED ADMINISTRATIVE BURDEN ON THE

TAXPAYER SHOULD NOT BE DISCOUNTED. — Moreover, the increased
administrative burden on the taxpayer should not be discounted, considering this
Court's previous recognition of the aims of the VAT system to "rationalize the system
of taxes on goods and services, [and] simplify tax administration." With the
amortization requirement, the taxpayer would be forced to segregate assets into
several classes and strictly monitor the useful life of assets so that proper
classification can be made. The administrative requirements of the taxpayer in order
to monitor the input VAT from the purchase of capital assets thus has exponentially
increased. DCcHAa
40. ID.; ID.; 5% WITHHOLDING VALUE-ADDED TAX ON SALES;

DELETION OF THE CREDIT APPARATUS EFFECTIVELY COMPELS THE
PRIVATE ENTERPRISE TRANSACTING WITH THE GOVERNMENT TO
SHOULDER THE OUTPUT VALUE-ADDED TAX. — The principle that the
Government and its subsidiaries may deduct and withhold a final value-added tax on
its purchase of goods and services is not new, as the NIRC had allowed such
deduction and withholding at the rate of 3% of the gross payment for the purchase of
goods, and 6% of the gross receipts for services. However, the NIRC had also
provided that this tax withheld would also be creditable against the VAT liability of
the seller or contractor, a mechanism that was deleted by the E-VAT law. The
deletion of this credit apparatus effectively compels the private enterprise transacting
with the government to shoulder the output VAT that should have been paid by the
government in excess of 5% of the gross selling price, and at the same time unduly
burdens the private enterprise by precluding it from applying any creditable input
VAT on the same transaction. Notably, the removal of the credit mechanism runs
contrary to the essence of the VAT system, which characteristically allows the
crediting of input taxes against output taxes. Without such crediting mechanism,
which allows the shifting of the VAT to only the final end user, the tax becomes a
straightforward tax on business or income. The effect on the enterprise doing
business with the government would be that two taxes would be imposed on the
income by the business derived on such transaction: the regular personal or
corporate income tax on such income, and this final withholding tax of 5%.
41. ID.; ID.; ID.; THE END RESULT OF THE DISCRIMINATION IS

DOUBLE TAXATION. — It unfairly discriminates against entities which contract
with the government by imposing an additional tax on the income derived from such
transactions. The end result of such discrimination is double taxation on income that
is both oppressive and confiscatory. . . . Double taxation means taxing for the same
tax period the same thing or activity twice, when it should be taxed but once, for the
same purpose and with the same kind of character of tax. Double taxation is not
expressly forbidden in our constitution, but the Court has recognized it as obnoxious
"where the taxpayer is taxed twice for the benefit of the same governmental entity or
by the same jurisdiction for the same purpose." Certainly, both the 5% final tax
withheld and the general corporate income tax are both paid for the benefit of the
national government, and for the same incidence of taxation, the sale/lease of goods
and services to the government.
42. ID.; ID.; ID.; EFFECTIVELY DISCOURAGES PRIVATE

ENTERPRISES TO DO BUSINESS WITH THE STATE. — This imposition would
be grossly unfair for private entities that transact with the government, especially on a
regular basis. It might be argued that the provision, even if concededly unwise,
nonetheless fails to meet the standard of unconstitutionality, as it affects only those
persons or establishments that choose to do business with the government. However,
it is an acknowledged fact that the government and its subsidiaries rely on contracts
with private enterprises in order to be able to carry out innumerable functions of the
State. This provision effectively discourages private enterprises to do business with
the State, as it would impose on the business a higher rate of tax if it were to transact
with the State, as compared to transactions with other private entities.
43. ID.; BASIC PRINCIPLE; INTELLIGENT TAX POLICY SHOULD

EXTEND BEYOND THE SINGULAR-MINDED GOAL OF RAISING STATE
FUNDS. — I do lament though that our government's wholehearted adoption of the
VAT system is endemic of what I deem a flaw in our national tax policy in the last
few decades. The power of taxation, inherent in the State and ever so powerful, has
been generally employed by our financial planners for a solitary purpose: the raising
of revenue. Revenue generation is a legitimate purpose of taxation, but standing
alone, it is a woefully unsophisticated design. Intelligent tax policy should extend
beyond the singular-minded goal of raising State funds — the old-time philosophy
behind the taxing schemes of war-mongering monarchs and totalitarian states — and
should sincerely explore the concept of taxation as a means of providing genuine
incentives to private enterprise to spur economic growth; of promoting egalitarian
social justice that would allow everyone to their fair share of the nation's wealth.
DECISION
AUSTRIA-MARTINEZ, J : p
The expenses of government, having for their object the interest of all,
should be borne by everyone, and the more man enjoys the advantages of
society, the more he ought to hold himself honored in contributing to those
expenses.
-Anne Robert Jacques Turgot (1727-1781)

French statesman and economist
Mounting budget deficit, revenue generation, inadequate fiscal allocation for

education, increased emoluments for health workers, and wider coverage for full
value-added tax benefits . . . these are the reasons why Republic Act No. 9337 (R.A.
No. 9337) 1(1) was enacted. Reasons, the wisdom of which, the Court even with its
extensive constitutional power of review, cannot probe. The petitioners in these cases,
however, question not only the wisdom of the law, but also perceived constitutional
infirmities in its passage.
Every law enjoys in its favor the presumption of constitutionality. Their

arguments notwithstanding, petitioners failed to justify their call for the invalidity of
the law. Hence, R.A. No. 9337 is not unconstitutional.
LEGISLATIVE HISTORY
R.A. No. 9337 is a consolidation of three legislative bills namely, House Bill
Nos. 3555 and 3705, and Senate Bill No. 1950.
House Bill No. 3555 2(2) was introduced on first reading on January 7, 2005.
The House Committee on Ways and Means approved the bill, in substitution of House
Bill No. 1468, which Representative (Rep.) Eric D. Singson introduced on August 8,
2004. The President certified the bill on January 7, 2005 for immediate enactment. On
January 27, 2005, the House of Representatives approved the bill on second and third
reading.
House Bill No. 3705 3(3) on the other hand, substituted House Bill No. 3105
introduced by Rep. Salacnib F. Baterina, and House Bill No. 3381 introduced by Rep.
Jacinto V. Paras. Its "mother bill" is House Bill No. 3555. The House Committee on
Ways and Means approved the bill on February 2, 2005. The President also certified
it as urgent on February 8, 2005. The House of Representatives approved the bill on
second and third reading on February 28, 2005.
Meanwhile, the Senate Committee on Ways and Means approved Senate Bill
No. 1950 4(4) on March 7, 2005, "in substitution of Senate Bill Nos. 1337, 1838 and
1873, taking into consideration House Bill Nos. 3555 and 3705." Senator Ralph G.
Recto sponsored Senate Bill No. 1337, while Senate Bill Nos. 1838 and 1873 were
both sponsored by Sens. Franklin M. Drilon, Juan M. Flavier and Francis N.
Pangilinan. The President certified the bill on March 11, 2005, and was approved by
the Senate on second and third reading on April 13, 2005.
On the same date, April 13, 2005, the Senate agreed to the request of the
House of Representatives for a committee conference on the disagreeing provisions of
the proposed bills.
Before long, the Conference Committee on the Disagreeing Provisions of

House Bill No. 3555, House Bill No. 3705, and Senate Bill No. 1950, "after having
met and discussed in full free and conference," recommended the approval of its
report, which the Senate did on May 10, 2005, and with the House of Representatives
agreeing thereto the next day, May 11, 2005.
On May 23, 2005, the enrolled copy of the consolidated House and Senate
version was transmitted to the President, who signed the same into law on May 24,
2005. Thus, came R.A. No. 9337.
July 1, 2005 is the effectivity date of R.A. No. 9337. 5(5) When said date
came, the Court issued a temporary restraining order, effective immediately and
continuing until further orders, enjoining respondents from enforcing and
implementing the law.
Oral arguments were held on July 14, 2005. Significantly, during the hearing,
the Court speaking through Mr. Justice Artemio V. Panganiban, voiced the rationale
for its issuance of the temporary restraining order on July 1, 2005, to wit:
J. PANGANIBAN
. . . But before I go into the details of your presentation, let me just tell
you a little background. You know when the law took effect on July 1,
2005, the Court issued a TRO at about 5 o'clock in the afternoon. But
before that, there was a lot of complaints aired on television and on
radio. Some people in a gas station were complaining that the gas prices
went up by 10%. Some people were complaining that their electric bill
will go up by 10%. Other times people riding in domestic air carrier
were complaining that the prices that they'll have to pay would have to
go up by 10%. While all that was being aired, per your presentation and
per our own understanding of the law, that's not true. It's not true that
the e-vat law necessarily increased prices by 10% uniformly isn't it?
ATTY. BANIQUED
No, Your Honor. ACTIcS
J. PANGANIBAN
It is not?
ATTY. BANIQUED
It's not, because, Your Honor, there is an Executive Order that granted
the Petroleum companies some subsidy . . . interrupted
J. PANGANIBAN
That's correct . . .
ATTY. BANIQUED
. . . and therefore that was meant to temper the impact . . . interrupted
J. PANGANIBAN
. . . mitigating measures . . .
ATTY. BANIQUED
Yes, Your Honor.
J. PANGANIBAN
As a matter of fact a part of the mitigating measures would be the

elimination of the Excise Tax and the import duties. That is why, it is
not correct to say that the VAT as to petroleum dealers increased prices
by 10%.
ATTY. BANIQUED
Yes, Your Honor.
J. PANGANIBAN
And therefore, there is no justification for increasing the retail price by

10% to cover the E-Vat tax. If you consider the excise tax and the
import duties, the Net Tax would probably be in the neighborhood of
7%? We are not going into exact figures I am just trying to deliver a
point that different industries, different products, different services are
hit differently. So it's not correct to say that all prices must go up by
10%.
ATTY. BANIQUED
You're right, Your Honor.
J. PANGANIBAN
Now. For instance, Domestic Airline companies, Mr. Counsel, are at

present imposed a Sales Tax of 3%. When this E-Vat law took effect the
Sales Tax was also removed as a mitigating measure. So, therefore, there
is no justification to increase the fares by 10% at best 7%, correct?
ATTY. BANIQUED
I guess so, Your Honor, yes.
J. PANGANIBAN
There are other products that the people were complaining on that first
day, were being increased arbitrarily by 10%. And that's one reason
among many others this Court had to issue TRO because of the
confusion in the implementation. That's why we added as an issue in this
case, even if it's tangentially taken up by the pleadings of the parties, the
confusion in the implementation of the E-vat. Our people were subjected
to the mercy of that confusion of an across the board increase of 10%,
which you yourself now admit and I think even the Government will
admit is incorrect. In some cases, it should be 3% only, in some cases it
should be 6% depending on these mitigating measures and the location
and situation of each product, of each service, of each company, isn't it?
ATTY. BANIQUED
Yes, Your Honor.
J. PANGANIBAN
Alright. So that's one reason why we had to issue a TRO pending the
clarification of all these and we wish the government will take time to
clarify all these by means of a more detailed implementing rules, in case
the law is upheld by this Court. . . . 6(6)
The Court also directed the parties to file their respective Memoranda.
G.R. No. 168056
Before R.A. No. 9337 took effect, petitioners ABAKADA GURO Party List, et
al., filed a petition for prohibition on May 27, 2005. They question the
constitutionality of Sections 4, 5 and 6 of R.A. No. 9337, amending Sections 106, 107
and 108, respectively, of the National Internal Revenue Code (NIRC). Section 4
imposes a 10% VAT on sale of goods and properties, Section 5 imposes a 10% VAT
on importation of goods, and Section 6 imposes a 10% VAT on sale of services and
use or lease of properties. These questioned provisions contain a uniform proviso
authorizing the President, upon recommendation of the Secretary of Finance, to raise
the VAT rate to 12%, effective January 1, 2006, after any of the following conditions
have been satisfied, to wit:
. . . That the President, upon the recommendation of the Secretary of

Finance, shall, effective January 1, 2006, raise the rate of value-added tax to
twelve percent (12%), after any of the following conditions has been satisfied:
(i) Value-added tax collection as a percentage of Gross Domestic

Product (GDP) of the previous year exceeds two and four-fifth percent (2
4/5%); or
(ii) National government deficit as a percentage of GDP of the

previous year exceeds one and one-half percent (1 1/2%).
Petitioners argue that the law is unconstitutional, as it constitutes abandonment

by Congress of its exclusive authority to fix the rate of taxes under Article VI, Section
28(2) of the 1987 Philippine Constitution.
G.R. No. 168207
On June 9, 2005, Sen. Aquilino Q. Pimentel, Jr., et al., filed a petition for
certiorari likewise assailing the constitutionality of Sections 4, 5 and 6 of R.A. No.
9337.
Aside from questioning the so-called stand-by authority of the President to

increase the VAT rate to 12%, on the ground that it amounts to an undue delegation
of legislative power, petitioners also contend that the increase in the VAT rate to 12%
contingent on any of the two conditions being satisfied violates the due process clause
embodied in Article III, Section 1 of the Constitution, as it imposes an unfair and
additional tax burden on the people, in that: (1) the 12% increase is ambiguous
because it does not state if the rate would be returned to the original 10% if the
conditions are no longer satisfied; (2) the rate is unfair and unreasonable, as the
people are unsure of the applicable VAT rate from year to year; and (3) the increase
in the VAT rate, which is supposed to be an incentive to the President to raise the
VAT collection to at least 2 4/5 of the GDP of the previous year, should only be
based on fiscal adequacy.
Petitioners further claim that the inclusion of a stand-by authority granted to

the President by the Bicameral Conference Committee is a violation of the
"no-amendment rule" upon last reading of a bill laid down in Article VI, Section
26(2) of the Constitution.
G.R. No. 168461
Thereafter, a petition for prohibition was filed on June 29, 2005, by the
Association of Pilipinas Shell Dealers, Inc., et al., assailing the following provisions
of R.A. No. 9337:
1) Section 8, amending Section 110 (A)(2) of the NIRC, requiring that the
input tax on depreciable goods shall be amortized over a 60-month
period, if the acquisition, excluding the VAT components, exceeds One
Million Pesos (P1,000,000.00);
2) Section 8, amending Section 110 (B) of the NIRC, imposing a 70% limit
on the amount of input tax to be credited against the output tax; and EIDTAa
3) Section 12, amending Section 114 (c) of the NIRC, authorizing the
Government or any of its political subdivisions, instrumentalities or
agencies, including GOCCs, to deduct a 5% final withholding tax on
gross payments of goods and services, which are subject to 10% VAT
under Sections 106 (sale of goods and properties) and 108 (sale of
services and use or lease of properties) of the NIRC.
Petitioners contend that these provisions are unconstitutional for being

arbitrary, oppressive, excessive, and confiscatory.
Petitioners' argument is premised on the constitutional right of non-deprivation

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

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

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

legislative power, in violation of Article VI, Section 28(2) of the
Constitution;
2) The Bicameral Conference Committee acted without jurisdiction in

deleting the no pass on provisions present in Senate Bill No. 1950 and
House Bill No. 3705; and
3) Insertion by the Bicameral Conference Committee of Sections 27, 28,

34, 116, 117, 119, 121, 125, 7(7) 148, 151, 236, 237 and 288, which
were present in Senate Bill No. 1950, violates Article VI, Section 24(1)
of the Constitution, which provides that all appropriation, revenue or
tariff bills shall originate exclusively in the House of Representatives
G.R. No. 168730
On the eleventh hour, Governor Enrique T. Garcia filed a petition for

certiorari and prohibition on July 20, 2005, alleging unconstitutionality of the law on
the ground that the limitation on the creditable input tax in effect allows
VAT-registered establishments to retain a portion of the taxes they collect, thus
violating the principle that tax collection and revenue should be solely allocated for
public purposes and expenditures. Petitioner Garcia further claims that allowing these
establishments to pass on the tax to the consumers is inequitable, in violation of
Article VI, Section 28(1) of the Constitution.
RESPONDENTS' COMMENT
The Office of the Solicitor General (OSG) filed a Comment in behalf of

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

Constitution:
a. Article VI, Section 24, and
b. Article VI, Section 26(2)
SUBSTANTIVE ISSUES
1. Whether Sections 4, 5 and 6 of R.A. No. 9337, amending Sections 106,
107 and 108 of the NIRC, violate the following provisions of the Constitution:
a. Article VI, Section 28(1), and
2. Whether Section 8 of R.A. No. 9337, amending Sections 110(A)(2) and

110(B) of the NIRC; and Section 12 of R.A. No. 9337, amending Section
114(C) of the NIRC, violate the following provisions of the Constitution:
b. Article III, Section 1
RULING OF THE COURT
As a prelude, the Court deems it apt to restate the general principles and
concepts of value-added tax (VAT), as the confusion and inevitably, litigation, breeds
from a fallacious notion of its nature.
The VAT is a tax on spending or consumption. It is levied on the sale, barter,

exchange or lease of goods or properties and services. 8(8) Being an indirect tax on
expenditure, the seller of goods or services may pass on the amount of tax paid to the
buyer, 9(9) with the seller acting merely as a tax collector. 10(10) The burden of VAT
is intended to fall on the immediate buyers and ultimately, the end-consumers. cEAHSC
In contrast, a direct tax is a tax for which a taxpayer is directly liable on the
transaction or business it engages in, without transferring the burden to someone else.
11(11) Examples are individual and corporate income taxes, transfer taxes, and
residence taxes. 12(12)
In the Philippines, the value-added system of sales taxation has long been in
existence, albeit in a different mode. Prior to 1978, the system was a single-stage tax
computed under the "cost deduction method" and was payable only by the original
sellers. The single-stage system was subsequently modified, and a mixture of the
"cost deduction method" and "tax credit method" was used to determine the
value-added tax payable. 13(13) Under the "tax credit method," an entity can credit
against or subtract from the VAT charged on its sales or outputs the VAT paid on its
purchases, inputs and imports. 14(14)
It was only in 1987, when President Corazon C. Aquino issued Executive

Order No. 273, that the VAT system was rationalized by imposing a multi-stage tax
rate of 0% or 10% on all sales using the "tax credit method." 15(15)
E.O. No. 273 was followed by R.A. No. 7716 or the Expanded VAT Law,
16(16) R.A. No. 8241 or the Improved VAT Law, 17(17) R.A. No. 8424 or the Tax
Reform Act of 1997, 18(18) and finally, the presently beleaguered R.A. No. 9337,
also referred to by respondents as the VAT Reform Act.
The Court will now discuss the issues in logical sequence.
PROCEDURAL ISSUE
I.
Whether R.A. No. 9337 violates the following provisions of the Constitution:
a. Article VI, Section 24, and
A. The Bicameral Conference Committee
Petitioners Escudero, et al., and Pimentel, et al., allege that the Bicameral
Conference Committee exceeded its authority by:
1) Inserting the stand-by authority in favor of the President in Sections 4, 5,

and 6 of R.A. No. 9337;
2) Deleting entirely the no pass-on provisions found in both the House and
Senate bills;
3) Inserting the provision imposing a 70% limit on the amount of input tax
to be credited against the output tax; and
4) Including the amendments introduced only by Senate Bill No. 1950

regarding other kinds of taxes in addition to the value-added tax.
Petitioners now beseech the Court to define the powers of the Bicameral
Conference Committee.
It should be borne in mind that the power of internal regulation and discipline
are intrinsic in any legislative body for, as unerringly elucidated by Justice Story, "[i]f
the power did not exist, it would be utterly impracticable to transact the business
of the nation, either at all, or at least with decency, deliberation, and order."
19(19) Thus, Article VI, Section 16 (3) of the Constitution provides that "each House
may determine the rules of its proceedings." Pursuant to this inherent constitutional
power to promulgate and implement its own rules of procedure, the respective rules of
each house of Congress provided for the creation of a Bicameral Conference
Committee.
Thus, Rule XIV, Sections 88 and 89 of the Rules of House of Representatives

provides as follows:
Sec. 88. Conference Committee. — In the event that the House does
not agree with the Senate on the amendment to any bill or joint resolution, the
differences may be settled by the conference committees of both chambers.
In resolving the differences with the Senate, the House panel shall, as
much as possible, adhere to and support the House Bill. If the differences with
the Senate are so substantial that they materially impair the House Bill, the
panel shall report such fact to the House for the latter's appropriate action.
Sec. 89. Conference Committee Reports. — . . . Each report shall

contain a detailed, sufficiently explicit statement of the changes in or
amendments to the subject measure.
xxx xxx xxx
The Chairman of the House panel may be interpellated on the

Conference Committee Report prior to the voting thereon. The House shall vote
on the Conference Committee Report in the same manner and procedure as it
votes on a bill on third and final reading.
Rule XII, Section 35 of the Rules of the Senate states:
Sec. 35. In the event that the Senate does not agree with the House
of Representatives on the provision of any bill or joint resolution, the
differences shall be settled by a conference committee of both Houses which
shall meet within ten (10) days after their composition. The President shall
designate the members of the Senate Panel in the conference committee with the
approval of the Senate.
Each Conference Committee Report shall contain a detailed and

sufficiently explicit statement of the changes in, or amendments to the subject
measure, and shall be signed by a majority of the members of each House panel,
voting separately.
A comparative presentation of the conflicting House and Senate

provisions and a reconciled version thereof with the explanatory statement of
the conference committee shall be attached to the report.
xxx xxx xxx
The creation of such conference committee was apparently in response to a

problem, not addressed by any constitutional provision, where the two houses of
Congress find themselves in disagreement over changes or amendments introduced by
the other house in a legislative bill. Given that one of the most basic powers of the
legislative branch is to formulate and implement its own rules of proceedings and to
discipline its members, may the Court then delve into the details of how Congress
complies with its internal rules or how it conducts its business of passing legislation?
Note that in the present petitions, the issue is not whether provisions of the rules of
both houses creating the bicameral conference committee are unconstitutional, but
whether the bicameral conference committee has strictly complied with the rules
of both houses, thereby remaining within the jurisdiction conferred upon it by
Congress.
In the recent case of Fariñas vs. The Executive Secretary, 20(20) the Court En
Banc, unanimously reiterated and emphasized its adherence to the "enrolled bill
doctrine," thus, declining therein petitioners' plea for the Court to go behind the
enrolled copy of the bill. Assailed in said case was Congress's creation of two sets of
bicameral conference committees, the lack of records of said committees'
proceedings, the alleged violation of said committees of the rules of both houses, and
the disappearance or deletion of one of the provisions in the compromise bill
submitted by the bicameral conference committee. It was argued that such
irregularities in the passage of the law nullified R.A. No. 9006, or the Fair Election
Act. ADCETI
Striking down such argument, the Court held thus:
Under the "enrolled bill doctrine," the signing of a bill by the Speaker of
the House and the Senate President and the certification of the Secretaries of
both Houses of Congress that it was passed are conclusive of its due enactment.
A review of cases reveals the Court's consistent adherence to the rule. The
Court finds no reason to deviate from the salutary rule in this case where
the irregularities alleged by the petitioners mostly involved the internal
rules of Congress, e.g., creation of the 2nd or 3rd Bicameral Conference
Committee by the House. This Court is not the proper forum for the
enforcement of these internal rules of Congress, whether House or Senate.
Parliamentary rules are merely procedural and with their observance the
courts have no concern. Whatever doubts there may be as to the formal
validity of Rep. Act No. 9006 must be resolved in its favor. The Court
reiterates its ruling in Arroyo vs. De Venecia, viz.:
But the cases, both here and abroad, in varying forms of

expression, all deny to the courts the power to inquire into
allegations that, in enacting a law, a House of Congress failed to
comply with its own rules, in the absence of showing that there was
a violation of a constitutional provision or the rights of private
individuals. In Osmeña v. Pendatun, it was held: "At any rate, courts
have declared that 'the rules adopted by deliberative bodies are subject to
revocation, modification or waiver at the pleasure of the body adopting
them.' And it has been said that "Parliamentary rules are merely
procedural, and with their observance, the courts have no concern.
They may be waived or disregarded by the legislative body."
Consequently, "mere failure to conform to parliamentary usage will
not invalidate the action (taken by a deliberative body) when the
requisite number of members have agreed to a particular measure."
21(21) (Emphasis supplied)
The foregoing declaration is exactly in point with the present cases, where
petitioners allege irregularities committed by the conference committee in introducing
changes or deleting provisions in the House and Senate bills. Akin to the Fariñas
case, 22(22) the present petitions also raise an issue regarding the actions taken by the
conference committee on matters regarding Congress' compliance with its own
internal rules. As stated earlier, one of the most basic and inherent power of the
legislature is the power to formulate rules for its proceedings and the discipline of its
members. Congress is the best judge of how it should conduct its own business
expeditiously and in the most orderly manner. It is also the sole concern of Congress
to instill discipline among the members of its conference committee if it believes that
said members violated any of its rules of proceedings. Even the expanded jurisdiction
of this Court cannot apply to questions regarding only the internal operation of
Congress, thus, the Court is wont to deny a review of the internal proceedings of a
co-equal branch of government.
Moreover, as far back as 1994 or more than ten years ago, in the case of
Tolentino vs. Secretary of Finance, 23(23) the Court already made the pronouncement
that "[i]f a change is desired in the practice [of the Bicameral Conference
Committee] it must be sought in Congress since this question is not covered by
any constitutional provision but is only an internal rule of each house." 24(24) To
date, Congress has not seen it fit to make such changes adverted to by the Court. It
seems, therefore, that Congress finds the practices of the bicameral conference
committee to be very useful for purposes of prompt and efficient legislative action.
Nevertheless, just to put minds at ease that no blatant irregularities tainted the
proceedings of the bicameral conference committees, the Court deems it necessary to
dwell on the issue. The Court observes that there was a necessity for a conference
committee because a comparison of the provisions of House Bill Nos. 3555 and 3705
on one hand, and Senate Bill No. 1950 on the other, reveals that there were indeed
disagreements. As pointed out in the petitions, said disagreements were as follows:
House Bill No. 3555 House Bill No. 3705 Senate Bill No. 1950
With regard to "Stand-By Authority" in favor of President
Provides for 12% VAT Provides for 12% VAT Provides for a single
on every sale of goods in general on sales of rate of 10% VAT on sale
or properties (amending goods or properties and of goods or properties
Sec. 106 of NIRC); 12% reduced rates for sale of (amending Sec. 106 of
VAT on importation of certain locally NIRC), 10% VAT on
goods (amending Sec. manufactured goods and sale of services including
107 of NIRC); and 12% petroleum products and sale of electricity by
VAT on sale of services raw materials to be used generation companies,
and use or lease of in the manufacture thereof transmission and
properties (amending (amending Sec. 106 of distribution companies,
Sec. 108 of NIRC) NIRC); 12% VAT on and use or lease of
importation of goods and properties (amending
reduced rates for certain Sec. 108 of NIRC)
imported products
including petroleum
products (amending Sec.
107 of NIRC); and 12%
VAT on sale of services
and use or lease of
properties and a reduced
rate for certain services
including power
generation (amending
Sec. 108 of NIRC)
With regard to the "no pass-on" provision
No similar provision Provides that the VAT Provides that the VAT
imposed on power imposed on sales of
generation and on the electricity by generation
sale of petroleum companies and services of
products shall be transmission companies
absorbed by generation and distribution
companies or sellers, companies, as well as
respectively, and shall those of franchise
not be passed on to grantees of electric
consumers utilities shall not apply
to residential end-users.
VAT shall be absorbed by
generation, transmission,
and distribution
companies.
With regard to 70% limit on input tax credit
Provides that the input No similar provision Provides that the input
tax credit for capital tax credit for capital
goods on which a VAT goods on which a VAT
has been paid shall be has been paid shall be
equally distributed over equally distributed over
5 years or the depreciable 5 years or the depreciable
life of such capital goods; life of such capital goods;
the input tax credit for the input tax credit for
goods and services other goods and services other
than capital goods shall than capital goods shall
not exceed 5% of the not exceed 90% of the
total amount of such output VAT.
goods and services; and
for persons engaged in
retail trading of goods,
the allowable input tax
credit shall not exceed
11% of the total amount
of goods purchased.
With regard to amendments to be made to NIRC provisions regarding income and excise taxes
No similar provision No similar provision Provided for amendments

to several NIRC
provisions regarding
corporate income,
percentage, franchise and
excise taxes
The disagreements between the provisions in the House bills and the Senate
bill were with regard to (1) what rate of VAT is to be imposed; (2) whether only the
VAT imposed on electricity generation, transmission and distribution companies
should not be passed on to consumers, as proposed in the Senate bill, or both the VAT
imposed on electricity generation, transmission and distribution companies and the
VAT imposed on sale of petroleum products should not be passed on to consumers, as
proposed in the House bill; (3) in what manner input tax credits should be limited; (4)
and whether the NIRC provisions on corporate income taxes, percentage, franchise
and excise taxes should be amended. CSaHDT
There being differences and/or disagreements on the foregoing provisions of

the House and Senate bills, the Bicameral Conference Committee was mandated by
the rules of both houses of Congress to act on the same by settling said differences
and/or disagreements. The Bicameral Conference Committee acted on the disagreeing
provisions by making the following changes:
1. With regard to the disagreement on the rate of VAT to be imposed, it

would appear from the Conference Committee Report that the Bicameral Conference
Committee tried to bridge the gap in the difference between the 10% VAT rate
proposed by the Senate, and the various rates with 12% as the highest VAT rate
proposed by the House, by striking a compromise whereby the present 10% VAT rate
would be retained until certain conditions arise, i.e., the value-added tax collection as
a percentage of gross domestic product (GDP) of the previous year exceeds 2 4/5%,
or National Government deficit as a percentage of GDP of the previous year exceeds
1 1/2%, when the President, upon recommendation of the Secretary of Finance shall
raise the rate of VAT to 12% effective January 1, 2006.
2. With regard to the disagreement on whether only the VAT imposed on

electricity generation, transmission and distribution companies should not be passed
on to consumers or whether both the VAT imposed on electricity generation,
transmission and distribution companies and the VAT imposed on sale of petroleum
products may be passed on to consumers, the Bicameral Conference Committee chose
to settle such disagreement by altogether deleting from its Report any no pass-on
provision.
3. With regard to the disagreement on whether input tax credits should be

limited or not, the Bicameral Conference Committee decided to adopt the position of
the House by putting a limitation on the amount of input tax that may be credited
against the output tax, although it crafted its own language as to the amount of the
limitation on input tax credits and the manner of computing the same by providing
thus:
(A) Creditable Input Tax. — . . .
xxx xxx xxx
Provided, The input tax on goods purchased or imported in a calendar

month for use in trade or business for which deduction for depreciation is
allowed under this Code, shall be spread evenly over the month of acquisition
and the fifty-nine (59) succeeding months if the aggregate acquisition cost for
such goods, excluding the VAT component thereof, exceeds one million Pesos
(P1,000,000.00): PROVIDED, however, that if the estimated useful life of the
capital good is less than five (5) years, as used for depreciation purposes, then
the input VAT shall be spread over such shorter period: . . .
(B) Excess Output or Input Tax. — If at the end of any taxable quarter
the output tax exceeds the input tax, the excess shall be paid by the
VAT-registered person. If the input tax exceeds the output tax, the excess shall
be carried over to the succeeding quarter or quarters: PROVIDED that the input
tax inclusive of input VAT carried over from the previous quarter that may be
credited in every quarter shall not exceed seventy percent (70%) of the output
VAT: PROVIDED, HOWEVER, THAT any input tax attributable to zero-rated
sales by a VAT-registered person may at his option be refunded or credited
against other internal revenue taxes, . . .
4. With regard to the amendments to other provisions of the NIRC on

corporate income tax, franchise, percentage and excise taxes, the conference
committee decided to include such amendments and basically adopted the provisions
found in Senate Bill No. 1950, with some changes as to the rate of the tax to be
imposed.
Under the provisions of both the Rules of the House of Representatives and
Senate Rules, the Bicameral Conference Committee is mandated to settle the
differences between the disagreeing provisions in the House bill and the Senate bill.
The term "settle" is synonymous to "reconcile" and "harmonize." 25(25) To reconcile
or harmonize disagreeing provisions, the Bicameral Conference Committee may then
(a) adopt the specific provisions of either the House bill or Senate bill, (b) decide that
neither provisions in the House bill or the provisions in the Senate bill would be
carried into the final form of the bill, and/or (c) try to arrive at a compromise between
the disagreeing provisions.
In the present case, the changes introduced by the Bicameral Conference

Committee on disagreeing provisions were meant only to reconcile and harmonize the
disagreeing provisions for it did not inject any idea or intent that is wholly foreign to
the subject embraced by the original provisions.
The so-called stand-by authority in favor of the President, whereby the rate of
10% VAT wanted by the Senate is retained until such time that certain conditions
arise when the 12% VAT wanted by the House shall be imposed, appears to be a
compromise to try to bridge the difference in the rate of VAT proposed by the two
houses of Congress. Nevertheless, such compromise is still totally within the subject
of what rate of VAT should be imposed on taxpayers.
The no pass-on provision was deleted altogether. In the transcripts of the

proceedings of the Bicameral Conference Committee held on May 10, 2005, Sen.
Ralph Recto, Chairman of the Senate Panel, explained the reason for deleting the no
pass-on provision in this wise:
. . . the thinking was just to keep the VAT law or the VAT bill simple.
And we were thinking that no sector should be a beneficiary of legislative grace,
neither should any sector be discriminated on. The VAT is an indirect tax. It is
a pass on-tax. And let's keep it plain and simple. Let's not confuse the bill and
put a no pass-on provision. Two-thirds of the world have a VAT system and in
this two-thirds of the globe, I have yet to see a VAT with a no pass-though
provision. So, the thinking of the Senate is basically simple, let's keep the VAT
simple. 26(26) (Emphasis supplied)
Rep. Teodoro Locsin further made the manifestation that the no pass-on
provision "never really enjoyed the support of either House." 27(27)
With regard to the amount of input tax to be credited against output tax, the
Bicameral Conference Committee came to a compromise on the percentage rate of the
limitation or cap on such input tax credit, but again, the change introduced by the
Bicameral Conference Committee was totally within the intent of both houses to put a
cap on input tax that may be credited against the output tax. From the inception of the
subject revenue bill in the House of Representatives, one of the major objectives was
to "plug a glaring loophole in the tax policy and administration by creating vital
restrictions on the claiming of input VAT tax credits . . ." and "[b]y introducing
limitations on the claiming of tax credit, we are capping a major leakage that has
placed our collection efforts at an apparent disadvantage." 28(28)
As to the amendments to NIRC provisions on taxes other than the value-added

tax proposed in Senate Bill No. 1950, since said provisions were among those
referred to it, the conference committee had to act on the same and it basically
adopted the version of the Senate. ACDTcE
Thus, all the changes or modifications made by the Bicameral Conference

Committee were germane to subjects of the provisions referred to it for reconciliation.
Such being the case, the Court does not see any grave abuse of discretion amounting
to lack or excess of jurisdiction committed by the Bicameral Conference Committee.
In the earlier cases of Philippine Judges Association vs. Prado 29(29) and Tolentino
vs. Secretary of Finance, 30(30) the Court recognized the long-standing legislative
practice of giving said conference committee ample latitude for compromising
differences between the Senate and the House. Thus, in the Tolentino case, it was held
that:
. . . it is within the power of a conference committee to include in its

report an entirely new provision that is not found either in the House bill or in
the Senate bill. If the committee can propose an amendment consisting of one or
two provisions, there is no reason why it cannot propose several provisions,
collectively considered as an "amendment in the nature of a substitute," so long
as such amendment is germane to the subject of the bills before the committee.
After all, its report was not final but needed the approval of both houses of
Congress to become valid as an act of the legislative department. The charge
that in this case the Conference Committee acted as a third legislative
chamber is thus without any basis. 31(31) (Emphasis supplied)
B. R.A. No. 9337 Does Not Violate Article VI, Section 26(2) of the Constitution on
the "No-Amendment Rule"
Article VI, Sec. 26 (2) of the Constitution, states:
No bill passed by either House shall become a law unless it has passed
three readings on separate days, and printed copies thereof in its final form have
been distributed to its Members three days before its passage, except when the
President certifies to the necessity of its immediate enactment to meet a public
calamity or emergency. Upon the last reading of a bill, no amendment thereto
shall be allowed, and the vote thereon shall be taken immediately thereafter, and
the yeas and nays entered in the Journal.
Petitioners' argument that the practice where a bicameral conference

committee is allowed to add or delete provisions in the House bill and the Senate bill
after these had passed three readings is in effect a circumvention of the "no
amendment rule" (Sec. 26 (2), Art. VI of the 1987 Constitution), fails to convince the
Court to deviate from its ruling in the Tolentino case that:
Nor is there any reason for requiring that the Committee's Report in
these cases must have undergone three readings in each of the two houses. If
that be the case, there would be no end to negotiation since each house may
seek modification of the compromise bill. . . .
Art. VI. § 26 (2) must, therefore, be construed as referring only to

bills introduced for the first time in either house of Congress, not to the
conference committee report. 32(32) (Emphasis supplied)
The Court reiterates here that the "no-amendment rule" refers only to the
procedure to be followed by each house of Congress with regard to bills initiated
in each of said respective houses, before said bill is transmitted to the other
house for its concurrence or amendment. Verily, to construe said provision in a
way as to proscribe any further changes to a bill after one house has voted on it would
lead to absurdity as this would mean that the other house of Congress would be
deprived of its constitutional power to amend or introduce changes to said bill. Thus,
Art. VI, Sec. 26 (2) of the Constitution cannot be taken to mean that the introduction
by the Bicameral Conference Committee of amendments and modifications to
disagreeing provisions in bills that have been acted upon by both houses of Congress
is prohibited.
C. R.A. No. 9337 Does Not Violate Article VI, Section 24 of the Constitution on
Exclusive Origination of Revenue Bills
Coming to the issue of the validity of the amendments made regarding the
NIRC provisions on corporate income taxes and percentage, excise taxes. Petitioners
refer to the following provisions, to wit:
Section 27
Rates of Income Tax on Domestic
Corporation
28(A)(1) Tax on Resident Foreign Corporation
28(B)(1) Inter-corporate Dividends
34(B)(1) Inter-corporate Dividends
116 Tax on Persons Exempt from VAT
117 Percentage Tax on domestic carriers and
keepers of Garage
119 Tax on franchises
121 Tax on banks and Non-Bank Financial
Intermediaries
148 Excise Tax on manufactured oils and
other fuels
151 Excise Tax on mineral products
236 Registration requirements
237 Issuance of receipts or sales or
commercial invoices
288 Disposition of Incremental Revenue
Petitioners claim that the amendments to these provisions of the NIRC did not
at all originate from the House. They aver that House Bill No. 3555 proposed
amendments only regarding Sections 106, 107, 108, 110 and 114 of the NIRC, while
House Bill No. 3705 proposed amendments only to Sections 106, 107, 108, 109, 110
and 111 of the NIRC; thus, the other sections of the NIRC which the Senate amended
but which amendments were not found in the House bills are not intended to be
amended by the House of Representatives. Hence, they argue that since the proposed
amendments did not originate from the House, such amendments are a violation of
Article VI, Section 24 of the Constitution.
The argument does not hold water.
Article VI, Section 24 of the Constitution reads:
Sec. 24. All appropriation, revenue or tariff bills, bills authorizing

increase of the public debt, bills of local application, and private bills shall
originate exclusively in the House of Representatives but the Senate may
propose or concur with amendments.
In the present cases, petitioners admit that it was indeed House Bill Nos. 3555
and 3705 that initiated the move for amending provisions of the NIRC dealing mainly
with the value-added tax. Upon transmittal of said House bills to the Senate, the
Senate came out with Senate Bill No. 1950 proposing amendments not only to NIRC
provisions on the value-added tax but also amendments to NIRC provisions on other
kinds of taxes. Is the introduction by the Senate of provisions not dealing directly
with the value-added tax, which is the only kind of tax being amended in the House
bills, still within the purview of the constitutional provision authorizing the Senate to
propose or concur with amendments to a revenue bill that originated from the House?
ATHCac
The foregoing question had been squarely answered in the Tolentino case,
wherein the Court held, thus:
. . . To begin with, it is not the law — but the revenue bill — which is
required by the Constitution to "originate exclusively" in the House of
Representatives. It is important to emphasize this, because a bill originating in
the House may undergo such extensive changes in the Senate that the result may
be a rewriting of the whole. . . . At this point, what is important to note is that,
as a result of the Senate action, a distinct bill may be produced. To insist that a
revenue statute — and not only the bill which initiated the legislative
process culminating in the enactment of the law — must substantially be
the same as the House bill would be to deny the Senate's power not only to
"concur with amendments" but also to "propose amendments." It would be
to violate the coequality of legislative power of the two houses of Congress and
in fact make the House superior to the Senate.
xxx xxx xxx
. . . Given, then, the power of the Senate to propose amendments,

the Senate can propose its own version even with respect to bills which are
required by the Constitution to originate in the House.
xxx xxx xxx
Indeed, what the Constitution simply means is that the initiative for
filing revenue, tariff or tax bills, bills authorizing an increase of the public debt,
private bills and bills of local application must come from the House of
Representatives on the theory that, elected as they are from the districts, the
members of the House can be expected to be more sensitive to the local
needs and problems. On the other hand, the senators, who are elected at
large, are expected to approach the same problems from the national
perspective. Both views are thereby made to bear on the enactment of such
laws. 33(33) (Emphasis supplied)
Since there is no question that the revenue bill exclusively originated in the
House of Representatives, the Senate was acting within its constitutional power to
introduce amendments to the House bill when it included provisions in Senate Bill
No. 1950 amending corporate income taxes, percentage, excise and franchise taxes.
Verily, Article VI, Section 24 of the Constitution does not contain any prohibition or
limitation on the extent of the amendments that may be introduced by the Senate to
the House revenue bill.
Furthermore, the amendments introduced by the Senate to the NIRC provisions

that had not been touched in the House bills are still in furtherance of the intent of the
House in initiating the subject revenue bills. The Explanatory Note of House Bill No.
1468, the very first House bill introduced on the floor, which was later substituted by
House Bill No. 3555, stated:
One of the challenges faced by the present administration is the urgent

and daunting task of solving the country's serious financial problems. To do
this, government expenditures must be strictly monitored and controlled and
revenues must be significantly increased. This may be easier said than done, but
our fiscal authorities are still optimistic the government will be operating on a
balanced budget by the year 2009. In fact, several measures that will result to
significant expenditure savings have been identified by the administration. It is
supported with a credible package of revenue measures that include
measures to improve tax administration and control the leakages in
revenues from income taxes and the value-added tax (VAT). (Emphasis
supplied)
Rep. Eric D. Singson, in his sponsorship speech for House Bill No. 3555,
declared that:
In the budget message of our President in the year 2005, she reiterated
that we all acknowledged that on top of our agenda must be the restoration of
the health of our fiscal system.
In order to considerably lower the consolidated public sector deficit and

eventually achieve a balanced budget by the year 2009, we need to seize
windows of opportunities which might seem poignant in the beginning, but
in the long run prove effective and beneficial to the overall status of our
economy. One such opportunity is a review of existing tax rates, evaluating
the relevance given our present conditions. 34(34) (Emphasis supplied)
Notably therefore, the main purpose of the bills emanating from the House of
Representatives is to bring in sizeable revenues for the government to supplement our
country's serious financial problems, and improve tax administration and control of
the leakages in revenues from income taxes and value-added taxes. As these house
bills were transmitted to the Senate, the latter, approaching the measures from the
point of national perspective, can introduce amendments within the purposes of those
bills. It can provide for ways that would soften the impact of the VAT measure on the
consumer, i.e., by distributing the burden across all sectors instead of putting it
entirely on the shoulders of the consumers. The sponsorship speech of Sen. Ralph
Recto on why the provisions on income tax on corporation were included is worth
quoting:
All in all, the proposal of the Senate Committee on Ways and Means
will raise P64.3 billion in additional revenues annually even while by mitigating
prices of power, services and petroleum products.
However, not all of this will be wrung out of VAT. In fact, only P48.7
billion amount is from the VAT on twelve goods and services. The rest of the
tab — P10.5 billion — will be picked by corporations.
What we therefore prescribe is a burden sharing between corporate

Philippines and the consumer. Why should the latter bear all the pain? Why
should the fiscal salvation be only on the burden of the consumer?
The corporate world's equity is in form of the increase in the corporate

income tax from 32 to 35 percent, but up to 2008 only. This will raise P10.5
billion a year. After that, the rate will slide back, not to its old rate of 32 percent,
but two notches lower, to 30 percent.
Clearly, we are telling those with the capacity to pay, corporations, to

bear with this emergency provision that will be in effect for 1,200 days, while
we put our fiscal house in order. This fiscal medicine will have an expiry date.
For their assistance, a reward of tax reduction awaits them. We intend to

keep the length of their sacrifice brief. We would like to assure them that not
because there is a light at the end of the tunnel, this government will keep on
making the tunnel long. AaITCH
The responsibility will not rest solely on the weary shoulders of the
small man. Big business will be there to share the burden. 35(35)
As the Court has said, the Senate can propose amendments and in fact, the
amendments made on provisions in the tax on income of corporations are germane to
the purpose of the house bills which is to raise revenues for the government.
Likewise, the Court finds the sections referring to other percentage and excise
taxes germane to the reforms to the VAT system, as these sections would cushion the
effects of VAT on consumers. Considering that certain goods and services which
were subject to percentage tax and excise tax would no longer be VAT-exempt, the
consumer would be burdened more as they would be paying the VAT in addition to
these taxes. Thus, there is a need to amend these sections to soften the impact of
VAT. Again, in his sponsorship speech, Sen. Recto said:
However, for power plants that run on oil, we will reduce to zero the
present excise tax on bunker fuel, to lessen the effect of a VAT on this product.
For electric utilities like Meralco, we will wipe out the franchise tax in
exchange for a VAT.
And in the case of petroleum, while we will levy the VAT on oil
products, so as not to destroy the VAT chain, we will however bring down the
excise tax on socially sensitive products such as diesel, bunker, fuel and
kerosene.
xxx xxx xxx
What do all these exercises point to? These are not contortions of giving
to the left hand what was taken from the right. Rather, these sprang from our
concern of softening the impact of VAT, so that the people can cushion the
blow of higher prices they will have to pay as a result of VAT. 36(36)
The other sections amended by the Senate pertained to matters of tax

administration which are necessary for the implementation of the changes in the VAT
system.
To reiterate, the sections introduced by the Senate are germane to the subject
matter and purposes of the house bills, which is to supplement our country's fiscal
deficit, among others. Thus, the Senate acted within its power to propose those
amendments.
SUBSTANTIVE ISSUES
I.
Whether Sections 4, 5 and 6 of R.A. No. 9337, amending Sections 106, 107 and 108
of the NIRC, violate the following provisions of the Constitution:
A. No Undue Delegation of Legislative Power
Petitioners ABAKADA GURO Party List, et al., Pimentel, Jr., et al., and
Escudero, et al. contend in common that Sections 4, 5 and 6 of R.A. No. 9337,
amending Sections 106, 107 and 108, respectively, of the NIRC giving the President
the stand-by authority to raise the VAT rate from 10% to 12% when a certain
condition is met, constitutes undue delegation of the legislative power to tax.
The assailed provisions read as follows:
SEC. 4. Sec. 106 of the same Code, as amended, is hereby further

amended to read as follows:
SEC. 106. Value-Added Tax on Sale of Goods or Properties. —
(A) Rate and Base of Tax. — There shall be levied, assessed and
collected on every sale, barter or exchange of goods or properties, a
value-added tax equivalent to ten percent (10%) of the gross selling
price or gross value in money of the goods or properties sold, bartered or
exchanged, such tax to be paid by the seller or transferor: provided, that
the President, upon the recommendation of the Secretary of
Finance, shall, effective January 1, 2006, raise the rate of
value-added tax to twelve percent (12%), after any of the following
conditions has been satisfied.
(i) value-added tax collection as a percentage of Gross Domestic

Product (GDP) of the previous year exceeds two and
four-fifth percent (2 4/5%) or
(ii) national government deficit as a percentage of GDP of the

SEC. 5. Section 107 of the same Code, as amended, is hereby

further amended to read as follows:
SEC. 107. Value-Added Tax on Importation of Goods. —
(A) In General. — There shall be levied, assessed and collected on

every importation of goods a value-added tax equivalent to ten percent
(10%) based on the total value used by the Bureau of Customs in
determining tariff and customs duties, plus customs duties, excise taxes,
if any, and other charges, such tax to be paid by the importer prior to the
release of such goods from customs custody: Provided, That where the
customs duties are determined on the basis of the quantity or volume of
the goods, the value-added tax shall be based on the landed cost plus
excise taxes, if any: provided, further, that the President, upon the
recommendation of the Secretary of Finance, shall, effective
January 1, 2006, raise the rate of value-added tax to twelve percent
(12%) after any of the following conditions has been satisfied. EITcaD



SEC. 108. Value-added Tax on Sale of Services and Use or Lease of

Properties —
(A) Rate and Base of Tax. — There shall be levied, assessed and
collected, a value-added tax equivalent to ten percent (10%) of gross
receipts derived from the sale or exchange of services: provided, that


(Emphasis supplied)
Petitioners allege that the grant of the stand-by authority to the President to
increase the VAT rate is a virtual abdication by Congress of its exclusive power to tax
because such delegation is not within the purview of Section 28 (2), Article VI of the
Constitution, which provides:
The Congress may, by law, authorize the President to fix within

specified limits, and may impose, tariff rates, import and export quotas, tonnage
and wharfage dues, and other duties or imposts within the framework of the
national development program of the government.
They argue that the VAT is a tax levied on the sale, barter or exchange of
goods and properties as well as on the sale or exchange of services, which cannot be
included within the purview of tariffs under the exempted delegation as the latter
refers to customs duties, tolls or tribute payable upon merchandise to the government
and usually imposed on goods or merchandise imported or exported.
Petitioners ABAKADA GURO Party List, et al., further contend that delegating
to the President the legislative power to tax is contrary to republicanism. They insist
that accountability, responsibility and transparency should dictate the actions of
Congress and they should not pass to the President the decision to impose taxes. They
also argue that the law also effectively nullified the 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 Secretary of Finance.
Petitioners Pimentel, et al. aver that the President has ample powers to cause,
influence or create the conditions provided by the law to bring about either or both the
conditions precedent.
On the other hand, petitioners Escudero, et al. find bizarre and revolting the
situation that the imposition of the 12% rate would be subject to the whim of the
Secretary of Finance, an unelected bureaucrat, contrary to the principle of no taxation
without representation. They submit that the Secretary of Finance is not mandated to
give a favorable recommendation and he may not even give his recommendation.
Moreover, they allege that no guiding standards are provided in the law on what basis
and as to how he will make his recommendation. They claim, nonetheless, that any
recommendation of the Secretary of Finance can easily be brushed aside by the
President since the former is a mere alter ego of the latter, such that, ultimately, it is
the President who decides whether to impose the increased tax rate or not.
A brief discourse on the principle of non-delegation of powers is instructive.
The principle of separation of powers ordains that each of the three great
branches of government has exclusive cognizance of and is supreme in matters falling
within its own constitutionally allocated sphere. 37(37) A logical corollary to the
doctrine of separation of powers is the principle of non-delegation of powers, as
expressed in the Latin maxim: potestas delegata non delegari potest which means
"what has been delegated, cannot be delegated." 38(38) This doctrine is based on the
ethical principle that such as delegated power constitutes not only a right but a duty to
be performed by the delegate through the instrumentality of his own judgment and not
through the intervening mind of another. 39(39)
With respect to the Legislature, Section 1 of Article VI of the Constitution

provides that "the Legislative power shall be vested in the Congress of the Philippines
which shall consist of a Senate and a House of Representatives." The powers which
Congress is prohibited from delegating are those which are strictly, or inherently and
exclusively, legislative. Purely legislative power, which can never be delegated, has
been described as the authority to make a complete law — complete as to the time
when it shall take effect and as to whom it shall be applicable — and to
determine the expediency of its enactment. 40(40) Thus, the rule is that in order
that a court may be justified in holding a statute unconstitutional as a delegation of
legislative power, it must appear that the power involved is purely legislative in
nature — that is, one appertaining exclusively to the legislative department. It is the
nature of the power, and not the liability of its use or the manner of its exercise,
which determines the validity of its delegation.
Nonetheless, the general rule barring delegation of legislative powers is subject

to the following recognized limitations or exceptions:
(1) Delegation of tariff powers to the President under Section 28 (2) of

Article VI of the Constitution;
(2) Delegation of emergency powers to the President under Section 23 (2) of
Article VI of the Constitution;
(3) Delegation to the people at large;
(4) Delegation to local governments; and
(5) Delegation to administrative bodies. DaAISH
In every case of permissible delegation, there must be a showing that the

delegation itself is valid. It is valid only if the law (a) is complete in itself, setting
forth therein the policy to be executed, carried out, or implemented by the delegate;
41(41) and (b) fixes a standard — the limits of which are sufficiently determinate and
determinable — to which the delegate must conform in the performance of his
functions. 42(42) A sufficient standard is one which defines legislative policy, marks
its limits, maps out its boundaries and specifies the public agency to apply it. It
indicates the circumstances under which the legislative command is to be effected.
43(43) Both tests are intended to prevent a total transference of legislative authority to
the delegate, who is not allowed to step into the shoes of the legislature and exercise a
power essentially legislative. 44(44)
In People vs. Vera, 45(45) the Court, through eminent Justice Jose P. Laurel,
expounded on the concept and extent of delegation of power in this wise:
In testing whether a statute constitutes an undue delegation of legislative

power or not, it is usual to inquire whether the statute was complete in all its
terms and provisions when it left the hands of the legislature so that nothing was
left to the judgment of any other appointee or delegate of the legislature.
xxx xxx xxx
'The true distinction', says Judge Ranney, 'is between the delegation
of power to make the law, which necessarily involves a discretion as to what
it shall be, and conferring an authority or discretion as to its execution, to
be exercised under and in pursuance of the law. The first cannot be done;
to the latter no valid objection can be made.'
xxx xxx xxx
It is contended, however, that a legislative act may be made to the effect

as law after it leaves the hands of the legislature. It is true that laws may be
made effective on certain contingencies, as by proclamation of the executive or
the adoption by the people of a particular community. In Wayman vs. Southard,
the Supreme Court of the United States ruled that the legislature may delegate a
power not legislative which it may itself rightfully exercise. The power to
ascertain facts is such a power which may be delegated. There is nothing
essentially legislative in ascertaining the existence of facts or conditions as
the basis of the taking into effect of a law. That is a mental process common
to all branches of the government. Notwithstanding the apparent tendency,
however, to relax the rule prohibiting delegation of legislative authority on
account of the complexity arising from social and economic forces at work in
this modern industrial age, the orthodox pronouncement of Judge Cooley in his
work on Constitutional Limitations finds restatement in Prof. Willoughby's
treatise on the Constitution of the United States in the following language —
speaking of declaration of legislative power to administrative agencies: The
principle which permits the legislature to provide that the administrative
agent may determine when the circumstances are such as require the
application of a law is defended upon the ground that at the time this
authority is granted, the rule of public policy, which is the essence of the
legislative act, is determined by the legislature. In other words, the
legislature, as it is its duty to do, determines that, under given
circumstances, certain executive or administrative action is to be taken,
and that, under other circumstances, different or no action at all is to be
taken. What is thus left to the administrative official is not the legislative
determination of what public policy demands, but simply the ascertainment
of what the facts of the case require to be done according to the terms of
the law by which he is governed. The efficiency of an Act as a declaration of
legislative will must, of course, come from Congress, but the ascertainment
of the contingency upon which the Act shall take effect may be left to such
agencies as it may designate. The legislature, then, may provide that a law
shall take effect upon the happening of future specified contingencies
leaving to some other person or body the power to determine when the
specified contingency has arisen. (Emphasis supplied). 46(46)
In Edu vs. Ericta, 47(47) the Court reiterated:
What cannot be delegated is the authority under the Constitution to make

laws and to alter and repeal them; the test is the completeness of the statute in
all its terms and provisions when it leaves the hands of the legislature. To
determine whether or not there is an undue delegation of legislative power, the
inquiry must be directed to the scope and definiteness of the measure enacted.
The legislative does not abdicate its functions when it describes what job
must be done, who is to do it, and what is the scope of his authority. For a
complex economy, that may be the only way in which the legislative process
can go forward. A distinction has rightfully been made between delegation
of power to make the laws which necessarily involves a discretion as to
what it shall be, which constitutionally may not be done, and delegation of
authority or discretion as to its execution to be exercised under and in
pursuance of the law, to which no valid objection can be made. The
Constitution is thus not to be regarded as denying the legislature the necessary
resources of flexibility and practicability. (Emphasis supplied). 48(48)
Clearly, the legislature may delegate to executive officers or bodies the power
to determine certain facts or conditions, or the happening of contingencies, on which
the operation of a statute is, by its terms, made to depend, but the legislature must
prescribe sufficient standards, policies or limitations on their authority. 49(49) While
the power to tax cannot be delegated to executive agencies, details as to the
enforcement and administration of an exercise of such power may be left to them,
including the power to determine the existence of facts on which its operation
depends. 50(50)
The rationale for this is that the preliminary ascertainment of facts as basis for
the enactment of legislation is not of itself a legislative function, but is simply
ancillary to legislation. Thus, the duty of correlating information and making
recommendations is the kind of subsidiary activity which the legislature may perform
through its members, or which it may delegate to others to perform. Intelligent
legislation on the complicated problems of modern society is impossible in the
absence of accurate information on the part of the legislators, and any reasonable
method of securing such information is proper. 51(51) The Constitution as a
continuously operative charter of government does not require that Congress find for
itself every fact upon which it desires to base legislative action or that it make for
itself detailed determinations which it has declared to be prerequisite to application of
legislative policy to particular facts and circumstances impossible for Congress itself
properly to investigate. 52(52)
In the present case, the challenged section of R.A. No. 9337 is the common
proviso in Sections 4, 5 and 6 which reads as follows:
That the President, upon the recommendation of the Secretary of

twelve percent (12%), after any of the following conditions has been satisfied:
(i) Value-added tax collection as a percentage of Gross

Domestic Product (GDP) of the previous year exceeds two and four-fifth
percent (2 4/5%); or
The case before the Court is not a delegation of legislative power. It is simply a
delegation of ascertainment of facts upon which enforcement and administration of
the increase rate under the law is contingent. The legislature has made the operation
of the 12% rate effective January 1, 2006, contingent upon a specified fact or
condition. It leaves the entire operation or non-operation of the 12% rate upon factual
matters outside of the control of the executive.
No discretion would be exercised by the President. Highlighting the absence of

discretion is the fact that the word shall is used in the common proviso. The use of the
word shall connotes a mandatory order. Its use in a statute denotes an imperative
obligation and is inconsistent with the idea of discretion. 53(53) Where the law is
clear and unambiguous, it must be taken to mean exactly what it says, and courts have
no choice but to see to it that the mandate is obeyed. 54(54)
Thus, it is the ministerial duty of the President to immediately impose the 12%
rate upon the existence of any of the conditions specified by Congress. This is a duty
which cannot be evaded by the President. Inasmuch as the law specifically uses the
word shall, the exercise of discretion by the President does not come into play. It is a
clear directive to impose the 12% VAT rate when the specified conditions are present.
The time of taking into effect of the 12% VAT rate is based on the happening of a
certain specified contingency, or upon the ascertainment of certain facts or conditions
by a person or body other than the legislature itself.
The Court finds no merit to the contention of petitioners ABAKADA GURO

Party List, et al. that the law effectively nullified the President's power of control over
the Secretary of Finance by mandating the fixing of the tax rate by the President upon
the recommendation of the Secretary of Finance. The Court cannot also subscribe to
the position of petitioners Pimentel, et al. that the word shall should be interpreted to
mean may in view of the phrase "upon the recommendation of the Secretary of
Finance." Neither does the Court find persuasive the submission of petitioners
Escudero, et al. that any recommendation by the Secretary of Finance can easily be
brushed aside by the President since the former is a mere alter ego of the latter.
When one speaks of the Secretary of Finance as the alter ego of the President,
it simply means that as head of the Department of Finance he is the assistant and
agent of the Chief Executive. The multifarious executive and administrative functions
of the Chief Executive are performed by and through the executive departments, and
the acts of the secretaries of such departments, such as the Department of Finance,
performed and promulgated in the regular course of business, are, unless disapproved
or reprobated by the Chief Executive, presumptively the acts of the Chief Executive.
The Secretary of Finance, as such, occupies a political position and holds office in an
advisory capacity, and, in the language of Thomas Jefferson, "should be of the
President's bosom confidence" and, in the language of Attorney-General Cushing, is
"subject to the direction of the President." 55(55)
In the present case, in making his recommendation to the President on the

existence of either of the two conditions, the Secretary of Finance is not acting as the
alter ego of the President or even her subordinate. In such instance, he is not subject
to the power of control and direction of the President. He is acting as the agent of the
legislative department, to determine and declare the event upon which its expressed
will is to take effect. 56(56) The Secretary of Finance becomes the means or tool by
which legislative policy is determined and implemented, considering that he
possesses all the facilities to gather data and information and has a much broader
perspective to properly evaluate them. His function is to gather and collate statistical
data and other pertinent information and verify if any of the two conditions laid out
by Congress is present. His personality in such instance is in reality but a projection
of that of Congress. Thus, being the agent of Congress and not of the President, the
President cannot alter or modify or nullify, or set aside the findings of the Secretary of
Finance and to substitute the judgment of the former for that of the latter. DcITHE
Congress simply granted the Secretary of Finance the authority to ascertain the
existence of a fact, namely, whether by December 31, 2005, the value-added tax
collection as a percentage of Gross Domestic Product (GDP) of the previous year
exceeds two and four-fifth percent (2 4/5%) or the national government deficit as a
percentage of GDP of the previous year exceeds one and one-half percent (1 1/2%). If
either of these two instances has occurred, the Secretary of Finance, by legislative
mandate, must submit such information to the President. Then the 12% VAT rate
must be imposed by the President effective January 1, 2006. There is no undue
delegation of legislative power but only of the discretion as to the execution of a
law. This is constitutionally permissible. 57(57) Congress does not abdicate its
functions or unduly delegate power when it describes what job must be done, who
must do it, and what is the scope of his authority; in our complex economy that is
frequently the only way in which the legislative process can go forward. 58(58)
As to the argument of petitioners ABAKADA GURO Party List, et al. that

delegating to the President the legislative power to tax is contrary to the principle of
republicanism, the same deserves scant consideration. Congress did not delegate the
power to tax but the mere implementation of the law. The intent and will to increase
the VAT rate to 12% came from Congress and the task of the President is to simply
execute the legislative policy. That Congress chose to do so in such a manner is not
within the province of the Court to inquire into, its task being to interpret the law.
59(59)
The insinuation by petitioners Pimentel, et al. that the President has ample
powers to cause, influence or create the conditions to bring about either or both the
conditions precedent does not deserve any merit as this argument is highly
speculative. The Court does not rule on allegations which are manifestly conjectural,
as these may not exist at all. The Court deals with facts, not fancies; on realities, not
appearances. When the Court acts on appearances instead of realities, justice and law
will be short-lived.
B. The 12% Increase VAT Rate Does Not Impose an Unfair and Unnecessary
Additional Tax Burden
Petitioners Pimentel, et al. argue that the 12% increase in the VAT rate
imposes an unfair and additional tax burden on the people. Petitioners also argue that
the 12% increase, dependent on any of the 2 conditions set forth in the contested
provisions, is ambiguous because it does not state if the VAT rate would be returned
to the original 10% if the rates are no longer satisfied. Petitioners also argue that such
rate is unfair and unreasonable, as the people are unsure of the applicable VAT rate
from year to year.
Under the common provisos of Sections 4, 5 and 6 of R.A. No. 9337, if any of
the two conditions set forth therein are satisfied, the President shall increase the VAT
rate to 12%. The provisions of the law are clear. It does not provide for a return to the
10% rate nor does it empower the President to so revert if, after the rate is increased
to 12%, the VAT collection goes below the 2 4/5 of the GDP of the previous year or
that the national government deficit as a percentage of GDP of the previous year does
not exceed 1 1/2%.
Therefore, no statutory construction or interpretation is needed. Neither can

conditions or limitations be introduced where none is provided for. Rewriting the law
is a forbidden ground that only Congress may tread upon. 60(60)
Thus, in the absence of any provision providing for a return to the 10% rate,
which in this case the Court finds none, petitioners' argument is, at best, purely
speculative. There is no basis for petitioners' fear of a fluctuating VAT rate because
the law itself does not provide that the rate should go back to 10% if the conditions
provided in Sections 4, 5 and 6 are no longer present. The rule is that where the
provision of the law is clear and unambiguous, so that there is no occasion for the
court's seeking the legislative intent, the law must be taken as it is, devoid of judicial
addition or subtraction. 61(61)
Petitioners also contend that the increase in the VAT rate, which was allegedly
an incentive to the President to raise the VAT collection to at least 2 4/5 of the GDP
of the previous year, should be based on fiscal adequacy.
Petitioners obviously overlooked that increase in VAT collection is not the

only condition. There is another condition, i.e., the national government deficit as a
percentage of GDP of the previous year exceeds one and one-half percent (1 1/2%).
Respondents explained the philosophy behind these alternative conditions:
1. VAT/GDP Ratio > 2.8%
The condition set for increasing VAT rate to 12% have economic or
fiscal meaning. If VAT/GDP is less than 2.8%, it means that government has
weak or no capability of implementing the VAT or that VAT is not effective in
the function of the tax collection. Therefore, there is no value to increase it to
12% because such action will also be ineffectual.
2. Nat'l Gov't Deficit/GDP >1.5%
The condition set for increasing VAT when deficit/GDP is 1.5% or less
means the fiscal condition of government has reached a relatively sound
position or is towards the direction of a balanced budget position. Therefore,
there is no need to increase the VAT rate since the fiscal house is in a relatively
healthy position. Otherwise stated, if the ratio is more than 1.5%, there is indeed
a need to increase the VAT rate. 62(62)
That the first condition amounts to an incentive to the President to increase the
VAT collection does not render it unconstitutional so long as there is a public purpose
for which the law was passed, which in this case, is mainly to raise revenue. In fact,
fiscal adequacy dictated the need for a raise in revenue.
The principle of fiscal adequacy as a characteristic of a sound tax system was

originally stated by Adam Smith in his Canons of Taxation (1776), as:
IV. Every tax ought to be so contrived as both to take out and to keep out of
the pockets of the people as little as possible over and above what it
brings into the public treasury of the state. 63(63)
It simply means that sources of revenues must be adequate to meet government

expenditures and their variations. 64(64)
The dire need for revenue cannot be ignored. Our country is in a quagmire of
financial woe. During the Bicameral Conference Committee hearing, then Finance
Secretary Purisima bluntly depicted the country's gloomy state of economic affairs,
thus:
First, let me explain the position that the Philippines finds itself in right
now. We are in a position where 90 percent of our revenue is used for debt
service. So, for every peso of revenue that we currently raise, 90 goes to debt
service. That's interest plus amortization of our debt. So clearly, this is not a
sustainable situation. That's the first fact.
The second fact is that our debt to GDP level is way out of line
compared to other peer countries that borrow money from that international
financial markets. Our debt to GDP is approximately equal to our GDP. Again,
that shows you that this is not a sustainable situation.
The third thing that 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 years.
What do I mean by that?
In the past five years, we've been lucky because we were operating in a
period of basically global growth and low interest rates. The past few months,
we have seen an inching up, in fact, a rapid increase in the interest rates in the
leading economies of the world. And, therefore, our ability to borrow at
reasonable prices is going to be challenged. In fact, ultimately, the question is
our ability to access the financial markets.
When the President made her speech in July last year, the environment
was not as bad as it is now, at least based on the forecast of most financial
institutions. So, we were assuming that raising 80 billion would put us in a
position where we can then convince them to improve our ability to borrow at
lower rates. But conditions have changed on us because the interest rates have
gone up. In fact, just within this room, we tried to access the market for a billion
dollars because for this year alone, the Philippines will have to borrow 4 billion
dollars. Of that amount, we have borrowed 1.5 billion. We issued last January a
25-year bond at 9.7 percent cost. We were trying to access last week and the
market was not as favorable and up to now we have not accessed and we might
pull back because the conditions are not very good.
So given this situation, we at the Department of Finance believe that we

really need to front-end our deficit reduction. Because it is deficit that is causing
the increase of the debt and we are in what we call a debt spiral. The more debt
you have, the more deficit you have because interest and debt service eats and
eats more of your revenue. We need to get out of this debt spiral. And the only
way, I think, we can get out of this debt spiral is really have a front-end
adjustment in our revenue base. 65(65)
The image portrayed is chilling. Congress passed the law hoping for rescue
from an inevitable catastrophe. Whether the law is indeed sufficient to answer the
state's economic dilemma is not for the Court to judge. In the Fariñas case, the Court
refused to consider the various arguments raised therein that dwelt on the wisdom of
Section 14 of R.A. No. 9006 (The Fair Election Act), pronouncing that:
. . . policy matters are not the concern of the Court. Government policy
is within the exclusive dominion of the political branches of the government. It
is not for this Court to look into the wisdom or propriety of legislative
determination. Indeed, whether an enactment is wise or unwise, whether it is
based on sound economic theory, whether it is the best means to achieve the
desired results, whether, in short, the legislative discretion within its prescribed
limits should be exercised in a particular manner are matters for the judgment of
the legislature, and the serious conflict of opinions does not suffice to bring
them within the range of judicial cognizance. 66(66)
In the same vein, the Court in this case will not dawdle on the purpose of
Congress or the executive policy, given that it is not for the judiciary to "pass upon
questions of wisdom, justice or expediency of legislation." 67(67)
II.
Whether Section 8 of R.A. No. 9337, amending Sections 110(A)(2) and 110(B) of the
NIRC; and Section 12 of R.A. No. 9337, amending Section 114(C) of the NIRC,
violate the following provisions of the Constitution:
a. Article VI, Section 28(1), and cEaCTS
b. Article III, Section 1
A. Due Process and Equal Protection Clauses
Petitioners Association of Pilipinas Shell Dealers, Inc., et al. argue that Section
8 of R.A. No. 9337, amending Sections 110 (A)(2), 110 (B), and Section 12 of R.A.
No. 9337, amending Section 114 (C) of the NIRC are arbitrary, oppressive, excessive
and confiscatory. Their argument is premised on the constitutional right against
deprivation of life, liberty of property without due process of law, as embodied in
Article III, Section 1 of the Constitution.
Petitioners also contend that these provisions violate the constitutional
guarantee of equal protection of the law.
The doctrine is that where the due process and equal protection clauses are
invoked, considering that they are not fixed rules but rather broad standards, there is a
need for proof of such persuasive character as would lead to such a conclusion.
Absent such a showing, the presumption of validity must prevail. 68(68)
Section 8 of R.A. No. 9337, amending Section 110(B) of the NIRC imposes a
limitation on the amount of input tax that may be credited against the output tax. It
states, in part: "[P]rovided, that the input tax inclusive of the input VAT carried over
from the previous quarter that may be credited in every quarter shall not exceed
seventy percent (70%) of the output VAT: . . ."
Input Tax is defined under Section 110(A) of the NIRC, as amended, as the
value-added tax due from or paid by a VAT-registered person on the importation of
goods or local purchase of good and services, including lease or use of property, in
the course of trade or business, from a VAT-registered person, and Output Tax is the
value-added tax due on the sale or lease of taxable goods or properties or services by
any person registered or required to register under the law.
Petitioners claim that the contested sections impose limitations on the amount
of input tax that may be claimed. In effect, a portion of the input tax that has already
been paid cannot now be credited against the output tax.
Petitioners' argument is not absolute. It assumes that the input tax exceeds 70%
of the output tax, and therefore, the input tax in excess of 70% remains uncredited.
However, to the extent that the input tax is less than 70% of the output tax, then 100%
of such input tax is still creditable.
More importantly, the excess input tax, if any, is retained in a business's books
of accounts and remains creditable in the succeeding quarter/s. This is explicitly
allowed by Section 110(B), which provides that "if the input tax exceeds the output
tax, the excess shall be carried over to the succeeding quarter or quarters." In addition,
Section 112(B) allows a VAT-registered person to apply for the issuance of a tax
credit certificate or refund for any unused input taxes, to the extent that such input
taxes have not been applied against the output taxes. Such unused input tax may be
used in payment of his other internal revenue taxes.
The non-application of the unutilized input tax in a given quarter is not ad

infinitum, as petitioners exaggeratedly contend. Their analysis of the effect of the 70%
limitation is incomplete and one-sided. It ends at the net effect that there will be
unapplied/unutilized inputs VAT for a given quarter. It does not proceed further to the
fact that such unapplied/unutilized input tax may be credited in the subsequent
periods as allowed by the carry-over provision of Section 110(B) or that it may later
on be refunded through a tax credit certificate under Section 112(B).
Therefore, petitioners' argument must be rejected.
On the other hand, it appears that petitioner Garcia failed to comprehend the
operation of the 70% limitation on the input tax. According to petitioner, the
limitation on the creditable input tax in effect allows VAT-registered establishments
to retain a portion of the taxes they collect, which violates the principle that tax
collection and revenue should be for public purposes and expenditures
As earlier stated, the input tax is the tax paid by a person, passed on to him by
the seller, when he buys goods. Output tax meanwhile is the tax due to the person
when he sells goods. In computing the VAT payable, three possible scenarios may
arise:
First, if at the end of a taxable quarter the output taxes charged by the seller are
equal to the input taxes that he paid and passed on by the suppliers, then no payment
is required;
Second, when the output taxes exceed the input taxes, the person shall be liable
for the excess, which has to be paid to the Bureau of Internal Revenue (BIR); 69(69)
and
Third, if the input taxes exceed the output taxes, the excess shall be carried
over to the succeeding quarter or quarters. Should the input taxes result from
zero-rated or effectively zero-rated transactions, any excess over the output taxes shall
instead be refunded to the taxpayer or credited against other internal revenue taxes, at
the taxpayer's option. 70(70)
Section 8 of R.A. No. 9337 however, imposed a 70% limitation on the input
tax. Thus, a person can credit his input tax only up to the extent of 70% of the output
tax. In layman's term, the value-added taxes that a person/taxpayer paid and passed on
to him by a seller can only be credited up to 70% of the value-added taxes that is due
to him on a taxable transaction. There is no retention of any tax collection because the
person/taxpayer has already previously paid the input tax to a seller, and the seller
will subsequently remit such input tax to the BIR. The party directly liable for the
payment of the tax is the seller. 71(71) What only needs to be done is for the
person/taxpayer to apply or credit these input taxes, as evidenced by receipts, against
his output taxes.
Petitioners Association of Pilipinas Shell Dealers, Inc., et al. also argue that
the input tax partakes the nature of a property that may not be confiscated,
appropriated, or limited without due process of law.
The input tax is not a property or a property right within the constitutional
purview of the due process clause. A VAT-registered person's entitlement to the
creditable input tax is a mere statutory privilege.
The distinction between statutory privileges and vested rights must be borne in
mind for persons have no vested rights in statutory privileges. The state may change
or take away rights, which were created by the law of the state, although it may not
take away property, which was vested by virtue of such rights. 72(72)
Under the previous system of single-stage taxation, taxes paid at every level of
distribution are not recoverable from the taxes payable, although it becomes part of
the cost, which is deductible from the gross revenue. When Pres. Aquino issued E.O.
No. 273 imposing a 10% multi-stage tax on all sales, it was then that the crediting of
the input tax paid on purchase or importation of goods and services by
VAT-registered persons against the output tax was introduced. 73(73) This was
adopted by the Expanded VAT Law (R.A. No. 7716), 74(74) and The Tax Reform
Act of 1997 (R.A. No. 8424). 75(75) The right to credit input tax as against the output
tax is clearly a privilege created by law, a privilege that also the law can remove, or in
this case, limit.
Petitioners also contest as arbitrary, oppressive, excessive and confiscatory,

Section 8 of R.A. No. 9337, amending Section 110(A) of the NIRC, which provides:
SEC. 110. Tax Credits. —
(A) Creditable Input Tax. — . . .
Provided, That the input tax on goods purchased or imported in a

calendar month for use in trade or business for which deduction for depreciation
is allowed under this Code, shall be spread evenly over the month of acquisition
and the fifty-nine (59) succeeding months if the aggregate acquisition cost for
such goods, excluding the VAT component thereof, exceeds One million pesos
(P1,000,000.00): Provided, however, That if the estimated useful life of the
capital goods is less than five (5) years, as used for depreciation purposes, then
the input VAT shall be spread over such a shorter period: Provided, finally, That
in the case of purchase of services, lease or use of properties, the input tax shall
be creditable to the purchaser, lessee or license upon payment of the
compensation, rental, royalty or fee.
The foregoing section imposes a 60-month period within which to amortize the
creditable input tax on purchase or importation of capital goods with acquisition cost
of P1 Million pesos, exclusive of the VAT component. Such spread out only poses a
delay in the crediting of the input tax. Petitioners' argument is without basis because
the taxpayer is not permanently deprived of his privilege to credit the input tax.
It is worth mentioning that Congress admitted that the spread-out of the

creditable input tax in this case amounts to a 4-year interest-free loan to the
government. 76(76) In the same breath, Congress also justified its move by saying
that the provision was designed to raise an annual revenue of 22.6 billion. 77(77) The
legislature also dispelled the fear that the provision will fend off foreign investments,
saying that foreign investors have other tax incentives provided by law, and citing the
case of China, where despite a 17.5% non-creditable VAT, foreign investments were
not deterred. 78(78) Again, for whatever is the purpose of the 60-month amortization,
this involves executive economic policy and legislative wisdom in which the Court
cannot intervene. TAcSaC
With regard to the 5% creditable withholding tax imposed on payments made

by the government for taxable transactions, Section 12 of R.A. No. 9337, which
amended Section 114 of the NIRC, reads:
SEC. 114. Return and Payment of Value-added Tax. —
(C) Withholding of Value-added Tax. — The Government or any of its

political subdivisions, instrumentalities or agencies, including
government-owned or controlled corporations (GOCCs) shall, before making
payment on account of each purchase of goods and services which are subject to
the value-added tax imposed in Sections 106 and 108 of this Code, deduct and
withhold a final value-added tax at the rate of five percent (5%) of the gross
payment thereof: Provided, That the payment for lease or use of properties or
property rights to nonresident owners shall be subject to ten percent (10%)
withholding tax at the time of payment. For purposes of this Section, the payor
or person in control of the payment shall be considered as the withholding
agent.
The value-added tax withheld under this Section shall be remitted within
ten (10) days following the end of the month the withholding was made.
Section 114(C) merely provides a method of collection, or as stated by

respondents, a more simplified VAT withholding system. The government in this case
is constituted as a withholding agent with respect to their payments for goods and
services.
Prior to its amendment, Section 114(C) provided for different rates of

value-added taxes to be withheld — 3% on gross payments for purchases of goods;
6% on gross payments for services supplied by contractors other than by public works
contractors; 8.5% on gross payments for services supplied by public work contractors;
or 10% on payment for the lease or use of properties or property rights to nonresident
owners. Under the present Section 114(C), these different rates, except for the 10%
on lease or property rights payment to nonresidents, were deleted, and a uniform rate
of 5% is applied.
The Court observes, however, that the law used the word final. In tax usage,
final, as opposed to creditable, means full. Thus, it is provided in Section 114(C):
"final value-added tax at the rate of five percent (5%)."
In Revenue Regulations No. 02-98, implementing R.A. No. 8424 (The Tax
Reform Act of 1997), the concept of final withholding tax on income was explained,
to wit:
SECTION 2.57. Withholding of Tax at Source
(A) Final Withholding Tax. — Under the final withholding tax system
the amount of income tax withheld by the withholding agent is constituted as
full and final payment of the income tax due from the payee on the said
income. The liability for payment of the tax rests primarily on the payor as a
withholding agent. Thus, in case of his failure to withhold the tax or in case of
underwithholding, the deficiency tax shall be collected from the
payor/withholding agent. . . .
(B) Creditable Withholding Tax. — Under the creditable withholding

tax system, taxes withheld on certain income payments are intended to equal or
at least approximate the tax due of the payee on said income. . . . Taxes
withheld on income payments covered by the expanded withholding tax
(referred to in Sec. 2.57.2 of these regulations) and compensation income
(referred to in Sec. 2.78 also of these regulations) are creditable in nature.
As applied to value-added tax, this means that taxable transactions with the
government are subject to a 5% rate, which constitutes as full payment of the tax
payable on the transaction. This represents the net VAT payable of the seller. The
other 5% effectively accounts for the standard input VAT (deemed input VAT), in
lieu of the actual input VAT directly or attributable to the taxable transaction. 79(79)
The Court need not explore the rationale behind the provision. It is clear that
Congress intended to treat differently taxable transactions with the government.
80(80) This is supported by the fact that under the old provision, the 5% tax withheld
by the government remains creditable against the tax liability of the seller or
contractor, to wit:
SEC. 114. Return and Payment of Value-added Tax. —
(C) Withholding of Creditable Value-added Tax. — The

Government or any of its political subdivisions, instrumentalities or agencies,
including government-owned or controlled corporations (GOCCs) shall, before
making payment on account of each purchase of goods from sellers and services
rendered by contractors which are subject to the value-added tax imposed in
Sections 106 and 108 of this Code, deduct and withhold the value-added tax due
at the rate of three percent (3%) of the gross payment for the purchase of goods
and six percent (6%) on gross receipts for services rendered by contractors on
every sale or installment payment which shall be creditable against the
value-added tax liability of the seller or contractor: Provided, however, That
in the case of government public works contractors, the withholding rate shall
be eight and one-half percent (8.5%): Provided, further, That the payment for
lease or use of properties or property rights to nonresident owners shall be
subject to ten percent (10%) withholding tax at the time of payment. For this
purpose, the payor or person in control of the payment shall be considered as the
withholding agent.
The value-added tax withheld under this Section shall be remitted within
ten (10) days following the end of the month the withholding was made.
(Emphasis supplied)
As amended, the use of the word final and the deletion of the word creditable
exhibits Congress's intention to treat transactions with the government differently.
Since it has not been shown that the class subject to the 5% final withholding tax has
been unreasonably narrowed, there is no reason to invalidate the provision.
Petitioners, as petroleum dealers, are not the only ones subjected to the 5% final
withholding tax. It applies to all those who deal with the government.
Moreover, the actual input tax is not totally lost or uncreditable, as petitioners
believe. Revenue Regulations No. 14-2005 or the Consolidated Value-Added Tax
Regulations 2005 issued by the BIR, provides that should the actual input tax exceed
5% of gross payments, the excess may form part of the cost. Equally, should the
actual input tax be less than 5%, the difference is treated as income. 81(81)
Petitioners also argue that by imposing a limitation on the creditable input tax,
the government gets to tax a profit or value-added even if there is no profit or
value-added.
Petitioners' stance is purely hypothetical, argumentative, and again, one-sided.

The Court will not engage in a legal joust where premises are what ifs, arguments,
theoretical and facts, uncertain. Any disquisition by the Court on this point will only
be, as Shakespeare describes life in Macbeth, 82(82) "full of sound and fury,
signifying nothing."
What's more, petitioners' contention assumes the proposition that there is no

profit or value-added. It need not take an astute businessman to know that it is a
matter of exception that a business will sell goods or services without profit or
value-added. It cannot be overstressed that a business is created precisely for profit.
The equal protection clause under the Constitution means that "no person or
class of persons shall be deprived of the same protection of laws which is enjoyed by
other persons or other classes in the same place and in like circumstances." 83(83)
The power of the State to make reasonable and natural classifications for the
purposes of taxation has long been established. Whether it relates to the subject of
taxation, the kind of property, the rates to be levied, or the amounts to be raised, the
methods of assessment, valuation and collection, the State's power is entitled to
presumption of validity. As a rule, the judiciary will not interfere with such power
absent a clear showing of unreasonableness, discrimination, or arbitrariness. 84(84)
Petitioners point out that the limitation on the creditable input tax if the entity
has a high ratio of input tax, or invests in capital equipment, or has several
transactions with the government, is not based on real and substantial differences to
meet a valid classification.
The argument is pedantic, if not outright baseless. The law does not make any
classification in the subject of taxation, the kind of property, the rates to be levied or
the amounts to be raised, the methods of assessment, valuation and collection.
Petitioners' alleged distinctions are based on variables that bear different
consequences. While the implementation of the law may yield varying end results
depending on one's profit margin and value-added, the Court cannot go beyond what
the legislature has laid down and interfere with the affairs of business.
The equal protection clause does not require the universal application of the
laws on all persons or things without distinction. This might in fact sometimes result
in unequal protection. What the clause requires is equality among equals as
determined according to a valid classification. By classification is meant the grouping
of persons or things similar to each other in certain particulars and different from all
others in these same particulars. 85(85)
Petitioners brought to the Court's attention the introduction of Senate Bill No.
2038 by Sens. S.R. Osmeña III and Ma. Ana Consuelo A.S. — Madrigal on June 6,
2005, and House Bill No. 4493 by Rep. Eric D. Singson. The proposed legislation
seeks to amend the 70% limitation by increasing the same to 90%. This, according to
petitioners, supports their stance that the 70% limitation is arbitrary and confiscatory.
On this score, suffice it to say that these are still proposed legislations. Until Congress
amends the law, and absent any unequivocal basis for its unconstitutionality, the 70%
limitation stays. aHTCIc
B. Uniformity and Equitability of Taxation
Article VI, Section 28(1) of the Constitution reads:
The rule of taxation shall be uniform and equitable. The Congress shall
evolve a progressive system of taxation.
Uniformity in taxation means that all taxable articles or kinds of property of

the same class shall be taxed at the same rate. Different articles may be taxed at
different amounts provided that the rate is uniform on the same class everywhere with
all people at all times. 86(86)
In this case, the tax law is uniform as it provides a standard rate of 0% or 10%
(or 12%) on all goods and services. Sections 4, 5 and 6 of R.A. No. 9337, amending
Sections 106, 107 and 108, respectively, of the NIRC, provide for a rate of 10% (or
12%) on sale of goods and properties, importation of goods, and sale of services and
use or lease of properties. These same sections also provide for a 0% rate on certain
sales and transaction.
Neither does the law make any distinction as to the type of industry or trade
that will bear the 70% limitation on the creditable input tax, 5-year amortization of
input tax paid on purchase of capital goods or the 5% final withholding tax by the
government. It must be stressed that the rule of uniform taxation does not deprive
Congress of the power to classify subjects of taxation, and only demands uniformity
within the particular class. 87(87)
R.A. No. 9337 is also equitable. The law is equipped with a threshold margin.
The VAT rate of 0% or 10% (or 12%) does not apply to sales of goods or services
with gross annual sales or receipts not exceeding P1,500,000.00. 88(88) Also, basic
marine and agricultural food products in their original state are still not subject to the
tax, 89(89) thus ensuring that prices at the grassroots level will remain accessible. As
was stated in Kapatiran ng mga Naglilingkod sa Pamahalaan ng Pilipinas, Inc. vs.
Tan: 90(90)
The disputed sales tax is also equitable. It is imposed only on sales of

goods or services by persons engaged in business with an aggregate gross
annual sales exceeding P200,000.00. Small corner sari-sari stores are
consequently exempt from its application. Likewise exempt from the tax are
sales of farm and marine products, so that the costs of basic food and other
necessities, spared as they are from the incidence of the VAT, are expected to
be relatively lower and within the reach of the general public.
It is admitted that R.A. No. 9337 puts a premium on businesses with low profit
margins, and unduly favors those with high profit margins. Congress was not
oblivious to this. Thus, to equalize the weighty burden the law entails, the law, under
Section 116, imposed a 3% percentage tax on VAT-exempt persons under Section
109(v), i.e., transactions with gross annual sales and/or receipts not exceeding P1.5
Million. This acts as a equalizer because in effect, bigger businesses that qualify for
VAT coverage and VAT-exempt taxpayers stand on equal-footing.
Moreover, Congress provided mitigating measures to cushion the impact of the

imposition of the tax on those previously exempt. Excise taxes on petroleum products
91(91) and natural gas 92(92) were reduced. Percentage tax on domestic carriers was
removed. 93(93) Power producers are now exempt from paying franchise tax. 94(94)
Aside from these, Congress also increased the income tax rates of corporations,
in order to distribute the burden of taxation. Domestic, foreign, and non-resident
corporations are now subject to a 35% income tax rate, from a previous 32%. 95(95)
Intercorporate dividends of non-resident foreign corporations are still subject to 15%
final withholding tax but the tax credit allowed on the corporation's domicile was
increased to 20%. 96(96) The Philippine Amusement and Gaming Corporation
(PAGCOR) is not exempt from income taxes anymore. 97(97) Even the sale by an
artist of his works or services performed for the production of such works was not
spared.
All these were designed to ease, as well as spread out, the burden of taxation,
which would otherwise rest largely on the consumers. It cannot therefore be gainsaid
that R.A. No. 9337 is equitable.
C. Progressivity of Taxation
Lastly, petitioners contend that the limitation on the creditable input tax is
anything but regressive. It is the smaller business with higher input tax-output tax
ratio that will suffer the consequences.
Progressive taxation is built on the principle of the taxpayer's ability to pay.

This principle was also lifted from Adam Smith's Canons of Taxation, and it states:
I. The subjects of every state ought to contribute towards the support of

the government, as nearly as possible, in proportion to their respective
abilities; that is, in proportion to the revenue which they respectively
enjoy under the protection of the state. TSacCH
Taxation is progressive when its rate goes up depending on the resources of the
person affected. 98(98)
The VAT is an antithesis of progressive taxation. By its very nature, it is

regressive. The principle of progressive taxation has no relation with the VAT system
inasmuch as the VAT paid by the consumer or business for every goods bought or
services enjoyed is the same regardless of income. In other words, the VAT paid eats
the same portion of an income, whether big or small. The disparity lies in the income
earned by a person or profit margin marked by a business, such that the higher the
income or profit margin, the smaller the portion of the income or profit that is eaten
by VAT. A converso, the lower the income or profit margin, the bigger the part that
the VAT eats away. At the end of the day, it is really the lower income group or
businesses with low-profit margins that is always hardest hit.
Nevertheless, the Constitution does not really prohibit the imposition of

indirect taxes, like the VAT. What it simply provides is that Congress shall "evolve a
progressive system of taxation." The Court stated in the Tolentino case, thus:
The Constitution does not really prohibit the imposition of indirect taxes
which, like the VAT, are regressive. What it simply provides is that Congress
shall 'evolve a progressive system of taxation.' The constitutional provision has
been interpreted to mean simply that 'direct taxes are . . . to be preferred [and] as
much as possible, indirect taxes should be minimized.' (E. FERNANDO, THE
CONSTITUTION OF THE PHILIPPINES 221 (Second ed. 1977)) Indeed, the
mandate to Congress is not to prescribe, but to evolve, a progressive tax system.
Otherwise, sales taxes, which perhaps are the oldest form of indirect taxes,
would have been prohibited with the proclamation of Art. VIII, §17 (1) of the
1973 Constitution from which the present Art. VI, §28 (1) was taken. Sales
taxes are also regressive.
Resort to indirect taxes should be minimized but not avoided entirely

because it is difficult, if not impossible, to avoid them by imposing such taxes
according to the taxpayers' ability to pay. In the case of the VAT, the law
minimizes the regressive effects of this imposition by providing for zero rating
of certain transactions (R.A. No. 7716, §3, amending §102 (b) of the NIRC),
while granting exemptions to other transactions. (R.A. No. 7716, §4 amending
§103 of the NIRC) 99(99)
CONCLUSION
It has been said that taxes are the lifeblood of the government. In this case, it is
just an enema, a first-aid measure to resuscitate an economy in distress. The Court is
neither blind nor is it turning a deaf ear on the plight of the masses. But it does not
have the panacea for the malady that the law seeks to remedy. As in other cases, the
Court cannot strike down a law as unconstitutional simply because of its yokes.
Let us not be overly influenced by the plea that for every wrong there is
a remedy, and that the judiciary should stand ready to afford relief. There are
undoubtedly many wrongs the judicature may not correct, for instance, those
involving political questions. . . .
Let us likewise disabuse our minds from the notion that the judiciary is
the repository of remedies for all political or social ills; We should not forget
that the Constitution has judiciously allocated the powers of government to
three distinct and separate compartments; and that judicial interpretation has
tended to the preservation of the independence of the three, and a zealous regard
of the prerogatives of each, knowing full well that one is not the guardian of the
others and that, for official wrong-doing, each may be brought to account, either
by impeachment, trial or by the ballot box. 100(100)
The words of the Court in Vera vs. Avelino 101(101) 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.
WHEREFORE, Republic Act No. 9337 not being unconstitutional, the

petitions in G.R. Nos. 168056, 168207, 168461, 168463, and 168730, are hereby
DISMISSED.
There being no constitutional impediment to the full enforcement and

implementation of R.A. No. 9337, the temporary restraining order issued by the Court
on July 1, 2005 is LIFTED upon finality of herein decision.
SO ORDERED.
Carpio, J., concurs.
Davide, Jr., C.J., pls. see separate concurring and dissenting opinion.
Puno, J., pls. see concurring and dissenting opinion.
Panganiban, J., please see separate opinion.
Quisumbing, J., concurs in the result.
Ynares-Santiago, J., is on leave; C.J. Davide, Jr., certifies that J. Santiago

participated in the oral arguments and initial deliberations and allowed to vote;
sending her separate opinion.
Sandoval-Gutierrez, J., pls. see my concurring and dissenting opinion.
Corona, J., I join Mrs. Justice Gutierrez in her concurring and dissenting
opinion.
Carpio-Morales, J., I concur. I also concur with the dissent of J. Tinga on

Section 8 of the law.
Callejo, Sr., J., pls. see my concurring and dissenting opinion.
Azcuna, J., pls. see separate concurring and dissenting opinion.
Tinga, J., see dissenting and concurring opinion.
Chico-Nazario, J., pls. see separate concurring opinion.
Garcia, J., I also concur with J. Puno insofar as the deletion of no pass on
provision is concerned, including section 21.
Separate Opinions
DAVIDE, JR., C.J., separate concurring and dissenting opinion:
While I still hold on to my position expressed in my dissenting opinion in the

first VAT cases, 1(102) I partly yield to the application to the cases at bar of the rule
on "germaneness" therein enunciated. Thus, I concur with the ponencia of my
highly-esteemed colleague Mme. Justice Ma. Alicia Austria-Martinez except as
regards its ruling on the issue of whether Republic Act No. 9337 violates Section 24,
Article VI of the Constitution.
R.A. No. 9337 primarily aims to restructure the value-added tax (VAT) system
by broadening its base and raising the rate so as to generate more revenues for the
government that can assuage the economic predicament that our country is now
facing. This recently enacted law stemmed from three legislative bills: House Bill
(HB) No. 3555, HB No. 3705, and Senate Bill (SB) 1950. The first (HB No. 3555)
called for the amendment of Sections 106, 107, 108, 109, 110, and 111 of the
National Internal Revenue Code (NIRC) as amended; while the second (HB No.
3705) proposed amendments to Sections 106, 107, 108, 110, and 114 of the NIRC, as
amended. It is significant to note that all these Sections specifically deal with VAT.
And indubitably, these bills are revenue bills in that they are intended to levy taxes
and raise funds for the government. 2(103)
On the other hand, SB No. 1950 introduced amendments to "Sections 27, 28,
34, 106, 108, 109, 110, 111, 112, 113, 114, 116, 117, 118, 119, 125, 148, 236, 237,
and 288" of the NIRC, as amended. Among the provisions sought to be amended,
only Sections 106, 108, 109, 110, 111, 112, 113, 114, and 116 pertain to VAT. And
while Sections 236, 237, and 288 are administrative provisions pertaining to
registration requirements and issuance of receipts commercial invoices, the proposed
amendments thereto are related to VAT. Hence, the proposed amendments to these
Sections were validly taken cognizance of and properly considered by the Bicameral
Conference Committee (BCC). DHATcE
However, I am of the opinion that the inclusion into the law of the amendments
proposed in SB No. 1950 to the following provisions (with modifications on the rates
of taxes) is invalid.
Provision Subject matter
Section 27 Rate of income tax on domestic corporations
Section 28(A)(1) Rate of income tax on resident foreign

corporation
Section 28(B)(1) Rate of income tax on non-resident foreign

corporation
Section 28(B)(5-b) Rate of income tax on intra-corporate dividends
received by non-resident foreign corporation
Section 34(B)(1) Deductions from gross income
Section 117 Percentage tax on domestic carriers and keepers

of garages
Section 119 Tax on franchises
Section 148 Excise tax on manufactured oils and other fuels
Obviously, these provisions do not deal with VAT. It must be noted that the
House Bills initiated amendments to provisions pertaining to VAT only. Doubtless,
the Senate has the constitutional power to concur with the amendments to the VAT
provisions introduced in the House Bills or even to propose its own version of VAT
measure. But that power does not extend to initiation of other tax measures, such as
introducing amendments to provisions on corporate income taxes, percentage taxes,
franchise taxes, and excise taxes like what the Senate did in these cases. It was
beyond the ambit of the authority of the Senate to propose amendments to provisions
not covered by the House Bills or not related to the subject matter of the House Bills,
which is VAT. To allow the Senate to do so would be tantamount to vesting in it the
power to initiate revenue bills — a power that exclusively pertains to the House of
Representatives under Section 24, Article VI of the Constitution, which provides:
Sec. 24. All appropriation, revenue or tariff bills, bills authorizing

originate exclusively in the House of Representatives but the Senate may
propose or concur with amendments. ADaECI
Moreover, Sections 121 (Percentage Tax on Banks and Non-Bank Financial

Intermediaries) and 151 (Excise Tax on Mineral Products) of the NIRC, as amended,
have been included by the BCC in R.A. No. 9337 even though they were not found in
the Senate and House Bills.
In Philippine Judges Association v. Prado, 3(104) the Court described the

function of a conference committee in this wise: "A conference committee may deal
generally with the subject matter or it may be limited to resolving the precise
differences between the two houses. Even where the conference committee is not by
rule limited in its jurisdiction, legislative custom severely limits the freedom with
which new subject matter can be inserted into the conference bill."
The limitation on the power of a conference committee to insert new

provisions was laid down in Tolentino v. Secretary of Finance. 4(105) There, the
Court, while recognizing the power of a conference committee to include in its report
an entirely new provision that is not found either in the House bill or in the Senate
bill, held that the exercise of that power is subject to the condition that the said
provision is "germane to the subject of the House and Senate bills."
As pointed out by the petitioners, Tolentino differs from the present cases in
the sense that in that case the amendments introduced in the Senate bill were on the
same subject matter treated in the House bill, which was VAT, and the new
provision inserted by the conference committee had relation to that subject matter.
Specifically, HB No. 11197 called for the (1) amendment of Sections 99, 100, 102,
103, 104, 105, 106, 107, 108, 110, 112, 115, 116, 236, 237, and 238 of the NIRC, as
amended; and (2) repeal of Sections 113 and 114 of the NIRC, as amended. SB No.
1630, on the other hand, proposed the (1) amendment of Sections 99, 100, 102, 103,
104, 105, 107, 108, 110, 112, 236, 237, and 238 of the NIRC, as amended; and (2)
repeal of Sections 113, 114, and 116 of the NIRC, as amended. In short, all the
provisions sought to be changed in the Senate bill were covered in the House bill.
Although the new provisions inserted by the conference committee were not found in
either the House or Senate bills, they were germane to the general subject of the bills.
In the present cases, the provisions inserted by the BCC, namely, Sections 121
(Percentage Tax on Banks and Non-Bank Financial Intermediaries) and 151 (Excise
Tax on Mineral Products) of the NIRC, as amended, are undoubtedly germane to SB
No. 1950, which introduced amendments to the provisions on percentage and excise
taxes — but foreign to HB Nos. 3555 and 3705, which dealt with VAT only. Since
the proposed amendments in the Senate bill relating to percentage and excise taxes
cannot themselves be sustained because they did not take their root from, or are not
related to the subject of, HB Nos. 3705 and 3555, in violation of Section 24, Article
VI of the Constitution, the new provisions inserted by the BCC on percentage and
excise taxes would have no leg to stand on. DCcTHa
I understand very well that the amendments of the Senate and the BCC relating
to corporate income, percentage, franchise, and excise taxes were designed to "soften
the impact of VAT measure on the consumer, i.e., by distributing the burden across
all sectors instead of putting it entirely on the shoulders of the consumers" and to
alleviate the country's financial problems by bringing more revenues for the
government. However, these commendable intentions do not justify a deviation from
the Constitution, which mandates that the initiative for filing revenue bills should
come from the House of Representatives, not from the Senate. After all, these aims
may still be realized by means of another bill that may later be initiated by the House
of Representatives.
Therefore, I vote to declare R.A. No. 9337 as constitutional insofar as it
amends provisions pertaining to VAT. However, I vote to declare as unconstitutional
Sections 1, 2, 3, 14, 15, 16, 17, and 18 thereof which, respectively, amend Sections
27, 28, 34, 117, 119, 121, 148, and 151 of the NIRC, as amended because these
amendments deal with subject matters which were not touched or covered by the bills
emanating from the House of Representatives, thereby violating Section 24 of Article
VI of the Constitution.
PUNO, J., concurring and dissenting:
The main opinion of Madam Justice Martinez exhaustively discusses the

numerous constitutional and legal issues raised by the petitioners. Be that as it may, I
wish to raise the following points, viz:
First. Petitioners assail sections 4 to 6 of Republic Act No. 9337 as violative

of the principle of non-delegation of legislative power. These sections authorize the
President, upon recommendation of the Secretary of Finance, to raise the value-added
tax (VAT) rate to 12% effective January 1, 2006, upon satisfaction of the following
conditions: viz:

4/5%); or

The power of judicial review under Article VIII, section 5(2) of the 1987 Constitution
is limited to the review of "actual cases and controversies." 1(106) As rightly
stressed by retired Justice Vicente V. Mendoza, this requirement gives the judiciary
"the opportunity, denied to the legislature, of seeing the actual operation of the statute
as it is applied to actual facts and thus enables it to reach sounder judgment" and
"enhances public acceptance of its role in our system of government." 2(107) It also
assures that the judiciary does not intrude on areas committed to the other branches of
government and is confined to its role as defined by the Constitution. 3(108) Apposite
thereto is the doctrine of ripeness whose basic rationale is "to prevent the courts,
through premature adjudication, from entangling themselves in abstract
disagreements." 4(109) Central to the doctrine is the determination of "whether the
case involves uncertain or contingent future events that may not occur as
anticipated, or indeed may not occur at all." 5(110) The ripeness requirement must be
satisfied for each challenged legal provision and parts of a statute so that those
which are "not immediately involved are not thereby thrown open for a judicial
determination of constitutionality." 6(111)
It is manifest that the constitutional challenge to sections 4 to 6 of R.A. No.

9337 cannot hurdle the requirement of ripeness. These sections give the President
the power to raise the VAT rate to 12% on January 1, 2006 upon satisfaction of
certain fact-based conditions. We are not endowed with the infallible gift of
prophesy to know whether these conditions are certain to happen. The power to adjust
the tax rate given to the President is futuristic and may or may not be exercised. The
Court is therefore beseeched to render a conjectural judgment based on hypothetical
facts. Such a supplication has to be rejected. AcSCaI
Second. With due respect, I submit that the most important constitutional issue
posed by the petitions at bar relates to the parameters of power of a Bicameral
Conference Committee. Most of the issues in the petitions at bar arose because the
Bicameral Conference Committee concerned exercised powers that went beyond
reconciling the differences between Senate Bill No. 1950 and House Bill Nos. 3705
and 3555. In Tolentino v. Secretary of Finance, 7(112) I ventured the view that a
Bicameral Conference Committee has limited powers and cannot be allowed to act as
if it were a "third house" of Congress. I further warned that unless its roving powers
are reigned in, a Bicameral Conference Committee can wreck the lawmaking process
which is a cornerstone of the democratic, republican regime established in our
Constitution. The passage of time fortifies my faith that there ought to be no legal
u-turn on this preeminent principle. I wish, therefore, to reiterate my reasons for this
unbending view, viz: 8(113)
Section 209, Rule XII of the Rules of the Senate provides:
In the event that the Senate does not agree with the House of
Representatives on the provision of any bill or joint resolution, the
differences shall be settled by a conference committee of both Houses
which shall meet within ten days after their composition.

sufficiently 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

identical language. Section 85 of the Rules of the House of Representatives
pertinently provides:
In the event that the House does not agree with the Senate on the
amendments to any bill or joint resolution, the differences may be settled
by a conference committee of both chambers.
. . . . Each report shall contain a detailed, sufficiently explicit

statement of the changes in or amendments to the subject measure.
(Emphasis supplied)
The Jefferson's Manual has been adopted as a supplement to our parliamentary

rules and practice. Section 456 of Jefferson's Manual similarly confines the
powers of a conference committee, viz:
The managers of a conference must confine themselves to the

differences committed to them . . . and may not include subjects not
within the disagreements, even though germane to a question in issue.
This rule of antiquity has been honed and honored in practice by the Congress
of the United States. Thus, it is chronicled by Floyd Biddick, Parliamentarian
Emeritus of the United States Senate, viz:
Committees of conference are appointed for the sole purpose of

compromising and adjusting the differing and conflicting opinions of the
two Houses and the committees of conference alone can grant
compromises and modify propositions of either Houses within the limits
of the disagreement. Conferees are limited to the consideration of
differences between the two Houses.
Congress shall not insert in their report matters not committed to

them by either House, nor shall they strike from the bill matters agreed
to by both Houses. No matter on which there is nothing in either the
Senate or House passed versions of a bill may be included in the
conference report and actions to the contrary would subject the report to
a point of order. (Emphasis ours)
In fine, there is neither a sound nor a syllable in the Rules of the Senate and the
House of Representatives to support the thesis of the respondents that a
bicameral conference committee is clothed with an ex post veto power.
But the thesis that a Bicameral Conference Committee can wield ex post
veto power does not only contravene the rules of both the Senate and the House.
It wages war against our settled ideals of representative democracy. For the
inevitable, catastrophic effect of the thesis is to install a Bicameral Conference
Committee as the Third Chamber of our Congress, similarly vested with the
power to make laws but with the dissimilarity that its laws are not the subject of
a free and full discussion of both Houses of Congress. With such a vagrant
power, a Bicameral Conference Committee acting as a Third Chamber will be a
constitutional monstrosity. ScCEIA
It needs no omniscience to perceive that our Constitution did not provide

for a Congress composed of three chambers. On the contrary, section 1, Article
VI of the Constitution provides in clear and certain language: "The legislative
power shall be vested in the Congress of the Philippines which shall consist of a
Senate and a House of Representatives . . ." Note that in vesting legislative
power exclusively to the Senate and the House, the Constitution used the word
"shall." Its command for a Congress of two houses is mandatory. It is not
mandatory sometimes.
In vesting legislative power to the Senate, the Constitution means the

Senate ". . . composed of twenty-four Senators . . . elected at large by the
qualified voters of the Philippines . . . " Similarly, when the Constitution vested
the legislative power to the House, it means the House ". . . composed of not
more than two hundred and fifty members . . . who shall be elected from
legislative districts . . . and those who . . . shall be elected through a party-list
system of registered national, regional, and sectoral parties or organizations."
The Constitution thus, did not vest on a Bicameral Conference Committee with
an ad hoc membership the power to legislate for it exclusively vested legislative
power to the Senate and the House as co-equal bodies. To be sure, the
Constitution does not mention the Bicameral Conference Committees of
Congress. No constitutional status is accorded to them. They are not even
statutory creations. They owe their existence from the internal rules of the two
Houses of Congress. Yet, respondents peddle the disconcerting idea that they
should be recognized as a Third Chamber of Congress and with ex post veto
power at that.
The thesis that a Bicameral Conference Committee can exercise law

making power with ex post veto power is freighted with mischief. Law making
is a power that can be used for good or for ill, hence, our Constitution carefully
laid out a plan and a procedure for its exercise. Firstly, it vouchsafed that the
power to make laws should be exercised by no other body except the Senate and
the House. It ought to be indubitable that what is contemplated is the Senate
acting as a full Senate and the House acting as a full House. It is only when the
Senate and the House act as whole bodies that they truly represent the people.
And it is only when they represent the people that they can legitimately pass
laws. Laws that are not enacted by the people's rightful representatives subvert
the people's sovereignty. Bicameral Conference Committees, with their ad hoc
character and limited membership, cannot pass laws for they do not represent
the people. The Constitution does not allow the tyranny of the majority. Yet, the
respondents will impose the worst kind of tyranny — the tyranny of the
minority over the majority. Secondly, the Constitution delineated in deft strokes
the steps to be followed in making laws. The overriding purpose of these
procedural rules is to assure that only bills that successfully survive the
searching scrutiny of the proper committees of Congress and the full and
unfettered deliberations of both Houses can become laws. For this reason, a bill
has to undergo three (3) mandatory separate readings in each House. In the case
at bench, the additions and deletions made by the Bicameral Conference
Committee did not enjoy the enlightened studies of appropriate committees. It is
meet to note that the complexities of modern day legislations have made our
committee system a significant part of the legislative process. Thomas Reed
called the committee system as "the eye, the ear, the hand, and very often the
brain of the house." President Woodrow Wilson of the United States once
referred to the government of the United States as "a government by the
Chairmen of the Standing Committees of Congress . . ." Neither did these
additions and deletions of the Bicameral Conference Committee pass through
the coils of collective deliberation of the members of the two Houses acting
separately. Due to this shortcircuiting of the constitutional procedure of making
laws, confusion shrouds the enactment of R.A. No. 7716. Who inserted the
additions and deletions remains a mystery. Why they were inserted is a riddle.
To use a Churchillian phrase, lawmaking should not be a riddle wrapped in an
enigma. It cannot be, for Article II, section 28 of the Constitution mandates the
State to adopt and implement a "policy of full public disclosure of all its
transactions involving public interest." The Constitution could not have
contemplated a Congress of invisible and unaccountable John and Mary Does.
A law whose rationale is a riddle and whose authorship is obscure cannot bind
the people. ECcaDT
All these notwithstanding, respondents resort to the legal cosmetology

that these additions and deletions should govern the people as laws because the
Bicameral Conference Committee Report was anyway submitted to and
approved by the Senate and the House of Representatives. The submission may
have some merit with respect to provisions agreed upon by the Committee in the
process of reconciling conflicts between S.B. No. 1630 and H.B. No. 11197. In
these instances, the conflicting provisions had been previously screened by the
proper committees, deliberated upon by both Houses and approved by them. It
is, however, a different matter with respect to additions and deletions which
were entirely new and which were made not to reconcile inconsistencies
between S.B. No. 1630 and H.B. No. 11197. The members of the Bicameral
Conference Committee did not have any authority to add new provisions or
delete provisions already approved by both Houses as it was not necessary to
discharge their limited task of reconciling differences in bills. At that late stage
of law making, the Conference Committee cannot add/delete provisions which
can become laws without undergoing the study and deliberation of both
chambers given to bills on 1st, 2nd, and 3rd readings. Even the Senate and the
House cannot enact a law which will not undergo these mandatory three (3)
readings required by the Constitution. If the Senate and the House cannot enact
such a law, neither can the lesser Bicameral Conference Committee.
Moreover, the so-called choice given to the members of both Houses to

either approve or disapprove the said additions and deletions is more of an
optical illusion. These additions and deletions are not submitted separately for
approval. They are tucked to the entire bill. The vote is on the bill as a package,
i.e., together with the insertions and deletions. And the vote is either "aye" or
"nay," without any further debate and deliberation. Quite often, legislators vote
"yes" because they approve of the bill as a whole although they may object to its
amendments by the Conference Committee. This lack of real choice is well
observed by Robert Luce:
Their power lies chiefly in the fact that reports of conference

committees must be accepted without amendment or else rejected in
toto. The impulse is to get done with the matter and so the motion to
accept has undue advantage, for some members are sure to prefer
swallowing unpalatable provisions rather than prolong controversy. This
is the more likely if the report comes in the rush of business toward the
end of a session, when to seek further conference might result in the loss
of the measure altogether. At any time in the session there is some risk
of such a result following the rejection of a conference report, for it may
not be possible to secure a second conference, or delay may give
opposition to the main proposal chance to develop more strength.
In a similar vein, Prof. Jack Davies commented that "conference reports are
returned to assembly and Senate on a take-it or leave-it-basis, and the bodies are
generally placed in the position that to leave-it is a practical impossibility."
Thus, he concludes that "conference committee action is the most undemocratic
procedure in the legislative process."
The respondents also contend that the additions and deletions made by
the Bicameral Conference Committee were in accord with legislative customs
and usages. The argument does not persuade for it misappreciates the value of
customs and usages in the hierarchy of sources of legislative rules of procedure.
To be sure, every legislative assembly has the inherent right to promulgate its
own internal rules. In our jurisdiction, Article VI, section 16(3) of the
Constitution provides that "Each House may determine the rules of its
proceedings . . . ." But it is hornbook law that the sources of Rules of Procedure
are many and hierarchical in character. Mason laid them down as follows:
xxx xxx xxx
1. Rules of Procedure are derived from several sources. The

principal sources are as follows:
a. Constitutional rules.
b. Statutory rules or charter provisions.
c. Adopted rules.
d. Judicial decisions.
e. Adopted parliamentary authority.
f. Parliamentary law.
g. Customs and usages.
2. The rules from the different sources take precedence in the

order listed above except that judicial decisions, since they are
interpretations of rules from one of the other sources, take the same
precedence as the source interpreted. Thus, for example, an
interpretation of a constitutional provision takes precedence over a
statute.
3. Whenever there is conflict between rules from these sources

the rule from the source listed earlier prevails over the rule from the
source listed later. Thus, where the Constitution requires three readings
of bills, this provision controls over any provision of statute, adopted
rules, adopted manual, or of parliamentary law, and a rule of
parliamentary law controls over a local usage but must give way to any
rule from a higher source of authority. (Emphasis ours)
As discussed above, the unauthorized additions and deletions made by the

Bicameral Conference Committee violated the procedure fixed by the
Constitution in the making of laws. It is reasonless for respondents therefore to
justify these insertions as sanctioned by customs and usages.
Finally, respondents seek sanctuary in the conclusiveness of an enrolled

bill to bar any judicial inquiry on whether Congress observed our constitutional
procedure in the passage of R.A. No. 7716. The enrolled bill theory is a
historical relic that should not continuously rule us from the fossilized past. It
should be immediately emphasized that the enrolled bill theory originated in
England where there is no written constitution and where Parliament is
supreme. In this jurisdiction, we have a written constitution and the legislature
is a body of limited powers. Likewise, it must be pointed out that starting from
the decade of the 40s, even American courts have veered away from the rigidity
and unrealism of the conclusiveness of an enrolled bill. Prof. Sutherland
observed:
xxx xxx xxx
Where the failure of constitutional compliance in the enactment

of statutes is not discoverable from the face of the act itself but may be
demonstrated by recourse to the legislative journals, debates, committee
reports or papers of the governor, courts have used several conflicting
theories with which to dispose of the issue. They have held: (1) that the
enrolled bill is conclusive and like the sheriff's return cannot be
attacked; (2) that the enrolled bill is prima facie correct and only in case
the legislative journal shows affirmative contradiction of the
constitutional requirement will the bill be held invalid; (3) that although
the enrolled bill is prima facie correct, evidence from the journals, or
other extrinsic sources is admissible to strike the bill down; (4) that the
legislative journal is conclusive and the enrolled bills is valid only if it
accords with the recital in the journal and the constitutional procedure.
Various jurisdictions have adopted these alternative approaches in view of

strong dissent and dissatisfaction against the philosophical underpinnings of the
conclusiveness of an enrolled bill. Prof. Sutherland further observed:
. . . . Numerous reasons have been given for this rule.

Traditionally, an enrolled bill was "a record" and as such was not subject
to attack at common law. Likewise, the rule of conclusiveness was
similar to the common law rule of the inviolability of the sheriff's return.
Indeed, they had the same origin, that is, the sheriff was an officer of the
king and likewise the parliamentary act was a regal act and no official
might dispute the king's word. Transposed to our democratic system of
government, courts held that as the legislature was an official branch of
government the court must indulge every presumption that the
legislative act was valid. The doctrine of separation of powers was
advanced as a strong reason why the court should treat the acts of a
co-ordinate branch of government with the same respect as it treats the
action of its own officers; indeed, it was thought that it was entitled to
even greater respect, else the court might be in the position of reviewing
the work of a supposedly equal branch of government. When these
arguments failed, as they frequently did, the doctrine of convenience
was advanced, that is, that it was not only an undue burden upon the
legislature to preserve its records to meet the attack of persons not
affected by the procedure of enactment, but also that it unnecessarily
complicated litigation and confused the trial of substantive issues.
Although many of these arguments are persuasive and are indeed

the basis for the rule in many states today, they are not invulnerable to
attack. The rule most relied on — the sheriff's return or sworn official
rule — did not in civil litigation deprive the injured party of an action,
for always he could sue the sheriff upon his official bond. Likewise,
although collateral attack was not permitted, direct attack permitted
raising the issue of fraud, and at a later date attack in equity was also
available; and that the evidence of the sheriff was not of unusual weight
was demonstrated by the fact that in an action against the sheriff no
presumption of its authenticity prevailed.
The argument that the enrolled bill is a "record" and therefore

unimpeachable is likewise misleading, for the correction of records is a
matter of established judicial procedure. Apparently, the justification is
either the historical one that the king's word could not be questioned or
the separation of powers principle that one branch of the government
must treat as valid the acts of another. TcCDIS
Persuasive as these arguments are, the tendency today is to

avoid reaching results by artificial presumptions and thus it would seem
desirable to insist that the enrolled bill stand or fall on the basis of the
relevant evidence which may be submitted for or against it. (Emphasis
ours)
Thus, as far back as the 1940s, Prof. Sutherland confirmed that ". . . the
tendency seems to be toward the abandonment of the conclusive presumption
rule and the adoption of the third rule leaving only a prima facie presumption of
validity which may be attacked by any authoritative source of information.
Third. I respectfully submit that it is only by strictly following the contours of

powers of a Bicameral Conference Committee, as delineated by the rules of the
House and the Senate, that we can prevent said Committee from acting as a "third"
chamber of Congress. Under the clear rules of both the Senate and House, its power
can go no further than settling differences in their bills or joint resolutions. Sections
88 and 89, Rule XIV of the Rules of the House of Representatives provide as
follows:
not agree with the Senate on the amendment to any bill or joint resolution, the

amendments to the subject measure.
xxx xxx xxx

on the Conference Committee Report in the same manner and procedure as it
votes a bill on third and final reading.
Section 35, Rule XII of the Rules of the Senate states:

voting separately. HICEca
The House rule brightlines the following: (1) the power of the Conference Committee
is limited . . . it is only to settle differences with the Senate; (2) if the differences are
substantial, the Committee must report to the House for the latter's appropriate
action; and (3) the Committee report has to be voted upon in the same manner and
procedure as a bill on third and final reading. Similarly, the Senate rule underscores
in crimson that (1) the power of the Committee is limited — to settle differences
with the House; (2) it can make changes or amendments only in the discharge of this
limited power to settle differences with the House; and (3) the changes or
amendments are merely recommendatory for they still have to be approved by the
Senate.
Under both rules, it is obvious that a Bicameral Conference Committee is a

mere agent of the House or the Senate with limited powers. The House contingent
in the Committee cannot, on its own, settle differences which are substantial in
character. If it is confronted with substantial differences, it has to go back to the
chamber that created it "for the latter's appropriate action." In other words, it must
take the proper instructions from the chambers that created it. It cannot exercise its
unbridled discretion. Where there is no difference between the bills, it cannot make
any change. Where the difference is substantial, it has to return to the chamber of its
origin and ask for appropriate instructions. It ought to be indubitable that it cannot
create a new law, i.e., that which has never been discussed in either chamber of
Congress. Its parameters of power are not porous, for they are hedged by the clear
limitation that its only power is to settle differences in bills and joint resolutions of
the two chambers of Congress.
Fourth. Prescinding from these premises, I respectfully submit that the

following acts of the Bicameral Conference Committee constitute grave abuse of
discretion amounting to lack or excess of jurisdiction and should be struck down as
unconstitutional nullities, viz:
a. Its deletion of the pro poor "no pass on provision" which is common in
both Senate Bill No. 1950 and House Bill No. 3705.
Sec. 1 of House Bill No. 3705 9(114) provides:
Section 106 of the National Internal Revenue Code of 1997, as amended,

is hereby further amended to read as follows:
SEC. 106. Value-added Tax on Sale of Goods or Properties. —
xxx xxx xxx
Provided, further, that notwithstanding the provision of the second

paragraph of Section 105 of this Code, the Value-added Tax herein levied on
the sale of petroleum products under Subparagraph (1) hereof shall be paid and
absorbed by the sellers of petroleum products who shall be prohibited from
passing on the cost of such tax payments, either directly or indirectly[,] to
any consumer in whatever form or manner, it being the express intent of this
act that the Value-added Tax shall be borne and absorbed exclusively by the
sellers of petroleum products . . . .
Sec. 3 of the same House bill provides:
Section 108 of the National Internal Revenue Code of 1997, as amended,

is hereby further amended to read as follows:
Sec. 108. Value-added Tax on Sale of Goods or Properties. —
Provided, further, that notwithstanding the provision of the second

paragraph of Section 105 of this Code, the Value-added Tax imposed under this
paragraph shall be paid and absorbed by the subject generation companies
who shall be prohibited from passing on the cost of such tax payments,
either directly or indirectly[,] to any consumer in whatever form or
manner, it being the express intent of this act that the Value-added Tax shall be
borne and absorbed exclusively [by] the power-generating companies. CADSHI
In contrast and comparison, Sec. 5 of Senate Bill No. 1950 provides:
Value-added Tax on sale of Services and Use or Lease of Properties. —
. . . Provided, that the VAT on sales of electricity by generation

companies, and services of transmission companies and distribution companies,
as well as those of franchise grantees of electrical utilities shall not apply to
residential end-users: Provided, that the Value-added Tax herein levied shall be
absorbed and paid by the generation, transmission and distribution companies
concerned. The said companies shall not pass on such tax payments to
NAPOCOR or ultimately to the consumers, including but not limited to
residential end users, either as costs or in any other form whatsoever, directly or
indirectly. . . . .
Even the faintest eye contact with the above provisions will reveal that: (a)
both the House bill and the Senate bill prohibited the passing on to consumers of the
VAT on sales of electricity and (b) the House bill prohibited the passing on to
consumers of the VAT on sales of petroleum products while the Senate bill is silent
on the prohibition.
In the guise of reconciling disagreeing provisions of the House and the Senate
bills on the matter, the Bicameral Conference Committee deleted the "no pass on
provision" on both the sales of electricity and petroleum products. This action by
the Committee is not warranted by the rules of either the Senate or the House. As
aforediscussed, the only power of a Bicameral Conference Committee is to reconcile
disagreeing provisions in the bills or joint resolutions of the two houses of Congress.
The House and the Senate bills both prohibited the passing on to consumers of the
VAT on sales of electricity. The Bicameral Conference Committee cannot override
this unequivocal decision of the Senate and the House. Nor is it clear that there is a
conflict between the House and Senate versions on the "no pass on provisions" of the
VAT on sales of petroleum products. The House version contained a "no pass on
provision" but the Senate had none. Elementary logic will tell us that while there
may be a difference in the two versions, it does not necessarily mean that there is
a disagreement or conflict between the Senate and the House. The silence of the
Senate on the issue cannot be interpreted as an outright opposition to the House
decision prohibiting the passing on of the VAT to the consumers on sales of
petroleum products. Silence can even be conformity, albeit implicit in nature. But
granting for the nonce that there is conflict between the two versions, the conflict
cannot escape the characterization as a substantial difference. The seismic
consequence of the deletion of the "no pass on provision" of the VAT on sales of
petroleum products on the ability of our consumers, especially on the roofless and
the shirtless of our society, to survive the onslaught of spiraling prices ought to be
beyond quibble. The rules require that the Bicameral Conference Committee should
not, on its own, act on this substantial conflict. It has to seek guidance from the
chamber that created it. It must receive proper instructions from its principal, for it is
the law of nature that no spring can rise higher than its source. The records of both the
Senate and the House do not reveal that this step was taken by the members of the
Bicameral Conference Committee. They bypassed their principal and ran riot with the
exercise of powers that the rules never bestowed on them.
b. Even more constitutionally obnoxious are the added restrictions on

local 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:
Fifty percent of the local government unit's share from VAT shall be
allocated and used exclusively for the following purposes:
1. Fifteen percent (15%) for public elementary and secondary

education to finance the construction of buildings, purchases of
school furniture and in-service teacher trainings;
2. Ten percent (10%) for health insurance premiums of enrolled

indigents as a counterpart contribution of the local government to
sustain the universal coverage of the national health insurance
program;
3. Fifteen percent (15%) for environmental conservation to fully

implement a comprehensive national reforestation program; and
4. Ten percent (10%) for agricultural modernization to finance the

construction of farm-to-market roads and irrigation facilities.
Such allocations shall be segregated as separate trust funds by the national

treasury and shall be over and above the annual appropriation for similar
purposes.
These amendments did not harmonize conflicting provisions between the

constituent bills of R.A. No. 9337 but are entirely new and extraneous concepts
which fall beyond the median thereof. They transgress the limits of the Bicameral
Conference Committee's authority and must be struck down.
I cannot therefore subscribe to the thesis of the majority that "the changes
introduced by the Bicameral Conference Committee on disagreeing provisions were
meant only to reconcile and harmonize the disagreeing provisions for it did not
inject any idea or intent that is wholly foreign to the subject embraced by the
original provisions."
Fifth. The majority further defends the constitutionality of the above

provisions by holding that "all the changes or modifications were germane to subjects
of the provisions referred to it for reconciliation."
With due respect, it is high time to re-examine the test of germaneness

proffered in Tolentino.
The test of germaneness is overly broad and is the fountainhead of mischief

for it allows the Bicameral Conference Committee to change provisions in the bills of
the House and the Senate when they are not even in disagreement. Worse still, it
enables the Committee to introduce amendments which are entirely new and have not
previously passed through the coils of scrutiny of the members of both houses. The
Constitution did not establish a Bicameral Conference Committee that can act as a
"third house" of Congress with super veto power over bills passed by the Senate
and the House. We cannot concede that super veto power without wrecking the
delicate architecture of legislative power so carefully laid down in our Constitution.
The clear intent of our fundamental law is to install a lawmaking structure composed
only of two houses whose members would thoroughly debate proposed legislations
in representation of the will of their respective constituents. The institution of this
lawmaking structure is unmistakable from the following provisions: (1) requiring
that legislative power shall be vested in a bicameral legislature; 10(115) (2) providing
for quorum requirements; 11(116) (3) requiring that appropriation, revenue or tariff
bills, bills authorizing increase of public debt, bills of local application, and private
bills originate exclusively in the House of Representatives; 12(117) (4) requiring that
bills embrace one subject expressed in the title thereof; 13(118) and (5) mandating
that bills undergo three readings on separate days in each House prior to passage into
law and prohibiting amendments on the last reading thereof. 14(119) A Bicameral
Conference Committee with untrammeled powers will destroy this lawmaking
structure. At the very least, it will diminish the free and open debate of proposed
legislations and facilitate the smuggling of what purports to be laws.
On this point, Mr. Robert Luce's disconcerting observations are apropos:
"Their power lies chiefly in the fact that reports of conference

committees must be accepted without amendment or else rejected in toto. The
impulse is to get done with the matters and so the motion to accept has
undue advantage, for some members are sure to prefer swallowing
unpalatable provisions rather than prolong controversy. This is more likely
if the report comes in the rush of business toward the end of the session, when
to seek further conference might result in the loss of the measure altogether. At
any time in the session there is some risk of such a result following the rejection
of a conference report, for it may not be possible to secure a second conference,
or delay may give opposition to the main proposal chance to develop more
strength.
xxx xxx xxx
Entangled in a network of rule and custom, the Representative who

resents and would resist this theft of his rights, finds himself helpless. Rarely
can be vote, rarely can he voice his mind, in the matter of any fraction of the
bill. Usually he cannot even record himself as protesting against some one
feature while accepting the measure as whole. Worst of all, he cannot by
argument or suggested change, try to improve what the other branch has done.
This means more than the subversion of individual rights. It means to a

degree the abandonment of whatever advantage the bicameral system may
have. By so much it in effect transfers the lawmaking power to small group
of members who work out in private a decision that almost always prevails.
What is worse, these men are not chosen in a way to ensure the wisest choice. It
has become the practice to name as conferees the ranking members of the
committee, so that the accident of seniority determines. Exceptions are made,
but in general it is not a question of who are most competent to serve. Chance
governs, sometimes giving way to favor, rarely to merit.
xxx xxx xxx
Speaking broadly, the system of legislating by conference committee is

unscientific and therefore defective. Usually it forfeits the benefit of scrutiny
and judgment by all the wisdom available. Uncontrolled, it is inferior to
that process by which every amendment is secured independent discussion
and vote. . . ." 15(120)
It cannot be overemphasized that in a republican form of government, laws can
only be enacted by all the duly elected representatives of the people. It cuts against
conventional wisdom in democracy to lodge this power in the hands of a few or
in the claws of a committee. It is for these reasons that the argument that we should
overlook the excesses of the Bicameral Conference Committee because its report is
anyway approved by both houses is a futile attempt to square the circle for an
unconstitutional act is void and cannot be redeemed by any subsequent ratification.
Neither can we shut our eyes to the unconstitutional acts of the Bicameral
Conference Committee by holding that the Court cannot interpose its checking
powers over mere violations of the internal rules of Congress. In Arroyo, et al. v. de
Venecia, et al., 16(121) we ruled that when the violations affect private rights or
impair the Constitution, the Court has all the power, nay, the duty to strike them
down.
In conclusion, I wish to stress that this is not the first time nor will it be last
that arguments will be foisted for the Court to merely wink at assaults on the
Constitution on the ground of some national interest, sometimes clear and at other
times inchoate. To be sure, it cannot be gainsaid that the country is in the vortex of a
financial crisis. The broadsheets scream the disconcerting news that our debt
payments for the year 2006 will exceed Pph1 billion daily for interest alone. Experts
underscore some factors that will further drive up the debt service expenses such as
the devaluation of the peso, credit downgrades and a spike in interest rates. 17(122)
But no doomsday scenario will ever justify the thrashing of the Constitution. The
Constitution is meant to be our rule both in good times as in bad times. It is the
Court's uncompromising obligation to defend the Constitution at all times lest it be
condemned as an irrelevant relic.
WHEREFORE, I concur with the majority but dissent on the following points:
a) I vote to withhold judgment on the constitutionality of the "standby

authority" in Sections 4 to 6 of Republic Act No. 9337 as this issue
is not ripe for adjudication.;
b) I vote to declare unconstitutional the deletion by the Bicameral

Conference Committee of the pro poor "no pass on provision" on
electricity to residential consumers as it contravened the
unequivocal intent of both Houses of Congress; and
c) I vote to declare Section 21 of Republic Act No. 9337 as

unconstitutional as it contains extraneous provisions not found in
its constituent bills.
PANGANIBAN, J.:
The ponencia written by the esteemed Madame Justice Ma. Alicia

Austria-Martinez declares that the enrolled bill doctrine has been historically and
uniformly upheld in our country. Cited as recent reiterations of this doctrine are the
two Tolentino v. Secretary of Finance judgments 1(123) and Fariñas v. Executive
Secretary. 2(124)
Precedence of Mandatory
Constitutional Provisions
Over the Enrolled Bill Doctrine
I believe, however, that the enrolled bill doctrine 3(125) is not absolute. It may
be all-encompassing in some countries like Great Britain, 4(126) but as applied to our
jurisdiction, it must yield to mandatory provisions of our 1987 Constitution. The
Court can take judicial notice of the form of government 5(127) in Great Britain.
6(128) It is unlike that in our country and, therefore, the doctrine from which it
originated 7(129) could be modified accordingly by our Constitution.
In fine, the enrolled bill doctrine applies mainly to the internal rules and
processes followed by Congress in its principal duty of lawmaking. However, when
the Constitution imposes certain conditions, restrictions or limitations on the exercise
of congressional prerogatives, the judiciary has both the power and the duty to strike
down congressional actions that are done in plain contravention of such conditions,
restrictions or limitations. 8(130) Insofar as the present case is concerned, the three
most important restrictions or limitations to the enrolled bill doctrine are the
"origination," "no-amendment" and "three-reading" rules which I will discuss later.
Verily, these restrictions or limitations to the enrolled bill doctrine are

safeguarded by the expanded 9(131) constitutional mandate of the judiciary "to
determine whether or not there has been a grave abuse of discretion amounting to lack
or excess of jurisdiction on the part of any branch or instrumentality of the
government." 10(132) Even the ponente of Tolentino, 11(133) the learned Mr. Justice
Vicente V. Mendoza, concedes in another decision that each house "may not by its
rules ignore constitutional restraints or violate fundamental rights, and there should be
a reasonable relation between the mode or method of proceeding established by the
rule and the result which is sought to be attained." 12(134)
The Bicameral Conference Committee (BCC) created by Congress to iron out
differences between the Senate and the House of Representatives versions of the
E-VAT bills 13(135) is one such "branch or instrumentality of the government," over
which this Court may exercise certiorari review to determine whether or not grave
abuse of discretion has been committed; and, specifically, to find out whether the
constitutional conditions, restrictions and limitations on law-making have been
violated.
In general, the BCC has at least five options in performing its functions: (1)
adopt the House version in part or in toto, (2) adopt the Senate version in part or in
toto, (3) consolidate the two versions, (4) reject non-conflicting provisions, and (5)
adopt completely new provisions not found in either version. This, therefore, is the
simple question: In the performance of its function of reconciling conflicting
provisions, has the Committee blatantly violated the Constitution? SAHIDc
My short answer is: No, except those relating to income taxes referred to in
Sections 1, 2 and 3 of Republic Act (RA) No. 9337. Let me explain.
Adopting the House

Version in Part or in Toto
First, the BCC had the option of adopting the House bills either in part or in
toto, endorsing them without changes. Since these bills had passed the three-reading
requirement 14(136) under the Constitution, 15(137) it readily becomes apparent that
no procedural impediment would arise. There would also be no question as to their
origination, 16(138) because the bills originated exclusively from the House of
Representatives itself.
In the present case, the BCC did not ignore the Senate and adopt any of the
House bills in part or in toto. Therefore, this option was not taken by the BCC.
Adopting the Senate

Version in Part or in Toto
Second, the BCC may choose to adopt the Senate version either in part or in
toto, endorsing it also without changes. In so doing, the question of origination arises.
Under the 1987 Constitution, all "revenue . . . bills . . . shall originate exclusively in
the House of Representatives, but the Senate may propose or concur with
amendments." 17(139)
If the revenue bill originates exclusively from the Senate, then obviously the
origination provision 18(140) of the Constitution would be violated. If, however, it
originates exclusively from the House and presumably passes the three-reading
requirement there, then the question to contend with is whether the Senate
amendments complied with the "germane" principle.
While in the Senate, the House version may, per Tolentino, undergo extensive
changes, such that the Senate may rewrite not only portions of it but even all of it.
19(141) I believe that such rewriting is limited by the "germane" principle: although
"relevant" 20(142) or "related" 21(143) to the general subject of taxation, the Senate
version is not necessarily "germane" all the time. The "germane" principle requires a
legal — not necessarily an economic 22(144) or political — interpretation. There
must be an "inherent logical connection." 23(145) What may be germane in an
economic or political sense is not necessarily germane in the legal sense. Otherwise,
any provision in the Senate version that is entirely new and extraneous, or that is
remotely or even slightly connected, to the vast and perplexing subject of taxation,
would always be germane. Under this interpretation, the origination principle would
surely be rendered inutile.
To repeat, in Tolentino, the Court said that the Senate may even write its own
version, which in effect would be an amendment by substitution. 24(146) The Court
went further by saying that "the Constitution does not prohibit the filing in the Senate
of a substitute bill in anticipation of its receipt of the bill from the House, so long as
action by the Senate as a body is withheld pending receipt of the House bill." 25(147)
After all, the initiative for filing a revenue bill must come from the House 26(148) on
the theory that, elected as its members are from their respective districts, the House is
more sensitive to local needs and problems. By contrast, the Senate whose members
are elected at large approaches the matter from a national perspective, 27(149) with a
broader and more circumspect outlook. 28(150)
Even if I have some reservations on the foregoing sweeping pronouncements

in Tolentino, I shall not comment any further, because the BCC, in reconciling
conflicting provisions, also did not take the second option of ignoring the House bills
completely and of adopting only the Senate version in part or in toto. Instead, the
BCC used or applied the third option as will be discussed below.
Compromising
by Consolidating
As a third option, the BCC may reach a compromise by consolidating both the
Senate and the House versions. It can adopt some parts and reject other parts of both
bills, and craft new provisions or even a substitute bill. I believe this option is viable,
provided that there is no violation of the origination and germane principles, as well
as the three-reading rule. After all, the report generated by the BCC will not become a
final valid act of the Legislative Department until the BCC obtains the approval of
both houses of Congress. 29(151)
Standby Authority. I believe that the BCC did not exceed its authority when it
crafted the so-called "standby authority" of the President. The originating bills from
the House imposed a 12 percent VAT rate, 30(152) while the bill from the Senate
retained the original 10 percent. 31(153) The BCC opted to initially use the 10
percent Senate provision and to increase this rate to the 12 percent House provision,
effective January 1, 2006, upon the occurrence of a predetermined factual scenario as
follows:
"(i) [VAT] collection as a percentage of Gross Domestic Product (GDP) of

the previous year exceeds two and four-fifth percent (2 4/5%) or
(ii) National Government Deficit as a percentage of GDP of the previous

year exceeds one and one-half percent (1 1/2%)." 32(154)
In the computation of the percentage requirements in the alternative conditions

under the law, the amounts of the VAT collection, National Deficit, 33(155) and GDP
34(156) — as well as the interrelationship among them — can easily be derived by
the finance secretary from the proper government bodies charged with their
determination. The law is complete and standards have been fixed. 35(157) Only the
fact-finding mathematical computation for its implementation on January 1, 2006, is
necessary. ISCDEA
Once either of the factual and mathematical events provided in the law takes
place, the President has no choice but to implement the increase of the VAT rate to 12
percent. 36 This eventuality has been predetermined by Congress. 37(158)
The taxing power has not been delegated by Congress to either or both the
President and the finance secretary. What was delegated was only the power to
ascertain the facts in order to bring the law into operation. In fact, there was really no
"delegation" to speak of; there was merely a declaration of an administrative, not a
legislative, function. 38(159)
I concur with the ponencia in that there was no undue delegation of legislative
power in the increase from 10 percent to 12 percent of the VAT rate. I respectfully
disagree, however, with the statements therein that, first, the secretary of finance is
"acting as the agent of the legislative department" or an "agent of Congress" in
determining and declaring the event upon which its expressed will is to take effect;
and, second, that the secretary's personality "is in reality but a projection of that of
Congress."
The secretary of finance is not an alter ego of Congress, but of the President.
The mandate given by RA 9337 to the secretary is not equipollent to an authority to
make laws. In passing this law, Congress did not restrict or curtail the constitutional
power of the President to retain control and supervision over the entire Executive
Department. The law should be construed to be merely asking the President, with a
recommendation from the President's alter ego in finance matters, to determine the
factual bases for making the increase in VAT rate operative. 39(160) Indeed, as I have
mentioned earlier, the fact-finding condition is a mere administrative, not legislative,
function.
The ponencia states that Congress merely delegates the implementation of the
law to the secretary of finance. How then can the latter be its agent? Making a law is
different from implementing it. While the first (the making of laws) may be delegated
under certain conditions and only in specific instances provided under the
Constitution, the second (the implementation of laws) may not be done by Congress.
After all, the legislature does not have the power to implement laws. Therefore,
congressional agency arises only in the first, not in the second. The first is a
legislative function; the second, an executive one.
Petitioners' argument is that because the GDP does not account for the
economic effects of so-called underground businesses, it is an inaccurate indicator of
either economic growth or slowdown in transitional economies. 40(161) Clearly, this
matter is within the confines of lawmaking. This Court is neither a substitute for the
wisdom, or lack of it, in Congress, 41(162) nor an arbiter of flaws within the latter's
internal rules. 42(163) Policy matters lie within the domain of the political branches
of government, 43(164) outside the range of judicial cognizance. 44(165) "[T]he right
to select the measure and objects of taxation devolves upon the Congress, and not
upon the courts, and such selections are valid unless constitutional limitations are
overstepped." 45(166) Moreover, each house of Congress has the power and authority
to determine the rules of its proceedings. 46(167) The contention that this case is not
ripe for determination because there is no violation yet of the Constitution regarding
the exercise of the President's standby authority has no basis. The question raised is
whether the BCC, in passing the law, committed grave abuse of discretion, not
whether the provision in question had been violated. Hence, this case is not premature
and is, in fact, subject to judicial determination. TIcAaH
Amendments on Income Taxes. I respectfully submit that the amendments
made by the BCC (that were culled from the Senate version) regarding income taxes
47(168) are not legally germane to the subject matter of the House bills. Revising the
income tax rates on domestic, resident foreign and nonresident foreign corporations;
increasing the tax credit against taxes due from nonresident foreign corporations on
intercorporate dividends; and reducing the allowable deduction for interest expense
are legally unrelated and not germane to the subject matter contained in the House
bills; they violate the origination principle. 48(169) The reasons are as follows:
One, an income tax is a direct tax imposed on actual or presumed income —

gross or net — realized by a taxpayer during a given taxable year, 49(170) while a
VAT is an indirect tax not in the context of who is directly and legally liable for its
payment, but in terms of its nature as "a tax on consumption." 50(171) The former
cannot be passed on to the consumer, but the latter can. 51(172) It is too wide a
stretch of the imagination to even relate one concept with the other. In like manner, it
is inconceivable how the provisions that increase corporate income taxes can be
considered as mitigating measures for increasing the VAT and, as I will explain later,
for effectively imposing a maximum of 3 percent tax on gross sales or revenues
because of the 70 percent cap. Even the argument that the corporate income tax rates
will be reduced to 30 percent does not hold water. This reduction will take effect only
in 2009, not 2006 when the 12 percent VAT rate will have been implemented.
Two, taxes on intercorporate dividends are final, but the input VAT is
generally creditable. Under a final withholding tax system, the amount of income tax
that is withheld by a withholding agent is constituted as a full and final payment of
the income tax due from the payee on said income. 52(173) The liability for the tax
primarily rests upon the payor as a withholding agent. 53(174) Under a creditable
withholding tax system, taxes withheld on certain payments are meant to approximate
the tax that is due of the payee on said payments. 54(175) The liability for the tax
rests upon the payee who is mandated by law to still file a tax return, report the tax
base, and pay the difference between the tax withheld and the tax due. 55(176)
From this observation alone, it can already be seen that not only are dividends
alien to the tax base upon which the VAT is imposed, but their respective methods of
withholding are totally different. VAT-registered persons may not always be
nonresident foreign corporations that declare and pay dividends, while intercorporate
dividends are certainly not goods or properties for sale, barter, exchange, lease or
importation. Certainly, input VAT credits are different from tax credits on dividends
received by nonresident foreign corporations.
Three, itemized deductions from gross income partake of the nature of a tax
exemption. 56(177) Interest — which is among such deductions — refers to the
amount paid by a debtor to a creditor for the use or forbearance of money. 57(178) It
is an expense item that is paid or incurred within a given taxable year on indebtedness
in connection with a taxpayer's trade, business or exercise of profession. 58(179) In
order to reduce revenue losses, Congress enacted RA 8424 59(180) which reduces the
amount of interest expense deductible by a taxpayer from gross income, equal to the
applicable percentage of interest income subject to final tax. 60(181) To assert that
reducing the allowable deduction in interest expense is a matter that is legally related
to the proposed VAT amendments is too far-fetched. Interest expenses are not
allowed as credits against output VAT. Neither are VAT-registered persons always
liable for interest.
Having argued on the unconstitutionality (non-germaneness) of the BCC

insertions on income taxes, let me now proceed to the other provisions that were
attacked by petitioners.
No Pass-on Provisions. I agree with the ponencia that the BCC did not exceed
its authority when it deleted the no pass-on provisions found in the congressional
bills. Its authority to make amendments not only implies the power to make
insertions, but also deletions, in order to resolve conflicting provisions.
The no pass-on provision in House Bill (HB) No. 3705 referred to the
petroleum products subject to excise tax (and the raw materials used in the
manufacture of such products), the sellers of petroleum products, and the generation
companies. 61(182) The analogous provision in Senate Bill (SB) No. 1950 dealt with
electricity, businesses other than generation companies, and services of franchise
grantees of electric utilities. 62(183) In contrast, there was a marked absence of the no
pass-on provision in HB 3555. Faced with such variances, the BCC had the option of
retaining or modifying the no pass-on provisions and determining their extent, or of
deleting them altogether. In opting for deletion to resolve the variances, it was merely
acting within its discretion. No grave abuse may be imputed to the BCC.
The 70 Percent Cap on Input Tax and the 5 Percent Final Withholding VAT.
Deciding on the 70 percent cap and the 5 percent final withholding VAT in the
consolidated bill is also within the power of the BCC. While HB 3555 included limits
of 5 percent and 11 percent on input tax, 63(184) SB 1950 proposed an even spread
over 60 months. 64(185) The decision to put a cap and fix its rate, so as to harmonize
or to find a compromise in settling the apparent differences in these versions, 65(186)
was within the sound discretion of the BCC.
In like manner, HB 3555 contained provisions on the withholding of creditable

VAT at the rates of 5 percent, 8 percent, 10.5 percent, and 12 percent. 66(187) HB
3705 had no such equivalent amendment, and SB 1950 pegged the rates at only 5
percent and 10 percent. 67(188) I believe that the decision to impose a final (not
creditable) VAT and to fix the rates at 5 percent and 10 percent, so as to harmonize
the apparent differences in all three versions, was also within the sound discretion of
the BCC. DEICaA
Indeed, the tax credit method under our VAT system is not only practical, but
also principally used in almost all taxing jurisdictions. This does not mean, however,
that in the eyes of Congress through the BCC, our country can neither deviate from
this method nor modify its application to suit our fiscal requirements. The VAT is
usually collected through the tax credit method (and in the past, even through the cost
deduction method or a mixture of these two methods), 68(189) but there is no hard
and fast rule that 100 percent of the input taxes will always be allowed as a tax credit.
In fact, it was Maurice Lauré, a French engineer, 69(190) who invented the
VAT. In 1954, he had the idea of imposing an indirect tax on consumption, called
taxe sur la valeur ajoutée, 70(191) which was quickly adopted by the Direction
Générale des Impost, the new French tax authority of which he became joint director.
Consequently, taxpayers at all levels in the production process, rather than retailers or
tax authorities, were forced to administer and account for the tax themselves. 71(192)
Since the unutilized input VAT can be carried over to succeeding quarters,
there is no undue deprivation of property. Alternatively, it can be passed on to the
consumers; 72(193) there is no law prohibiting that. Merely speculative and
unproven, therefore, is the contention that the law is arbitrary and oppressive. 73(194)
Laws that impose taxes are necessarily burdensome, compulsory, and involuntary.
The deferred input tax account — which accumulates the unutilized input VAT
— remains an asset in the accounting records of a business. It is not at all confiscated
by the government. By deleting Section 112(B) of the Tax Code, 74(195) Congress
no longer made available tax credit certificates for such asset account until retirement
from or cessation of business, or changes in or cessation of VAT-registered status.
75(196) This is a matter of policy, not legality. The Court cannot step beyond the
confines of its constitutional power, if there is absolutely no clear showing of grave
abuse of discretion in the enactment of the law.
That the unutilized input VAT would be rendered useless is merely
speculative. 76(197) Although it is recorded as a deferred asset in the books of a
company, it remains to be a mere privilege. It may be written off or expensed
outright; it may also be denied as a tax credit.
There is no vested right in a deferred input tax account; it is a mere statutory

privilege. 77(198) The State may modify or withdraw such privilege, which is merely
an asset granted by operation of law. 78(199) Moreover, there is no vested right in
generally accepted accounting principles. 79(200) These refer to accounting concepts,
measurement techniques, and standards of presentation in a company's financial
statements, and are not rooted in laws of nature, as are the laws of physical science,
for these are merely developed and continually modified by local and international
regulatory accounting bodies. 80(201) To state otherwise and recognize such asset
account as a vested right is to limit the taxing power of the State. Unlimited, plenary,
comprehensive and supreme, this power cannot be unduly restricted by mere creations
of the State.
That the unutilized input VAT would also have an unequal effect on businesses
— some with low, others with high, input-output ratio — is not a legal ground for
invalidating the law. Profit margins are a variable of sound business judgment, not of
legal doctrine. The law applies equally to all businesses; it is up to each of them to
determine the best formula for selling their goods or services in the face of stiffer
competition. There is, thus, no violation of the equal protection clause. If the
implementation of the 70 percent cap would cause an ad infinitum deferment of input
taxes or an unequal effect upon different types of businesses with varying profit
margins and capital requirements, then the remedy would be an amendment of the law
— not an unwarranted and outright declaration of unconstitutionality.
The matter of business establishments shouldering 30 percent of output tax and

remitting the amount, as computed, to the government is in effect imposing a tax that
is equivalent to a maximum of 3 percent of gross sales or revenues. 81(202) This
imposition is arguably another tax on gross — not net — income and thus a deviation
from the concept of VAT as a tax on consumption; it also assumes that sales or
revenues are on cash basis or, if on credit, given credit terms shorter than a quarter of
a year. However, such additional imposition and assumption are also arguably within
the power of Congress to make. The State may in fact choose to impose an additional
3 percent tax on gross income, in lieu of the 70 percent cap, and thus subject the
income of businesses to two types of taxes — one on gross, the other on net. These
impositions may constitute double taxation, 82(203) which is not constitutionally
proscribed. 83(204)
Besides, prior to the amendments introduced by the BCC, already extant in the
Tax Code was a 3 percent percentage tax on the gross quarterly sales or receipts of
persons who were not VAT-registered, and whose sales or receipts were exempt from
VAT. 84(205) This is another type of tax imposed by the Tax Code, in addition to the
tax on their respective incomes. No question as to its validity was raised before; none
is being brought now. More important, there is a presumption in favor of
constitutionality, 85(206) "rooted in the doctrine of separation of powers which
enjoins upon the three coordinate departments of the Government a becoming
courtesy for each other's acts." 86(207)
As to the argument that Section 8 of RA 9337 contravenes Section 1 of Article

III and Section 20 of Article II of the 1987 Constitution, I respectfully disagree.
One, petitioners have not been denied due process or, as I have illustrated
earlier, equal protection. In the exercise of its inherent power to tax, the State validly
interferes with the right to property of persons, natural or artificial. Those similarly
situated are affected in the same way and treated alike, "both as to privileges
conferred and liabilities enforced." 87(208)
RA 9337 was enacted precisely to achieve the objective of raising revenues to

defray the necessary expenses of government. 88(209) The means that this law
employs are reasonably related to the accomplishment of such objective, and not
unduly oppressive. The reduction of tax credits is a question of economic policy, not
of legal perlustration. Its determination is vested in Congress, not in this Court. Since
the purpose of the law is to raise revenues, it cannot be denied that the means
employed is reasonably related to the achievement of that purpose. Moreover, the
proper congressional procedure for its enactment was followed; 89(210) neither
public notice nor public hearings were denied. HIACEa
Two, private enterprises are not discouraged. Tax burdens are never delightful,
but with the imposition of the 70 percent cap, there will be an assurance of a steady
cash flow to the government, which can be translated to the production of improved
goods, rendition of better services, and construction of better facilities for the people,
including all private enterprises. Perhaps, Congress deems it best to make our
economy depend more on businesses that are easier to monitor, so there will be a
more efficient collection of taxes. Whatever is expected of the outcome of the law, or
its wisdom, should be the sole responsibility of the representatives chosen by the
electorate.
The profit margin rates of various industries generally do not change.
However, the profit margin figures do, because these are obviously monetary
variables that affect business, along with the level of competition, the quality of goods
and services offered, and the cost of their production. And there will inevitably be a
conscious desire on the part of those who engage in business and those who consume
their output to adapt or adjust accordingly to any congressional modification of the
VAT system.
In addition, it is contended that the VAT should be proportional in nature. I

submit that this proportionality pertains to the rate imposable, not the credit
allowable. Private enterprises are subjected to a proportional VAT rate, but VAT
credits need not be. The VAT is, after all, a human concept that is neither immutable
nor invariable. In fact, it has changed after it was adopted as a system of indirect
taxation by other countries. Again unlike the laws of physical science, the VAT
system can always be modified to suit modern fiscal demands. The State, through the
Legislative Department, may even choose to do away with it and revert to our
previous system of turnover taxes, sales taxes and compensating taxes, in which
credits may be disallowed altogether.
Not expensed, but amortized over its useful life, is capital equipment, which is
purchased or treated as capital leases by private enterprises. Aimed at achieving the
twin objectives of profitability and solvency, such purchase or lease is a matter of
prudence in business decision-making.
Hence, business judgments, sales volume, and their effect on competition are
for businesses to determine and for Congress to regulate — not for this Court to
interfere with, absent a clear showing that constitutional provisions have been
violated. Tax collection and administrative feasibility are for the executive branch to
focus on, again not for this Court to dwell upon.
The Transcript of the Oral Arguments on July 14, 2005 clearly point out in a
long line of relevant questioning that, absent a violation of constitutional provisions,
the Court cannot interfere with the 70 percent cap, the 5 percent final withholding tax,
and the 60-month amortization, there being other extra-judicial remedies available to
petitioners, thus:
"Atty. Baniqued:
But if your profit margin is low as i[n] the case of the petroleum dealers,
. . . then we would have a serious problem, Your Honor.
"Justice Panganiban:
Isn't the solution to increase the price then?
"Atty. Baniqued:
If you increase the price which you can very well do, Your Honor, then
that [will] be deflationary and it [will] have a cascading effect on all
other basic commodities[, especially] because what is involved here is
petroleum, Your Honor.
That may be true[,] but it's not unconstitutional?
"Atty. Baniqued:
That may be true, Your Honor, but the very limitation of the [seventy
percent] input [VAT], when applied to the case of the petroleum
dealers[,] is oppressive[.] [I]t's unjust and it's unreasonable, Your Honor.
But it can be passed as a part of sales, sales costs rather.
"Atty. Baniqued:
But the petroleum dealers here themselves . . . interrupted
In your [b]alance [s]heet, it could be reflected as Cost of Sales and

therefore the price will go up?
"Atty. Baniqued:
Even if it were to be reflected as part of the Cost of Sales, Your Honor,

the [input VAT] that you cannot claim, the benefit to you is only to the
extent of the corporate tax rate which is 32 now 35 [percent].
Yes.
"Atty. Baniqued:
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, Your Honor.
DTAHSI
That might be true, but we are talking about whether that particular
provision would be unconstitutional. You say it's oppressive, but you
have a remedy, you just pass it on to the customer. I am not sayin[g]
it's good[.] [N]either am I saying it's wise[.] [A]ll I'm talking about is,
whether it's constitutional or not.
"Atty. Baniqued:
Yes, in fact we acknowledge, Your Honor, that that is a remedy

available to the petroleum dealers, but considering the impact of that
limitation[,] and were just talking of the 70 [percent cap] on [input
VAT] in the level of the petroleum dealers. Were not even talking yet of
the limitation on the [input VAT] available to the manufacturers, so,
what if they pass that on as well?
Yes.
"Atty. Baniqued:
Then, it would complicate . . . interrupted
What I am saying is, there is a remedy, which is business in character.

The mere fact that the government is imposing that [seventy percent]
cap does not make the law unconstitutional, isn't it?
"Atty. Baniqued:
It does, Your Honor, if it can be shown. And as we have shown, it is

oppressive and unreasonable, it is excessive, Your Honor . . . interrupted
If you have no way of recouping it. If you have no way of recouping that
amount, then it will be oppressive, but you have a business way of
recouping it[.] I am saying that, not advising that it's good. All I am
saying is, is it constitutional or not[?] We're not here to determine the
wisdom of the law, that's up for Congress. As pointed out earlier, if the
law is not wise, the law makers will be changed by the people[.] [T]hat
is their solution t[o] the lack of wisdom of a law. If the law is
unconstitutional[,] then the Supreme Court will declare it
unconstitutional and void it, but[,] in this case[,] there seems to be a
business remedy in the same manner that Congress may just impose that
tax straight without saying it's [VAT]. If Congress will just say all
petroleum will pay 3 [percent] of their Gross Sales, but you don't bear
that, you pass that on, isn't it?
"Atty. Baniqued:
We acknowledge your concern, Your Honor, but we should not forget

that when the petroleum dealers pass these financial burden or this tax
differential to the consumers, they themselves are consumers in their
own right. As a matter of fact, they filed this case both as petroleum
dealer[s] and as taxpayers. If they pass if on, they themselves would
ultimately bear the burden[, especially] in increase[d] cost of electricity,
land transport, food, everything, Your Honor.
Yes, but the issue here in this Court, is whether that act of Congress is
unconstitutional.
"Atty. Baniqued:
Yes, we believe it is unconstitutional, Your Honor.
You have a right to complain that it is oppressive, it is excessive, it

burdens the people too much, but is it unconstitutional?
"Atty. Baniqued:
Besides, passing it on, Your Honor, may not be as simple as it may

seem. As a matter of fact, at the strike of midnight on June 30, when
petroleum prices were being changed upward, the [s]ecretary of [the]
Department of Energy was going around[.] [H]e was seen on TV going
around just to check that prices don't go up. And as a matter of fact, he
had pronouncements that, the increase in petroleum price should only be
limited to the effect of 10 [percent] E-VAT.
It's becaus[e] the implementing rules were not clear and were not
extensive enough to cover how much really should be the increase for
various oil products, refined oil products. It's up for the dealers to guess,
and the dealers were guessing to their advantage by saying plus 10
[percent] anyway, right?
"Atty. Baniqued:
In fact, the petroleum dealers, Your Honors, are not only faced with
constitutional issues before this Court. They are also faced with a
possibility of the Department of Energy not allowing them to pass it
on[,] because this would be an unreasonable price increase. And so, they
are being hit from both sides . . . interrupted
That's why I say, that there is need to refine the implementing rules so
that everyone will know, the customers will know how much to pay for
gasoline, not only gasoline, gasoline, and so on, diesel and all kinds of
products, so there'll be no confusion and there'll be no undue taking
advantage. There will be a smooth implementation[,] if the law were to
be upheld by the Court. In your case, as I said, it may be unwise to pass
that on to the customers, but definitely, the dealers will not bear that [—]
to suffer the loss that you mentioned in your consolidated balance
sheets. Certainly, the dealers will not bear that [cost], isn't it? EDSAac
"Atty. Baniqued:
It will be a very hard decision to make, Your Honor.
Why, you will not pass it on?
"Atty. Baniqued:
I cannot speak for the dealers. . . . interrupted.
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.
"Atty. Baniqued:
As I have said, Your Honor, there are many constraints on their ability
to do that[,] and that is why the first step that we are seeking is to seek
redress from this Honorable Court[,] because we feel that the imposition
is excessive and oppressive. . . . interrupted
You can find redress here, only if you can show that the law is
unconstitutional.
"Atty. Baniqued:
We realized that, Your Honor.
Alright. Let's talk about the 5 [percent] [d]epreciation rate, but that
applies only to the capital equipment worth over a million?
"Atty. Baniqued:
Yes, Your Honor.
And that doesn't apply at all times, isn't it?
"Atty. Baniqued:
Well. . . .
That doesn't at all times?
"Atty. Baniqued:
For capital goods costing less than 1 million, Your Honor, then. . . .
That will not apply?
"Atty. Baniqued:
That will not apply, but you will have the 70 [percent] cap on input
[VAT], Your Honor.
Yes, but we talked already about the 70 [percent].
"Atty. Baniqued:
Yes, Your Honor.
When you made your presentation on the balance sheet, it is as if every

capital expenditure you made is subject to the 5 [percent,] rather the
[five year] depreciation schedule[.] [T]hat's not so. So, the presentation
you made is a little inaccurate and misleading.
"Atty. Baniqued:
At the start of our presentation, Your Honor[,] we stated clearly that this
applies only to capital goods costing more than one [million].
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 us that that will
apply only when capital equipment or goods is one million or more. And
in your case, what kind of capital goods will be worth one million or
more in your existing gas stations?
"Atty. Baniqued:
Well, you would have petroleum dealers, Your Honor, who would
have[,] aside from sale of petroleum[,] they would have their service
centers[,] like[. . .] to service cars and they would have those
equipments, they are, Your Honor.
But that's a different profit center, that's not from the sale of. . . .
"Atty. Baniqued:
No, they would form part of their [VATable] sale, Your Honor.
Justice Panganiban:
It's a different profit center[;] it's not in the sale of petroleum products.
In fact the mode now is to put up super stores in huge gas stations. I do
not begrudge the gas station[.] [A]ll I am saying is it should be presented
to us in perspective. Neither am I siding with the government. All I am
saying is, when I saw your complicated balance sheet and mathematics,
I saw that you were to put in all the time the depreciation that should be
spread over [five] years. But we have agreed that that applies only to
capital equipment [—]not to any kind of goods [—] but to capital
equipment costing over 1 million pesos. EcHTCD
"Atty. Baniqued:
Yes, Your Honor, we apologize if it has caused a little confusion. . . .
Again the solution could b[e] to pass that on, because that's an
added cost, isn't it?
"Atty. Baniqued:
Well, yes, you can pass it on. . . .
I am not teaching you, I am just saying that you have a remedy . . . I am

not saying either that the remedy is wise or should be done, because[,] as
a consumer[,] I wouldn't want that to be done to me.
"Atty. Baniqued:
We realiz[e] that, Your Honor, but the fact remain[s] that whether it is in
the hands of the petroleum dealers or in the hands of the consumers[,] if
this imposition is unreasonable and oppressive, it will remain so, even
after it is passed on, Your Honor.
Alright. Let's go to the third. The 5 [percent] withholding tax, [f]inal

[w]ithholding [t]ax, but this applies to sales to government?
"Atty. Baniqued:
Yes, Your Honor.
So, you can pass on this 5 [percent] to the [g]overnment. After all,
that 5 [percent] will still go back to the government.
"Atty. Baniqued:
Then it will come back to haunt us, Your Honor. . . .
Why?
"Atty. Baniqued:
By way of, for example sales to NAPOCOR or NTC . . . interrupted
Sales of petroleum products. . . .
"Atty. Baniqued:
. . . in the case of NTC, Your Honor, it would come back to us by way of

increase[d] cost, Your Honor.
Okay, let's see. You sell, let's say[,] your petroleum products to the
Supreme Court, as a gas station that sells gasoline to us here. Under this
law, the 5 [percent] withholding tax will have to be charged, right?
"Atty. Baniqued:
Yes, Your Honor.
You will charge that[.] [T]herefore[,] the sales to the Supreme Court by
that gas station will effectively be higher?
"Atty. Baniqued:
Yes, Your Honor.
So, the Supreme Court will pay more, you will not [be] going to
[absorb] that 5 [percent], will you?
"Atty. Baniqued:
If it is passed on, Your Honor, that's of course we agree. . . Interrupted.
Not if, you can pass it on. . . .
"Atty. Baniqued:
Yes, we can . . . . interrupted
There is no prohibition to passing it on[.] [P]robably the gas station will

simply pass it on to the Supreme Court and say[,] well[,] there is this 5
[percent] final VAT on you so[,] therefore, for every tank full you buy[,]
we'll just have to [charge] you 5 [percent] more. Well, the Supreme
Court will probably say, well, anyway, that 5 [percent] that we will pay
the gas dealer, will be paid back to the government, isn't it[?] So, how
[will] you be affected?
"Atty. Baniqued:
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 Honor.
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 your remedy is
to declare the law unconstitutional[,] and it's not business in character.
aDICET
"Atty. Baniqued:
Yes, Your Honor, it is our submission that this limitation in the input
[VAT] credit as well as the amortization. . . .
All you talk about is equal protection clause, about due process,
depreciation of property without observance of due process[,] could
really be a remedy than a business way.
"Atty. Baniqued:
Business in the level of the petroleum dealers, Your Honor, or in the

level of Congress, Your Honor.
Yes, you can pass them on to customers[,] in other words. It's the
customers who should [complain].
"Atty. Baniqued:
Yes, Your Honor . . . interrupted
And perhaps will not elect their representatives anymore[.]
"Atty. Baniqued:
Yes, Your Honor. . . .
For agreeing to it, because the wisdom of a law is not for the Supreme
Court to pass upon.
"Atty. Baniqued:
It just so happens, Your Honor, that what is [involved] here is a

commodity that when it goes up, it affects everybody. . . .
Yes, inflationary and inflammatory. . . .
"Atty. Baniqued:
. . . just like what Justice Puno says it shakes the entire economic
foundation, Your Honor.
Yes, it's inflationary[,] brings up the prices of everything . . .
"Atty. Baniqued:
And it is our submission that[,] if the petroleum dealers cannot absorb it
and they pass it on to the customers, a lot of consumers would neither be
in a position to absorb it too and that['s] why we patronize, Your Honor.
There might be wisdom in what you're saying, but is that

unconstitutional?
"Atty. Baniqued:
Yes, because as I said, Your Honor, there are even constraints in the
petroleum dealers to pass it on, and we[']re not even sure whether . . . .
interrupted
Are these constraints [—] legal constraints?
"Atty. Baniqued:
Well, it would be a different story, Your Honor[.] [T]hat's something

we probably have to take up with the Department of Energy, lest
[we may] be accused of . . . .
In other words, that's your remedy [—] to take it up with the Department
of Energy
"Atty. Baniqued:
. . . unreasonable price increases, Your Honor.
Not for us to declare those provisions unconstitutional.
"Atty. Baniqued:
We, again, wish to stress that the petroleum dealers went to this Court[,]
both as businessmen and as consumers. And as consumers, [we're] also
going to bear the burden of whatever they themselves pass on.
You know[,] as a consumer, I wish you can really show that the laws are
unconstitutional, so I don't have to pay it. But as a magistrate of this
Court, I will have to pass upon judgment on the basis of [—] whether
the law is unconstitutional or not. And I hope you can in your
memorandum show that.
"Atty. Baniqued:
We recognized that, Your Honor." (boldface supplied, pp. 386-410).
Amendments on Other Taxes and Administrative Matters. Finally, the BCC's

amendments regarding other taxes 90(211) are both germane in a legal sense and
reasonably necessary in an economic sense. This fact is evident, considering that the
proposed changes in the VAT law will have inevitable implications and repercussions
on such taxes, as well as on the procedural requirements and the disposition of
incremental revenues, in the Tax Code. Either mitigating measures 91(212) have to
be put in place or increased rates imposed, in order to achieve the purpose of the law,
cushion the impact of increased taxation, and still maintain the equitability desired of
any other revenue law. 92(213) Directly related to the proposed VAT changes, these
amendments are expected also to have a salutary effect on the national economy. HCDaAS
The no-amendment rule 93(214) in the Constitution was not violated by the
BCC, because no completely new provision was inserted in the approved bill. The
amendments may be unpopular or even work hardship upon everyone (this writer
included). If so, the remedy cannot be prescribed by this Court, but by Congress.
Rejecting Non-Conflicting
Provisions
Fourth, the BCC may choose neither to adopt nor to consolidate the versions
presented to it by both houses of Congress, but instead to reject non-conflicting
provisions in those versions. In other words, despite the lack of conflict in them, such
provisions are still eliminated entirely from the consolidated bill. There may be a
constitutional problem here.
The no pass-on provisions in the congressional bills are the only item raised by
petitioners concerning deletion. 94(215) As I have already mentioned earlier, these
provisions were in conflict. Thus, the BCC exercised its prerogative to remove them.
In fact, congressional rules give the BCC the power to reconcile disagreeing
provisions, and in the process of reconciliation, to delete them. No other
non-conflicting provision was deleted.
At this point, and after the extensive discussion above, it can readily be seen no
non-conflicting provisions of the E-VAT bills were rejected indiscriminately by the
BCC.
Approving and Inserting

Completely New Provisions
Fifth, the BCC had the option of inserting completely new provisions not
found in any of the provisions of the bills of either house of Congress, or make and
endorse an entirely new bill as a substitute. Taking this option may be a blatant
violation of the Constitution, for not only will the surreptitious insertion or
unwarranted creation contravene the "origination" principle; it may likewise desecrate
the three-reading requirement and the no-amendment rule. 95(216)
Fortunately, however, the BCC did not approve or insert completely new
provisions. Thus, no violation of the Constitution was committed in this regard.
Summary
The enrolled bill doctrine is said to be conclusive not only as to the provisions
of a law, but also to its due enactment. It is not absolute, however, and must yield to
mandatory provisions of the 1987 Constitution. Specifically, this Court has the duty
of striking down provisions of a law that in their enactment violate conditions,
restrictions or limitations imposed by the Constitution. 96(217) The Bicameral
Conference Committee (BCC) is a mere creation of Congress. Hence, the BCC may
resolve differences only in conflicting provisions of congressional bills that are
referred to it; and it may do so only on the condition that such resolution does not
violate the origination, the three-reading, and the no-amendment rules of the
Constitution. aASDTE
In crafting RA 9337, the BCC opted to reconcile the conflicting provisions of

the Senate and House bills, particularly those on the 70 percent cap on input tax; the 5
percent final withholding tax; percentage taxes on domestic carriers, keepers of
garages and international carriers; franchise taxes; amusement taxes; excise taxes on
manufactured oils and other fuels; registration requirements; issuance of receipts or
sales or commercial invoices; and disposition of incremental revenues. To my mind,
these changes do not violate the origination or the germaneness principles.
Neither is there undue delegation of legislative power in the standby authority

given by Congress to the President. The law is complete, and the standards are fixed.
While I concur with the ponencia's view that the President was given merely the
power to ascertain the facts to bring the law into operation — clearly an
administrative, not a legislative, function — I stress that the finance secretary remains
the Chief Executive's alter ego, not an agent of Congress.
The BCC exercised its prerogative to delete the no pass-on provisions, because
these were in conflict. I believe, however, that it blatantly violated the origination and
the germaneness principles when it inserted provisions not found in the House
versions of the E-VAT Law: (1) increasing the tax rates on domestic, resident foreign
and nonresident foreign corporations; (2) increasing the tax credit against taxes due
from nonresident foreign corporations on intercorporate dividends; and (3) reducing
the allowable deduction for interest expense. Hence, I find these insertions
unconstitutional.
Some have criticized the E-VAT Law as oppressive to our already suffering
people. On the other hand, respondents have justified it by comparing it to bitter
medicine that patients must endure to be healed eventually of their maladies. The
advantages and disadvantages of the E-VAT Law, as well as its long-term effects on
the economy, are beyond the reach of judicial review. The economic repercussions of
the statute are policy in nature and are beyond the power of the courts to pass upon.
I have combed through the specific points raised in the Petitions. Other than
the three items on income taxes that I respectfully submit are unconstitutional, I
cannot otherwise attribute grave abuse of discretion to the BCC, or Congress for that
matter, for passing the law.
"[T]he Court — as a rule — is deferential to the actions taken by the other

branches of government that have primary responsibility for the economic
development of our country." 97(218) Thus, in upholding the Philippine ratification
of the treaty establishing the World Trade Organization (WTO), Tañada v. Angara
held that "this Court never forgets that the Senate, whose act is under review, is one of
two sovereign houses of Congress and is thus entitled to great respect in its actions. It
is itself a constitutional body, independent and coordinate, and thus its actions are
presumed regular and done in good faith. Unless convincing proof and persuasive
arguments are presented to overthrow such presumption, this Court will resolve every
doubt in its favor." 98(219) As pointed our in Cawaling Jr. v. Comelec, the grounds
for nullity of the law "must be beyond reasonable doubt, for to doubt is to sustain."
99(220) Indeed, "there must be clear and unequivocal showing that what the
Constitutions prohibits, the statute permits." 100(221)
WHEREFORE, I vote to GRANT the Petitions in part and to declare Sections

1, 2, and 3 of Republic Act No. 9337 unconstitutional, insofar as these sections (a)
amend the rates of income tax on domestic, resident foreign, and nonresident foreign
corporations; (b) amend the tax credit against taxes due from nonresident foreign
corporations on intercorporate dividends; and (c) reduce the allowable deduction for
interest expense. The other provisions are constitutional, and as to these I vote to
DISMISS the Petitions.
YNARES-SANTIAGO, J., concurring and dissenting opinion:
The ponencia states that under the provisions of the Rules of the House of
Representatives and the Senate Rules, the Bicameral Conference Committee is
mandated to settle differences between the disagreeing provisions in the House bill
and Senate bill. However, the ponencia construed the term "settle" as synonymous to
"reconcile" and "harmonize," and as such, the Bicameral Conference Committee may
either (a) adopt the specific provisions of either the House bill or Senate bill, (b)
decide that neither provisions in the House bill or the provisions in the Senate bill
would be carried into the final form of the bill, and/or (c) try to arrive at a
compromise between the disagreeing provisions.
I beg to differ on the third proposition.
Indeed, Section 16(3), Article VI of the 1987 Constitution explicitly allows

each House to determine the rules of its proceedings. However, the rules must not
contravene constitutional provisions. The rule-making power of Congress should take
its bearings from the Constitution. If in the exercise of this rule-making power,
Congress failed to set parameters in the functions of the committee and allowed the
latter unbridled authority to perform acts which Congress itself is prohibited, like the
passage of a law without undergoing the requisite three-reading and the so-called
no-amendment rule, then the same amount to grave abuse of discretion which this
Court is empowered to correct under its expanded certiorari jurisdiction.
Notwithstanding the doctrine of separation of powers, therefore, it is the duty of the
Court to declare as void a legislative enactment, either from want of constitutional
power to enact or because the constitutional forms or conditions have not been
observed. 1(222) When the Court declares as unconstitutional a law or a specific
provision thereof because procedural requirements for its passage were not complied,
the Court is by no means asserting its ascendancy over the Legislature, but simply
affirming the supremacy of the Constitution as repository of the sovereign will.
2(223) The judicial branch must ensure that constitutional norms for the exercise of
powers vested upon the two other branches are properly observed. This is the very
essence of judicial authority conferred upon the Court under Section 1, Article VII of
the 1987 Constitution.
The Rules of the House of Representatives and the Rules of the Senate provide
that in the event there is disagreement between the provisions of the House and
Senate bills, the differences shall be settled by a bicameral conference committee.
By this, I fully subscribe to the theory advanced in the Dissenting Opinion of

Chief Justice Hilario G. Davide, Jr. in Tolentino v. Secretary of Finance 3(224) that
the authority of the bicameral conference committee was limited to the reconciliation
of disagreeing provisions or the resolution of differences or inconsistencies. Thus, it
could only either (a) restore, wholly or partly, the specific provisions of the House
bill amended by the Senate bill, (b) sustain, wholly or partly, the Senate's
amendments, or (c) by way of a compromise, to agree that neither provisions in
the House bill amended by the Senate nor the latter's amendments thereto be
carried into the final form of the former.
Otherwise stated, the Bicameral Conference Committee is authorized only to

adopt either the version of the House bill or the Senate bill, or adopt neither. It cannot,
as the ponencia proposed, "try to arrive at a compromise", such as introducing
provisions not included in either the House or Senate bill, as it would allow a mere ad
hoc committee to substitute the will of the entire Congress and without undergoing
the requisite three-reading, which are both constitutionally proscribed. To allow the
committee unbridled discretion to overturn the collective will of the whole Congress
defies logic considering that the bills are passed presumably after study, deliberation
and debate in both houses. A lesser body like the Bicameral Conference Committee
should not be allowed to substitute its judgment for that of the entire Congress, whose
will is expressed collectively through the passed bills.
When the Bicameral Conference Committee goes beyond its limited function
by substituting its own judgment for that of either of the two houses, it violates the
internal rules of Congress and contravenes material restrictions imposed by the
Constitution, particularly on the passage of law. While concededly, the internal rules
of both Houses do not explicitly limit the Bicameral Conference Committee to a
consideration only of conflicting provisions, it is understood that the provisions of the
Constitution should be read into these rules as imposing limits on what the committee
can or cannot do. As such, it cannot perform its delegated function in violation of the
three-reading requirement and the no-amendment rule. DaIAcC
Section 26(2) of Article VI of the 1987 Constitution provides that:
(2) No bill shall be passed by either House shall become a law unless
it has passed three readings on separate days, and printed copies thereof in its
final form have been distributed to its Members three days before its passage,
except when the President certifies to the necessity of its immediate enactment
to meet a public calamity or emergency. Upon the last reading of a bill, no
amendment hereto shall be allowed, and the vote thereon shall be taken
immediately thereafter, and the yeas and nays entered in the Journal.
Thus, before a bill becomes a law, it must pass three readings. Hence, the
ponencia's submission that despite its limited authority, the Bicameral Conference
Committee could "compromise the disagreeing provisions" by substituting it with its
own version — clearly violate the three-reading requirement, as the committee's
version would no longer undergo the same since it would be immediately put into
vote by the respective houses. In effect, it is not a bill that was passed by the entire
Congress but by the members of the ad hoc committee only, which of course is
constitutionally infirm.
I disagree that the no-amendment rule referred only to "the procedure to be

followed by each house of Congress with regard to bills initiated in each of said
respective houses" because it would relegate the no-amendment rule to a mere rule of
procedure. To my mind, the no-amendment rule should be construed as prohibiting
the Bicameral Conference Committee from introducing amendments and
modifications to non-disagreeing provisions of the House and Senate bills. In sum, the
committee could only either adopt the version of the House bill or the Senate bill, or
adopt neither. As Justice Reynato S. Puno said in his Dissenting Opinion in Tolentino
v. Secretary of Finance, 4(225) there is absolutely no legal warrant for the bold
submission that a Bicameral Conference Committee possesses the power to add/delete
provisions in bills already approved on third reading by both Houses or an ex post
veto power.
In view thereof, it is my submission that the amendments introduced by the

Bicameral Conference Committee which are not found either in the House or Senate
versions of the VAT reform bills, but are inserted merely by the Bicameral
Conference Committee and thereafter included in Republic Act No. 9337, should be
declared unconstitutional. The insertions and deletions made do not merely settle
conflicting provisions but materially altered the bill, thus giving rise to the instant
petitions. DcTAIH
I, therefore, join the concurring and dissenting opinion of Mr. Justice Reynato
S. Puno.
SANDOVAL-GUTIERREZ, J., concurring and dissenting opinion:
Adam Smith, the great 18th — century political economist, enunciated the
dictum that "the subjects of every state ought to contribute to the support of
government, as nearly as possible, in proportion to their respective abilities; that is,
in proportion to the revenue which they respectively enjoy under the protection of the
state." 1(226) At no other time this dictum becomes more urgent and obligatory as in
the present time, when the Philippines is in its most precarious fiscal position.
At this juncture, may I state that I join Mr. Senior Justice Reynato S. Puno in
his Opinion, specifically on the following points:
1. It is "high time to re-examine the test of germaneness proffered in

Tolentino;"
2. The Bicameral Conference Committee "cannot exercise its

unbridled discretion," "it cannot create a new law," and its deletion
of the "no pass on provision" common in both Senate Bill No.
1950 and House Bill No. 3705 is "unconstitutional."
In addition to the above points raised by Mr. Senior Justice Puno, may I
expound on the issues specified hereunder:
There is no reason to rush and stamp the imprimatur of validity to a tax law,
R.A. 9337, that contains patently unconstitutional provisions. I refer to Sections 4 to 6
which violate the principle of non-delegation of legislative power. These Sections
authorize the President, upon recommendation of the Secretary of Finance, to raise
the VAT rate from 10% to 12% effective January 1, 2006, if the conditions specified
therein are met, thus:
. . . That the President, upon the recommendation of the Secretary of

twelve percent (12%) after any of the following conditions has been satisfied:

four-fifth percent (2 4/5%); or

This proviso on the authority of the President is uniformly appended to

Sections 4, 5 and 6 of R.A. No. 9337, provisions amending Sections 106, 107 and 108
of the NIRC, respectively. Section 4 imposes a 10% VAT on sales of goods and
properties, Section 5 imposes a 10% VAT on importation of goods, and Section 6
imposes a 10% VAT on sale of services and use or lease of properties.
Petitioners in G.R. Nos. 168056, 2(227) 168207 3(228) and 168463 4(229)
assail the constitutionality of the above provisions on the ground that such stand-by
authority granted to the President constitutes: (1) undue delegation of legislative
power; (2) violation of due process; and (3) violation of the principle of "exclusive
origination." They cited as their basis Article VI, Section 28 (2); Article III, Section
1; and Article VI, Section 24 of the Constitution.
Undue Delegation of Legislative Power
Taxation is an inherent attribute of sovereignty. 5(230) It is a power that is

purely legislative and which the central legislative body cannot delegate either to the
executive or judicial department of government without infringing upon the theory of
separation of powers. 6(231) The rationale of this doctrine may be traced from the
democratic principle of "no taxation without representation." The power of taxation
being so pervasive, it is in the best interest of the people that such power be lodged
only in the Legislature. Composed of the people's representatives, it is "closer to the
pulse of the people and . . . are therefore in a better position to determine both the
extent of the legal burden the people are capable of bearing and the benefits they
need." 7(232) Also, this set-up provides security against the abuse of power. As Chief
Justice Marshall said: "In imposing a tax, the legislature acts upon its constituents.
The power may be abused; but the interest, wisdom, and justice of the representative
body, and its relations with its constituents, furnish a sufficient security."
Consequently, Section 24, Article VI of our Constitution enshrined the

principle of "no taxation without representation" by providing that "all . . . revenue
bills . . . shall originate exclusively in the House of Representatives, but the Senate
may propose or concur with amendments." This provision generally confines the
power of taxation to the Legislature. aHSAIT
R.A. No. 9337, in granting to the President the stand-by authority to increase
the VAT rate from 10% to 12%, the Legislature abdicated its power by delegating it
to the President. This is constitutionally impermissible. The Legislature may not
escape its duties and responsibilities by delegating its power to any other body or
authority. Any attempt to abdicate the power is unconstitutional and void, on the
principle that potestas delegata non delegare potest. 8(233) As Judge Cooley
enunciated:
"One of the settled maxims in constitutional law is, that the power
conferred upon the legislature to make laws cannot be delegated by that
department to any other body or authority. Where the sovereign power of the
state has located the authority, there it must remain; and by the
constitutional agency alone the laws must be made until the Constitution
itself is changed. The power to whose judgment, wisdom, and patriotism this
high prerogative has been entrusted cannot relieve itself of the responsibility by
choosing other agencies upon which the power shall be devolved, nor can it
substitute the judgment, wisdom, and patriotism of any other body for those to
which alone the people have seen fit to confide this sovereign trust." 9(234)
Of course, the rule which forbids the delegation of the power of taxation is not
absolute and inflexible. It admits of exceptions. Retired Justice Jose C. Vitug
enumerated such exceptions, to wit: (1) delegations to local governments (to be
exercised by the local legislative bodies thereof) or political subdivisions; (2)
delegations allowed by the Constitution; and (3) delegations relating merely to
administrative implementation that may call for some degree of discretionary powers
under a set of sufficient standards expressed by law. 10(235)
Patently, the act of the Legislature in delegating its power to tax does not fall
under any of the exceptions.
First, it does not involve a delegation of taxing power to the local government.
It is a delegation to the President.
Second, it is not allowed by the Constitution. Section 28 (2), Article VI of the

Constitution enumerates the charges or duties, the rates of which may be fixed by the
President pursuant to a law passed by Congress, thus:
The Congress may, by law, authorize the President to fix within

specified limits, and subject to such limitations and restrictions as it may
impose, tariff rates, import and export quotas, tonnage and wharfage dues,
and other duties or imposts within the framework of the national development
program of the Government.
Noteworthy is the absence of tax rates or VAT rates in the enumeration. If

the intention of the Framers of the Constitution is to permit the delegation of the
power to fix tax rates or VAT rates to the President, such could have been easily
achieved by the mere inclusion of the term "tax rates" or "VAT rates" in the
enumeration. It is a dictum in statutory construction that what is expressed puts an
end to what is implied. Expressium facit cessare tacitum. 11(236) This is a
derivative of the more familiar maxim express mention is implied exclusion or
expressio unius est exclusio alterius. Considering that Section 28 (2), Article VI
expressly speaks only of "tariff rates, 12(237) import 13(238) and export quotas,
14(239) tonnage 15(240) and wharfage dues 16(241) and other duties and imposts,
17(242) " by no stretch of imagination can this enumeration be extended to include
the VAT.
And third, it does not relate merely to the administrative implementation of

R.A. No. 9337.
In testing whether a statute constitutes an undue delegation of legislative power

or not, it is usual to inquire whether the statute was complete in all its terms and
provisions when it left the hands of the Legislature so that nothing was left to the
judgment of any other appointee or delegate of the legislature. 18(243)
In the present case, the President is the delegate of the Legislature, endowed
with the power to raise the VAT rate from 10% to 12% if any of the following
conditions, to reiterate, has been satisfied: (i) value-added tax collection as a
percentage of gross domestic product (GDP) of the previous year exceeds two and
four-fifths percent (2 4/5%) or (ii) National Government deficit as a percentage of
GDP of the previous year exceeds one and one-half percent (1 1/2%).
At first glance, the two conditions may appear to be definite standards

sufficient to guide the President. However, to my mind, they are ineffectual and
malleable as they give the President ample opportunity to exercise her authority in
arbitrary and discretionary fashion.
The two conditions set forth by law would have been sufficient had it not been
for the fact that the President, being at the helm of the entire officialdom, has more
than enough power of control to bring about the existence of such conditions.
Obviously, R.A. No. 9337 allows the President to determine for herself whether the
VAT rate shall be increased or not at all. The fulfillment of the conditions is entirely
placed in her hands. If she wishes to increase the VAT rate, all she has to do is to
strictly enforce the VAT collection so as to exceed the 2 4/5% ceiling. The same
holds true with the national government deficit. She will just limit government
expenses so as not to exceed the 1 1/2% ceiling. On the other hand, if she does not
wish to increase the VAT rate, she may discourage the Secretary of Finance from
making the recommendation.
That the President's exercise of an authority is practically within her control is

tantamount to giving no conditions at all. I believe this amounts to a virtual surrender
of legislative power to her. It must be stressed that the validity of a law is not tested
by what has been done but by what may be done under its provisions. 19(244)
II
Violation of Due Process
The constitutional safeguard of due process is briefly worded in Section 1,

Article III of the Constitution which states that, "no person shall be deprived of life,
liberty or property without due process of law." 20(245)
Substantive due process requires the intrinsic validity of the law in interfering
with the rights of the person to his property. The inquiry in this regard is not whether
or not the law is being enforced in accordance with the prescribed manner but
whether or not, to begin with, it is a proper exercise of legislative power.
To be so, the law must have a valid governmental objective, i.e., the interest
of the public as distinguished from those of a particular class, requires the
intervention of the State. This objective must be pursued in a lawful manner, or in
other words, the means employed must be reasonably related to the accomplishment
of the purpose and not unduly oppressive.
There is no doubt that R.A. No. 9337 was enacted pursuant to a valid
governmental objective, i.e. to raise revenues for the government. However, with
respect to the means employed to accomplish such objective, I am convinced that
R.A. No. 9337, particularly Sections 4, 5 and 6 thereof, are arbitrary and unduly
oppressive.
A reading of the Senate deliberation reveals that the first condition constitutes
a reward to the President for her effective collection of VAT. Thus, the President may
increase the VAT rate from 10% to 12% if her VAT collection during the previous
year exceeds 2 4/5% of the Gross Domestic Product. I quote the deliberation:
Senator Lacson.
Thank you, Mr. President. Now, I will go back to my original question,

my first question. Who are we threatening to punish on the imposed
condition No. 1 — the public or the President?
Senator Recto.
That is not a punishment, that is supposed to be a reward system.
Senator Lacson.
Yes, an incentive. So we are offering an incentive to the Chief
Executive.
Senator Recto.
That is right.
Senator Lacson.
in order for her to be able to raise the VAT to 12%.
Senator Recto.
That is right. That is the intention, yes.
xxx xxx xxx
Senator Osmena.
All right. Therefore, with the lifting of exemptions it stands to

reason that Value-added tax collections as a percentage of GDP will
be much higher than . . . Now, if it is higher than 2.5%, in other
words, because they collected more, we will allow them to even tax
more. Is that the meaning of this particular phrase?
Senator Recto.
Yes, Mr. President, that is why it is as low as 2.8%. It is like if a

person has a son and his son asks him for an allowance, I do not
think that he would immediately give his son an increase in
allowance unless he tells his son, You better improve your grades
and I will give you an allowance. That is the analogy of this.
xxx xxx xxx
Senator Osmena.
So the gentleman is telling the President, If you collect more than

138 billion, I will give you additional powers to tax the people.
Senator Recto.
. . . We are saying, kung mataas and grade mo, dadagdagan ko an

allowance mo. Katulad ng sinabi natin ditto. What we are saying
here is you prove to me that you can collect it, then we will increase
your rate, you can raise your rate. It is an incentive. 21(246)
Why authorize the President to increase the VAT rate on the premise alone that
she deserves an "incentive" or "reward"? Indeed, why should she be rewarded for
performing a duty reposed upon her by law?
The rationale stated by Senator Recto is flawed. One of the principles of sound
taxation is fiscal adequacy. The proceeds of tax revenue should coincide with, and
approximate the needs of, government expenditures. Neither an excess nor a
deficiency of revenue vis-à-vis the needs of government would be in keeping with
the principle. 22(247)
Equating the grant of authority to the President to increase the VAT rate with
the grant of additional allowance to a studious son is highly inappropriate. Our
Senators must have forgotten that for every increase of taxes, the burden always
redounds to the people. Unlike the additional allowance given to a studious son that
comes from the pocket of the granting parent alone, the increase in the VAT rate
would be shouldered by the masses. Indeed, mandating them to pay the increased rate
as an award to the President is arbitrary and unduly oppressive. Taxation is not a
power to be exercised at one's whim.
III
Exclusive Origination from the House of Representatives
Section 24, Article VI of the Constitution provides:
SEC. 24. All appropriations, revenue or tariff bills, bills authorizing

originate exclusively in the House of Representatives, but the Senate may
In Tolentino vs. Secretary of Finance, 23(248) this Court expounded on the

foregoing provision by holding that:
". . . To begin with, it is not the law — but the revenue bill — which is
required by the Constitution to 'originate exclusively in the House of
Representatives. It is important to emphasize this, because a bill originating the
in the House may undergo such extensive changes in the Senate that the result
may be a rewriting of the whole . . . . At this point, what is important to note is
that, as a result of the Senate action, a distinct bill may be produced. To insist
that a revenue statute — and not only the bill which initiated the legislative
process culminating in the enactment of the law — must substantially be the
same as the House Bill would be to deny the Senate's power not only to 'concur
with amendments: but also to 'propose amendments.' It would be to violate the
co-equality of the legislative power of the two houses of Congress and in fact,
make the House superior to the Senate."
The case at bar gives us an opportunity to take a second hard look at the
efficacy of the foregoing jurisprudence.
Section 25, Article VI is a verbatim re-enactment of Section 18, Article VI of

the 1935 Constitution. The latter provision was modeled from Section 7 (1), Article I
of the United States Constitution, which states:
"All bills for raising revenue shall originate in the House of

Representatives, but the Senate may propose or concur with amendments, as
on other bills."
The American people, in entrusting what James Madison termed "the power of
the purse" to their elected representatives, drew inspiration from the British practice
and experience with the House of Commons. As one commentator puts it:
"They knew the inestimable value of the House of Commons, as a

component branch of the British parliament; and they believed that it had at all
times furnished the best security against the oppression of the crown and the
aristocracy. While the power of taxation, of revenue, and of supplies
remained in the hands of a popular branch, it was difficult for usurpation
to exist for any length of time without check, and prerogative must yield of
that necessity which controlled at once the sword and the purse."
But while the fundamental principle underlying the vesting of the power to
propose revenue bills solely in the House of Representatives is present in both the
Philippines and US Constitutions, stress must be laid on the differences between the
two quoted provisions. For one, the word "exclusively" appearing in Section 24,
Article VI of our Constitution is nowhere to be found in Section 7 (1), Article I of the
US Constitution. For another, the phrase "as on other bills," present in the same
provision of the US Constitution, is not written in our Constitution.
The adverb "exclusively" means "in an exclusive manner." 24(249) The term
"exclusive" is defined as "excluding or having power to exclude; limiting to or limited
to; single, sole, undivided, whole." 25(250) In one case, this Court define the term
"exclusive" as "possessed to the exclusion of others; appertaining to the subject alone,
not including, admitting, or pertaining to another or others." 26(251)
As for the term "originate," its meaning are "to cause the beginning of; to
give rise to; to initiate; to start on a course or journey; to take or have origin; to
be deprived; arise; begin or start." 27(252)
With the foregoing definitions in mind, it can be reasonably concluded that

when Section 24, Article VI provides that revenue bills shall originate exclusively
from the House of Representatives, what the Constitution mandates is that any
revenue statute must begin or start solely and only in the House. Not the Senate. Not
both Chambers of Congress. But there is more to it than that. It also means that "an
act for taxation must pass the House first." It is no consequence what amendments
the Senate adds. 28(253)
A perusal of the legislative history of R.A. No. 9337 shows that it did not
"exclusively originate" from the House of Representatives.
The House of Representatives approved House Bill Nos. 3555 29(254) and
3705 30(255) . These Bills intended to amend Sections 106, 107, 108, 109, 110, 111
and 114 of the NIRC. For its part, the Senate approved Senate Bill No. 1950, 31(256)
taking into consideration House Bill Nos. 3555 and 3705. It intended to amend
Sections 27, 28, 34, 106, 108, 109, 110, 112, 113, 114, 116, 117, 119, 121, 125, 148,
151, 236, 237 and 288 of the NIRC.
Thereafter, on April 13, 2005, a Committee Conference was created to thresh

out the disagreeing provisions of the three proposed bills.
In less than a month, the Conference Committee "after having met and
discussed in full free and conference," came up with a report and recommended the
approval of the consolidated version of the bills. The Senate and the House of
Representatives approved it.
On May 23, 2005, the enrolled copy of the consolidated version of the bills
was transmitted to President Arroyo, who signed it into law. Thus, the enactment of
R.A. No. 9337, entitled "An Act Amending Sections 27, 28, 34, 106, 107, 108, 109,
110, 111, 112, 113, 114, 116, 117, 119, 121, 148, 151, 236, 237 and 288 of the
National Internal Revenue Code of 1997, As Amended and For Other Purposes."
Clearly, Senate Bill No. 1950 is not based on any bill passed by the House of
Representatives. It has a legislative identity and existence separate and apart from
House Bills No. 3555 and 3705. Instead of concurring or proposing amendments,
Senate Bill No. 1950 merely "takes into consideration" the two House Bills. To take
into consideration means "to take into account." Consideration, in this sense, means
"deliberation, attention, observation or contemplation. 32(257) Simply put, the Senate
in passing Senate Bill No. 1950, a tax measure, merely took into account House Bills
No. 3555 and 3705, but did not concur with or amend either or both bills. As a matter
of fact, it did not even take these two House Bills as a frame of reference.
In Tolentino, the majority subscribed to the view that Senate may amend the
House revenue bill by substitution or by presenting its own version of the bill. In
either case, the result is "two bills on the same subject." 33(258) This is the source
of the "germaneness" rule which states that the Senate bill must be germane to the bill
originally passed by the House of Representatives. In Tolentino, this was not really an
issue as both the House and Senate Bills in question had one subject — the VAT.
The facts obtaining here is very much different from Tolentino. It is very
apparent that House Bills No. 3555 and 3705 merely intended to amend Sections 106,
107, 108, 109, 110, 111 and 114 of the NIRC of 1997, pertaining to the VAT
provisions. On the other hand, Senate Bill No. 1950 intended to amend Sections 27,
28, 34, 106, 108, 109, 110, 112, 113, 114, 116, 117, 119, 121, 125, 148, 151, 236,
237 and 288 of the NIRC, pertaining to matters outside of VAT, such as income tax,
percentage tax, franchise tax, taxes on banks and other financial intermediaries, excise
taxes, etc.
Thus, I am of the position that the Senate could not, without violating the
germaneness rule and the principle of "exclusive origination," propose tax matters not
included in the House Bills.
WHEREFORE, I vote to CONCUR with the majority opinion except with

respect to the points above-mentioned.
CALLEJO, SR., J., concurring and dissenting opinion:
I join the concurring and dissenting opinion of Mr. Justice Reynato S. Puno as
I concur with the majority opinion but vote to declare as unconstitutional the deletion
of the "no-pass on provision" contained in Senate Bill No. 1950 and House Bill No.
3705 (the constituent bills of Republic Act No. 9337).
The present petitions provide an opportune

occasion for the Court to re-examine
Tolentino v. Secretary of Finance
In ruling that Congress, in enacting R.A. No. 9337, complied with the formal
requirements of the Constitution, the ponencia relies mainly on the Court's rulings in
Tolentino v. Secretary of Finance. 1(259) To recall, Tolentino involved Republic Act
No. 7716, which similarly amended the NIRC by widening the tax base of the VAT
system. The procedural attacks against R.A. No. 9337 are substantially the same as
those leveled against R.A. No. 7716, e.g., violation of the "Origination Clause"
(Article VI, Section 24) and the "Three-Reading Rule" and the "No-Amendment
Rule" (Article VI, Section 26[2]) of the Constitution. DHETIS
The present petitions provide an opportune occasion for the Court to

re-examine its rulings in Tolentino particularly with respect to the scope of the powers
of the Bicameral Conference Committee vis-à-vis Article VI, Section 26(2) of the
Constitution.
The crucial issue posed by the present petitions is whether the Bicameral
Conference Committee may validly introduce amendments that were not contained in
the respective bills of the Senate and the House of Representatives. As a corollary,
whether it may validly delete provisions uniformly contained in the respective bills of
the Senate and the House of Representatives.
In Tolentino, the Court declared as valid amendments introduced by the

Bicameral Conference Committee even if these were not contained in the Senate and
House bills. The majority opinion therein held:
As to the possibility of an entirely new bill emerging out of a

Conference Committee, it has been explained:
Under congressional rules of procedures, conference committees

are not expected to make any material change in the measure at issue,
either by deleting provisions to which both houses have already agreed
or by inserting new provisions. But this is a difficult provision to
enforce. Note the problem when one house amends a proposal
originating in either house by striking out everything following the
enacting clause and substituting provisions which make it an entirely
new bill. The versions are now altogether different, permitting a
conference committee to draft essentially a new bill . . .
The result is a third version, which is considered an "amendment in the nature

of a substitute," the only requirement for which being that the third version be
germane to the subject of the House and Senate bills.
Indeed, this Court recently held that it is within the power of a

conference committee to include in its report an entirely new provision that is
not found either in the House bill or in the Senate Bill. If the committee can
propose an amendment consisting of one or two provisions, collectively
considered as an "amendment in the nature of a substitute," so long as such an
amendment is germane to the subject of the bills before the committee. After all,
its report was not final but needed the approval of both houses of Congress to
become valid as an act of the legislative department. The charge that in this case
the Conference Committee acted a third legislative chamber is thus without any
basis. 2(260)
The majority opinion in Tolentino relied mainly on the practice of the United
States legislature in making the foregoing disquisition. It was held, in effect, that
following the US Congress' practice where a conference committee is permitted to
draft a bill that is entirely different from the bills of either the House of
Representatives or Senate, the Bicameral Conference Committee is similarly
empowered to make amendments not found in either the House or Senate bills.
The ponencia upholds the acts of the Bicameral Conference Committee with
respect to R.A. No. 9337, following the said ruling in Tolentino.
To my mind, this unqualified adherence by the majority opinion in Tolentino,

and now by the ponencia, to the practice of the US Congress and its conference
committee system ought to be re-examined. There are significant textual differences
between the US Federal Constitution's and our Constitution's prescribed congressional
procedure for enacting laws. Accordingly, the degree of freedom accorded by the US
Federal Constitution to the US Congress markedly differ from that accorded by our
Constitution to the Philippine Congress.
Section 7, Article I of the US Federal Constitution reads:
[1] All Bills for raising Revenue shall originate in the House of
Representatives; but the Senate may propose or concur with Amendments as on
other Bills.
[2] Every Bill which shall have passed the House of Representatives
and the Senate, shall, before it become a Law, be presented to the President of
the United States; If he approve he shall it, but if not he shall return it, with his
Objections to the House in which it shall have originated, who shall enter the
Objections at large on their Journal, and proceed to reconsider it. If after such
Reconsideration two thirds of that House shall agree to pass the Bill, it shall be
sent together with the Objections, to the other House, by which it shall,
likewise, be reconsidered, and if approved by two thirds of that House, it shall
become a Law. But in all such Cases the Votes of both Houses shall be
determined by yeas and Nays, and the Names of the Persons voting for and
against the Bill shall be entered on the Journal of each House respectively. If
any Bill shall not be returned by the President within ten Days (Sundays
excepted) after it shall have been presented to him, the Same shall be a Law, in
like Manner as if he had signed it, unless the Congress by their Adjournment
prevent its return in which Case it shall not be a Law.
[3] Every Order, Resolution, or Vote to Which the Concurrence of the

Senate and House of Representatives may be necessary (except on a question of
Adjournment) shall be presented to the President of the United States; and
before the Same shall take Effect, shall be approved by him, or being
disapproved by him, shall be repassed by two thirds of the Senate and House of
Representatives, according to the Rules and Limitations prescribed in the Case
of a Bill.
On the other hand, Article VI of our Constitution prescribes for the following
procedure for enacting a law:
Sec. 26. (1) Every bill passed by Congress shall embrace only one
subject which shall be expressed in the title thereof.
(2) No bill passed by either House shall become a law unless it has
passed three readings on separate days, and printed copies thereof in its final
form have been distributed to its Members three days before its passage, except
when the President certifies to the necessity of its immediate enactment to meet
a public calamity or emergency. Upon the last reading of a bill, no amendment
thereto shall be allowed, and the vote thereon shall be taken immediately
thereafter, and the yeas and nays entered in the Journal.
Sec. 27. (1) Every bill passed by Congress shall, before it becomes a
law, be presented to the President. If he approves the same, he shall sign it;
otherwise, he shall veto it and return the same with his objections to the House
where it originated, which shall enter the objections at large in its Journal and
proceed to reconsider it. If, after such reconsideration, two-thirds of all the
Members of such House shall agree to pass the bill, it shall be sent, together
with the objections, to the other House by which it shall likewise be
reconsidered, and if approved by two-thirds of all the Members of that House, it
shall become a law. In all such cases, the votes of each House shall be
determined by yeas and nays, and the names of the Members voting for or
against shall be entered in its Journal. The President shall communicate his veto
of any bill to the House where it originated within thirty days after the date of
receipt thereof; otherwise, it shall become a law as if he had signed it.
(2) The President shall have the power to veto any particular item or
items in an appropriation, revenue, or tariff bill, but the veto shall not affect the
item or items to which he does not object.
Two distinctions are readily apparent between the two procedures:

1. Unlike the US Federal Constitution, our Constitution prescribes the
"three-reading" rule or that no bill shall become a law unless it
shall have been read on three separate days in each house except
when its urgency is certified by the President; and
2. Unlike the US Federal Constitution, our Constitution prescribes the

"no-amendment" rule or that no amendments shall be allowed
upon the last reading of the bill.
American constitutional experts have lamented that certain congressional

procedures have not been entrenched in the US Federal Constitution. According to a
noted constitutional law professor, the absence of the "three-reading" requirement as
well as similar legislative-procedure rules from the US Federal Constitution is a
"cause for regret." 3(261)
In this connection, it is interesting to note that the conference committee

system in the US Congress has been described in this wise:
Conference Committees
Another main mechanism of joint House and Senate action is the

conference committee. Inherited from the English Constitution, the conference
committee system is an evolutionary product whose principal threads were
woven on the loom of congressional practice into a unified pattern by the
middle of the nineteenth century. "By 1852," writes Ada McCown, historian of
the origin and development of the conference committee, "the customs of
presenting identical reports from the committees of conference in both houses,
of granting high privilege to these conference reports, of voting upon the
conference report as a whole and permitting no amendment of it, of keeping
secret the discussions carried on in the meetings of the conference committee,
had become established in American parliamentary practice."
Conference committees are composed of Senators and Representatives,

usually three each, appointed by the presiding officers of both houses, for the
purpose of adjusting differences between bills they have passed. This device has
been extensively used by every Congress since 1789. Of the 1157 laws enacted
by the 78th Congress, for example, 107 went through conference and, of these,
36 were appropriation bills on which the House had disagreed to Senate
amendments. In practice, most important legislation goes through the
conference closet and is there revised, sometimes beyond recognition, by the
all-powerful conferees or managers, as they are styled. A large body of law and
practice has been built up over the years governing conference procedure and
reports.
Suffice it to say here that serious evils have marked the development of
the conference committee system. In the first place, it is highly prodigal of
members' time. McConachie calculated that the average time consumed in
conference was 33 days per bill. Bills are sent to conference without reading the
amendments of the other chamber. Despite rules to the contrary, conferees do
not confine themselves to matters in dispute, but often initiate entirely new
legislation and even strike out identical provisions previously approved by both
houses. This happened during the 78th Congress, for instance, when an
important amendment to the surplus property bill, which had been approved by
both houses, was deleted in conference.
Conference committees, moreover, suffer like other committees from the

seniority rule. The senior members of the committees concerned, who are
customarily appointed as managers on the part of the House and Senate, are not
always the best informed on the questions at issue, nor do they always reflect
the majority sentiment of their houses. Furthermore, conference reports must be
accepted or rejected in toto without amendment and they are often so complex
and obscure that they are voted upon without knowledge of their contents. What
happens in practice is that Congress surrenders its legislative function to
irresponsible committees of conference. The standing rules against including
new and extraneous matter in conference reports have been gradually whittled
away in recent years by the decisions of presiding officers. Senate riders
attached to appropriation bills enable conference committees to legislate and the
House usually accepts them rather than withhold supply, thus putting it, as
Senator Hoar once declared, under a degrading duress.
It is also alleged that under this secret system lobbyist are able to kill
legislation they dislike and that "jokers" designed to defeat the will of Congress
can be inserted without detection. Senator George W. Norris once characterized
the conference committee as a third house of Congress. "The members of this
'house,' he said, "are not elected by the people. The people have no voice as to
who these members shall be . . . This conference committee is many times, in
very important matters of legislation, the most important branch of our
legislature. There is no record kept of the workings of the conference
committee. Its work is performed, in the main, in secret. No constituent has any
definite knowledge as to how members of this conference committee vote, and
there is no record to prove the attitude of any member of the conference
committee . . . As a practical proposition we have legislation, then, not by the
voice of the members of the Senate, not by the members of the House of
Representatives, but we have legislation by the voice of five or six men. And for
practical purposes, in most cases, it is impossible to defeat the legislation
proposed by this conference committee. Every experienced legislator knows
that it is the hardest thing in the world to defeat a conference report."
Despite these admitted evils, impartial students of the conference

committee system defend it on net balance as an essential part of the legislative
process. Some mechanism for reconciling differences under bicameral system is
obviously indispensable. The remedy for the defects of the device is not to
abolish it, but to keep it under congressional control. This can be done by
enforcing the rules which prohibit the inclusion in conference reports of matter
not committed to them by either house and forbid the deletion of items approved
by both bodies; by permitting conference managers to report necessary new
matter separately and the houses to consider it apart from the conference report;
by fixing a deadline toward the close of a session after which no bills could be
sent to conference, so as to eliminate congestion at the end of the session a
suggestion made by the elder Senator La Follete in 1919; by holding
conferences in sessions open to the public, letting conference reports lie over
longer; and printing them in bill form (with conference changes in italics) so as
to allow members more time to examine them and discover "jokers." 4(262)
The "three-reading" and "no-amendment" rules, absent in the US Federal

Constitution, but expressly mandated by Article VI, Section 26(2) of our Constitution
are mechanisms instituted to remedy the "evils" inherent in a bicameral system of
legislature, including the conference committee system.
Sadly, the ponencia's refusal to apply Article VI, Section 26(2) of the
Constitution on the Bicameral Conference Committee and the amendments it
introduced to R.A. No. 9337 has "effectively dismantled" the "three-reading rule" and
"no-amendment rule." As posited by Fr. Joaquin Bernas, a member of the
Constitutional Commission:
In a bicameral system, bills are independently processed by both House

of Congress. It is not unusual that the final version approved by one House
differs from what has been approved by the other. The "conference committee,"
consisting of members nominated from both Houses, is an extra-constitutional
creation of Congress whose function is to propose to Congress ways of
reconciling conflicting provisions found in the Senate version and in the House
version of a bill. It performs a necessary function in a bicameral system.
However, since conference committees have merely delegated authority from
Congress, they should not perform functions that Congress itself may not do.
Moreover, their proposals need confirmation by both Houses of Congress.
In Tolentino v. Secretary of Finance, the Court had the opportunity to

delve into the limits of what conference committees may do. The petitioners
contended that the consolidation of the House and Senate bills made by the
conference committee contained provisions which neither the Senate bill nor the
House bill had. In her dissenting opinion, Justice Romero laid out in great detail
the provisions that had been inserted by the conference committee. These
provisions, according to the petitioners had been introduced "surreptitiously"
during a closed door meeting of the committee.
The Court's answer to this was that in United States practice conference
committees could be held in executive sessions and amendments germane to the
purpose of the bill could be introduced even if these were not in either original
bill. But the Court did not bother to check whether perhaps the American
practice was based on a constitutional text different from that of the Philippine
Constitution.
There are as a matter of fact significant differences in the degree of

freedom American and Philippine legislators have. The only rule that binds the
Federal Congress is that it may formulate its own rules of procedure. For this
reason, the Federal Congress is master of its own procedures. It is different with
the Philippine Congress. Our Congress indeed is also authorized to formulate its
own rules of procedure but within limits not found in American law. For
instance, there is the "three readings on separate days" rule. Another important
rule is that no amendments may be introduced by either house during third
reading. These limitations were introduced by the 1935 and 1973 Constitutions
and confirmed by the 1987 Constitution as a defense against the inventiveness
of the stealthy and surreptitious. These, however, were disregarded by the Court
in Tolentino in favor of contrary American practice.
This is not to say that conference committees should not be allowed. But
an effort should be made to lay out the scope of what conference committees
may do according to the requirements and the reasons of the Philippine
Constitution and not according to the practice of the American Congress. For
instance, if the two Houses are not allowed to introduce and debate amendments
on third reading, can they circumvent this rule by coursing new provisions
through the instrumentality of a conference committee created by Congress and
meeting in secret? The effect of the Court's uncritical embrace of the practice of
the American Congress and its conference committees is to dismantle the
no-amendment rule. 5(263)
The task at hand for the Court, but which the ponencia eschews, is to
circumscribe the powers of the Bicameral Conference Committee in light of the
"three-reading" and "no-amendment" rules in Article VI, Section 26(2) of the
Constitution.
The Bicameral Conference Committee, in

deleting the "no pass on provision" contained in
Senate Bill No. 1950 and House Bill No. 3705,
violated Article VI, Section 26(2) of the Constitution
Pertinently, in his dissenting opinion in Tolentino, Justice Davide (now Chief

Justice) opined that the duty of the Bicameral Conference Committee was limited to
the reconciliation of disagreeing provisions or the resolution of differences or
inconsistencies. This proposition still applies as can be gleaned from the following
text of Sections 88 and 89, Rule XIV of the Rules of the House of Representatives:
not agree with the Senate on the amendments to any bill or joint resolution, the

amendments to the subject measure. DAaEIc
xxx xxx xxx

on the Conference Committee report in the same manner and procedure as it
votes on a bill on third and final reading.
and Rule XII, Section 35 of the Rules of the Senate:

voting separately.
Justice Davide further explained that under its limited authority, the Bicameral
Conference Committee could only (a) restore, wholly or partly, the specific
provisions of the House Bill amended by the Senate Bill; (b) sustain, wholly or partly,
the Senate's amendments, or (c) by way of compromise, to agree that neither
provisions in the House Bill amended by the Senate nor the latter's amendments
thereto be carried into the final form of the former. Justice Romero, who also
dissented in Tolentino, added that the conference committee is not authorized to
initiate or propose completely new matters although under certain legislative rules
like the Jefferson's Manual, a conference committee may introduce germane matters
in a particular bill. However, such matters should be circumscribed by the
committee's sole authority and function to reconcile differences.
In the case of R.A. No. 9337, the Bicameral Conference Committee made an
"amendment by deletion" with respect to the "no pass on provision" contained in both
House Bill (HB) No. 3705 and Senate Bill (SB) No. 1950. HB 3705 proposed to
amend Sections 106 and 108 of the NIRC by expressly stating therein that sellers of
petroleum products and power generation companies selling electricity are prohibited
from passing on the VAT to the consumers. SB 1950 proposed to amend Section 108
by likewise prohibiting power generation companies from passing on the VAT to the
consumers. However, these “no pass on provisions” were altogether deleted by the
Bicameral Conference Committee. At the least, since there was no disagreement
between HB 3705 and SB 1950 with respect to the "no pass on provision" on the sale
of electricity, the Bicameral Conference Committee acted beyond the scope of its
authority in deleting the pertinent proviso.
At this point, it is well to recall the rationale for the "no-amendment rule" and
the "three-reading rule" in Article VI, Section 26(2) of the Constitution. The
proscription on amendments upon the last reading is intended to subject all bills and
their amendments to intensive deliberation by the legislators and the ample ventilation
of issues to afford the public an opportunity to express their opinions or objections
thereon. 6(264) Analogously, it is said that the "three-reading rule" operates "as a
self-binding mechanism that allows the legislature to guard against the consequences
of its own future passions, myopia, or herd behavior. By requiring that bills be read
and debated on successive days, legislature may anticipate and forestall future
occasions on which it will be seized by deliberative pathologies." 7(265) As Jeremy
Bentham, a noted political analyst, put it: "[t]he more susceptible a people are of
excitement and being led astray, so much the more ought they to place themselves
under the protection of forms which impose the necessity of reflection, and prevent
surprises." 8(266)
Reports of the Bicameral Conference Committee, especially in cases where
substantial amendments, or in this case deletions, have been made to the respective
bills of either house of Congress, ought to undergo the "three-reading" requirement in
order to give effect to the letter and spirit of Article VI, Section 26(2) of the
Constitution.
The Bicameral Conference Committee Report that eventually became R.A. No.
9337, in fact, bolsters the argument for the strict compliance by Congress of the
legislative procedure prescribed by the Constitution. As can be gleaned from the said
Report, of the 9 Senators-Conferees, 9(267) only 5 Senators 10(268) unqualifiedly
approved it. Senator Joker P. Arroyo expressed his qualified dissent while Senators
Sergio R. Osmeña III and Juan Ponce Enrile approved it with reservations. On the
other hand, of the twenty-eight (28) Members of the House of
Representatives-Conferees, 11(269) fourteen (14) 12(270) approved the same with
reservations while three 13(271) voted no. All the reservations expressed by the
conferees relate to the deletion of the "no pass on provision." Only eleven (11)
unqualifiedly approved it. In other words, even among themselves, the conferees were
not unanimous on their Report. Nonetheless, Congress approved it without even
thoroughly discussing the reservations or qualifications expressed by the conferees
therein. HAcaCS
This "take it or leave it" stance vis-à-vis conference committee reports opens
the possibility of amendments, which are substantial and not even germane to the
original bills of either house, being introduced by the conference committees and
voted upon by the legislators without knowledge of their contents. This practice
cannot be countenanced as it patently runs afoul of the essence of Article VI, Section
26(2) of the Constitution. Worse, it is tantamount to Congress surrendering its
legislative functions to the conference committees.
Ratification by Congress did not cure the

unconstitutional act of the Bicameral Conference
Committee of deleting the "no pass on provision"
That both the Senate and the House of Representatives approved the Bicameral
Conference Committee Report which deleted the "no pass on provision" did not cure
the unconstitutional act of the said committee. As succinctly put by Chief Justice
Davide in his dissent in Tolentino, "[t]his doctrine of ratification may apply to minor
procedural flaws or tolerable breaches of the parameters of the bicameral conference
committee's limited powers but never to violations of the Constitution. Congress is
not above the Constitution." 14(272)
Enrolled Bill Doctrine is not applicable where, as in
this case, there is grave violation of the Constitution
As expected, the ponencia invokes the enrolled bill doctrine to buttress its
refusal to pass upon the validity of the assailed acts of the Bicameral Conference
Committee. Under the "enrolled bill doctrine," the signing of a bill by the Speaker of
the House and the Senate President and the certification of the Secretaries of both
houses of Congress that it was passed are conclusive of its due enactment. In addition
to Tolentino, the ponencia cites Fariñas v. Executive Secretary 15(273) 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.
Reliance by the ponencia on Fariñas is quite misplaced. The Court's adherence

to the enrolled bill doctrine in the said case was justified for the following reasons:
The Court finds no reason to deviate from the salutary in this case where
the irregularities alleged by the petitioners mostly involved the internal rules of
Congress, whether House or Senate. Parliamentary rules are merely procedural
and with their observance the courts have no concern. Whatever doubts there
may be as to the formal validity of Rep. Act No. 9006 must be resolved in its
favor. The Court reiterates its ruling in Arroyo v. De Venecia, viz.:
But the cases, both here and abroad, in varying forms of expression, all
deny to the courts the power to inquire into the allegations that, in enacting a
law, a House of Congress failed to comply with its own rules, in the absence of
showing that there was a violation of a constitutional provision or the rights of
private individuals. In Osmeña v. Pendatun, it was held: "At any rate, courts
have declared that 'the rules adopted by deliberative bodies are subject to
revocation, modification or waiver at the pleasure of the body adopting them.'
And it has been said that 'Parliamentary rules are merely procedural, and with
their observance, the courts have no concern. They may be waived or
disregarded by the legislative body.' Consequently, 'mere failure to conform to
parliamentary usage will not invalidate the action (taken by a deliberative body)
when the requisite number of members have agreed to a particular measure.
16(274)
Thus, in Fariñas, the Court's refusal to go behind the enrolled bill was based
on the fact that the alleged irregularities that attended the passage of R.A. No. 9006
merely involved the internal rules of both houses of Congress. The procedural
irregularities allegedly committed by the conference committee therein did not
amount to a violation of a provision of the Constitution. 17(275)
In contrast, the act of the Bicameral Conference Committee of deleting the "no
pass on provision" of SB 1950 and HB 3705 infringe Article VI, Section 26(2) of the
Constitution. The violation of this constitutional provision warrants the exercise by
the Court of its constitutionally-ordained power to strike down any act of a branch or
instrumentality of government or any of its officials done with grave abuse of
discretion amounting to lack or excess of jurisdiction. 18(276)
ACCORDINGLY, I join the concurring and dissenting opinion of Mr. Justice

Reynato S. Puno and vote to dismiss the petitions with respect to Sections 4, 5 and 6
of Republic Act No. 9337 for being premature. Further, I vote to declare as
unconstitutional Section 21 thereof and the deletion of the "no pass on provision"
contained in the constituent bills of Republic Act No. 9337.
AZCUNA, J., concurring and dissenting opinion:
Republic Act No. 9337, the E-VAT law, is assailed as an unconstitutional

abdication of Congress of its power to tax through its delegation to the President of
the decision to increase the rate of the tax from 10% to 12%, effective January 1,
2006, after any of two conditions has been satisfied. 1(277)
The two conditions are:

4/5%); or

previous year exceeds one and one-half percent (1 1/2%). 2(278)
A scrutiny of these "conditions" shows that one of them is certain to happen on

January 1, 2006.
The first condition is that the collection from the E-VAT exceeds 2 4/5% of the
Gross Domestic Product (GDP) of the previous year, a ratio that is known as the tax
effort.
The second condition is that the national government deficit exceeds 1 1/2% of
the GDP of the previous year.
Note that the law says that the rate shall be increased if any of the two
conditions happens, i.e., if condition (i) or condition (ii) occurs.
Now, in realistic terms, considering the short time-frame given, the only
practicable way that the present deficit of the national government can be reduced to 1
1/2% or lower, thus preventing condition (ii) from happening, is to increase the tax
effort, which mainly has to come from the E-VAT. But increasing the tax effort
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) under the law. Thus, the happening of
condition (i) or condition (ii) is in reality certain and unavoidable, as of January 1,
2006. HcTSDa
This becomes all the more clear when we consider the figures provided during
the oral arguments.
The Gross Domestic Product for 2005 is estimated at P5.3 Trillion pesos.
The tax effort of the present VAT is now at 1.5%.
The national budgetary deficit against the GDP is now at 3%.
So to reduce the deficit to 1.5% from 3%, one has to increase the tax effort
from VAT, now at 1.5%, to at least 3%, thereby exceeding the 2 4/5 percent ceiling in
condition (i), making condition (i) happen. If, on the other hand, this is not done, then
condition (ii) happens — the budget deficit remains over 1.5%.
What is the result of this? The result is that in reality, the law does not impose
any condition, or the rate increase thereunder, from 10% to 12%, effective January 1,
2006, is unconditional. For a condition is an event that may or may not happen, or one
whose occurrence is uncertain. 3(279) Now while condition (i) is indeed uncertain and
condition (ii) is likewise uncertain, the combination of both makes the occurrence of
one of them certain.
Accordingly, there is here no abdication by Congress of its power to fix the

rate of the tax since the rate increase provided under the law, from 10% to 12%, is
definite and certain to occur, effective January 1, 2006. All that the President will do
is state which of the two conditions occurred and thereupon implement the rate
increase.
At first glance, therefore, it would appear that the decision to increase the rate
is to be made by the President, or that the increase is still uncertain, as it is subject to
the happening of any of two conditions.
Nevertheless, the contrary is true and thus it would be best in these difficult
and critical times to let our people know precisely what burdens they are being asked
to bear as the necessary means to recover from a crisis that calls for a heroic sacrifice
by all.
It is for this reason that the Court required respondents to submit a copy of the
rules to implement the E-VAT, particularly as to the impact of the tax on prices of
affected commodities, specially oil and electricity. For the onset of the law last July 1,
2005 was confusing, resulting in across-the-board increases of 10% in the prices of
commodities. This is not supposed to be the effect of the law, as was made clear
during the oral arguments, because the law also contains provisions that mitigate the
impact of the E-VAT through reduction of other kinds of taxes and duties, and other
similar measures, specially as to goods that go into the supply chain of the affected
products. A proper implementation of the E-VAT, therefore, should cause only the
appropriate incremental increase in prices, reflecting the net incremental effect of the
tax, which is not necessarily 10%, but possibly less, depending on the products
involved.
The introduction of the mitigating or cushioning measures through the Senate

or through the Bicameral Conference Committee, is also being questioned by
petitioners as unconstitutional for violating the rule against amendments after third
reading and the rule that tax measures must originate exclusively in the House of
Representatives (Art. VI, Secs. 24 and 26 [2], Constitution). For my part, I would
rather give the necessary leeway to Congress, as long as the changes are germane to
the bill being changed, the bill which originated from the House of Representatives,
and these are so, since these were precisely the mitigating measures that go
hand-on-hand with the E-VAT, and are, therefore, essential — and hopefully
sufficient — means to enable our people to bear the sacrifices they are being asked to
make. Such an approach is in accordance with the Enrolled Bill Doctrine that is the
prevailing rule in this jurisdiction. (Tolentino v. Secretary of Finance, 249 SCRA 628
[1994]). The exceptions I find are the provisions on corporate income taxes, which
are not germane to the E-VAT law, and are not found in the Senate and House bills.
I thus agree with Chief Justice Hilario G. Davide, Jr. in his separate opinion
that the following are not germane to the E-VAT legislation:
Amended TAX
CODE Provision Subject Matter
Section 27 Rate of income tax on domestic corporations
Section 28(A)(1) Rate of income tax on resident foreign

corporations
Section 28(B)(1) Rate of income tax on non-resident foreign

corporations
Section 28(B)(5-b) Rate of income tax on intercorporate

dividends received by non-resident foreign
corporations
Section 34(B)(1) Deduction from gross income
Similarly, I agree with Justice Artemio V. Panganiban in his separate opinion

that the following are not germane to the E-VAT law:
"Sections 1, 2, and 3 of the Republic Act No. 9337 . . . , in so far as these

sections (a) amend the rates of income tax on domestic, resident foreign, and
nonresident foreign corporations; (b) amend the tax credit against taxes due
from nonresident foreign corporations on the intercorporate dividends; and (c)
reduce the allowable deduction from interest expense."
Respondents should, in any case, now be able to implement the E-VAT law
without confusion and thereby achieve its purpose. 4(280)
I vote to GRANT the petitions to the extent of declaring unconstitutional the

provisions in Republic Act. No. 9337 that are not germane to the subject matter and
DENY said petitions as to the rest of the law, which are constitutional. cDCSET
TINGA, J., dissenting and concurring opinion:
The E-VAT Law, 1(281) as it stands, will exterminate our country's small
to medium enterprises. This will be the net effect of affirming Section 8 of the law,
which amends Sections 110 of the National Internal Revenue Code (NIRC) by
imposing a seventy percent (70%) cap on the creditable input tax a VAT-registered
person may apply every quarter and a mandatory sixty (60) -month amortization
period on the input tax on goods purchased or imported in a calendar month if the
acquisition cost of such goods exceeds One Million Pesos (P1,000,000.00).
Taxes may be inherently punitive, but when the fine line between damage
and destruction is crossed, the courts must step forth and cut the hangman's
noose. Justice Holmes once confidently asserted that "the power to tax is not the
power to destroy while this Court sits", and we should very well live up to this
expectation not only of the revered Holmes, but of the Filipino people who rely on
this Court as the guardian of their rights. At stake is the right to exist and subsist
despite taxes, which is encompassed in the due process clause.
I respectfully submit these views while maintaining the deepest respect for the
prerogative of the legislature to impose taxes, and of the national government to chart
economic policy. Such respect impels me to vote to deny the petitions in G.R. Nos.
168056, 168207, 168463, 2(282) and 168730, even as I acknowledge certain merit in
the challenges against the E-VAT law that are asserted in those petitions. In the final
analysis, petitioners therein are unable to convincingly demonstrate the constitutional
infirmity of the provisions they seek to assail. The only exception is Section 21 of the
law, which I consider unconstitutional, for reasons I shall later elaborate.
However, I see the petition in G.R. No. 168461 as meritorious and would vote
to grant it. Accordingly, I dissent and hold as unconstitutional Section 8 of Republic
Act No. 9337, insofar as it amends Section 110(A) and (B) of the National Internal
Revenue Code (NIRC) as well as Section 12 of the same law, with respect to its
amendment of Section 114(C) of the NIRC.
The first part of my discussion pertains to the petitions in G.R. Nos. 168056,
168207, 168463, and 168730, while the second part is devoted to what I deem the
most crucial issue before the Court, the petition in G.R. No. 168461.
I.
Undue Delegation and the Increase

Of the VAT Rate
My first point pertains to whether or not Sections 4, 5 and 6 of the E-VAT Law
constitutes an undue delegation of legislative power. In appreciating the aspect of
undue delegation as regards taxation statutes, the fundamental point remains that the
power of taxation is inherently legislative, 3(283) and may be imposed or revoked
only by the legislature. 4(284) In tandem with Section 1, Article VI of the
Constitution which institutionalizes the law-making power of Congress, Section 24
under the same Article crystallizes this principle, as it provides that "[a]ll
appropriation, revenue or tariff bills . . . shall originate exclusively in the House of
Representatives." 5(285)
Consequently, neither the executive nor judicial branches of government may

originate tax measures. Even if the President desires to levy new taxes, the imposition
cannot be done by mere executive fiat. In such an instance, the President would have
to rely on Congress to enact tax laws. aITDAE
Moreover, this plenary power of taxation cannot be delegated by Congress to

any other branch of government or private persons, unless its delegation is authorized
by the Constitution itself. 6(286) In this regard, the situation stands different from that
in the recent case Southern Cross v. PHILCEMCOR, 7(287) wherein I noted in my
ponencia that the Tariff Commission and the DTI Secretary may be regarded as
agents of Congress for the purpose of imposing safeguard measures. That
pronouncement was made in light of Section 28(2) Article VI, which allows Congress
to delegate to the President through law the power to impose tariffs and imposts,
subject to limitations and restrictions as may be ordained by Congress. In the case of
taxes, no such constitutional authorization exists, and the discretion to ascertain the
rates, subjects, and conditions of taxation may not be delegated away by Congress.
However, as the majority correctly points out, the power to ascertain the facts
or conditions as the basis of the taking into effect of a law may be delegated by
Congress, 8(288) and that the details as to the enforcement and administration of an
exercise of taxing power may be delegated to executive agencies, including the power
to determine the existence of facts on which its operation depends. 9(289)
Proceeding from these principles, Sections 4, 5, and 6 of the E-VAT Law

warrant examination. The provisions read:
SEC. 4. Sec. 106 of the same Code, as amended, is hereby further

amended to read as follows:
SEC. 106. Value-Added Tax on Sale of Goods or Properties.

—
(A) Rate and Base of Tax. — There shall be levied, assessed

and collected on every sale, barter or exchange of goods or properties, a
value-added tax equivalent to ten percent (10%) of the gross selling
price or gross value in money of the goods or properties sold, bartered or
exchanged, such tax to be paid by the seller or transferor; provided, that
(i) value-added tax collection as a percentage of Gross

Domestic Product (GDP) of the previous year exceeds two and
(ii) national government deficit as a percentage of GDP of

the previous year exceeds one and one-half percent 1 1/2%).
Sec. 5. Section 107 of the same Code, as amended, is hereby

SEC. 107. Value-Added Tax on Importation of Goods.—
(a) In General.— There shall be levied, assessed and collected

on every importation of goods a value-added tax equivalent to ten
percent (10%) based on the total value used by the Bureau of Customs in
determining tariff and customs duties, plus customs duties, excise taxes,
if any, and other charges, such tax to be paid by the importer prior to the
release of such goods from customs custody: Provided, That where the
customs duties are determined on the basis of the quantity or volume of
the goods, the value-added tax shall be based on the landed cost plus
excise taxes, if any: provided, further, that the President, upon the
recommendation of the Secretary of Finance, shall, effective
January 1, 2006, raise the rate of value-added tax to twelve percent
(12%) after any of the following conditions has been satisfied.
(i) national value-added tax collection as a percentage of

Gross Domestic Product (GDP) of the previous year exceeds two
and four-fifth percent (2 4/5%) or
(ii) government deficit as a percentage of GDP of the


SEC. 108. Value-Added Tax on Sale of Services and Use of

Lease of Properties —
(A) Rate and Base of Tax. — There shall be levied, assessed

and collected, a value-added tax equivalent to ten percent (10%) of
gross receipts derived from the sale or exchange of services;
provided, that the President, upon the recommendation of the Secretary
of Finance, shall, effective January 1, 2006, raise the rate of value-added
tax to twelve percent (12%), after any of the following conditions has
been satisfied.
(i) value-added tax collection as a percentage of Gross

Domestic Product (GDP) of the previous year exceeds two and four-fifth
percent (2 4/5%) or

previous year exceed same and on-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 the twin conditions that value-added tax collection as a percentage of
percent (2 4/5%); or that the national government deficit as a percentage of GDP of
the previous year exceed same and on-half percent (1 1/2%).
At first blush, it does seem that the assailed provisions are constitutionally
deficient. It is Congress, and not the President, which is authorized to raise the rate of
VAT from 10% to 12%, no matter the circumstance. Yet a closer analysis of the
proviso reveals that this is not exactly the operative effect of the law. The qualifier
"shall" denotes a mandatory, rather than discretionary function on the part of the
President to raise the rate of VAT to 12% upon the existence of any of the two listed
conditions.
Since the President is not given any discretion in refusing to raise the VAT rate
to 12%, there is clearly no delegation of the legislative power to tax by Congress to
the executive branch. The use of the word "shall" obviates any logical construction
that would allow the President leeway in not raising the tax rate. More so, it is
accepted that the principle of constitutional construction that every presumption
should be indulged in favor of constitutionality and the court in considering the
validity of the 'statute in question should give it such reasonable construction as can
be reached to bring it within the fundamental law. 10(290) While all reasonable
doubts should be resolved in favor, of the constitutionality of a statute, 11(291) it
should necessarily follow that the construction upheld should be one that is not itself
noxious to the Constitution.
Congress should be taken to task for imperfect draftsmanship at least. Much

trouble would have been avoided had the provisos instead read: "that effective
January 1, 2006, the rate of value-added tax shall be raised to twelve percent (12%),
after any of the following conditions has been satisfied . . . ." This, after all is the
operative effect of the provision as it stands. In relation to the operation of the tax
increase, the denominated role of the President and the Secretary of Finance may be
regarded as a superfluity, as their imprimatur as a precondition to the increase of the
VAT rate must have no bearing.
Nonetheless, I cannot ignore the fact that both the President and the Secretary
of Finance have designated roles in the implementation of the tax increase.
Considering that it is Congress, and not these officials, which properly have imposed
the increase in the VAT rate, how should these roles be construed?
The enactment of a law should be distinguished from its implementation. Even

if it is Congress which exercises the plenary power of taxation, it is not the body that
administers the implementation of the tax. Under Section 2 of the National Internal
Revenue Code (NIRC), the assessment and collection of all national internal revenue
taxes, and the enforcement of all forefeitures, penalties and fines connected therewith
had been previously delegated to the Bureau of Internal Revenue, under the
supervision and control of the Department of Finance. 12(292)
Moreover, as intimated earlier, Congress may delegate to other components of

the government the power to ascertain the facts or conditions as the basis of the taking
into effect of a law. It follows that ascertainment of the existence of the two
conditions precedent for the increase as stated in the law could very well be delegated
to the President or the Secretary of Finance. 13(293)
Nonetheless, the apprehensions arise that the process of ascertainment of the

listed conditions delegated to the Secretary of Finance and the President effectively
vest discretionary authority to raise the VAT rate on the President, through the
possible subterfuges that may be employed to delay the determination, or even to
manipulate the factual premises. Assuming arguendo that these feared abuses may
arise, I think it possible to seek judicial enforcement of the increased VAT rate, even
without the participation or consent of the President or Secretary of Finance, upon
indubitable showing that any of the two listed conditions do exist. After all, the Court
is ruling that the increase in the VAT rate is mandatory and beyond the discretion of
the President to impose or delay.
The majority states that in making the recommendation to the President on the
existence of either of the two conditions, the Secretary of Finance is acting as the
agent of the legislative branch, to determine and declare the event upon which its
expressed will is to take effect. 14(294) This recognition of agency must be qualified.
I do not doubt the ability of Congress to delegate to the Secretary of Finance
administrative functions in the implementation of tax laws, as it does under Section 2
of the NIRC. Yet it would be impermissible for Congress to delegate to the Secretary
of Finance the plenary function of enacting a tax law. As stated earlier, the situation
stands different from that in Southern Cross wherein the Constitution itself authorizes
the delegation by Congress through a law to the President of the discretion to impose
tariff measures, subject to restrictions and limitations provided in the law. 15(295)
Herein, Congress cannot delegate to either the President or the Secretary of Finance
the discretion to raise the tax, as such power belongs exclusively to the legislative
branch of government. aAEIHC
Perhaps the term "agency" is not most suitable in describing the delegation
exercised by Congress in this case, for agency implies that the agent takes on
attributes of the principal by reason of representative capacity. In this case, whatever
"agency" that can be appreciated would be of severely limited capacity, encompassing
as it only could the administration, not enactment, of the tax measure.
I do not doubt the impression left by the provisions that it is the President, and
not Congress, which is authorized to raise the VAT rate. On paper at least, these
imperfect provisions could be multiple sources of mischief. On the political front,
whatever blame or scorn that may be attended with the increase of the VAT rate
would fall on the President, and not on Congress which actually increased the tax
rate. On the legal front, a President averse to increasing the VAT rate despite the
existence of the two listed conditions may take refuge in the infelicities of the
provision, and refuse to do so on the ground that the law, as written, implies some
form of discretion on the part of the President who was, after all, "authorized" to
increase the tax rate. It is critical for the Court to disabuse this notion right now.
The Continued Viability of

Tolentino v. Secretary of Finance
One of the more crucial issues now before us, one that has seriously divided
the Court, pertains to the ability of the Bicameral Conference Committee to introduce
amendments to the final bill which were not contained in the House bill from which
the E-VAT Law originated. Most of the points addressed by the petitioners have been
settled in our ruling in Tolentino v. Secretary of Finance, 16(296) yet a revisit of that
precedent is urged upon this Court. On this score, I offer my qualified concurrence
with the ponencia.
Two key provisions of the Constitution come into play: Sections 24 and 26(2),
Article VI of the Constitution. They read:
Section 24: All appropriation, revenue or tariff bills, bills authorizing

originate exclusively in the House of Representatives, but the Senate may
Section 26(2): No bill passed by either House shall become a law

unless it has passed three readings on separate days, and printed copies thereof
in its final form have been distributed to its Members three days before its
passage, except when the President certifies to the necessity of its immediate
enactment to meet a public calamity or emergency. Upon the last reading of a
bill, no amendment thereto shall be allowed, and the vote thereon shall be taken
immediately thereafter, and the yeas and nays entered in the Journal.
Section 24 is also known as the origination clause, which derives origin from
British practice. From the assertion that the power to tax the public at large must
reside in the representatives of the people, the principle evolved that money bills must
originate in the House of Commons and may not be amended by the House of Lords.
17(297) 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 compleat
and effectual weapon with which any constitution can arm the immediate
representatives of the people, for obtaining a redress of every grievance, and for
carrying into effect every just and salutary measure. 18(298)
There is an eminent difference from the British system from which the
principle emerged, and from our own polity. To this day, only members of the British
House of Commons are directly elected by the people, with the members of the House
of Lords deriving their seats from hereditary peerage. Even in the United States,
members of the Senate were not directly elected by the people, but chosen by state
legislatures, until the adoption of the Seventeenth Amendment in 1913. Hence, the
rule assured the British and American people that tax legislation arises with the
consent of the sovereign people, through their directly elected representatives. In our
country though, both members of the House and Senate are directly elected by the
people, hence the vitality of the original conception of the rule has somewhat lost
luster.
Still, the origination clause deserves obeisance in this jurisdiction, simply

because it is provided in the Constitution. At the same time, its proper interpretation is
settled precedent, as enunciated in Tolentino:
To begin with, it is not the law — but the revenue bill — which is
required by the Constitution to "originate exclusively" in the House of
Representatives. It is important to emphasize this, because a bill originating in
the House may undergo such extensive changes in the Senate that the result may
be a rewriting of the whole. The possibility of a third version by the conference
committee will be discussed later. At this point, what is important to note is that,
as a result of the Senate action, a distinct bill may be produced. To insist that a
revenue statute — and not only the bill which initiated the legislative process
culminating in the enactment of the law — must substantially be the same as the
House bill would be to deny the Senate's power not only to "concur with
amendments" but also to " propose amendments." It would be to violate the
coequality of legislative power of the two houses of Congress and in fact make
the House superior to the Senate. 19(299)
The vested power of the Senate to "concur with amendments" necessarily

implies the ability to implement transformations from the original House bill into the
final law. Since the House and Senate sit separately in sessions, the only opportunity
for the Senate to introduce its amendments would be in the Bicameral Conference
Committee, which emerges only after both the House and the Senate have approved
their respective bills. IDSaTE
In the present petitions, Tolentino comes under fire on two fronts. The first
controversy arises from the adoption in Tolentino of American legislative practices
relating to bicameral committees despite the difference in constitutional frameworks,
particularly the limitation under Section 26(2), Article VI which does not exist in the
American Constitution.
The majority points out that "the 'no amendment rule' refers only to the
procedure to be followed by each house of Congress with regard to bills initiated in
each of said respective houses, before said bill is transmitted to the other house for its
concurrence or amendment." I agree with this statement. Clearly, the procedure under
Section 26(2), Article VI only relates to the passage of a bill before the House and
Senate, and not the process undertaken afterwards in the Bicameral Conference
Committee.
Indeed, Sections 26 and 27 of Article VI, which detail the procedure how a bill
becomes a law, are silent as to what occurs between the passage by both Houses of
their respective bills, and the presentation to the President of "every bill passed by the
Congress". 20(300) Evidently, "Congress" means both Houses, such that a bill
approved by the Senate but not by the House is not presented to the President for
approval. There is obviously a need for joint concurrence by the House and Senate of
a bill before it is transmitted to the President, but the Constitution does not provide
how such concurrence is acquired. This lacuna has to be filled, otherwise no bill may
be transmitted to the President.
Even if the Bicameral Conference Committee is not a constitutionally

organized body, it has existed as the necessary conclave for both chambers of
Congress to reconcile their respective versions of a prospective law. The members of
the Bicameral Conference Committee may possess in them the capacity to represent
their particular chamber, yet the collective is neither the House nor the Senate. Hence,
the procedure contained in Section 26(2), Article VI cannot apply to the Bicameral
Conference Committee.
Tellingly, the version approved by the Bicameral Conference Committee still

undergoes deliberation and approval by both Houses. Only one vote is taken to
approve the reconciled bill, just as only one vote is taken in order to approve the
original bill. Certainly, it could not be contended that this final version surreptitiously
evades approval of either the House or Senate.
The second front concerns the scope and limitations of the Bicameral
Conference Committee to amend, delete, or otherwise modify the bills as approved by
the House and the Senate.
Tolentino adduced the principle, adopted from American practice, that the
version as approved by the Bicameral Conference Committee need only be germane
to the subject of the House and Senate bills in order to be valid. 21(301) The majority,
in applying the test of germaneness, upholds the contested provisions of the E-VAT
Law. Even the members of the Court who prepared to strike down provisions of the
law applying germaneness nonetheless accept the basic premise that such test is
controlling.
I agree that any amendment made by the Bicameral Conference Committee

that is not germane to the subject matter of the House or Senate Bills is not valid. It is
the only valid ground by which an amendment introduced by the Bicameral
Conference Committee may be judicially stricken.
The germaneness standard which should guide Congress or the Bicameral

Conference Committee should be appreciated in its normal but total sense. In that
regard, my views contrast with that of Justice Panganiban, who asserts that provisions
that are not "legally germane" should be stricken down. The legal notion of
germaneness is just but one component, along with other factors such as
economics and politics, which guides the Bicameral Conference Committee, or
the legislature for that matter, in the enactment of laws. After all, factors such as
economics or politics are expected to cast a pervasive influence on the legislative
process in the first place, and it is essential as well to allow such "non-legal" elements
to be considered in ascertaining whether Congress has complied with the criteria of
germaneness.
Congress is a political body, and its rationale for legislating may be guided
by factors other than established legal standards. I deem it unduly restrictive on
the plenary powers of Congress to legislate, to coerce the body to adhere to
judge-made standards, such as a standard of "legal germaneness". The
Constitution is the only legal standard that Congress is required to abide by in
its enactment of laws.
Following these views, I cannot agree with the position maintained by the
Chief Justice, Justices Panganiban and Azcuna that the provisions of the law that do
not pertain to VAT should be stricken as unconstitutional. These would include, for
example, the provisions raising corporate income taxes. The Bicameral Conference
Committee, in evaluating the proposed amendments, necessarily takes into account
not just the provisions relating to the VAT, but the entire revenue generating
mechanism in place. If, for example, amendments to non-VAT related provisions of
the NIRC were intended to offset the expanded coverage for the VAT, then such
amendments are germane to the purpose of the House and Senate Bills.
Moreover, it would be myopic to consider that the subject matter of the House
Bill is solely the VAT system, rather than the generation of revenue. The majority
sufficiently demonstrate that the legislative intent behind the bills that led to the
E-VAT Law was the generation of revenue to counter the country's dire fiscal
situation.
The mere fact that the law is popularly known as the E-VAT Law, or that most
of its provisions pertain to the VAT, or indirect taxes, does not mean that any and all
amendments which are introduced by the Bicameral Conference Committee must
pertain to the VAT system. As the Court noted in Tatad v. Secretary of Energy:
22(302)
[I]t is contended that section 5(b) of R.A. No. 8180 on tariff differential
violates the provision 17 of the Constitution requiring every law to have only
one subject which should be expressed in its title. We do not concur with this
contention. As a policy, this Court has adopted a liberal construction of the
one title — one subject rule. We have consistently ruled that the title need
not mirror, fully index or catalogue all contents and minute details of a law.
A law having a single general subject indicated in the title may contain any
number of provisions, no matter how diverse they may be, so long as they
are not inconsistent with or foreign to the general subject, and may be
considered in furtherance of such subject by providing for the method and
means of carrying out the general subject. We hold that section 5(b)
providing for tariff differential is germane to the subject of R.A. No. 8180
which is the deregulation of the downstream oil industry. The section is
supposed to sway prospective investors to put up refineries in our country and
make them rely less on imported petroleum. 23(303)
I submit that if the amendments are attuned to the goal of revenue generation,
the stated purpose of the original House Bills, then the test of germaneness is
satisfied. It might seem that the goal of revenue generation, which is stated in
virtually all tax or tariff bills, is too encompassing in scope so as to justify the
inclusion by the Bicameral Conference Committee of just about any revenue
generation measure. This may be so, but it does not mean that the test of germaneness
would be rendered inutile when it comes to revenue laws.
I do believe that the test of germaneness was violated by the E-VAT Law in
one regard. Section 21 of the law, which was not contained in either the House or
Senate Bills, imposes restrictions on the use by local government units of their
incremental revenue from the VAT. These restrictions are alien to the principal
purposes of revenue generation, or the purposes of restructuring the VAT system. I
could not see how the provision, which relates to budgetary allocations, is germane to
the E-VAT Law. Since it was introduced only in the Bicameral Conference
Committee, the test of germaneness is essential, and the provision does not pass
muster. I join Justice Puno and the Chief Justice in voting to declare Section 21 as
unconstitutional. TEcADS
I also offer this brief comment regarding the deletion of the so-called "no pass
on" provisions, which several of my colleagues deem unconstitutional. Both the
House and Senate Bills contained these provisions that would prohibit the
seller/producer from passing on the cost of the VAT payments to the consumers.
However, an examination of the said bills reveal that the "no pass on" provisions in
the House Bill affects a different subject of taxation from that of the Senate Bill. In
the House Bill No. 3705, the taxpayers who are prohibited from passing on the VAT
payments are the sellers of petroleum products and electricity/power generation
companies. In Senate Bill No. 1950, no prohibition was adopted as to sellers of
petroleum products, but enjoined therein are electricity/power generation companies
but also transmission and distribution companies.
I consider such deletions as valid, for the same reason that I deem the
amendments valid. The deletion of the two disparate "no pass on" provisions which
were approved by the House in one instance, and only by the Senate in the other,
remains in the sphere of compromise that ultimately guides the approval of the final
version. Again, I point out that even while the two provisions may have been
originally approved by the House and Senate respectively, their subsequent deletion
by the Bicameral Conference Committee is still subject to approval by both chambers
of Congress when the final version is submitted for deliberation and voting.
Moreover, the fact that the nature of the "no pass on" provisions adopted by the
House essentially differs from that of the Senate necessarily required the corrective
relief from the Bicameral Conference Committee. The Committee could have either
insisted on the House version, the Senate version, or both versions, and it is not
difficult to divine that any of these steps would have obtained easy approval. Hence,
the deletion altogether of the "no pass on" provisions existed as a tangible solution to
the possible impasse, and the Committee should be accorded leeway to implement
such a compromise, especially considering that the deletion would have remained
germane to the law, and would not be constitutionally prohibited since the prohibition
on amendments under Section 26(2), Article VI does not apply to the Committee.
An outright declaration that the deletion of the two elementally different

"no-pass on" provisions is unconstitutional, is of dubious efficacy in this case. Had
such pronouncement gained endorsement of a majority of the Court, it could not
result in the ipso facto restoration of the provision, the omission of which was
ultimately approved in both the House and Senate. Moreover, since the House version
of the "no pass on" is quite different from that of the Senate, there would be a
question as to whether the House version, the Senate version, or both versions would
be reinstated. And of course, if it were the Court which would be called upon to
choose, such would be way beyond the bounds of judicial power.
Indeed, to intimate that the Court may require Congress to reinstate a provision
that failed to meet legislative approval would result in a blatant violation of the
principle of separation of powers, with the Court effectively dictating to Congress the
content of its legislation. The Court cannot simply decree to Congress what laws or
provisions to enact, but is limited to reviewing those enactments which are actually
ratified by the legislature.
II.
My earlier views, as are the submissions I am about to offer, are rooted in

nothing more than constitutional interpretation. Perhaps my preceding discussion may
lead to an impression that I whole-heartedly welcome the passage of the E-VAT Law.
Yet whatever relief I may have over the enactment of a law designed to relieve our
country's financial woes are sadly obviated with the realization that a key amendment
introduced in the law is not only unconstitutional, but of fatal consequences. The
clarion call of judicial review is most critical when it stands as the sole barrier against
the deprivation of life, liberty and property without due process of law. It becomes
even more impelling now as we are faced with provisions of the E-VAT Law which,
though in bland disguise, would operate as the most destructive of tax measures
enacted in generations.
Tax Statutes and the Due Process Clause
It is the duty of the courts to nullify laws that contravene the due process
clause of the Bill of Rights. This task is at the heart not only of judicial review, but of
the democratic system, for the fundamental guarantees in the Bill of Rights become
merely hortatory if their judicial enforcement is unavailing. Even if the void law in
question is a tax statute, or one that encompasses national economic policy, the courts
should not shirk from striking it down notwithstanding any notion of deference to the
executive or legislative branch on questions of policy. Neither Congress nor the
President has the right to enact or enforce unconstitutional laws.
The Bill of Rights is by no means the only constitutional yardstick by which

the validity of a tax law can be measured. Nonetheless, it stands as the most
unyielding of constitutional standards, given its position of primacy in the
fundamental law way above the articles on governmental power. 24(304) If the
question lodged, for example, hinges on the proper exercise of legislative powers in
the enactment of the tax law, leeway can be appreciated in favor of affirming the
legislature's inherent power to levy taxes. On the other hand, no quarter can be ceded,
no concession yielded, on the people's fundamental rights as enshrined in the Bill of
Rights, even if the sacrifice is ostensibly made "in the national interest." It is my
understanding that "the national interests," however comported, always subsumes in
the first place recognition and enforcement of the Bill of Rights, which manifests
where we stand as a democratic society.
The constitutional safeguard of due process is embodied in the fiat "No person
shall be deprived of life, liberty or property without due process of law". 25(305) The
purpose of the guaranty is to prevent governmental encroachment against the life,
liberty and property of individuals; to secure the individual from the arbitrary exercise
of the powers of the government, unrestrained by the established principles of private
rights and distributive justice; to protect property from confiscation by legislative
enactments, from seizure, forfeiture, and destruction without a trial and conviction by
the ordinary mode of judicial procedure; and to secure to all persons equal and
impartial justice and the benefit of the general law. 26(306)
In Magnano Co. v. Hamilton, 27(307) the U.S. Supreme Court recognized that
the due process clause may be utilized to strike down a taxation statute, "if the act be
so arbitrary as to compel the conclusion that it does not involve an exertion of the
taxing power, but constitutes, in substance and effect, the direct exertion of a different
and forbidden power, as, for example, the confiscation of property." 28(308) Locally,
Sison v. Ancheta 29(309) has long provided sanctuary for persons assailing the
constitutionality of taxing statutes. The oft-quoted pronouncement of Justice
Fernando follows:
2. The power to tax moreover, to borrow from Justice Malcolm, "is
an attribute of sovereignty. It is the strongest of all the powers of government."
It is, of course, to be admitted that for all its plenitude, the power to tax is
not unconfined. There are restrictions. The Constitution sets forth such
limits. Adversely affecting as it does property rights, both the due process
and equal protection clauses may properly be invoked, as petitioner does,
to invalidate in appropriate cases a revenue measure. If it were otherwise,
there would be truth to the 1803 dictum of Chief Justice Marshall that "the
power to tax involves the power to destroy." In a separate opinion in Graves v.
New York, Justice Frankfurter, after referring to it as an "unfortunate remark,"
characterized it as "a flourish of rhetoric [attributable to] the intellectual fashion
of the times [allowing] a free use of absolutes." This is merely to emphasize that
it is not and there cannot be such a constitutional mandate. Justice Frankfurter
could rightfully conclude: "The web of unreality spun from Marshall's famous
dictum was brushed away by one stroke of Mr. Justice Holmes's pen: 'The
power to tax is not the power to destroy while this Court sits.'" So it is in the
Philippines.
3. This Court then is left with no choice. The Constitution as the

fundamental law overrides any legislative or executive act that runs
counter to it. In any case therefore where it can be demonstrated that the
challenged statutory provision — as petitioner here alleges — fails to abide
by its command, then this Court must so declared and adjudge it null. The
inquiry thus is centered on the question of whether the imposition of a higher
tax rate on taxable net income derived from business or profession than on
compensation is constitutionally infirm.
4. The difficulty confronting petitioner is thus apparent. He alleges

arbitrariness. A mere allegation, as here, does not suffice. There must be a
factual foundation of such unconstitutional taint. Considering that petitioner
here would condemn such a provision as void on its face, he has not made out a
case. This is merely to adhere to the authoritative doctrine that where the due
process and equal protection clauses are invoked, considering that they are not
fixed rules but rather broad standards, there is a need for proof of such
persuasive character as would lead to such a conclusion. Absent such a
showing, the presumption of validity must prevail.
5. It is undoubted that the due process clause may be invoked

where a taxing statute is so arbitrary that it finds no support in the
Constitution. An obvious example is where it can be shown to amount to
the confiscation of property. That would be a clear abuse of power. It then
becomes the duty of this Court to say that such an arbitrary act amounted
to the exercise of an authority not conferred. That properly calls for the
application of the Holmes dictum. It has also been held that where the
assailed tax measure is beyond the jurisdiction of the state, or is not for a
public purpose, or, in case of a retroactive statute is so harsh and
unreasonable, it is subject to attack on due process grounds. 30(310)
Sison pronounces more concretely how a tax statute may contravene the due
process clause. Arbitrariness, confiscation, overstepping the state's jurisdiction, and
lack of a public purpose are all grounds for nullity encompassed under the due
process invocation.
Yet even these more particular standards as enunciated in Sison are quite
exacting, and difficult to reach. Even the constitutional challenge posed in Sison
failed to pass muster. The ponencia cites Sison in asserting that due process and equal
protection are broad standards which need proof of such persuasive character to lead
to such a conclusion. DEICTS
It is difficult though to put into quantifiable terms how onerous a taxation

statute must be before it contravenes the due process clause. 31(311) After all, the
inherent nature of taxation is to cause pain and injury to the taxpayer, albeit for the
greater good of society. Perhaps whatever collective notion there may be of what
constitutes an arbitrary, confiscatory, and unreasonable tax might draw more from the
fairy tale/legend traditions of absolute monarchs and the oppressed peasants they tax.
Indeed, it is easier to jump to the conclusion that a tax is oppressive and unfair if it is
imposed by a tyrant or an authoritarian state.
But could an arbitrary, confiscatory or unreasonable tax actually be enacted by

a democratic state such as ours? Of course it could, but these would exist in more
palatable guises. In a democratic society wherein statutes are enacted by a
representative legislature only after debate and deliberation, tax statutes will most
likely, on their face, seem fair and even-handed. After all, if Congress passes a tax
law that on facial examination is obviously harsh and unfair, it faces the wrath of the
voting public, to say nothing of the media.
In testing the validity of a tax statute as against the due process clause, I think
that the Court should go beyond a facial examination of the statute, and seek to
understand how exactly it would operate. The express terms of a statute, especially
tax laws, are usually inadequate in spelling out the practical effects of its
implementation. The devil is usually in the details.
Admittedly, the degree of difficulty involved of judicial review of tax laws has
increased with the growing complexities of business, economic and accounting
practices. These are sciences which laymen are not normally equipped by their
general education to fully grasp, hence the possible insecurity on their part when
confronted with these questions on these fields.
However, we should not cede ground to those transgressions of the people's

fundamental rights simply because the mechanism employed to violate constitutional
guarantees is steeped in disciplines not normally associated with the legal profession.
Venality cannot be allowed to triumph simply due to its sophistication. This petition
imputes in the E-VAT Law unconstitutional oppression of the fatal variety, but in
order to comprehend exactly how and why that is so, one has to delve into the
complex milieu of the VAT system. The party alleging the law's unconstitutionality of
course has the burden to demonstrate the violations in understandable terms, but if
such proof is presented, the Court's duty is to engage accordingly.
The Viability of the Clear and Present

Danger Doctrine as Counterweight
To the Shibboleths of Speculation
and Wisdom
I do not see as an impediment to the annulment of a tax law the fact that it has
yet to be implemented, or the fear that doing so constitutes an undue attack on the
wisdom, rather than the legality of a statute. However, my position in this petition has
been challenged on those grounds, and I see it fit to refute these preemptive
allegations before delving into the operative aspect of the E-VAT Law.
If there is cause to characterize my arguments as speculative, it is only

because the E-VAT Law has yet to be implemented. No person as of yet can claim
to have sustained actual injury by reason of the implementation of the assailed
provisions in G.R. No. 168461. Yet this should not mean that the Court is impotent
from declaring a provision of law as violative of the due process clause if it is clear
that its implementation will cause the illegal deprivation of life, liberty or property
without due process of law. This is especially so if, as in this case, the injury is of
mathematical certainty, and the extent of the loss quantifiable through easy reference
to the most basic of business practices.
These arguments are conjectural for the same reason that the bare
statement "firing a gunshot into the head will cause a fatal wound" would be
conjectural. Some people are lucky enough to survive gunshot wounds to the head,
while many others are not. Yet just because the fear of mortality would be merely
speculative, it does not mean that there should be less compulsion to avoid a situation
of getting shot in the head.
Indeed, the Court has long responded to strike down prospective actions, even
if the injury has not yet even occurred. One of the most significant legal principles
of the last century, the "clear and present danger" doctrine in free speech cases,
in fact emanates from the prospectivity, and not the actuality of danger. The
Court has not been hesitant to nullify acts which might cause injury, owing to the
presence of a clear and present danger of a substantive evil which the State has the
right to prevent. It has even extended the "clear and present danger rule" beyond the
confines of freedom of expression to the realm of freedom of religion, as noted by
Justice Puno in his ponencia in Estrada v. Escritor. 32(312)
Justice Teodoro Padilla goes further in his concurring opinion in Basco v.

PAGCOR, and asserts that the clear and present danger test squarely applies to the
due process clause: "The courts, as the decision states, cannot inquire into the
wisdom, morality or expediency of policies adopted by the political departments
of government in areas which fall within their authority, except only when such
policies pose a clear and present danger to the life, liberty or property of the
individual."
I see no reason why the clear and present danger test cannot apply in this
case, or any case wherein a taxing statute poses a clear and present danger to the
life, liberty or property of the individual. The application of this standard frees
the Court from inutility in the face of patently unconstitutional tax laws that
have been enacted but are yet to be fully operational.
If for example, Congress deems it wise to impose the most draconian of tax
measures — such as trebling the income taxes of all persons over 40, raising the gross
sales tax rate to 50%, or penalizing delinquent taxpayers with 50 lashes of the whip
— there certainly would be a massive public outcry, and an expectation that the Court
would immediately nullify the offensive measures even before they are actually
imposed. Applying the clear and present danger test, the Court is empowered to strike
down the noxious measures even before they are implemented. Yet with this "bar on
speculativeness" as argued by the majority, the Court could easily refuse to pay heed
to the prayers for injunctive relief, and instead demand that the taxing subjects must
first suffer before the Court can act.
In the same vein, the claim that my arguments strike at the wisdom, rather than
the constitutionality of the law are misplaced. Concededly, the assailed provisions of
the E-VAT law are basically unwise. But any provision of law that directly
contradicts the Constitution, especially the Bill of Rights, are similarly unwise, as
they run inconsistent with the fundamental law of the land, the enunciated state
policies and the elemental guarantees assured by the State to its people. Not every
unwise law is unconstitutional, but every unconstitutional law is unwise, for an
unconstitutional law contravenes a primordial principle or guarantee on which
our polity is founded.
If it can be shown that the E-VAT Law violates these provisions of the
Constitution, especially the due process clause, then the Court should accordingly act
and nullify. Such is the essence of judicial review, which stands as the sole barrier
between the implementation of an unconstitutional law.
The Separate Opinion of Justice Panganiban notes that "[t]he Court cannot
step beyond the confines of its constitutional power, if there is absolutely no clear
showing of grave abuse of discretion in the enactment of the law" 33(313) . This, I
feel, is an unduly narrow view of judicial review, implying that such merely
encompasses the procedural aspect by which a law is enacted. If the policy of the law,
and/or the means by which such policy is implemented run counter to the
Constitution, then the Court is empowered to strike down the law, even if the
legislative and executive branches act within their discretion in legislating and signing
the law.
It is also asserted that if the implementation of the 70% cap imposes an

unequal effect on different types of businesses with varying profit margins and capital
requirements, then the remedy would be an amendment of the law. 34(314) Of
course, the remedy of legislative amendment applies to even the most unconstitutional
of laws. But if our society can take cold comfort in the ability of the legislature to
amend its enactments as the defense against unconstitutional laws, what remains then
as the function of judicial review? This legislative capacity to amend unconstitutional
laws runs concurrently with the judicial capacity to strike down unconstitutional laws.
In fact, the long-standing tradition has been reliance on the judicial branch, and not
the legislative branch, for salvation from unconstitutional laws.
I do recognize that the Separate Opinion of Justice Panganiban ultimately

proceeds from the premise that the assailed provisions of the E-VAT Law may be
merely unwise, but not unconstitutional. Hence, its preference to rely on Congress to
amend the offending provisions rather than judicial nullification. But I maintain that
the assailed provisions of the E-VAT Law violate the due process clause of the
Constitution and must be stricken down.
The Nature of VAT
To understand why Sections 8 and 12 of the E-VAT law contravenes the due
process clause, it is essential to understand the nature of the value-added tax itself.
Filipino consumers may comprehend VAT at its elemental form, having been
accustomed for several years now in paying an extra 10% of the listed selling price
for a wide class of consumer goods. From the perspective of the end consumer, such
as the patron who purchases a meal from a fastfood restaurant, VAT is simply a tax
on transactions involving the sale of goods. The tax is shouldered by the buyer, and is
based on a percentage of the purchase price. Since an excise or percentage tax shares
the same characteristics, there could be some confusion as between such taxes and the
VAT.
However, VAT is distinguishable from the standard excise or percentage taxes

in that it is imposable not only on the final transaction involving the end user, but on
previous stages as well so long as there was a sale involved. Thus, VAT does not
simply pertain to the extra percentage paid by the buyer of a fast-food meal, but also
that paid by restaurant itself to its suppliers of raw food products. This multi-stage
system is more acclimated to the vagaries of the modern industrial climate, which has
long surpassed the stage when there was only one level of transfer between the farmer
who harvests the crop and the person who eats the crop. Indeed, from the extraction
or production of the raw material to its final consumption by a user, several
transactions or sales materialize. The VAT system assures that the government shall
reap income for every transaction that is had, and not just on the final sale or transfer.
The European Union, which has long required its member states to apply the
VAT system, provided the following definition of the tax which I deem clear and
comprehensive:
The principle of the common system of value added tax involves the
application to goods and services of a general tax on consumption exactly
proportional to the price of the goods and services, whatever the number of
transactions that take place in the production and distribution process
before the stage at which tax is charged.
On each transaction, value added tax, calculated on the price of the

goods or services at the rate applicable to such goods or services, shall be
chargeable after deduction of the amount of value added tax borne directly
by the various cost components. 35(315)
The above definition alludes to a key characteristic of the VAT system, that the
imposable tax remains proportional to the price of goods and services no matter the
number of transactions that takes place.
There is another key characteristic of the VAT — that no matter how many the
taxable transactions that precede the final purchase or sale, it is the end-user, or the
consumer, that ultimately shoulders the tax. Despite its name, VAT is generally not
intended to be a tax on value added, but rather as a tax on consumption. Hence, there
is a mechanism in the VAT system that enables firms to offset the tax they have paid
on their own purchases of goods and services against the tax they charge on their
sales of goods and services. 36(316) Section 105 of the NIRC assures that "the
amount of tax may be shifted or passed on to the buyer, transferee or lessee of the
goods, properties or services." The assailed provisions of the E-VAT law strike at the
heart of this accepted principle.
And there is one final basic element of the VAT system integral to this
disquisition: the mode by which the tax is remitted to the government. In simple
theory, the VAT payable can be remitted to the government immediately upon the
occurrence of the transaction, but such a demand proves excessively unwieldy. The
number of VAT covered transactions a modern enterprise may contract in a single
day, plus the recognized principle that it is the final end user who ultimately shoulders
the tax; render the remittance of the tax on a per transaction basis impossible.
Thus, the VAT is delivered by the purchaser not directly to the government but
to the seller, who then collates the VAT received and remits it to the government
every quarter. The process may seem simple if cast in this manner, but there is a
wrinkle, due to the offsetting mechanism designed to ultimately make the end
consumer bear the cost of the VAT.
The Concepts of Input and

Output VAT
This mechanism is employed through the introduction of two concepts, the

input tax and the output tax. Section 110(A) of the National Internal Revenue Code
defines the input tax as the VAT due from or paid by a VAT-registered person on the
importation of goods or local purchase of goods and services in the course of trade or
business, from a VAT registered person.
Let us put this in operational terms. A VAT registered person, engaged in an

enterprise, necessarily purchases goods such as raw materials and machinery in order
to produce consumer goods. The purchase of such raw materials and machineries is
subject to VAT, hence the enterprise pays an additional 10% of the purchase price to
the supplier as VAT. This extra amount paid by the enterprise constitutes its input
VAT. The enterprise likewise pays input VAT when it purchases services covered by
the tax, or rentals of property.
Since VAT is a final tax that is supposed to be ultimately shouldered by the

end consumer, the VAT system allows for a mechanism by which the business is able
to recover the input VAT that it paid. This comes into play when the business, having
transformed the raw materials into consumer goods, sells these goods to the public.
As widely known, the consumer pays to the business an additional amount of 10% of
the purchase price as VAT. As to the business, this VAT payments it collects from the
consumer represents output VAT, which is formally described under Section 110(A)
of the NIRC as "the value-added tax due on the sale or lease of taxable goods or
properties or services by" by any VAT-registered person.
The output VAT collected by the business from the consumers accumulates,
until the end of every quarter, when the enterprise is obliged to remit the collected
output VAT to the government. This is where the crediting mechanism comes into
play. Since the business is entitled to recover the prepaid input VAT, it does so in
every quarter by applying the amount of prepaid input VAT against the collected
output VAT which is to be remitted. If the output VAT collected exceeds the prepaid
input VAT, then the amount of input VAT is deducted from the output VAT, and it is
entitled to remit only the remainder as output VAT to the government. To illustrate, if
Business X collects P1,000,000.00 as output VAT and incurs P500,000.00 as input
VAT, the P500,000.00 is deducted from the P1,000,000.00 output VAT, and X is
required to remit only P500,000.00 of the output VAT it collected from customers.
On the other hand, if the input VAT prepaid exceeds the output VAT collected,
then the business need not remit any amount as output VAT for the quarter.
Moreover, the difference between the input VAT and the output VAT may be credited
as input VAT by the business in the succeeding quarter. Thus, if in the First Quarter
of a year, Business X prepays P1,000,000.00 as input VAT, and collects only
P500,000.00 as output VAT, it need not remit any amount of output VAT to the
government. Moreover, in the Second Quarter, Business X can credit the remaining
P500,000.00 as part of its input VAT for that quarter. Hence, if in the Second Quarter,
X actually prepays P400,000.00 as input VAT, and collects P500,000.00 as output
VAT, it may add the P500,000.00 input VAT from the previous quarter to the
P400,000.00 prepaid in the current quarter, bringing the total input VAT it could
claim to P900,000.00. Since the input VAT of P900,000.00 now exceeds the output
VAT collected of P500,000, then X need not remit any output VAT as well to the
government for the Second Quarter.
However, reality is far bleaker than that befaced by Business X. The VAT
collected and remitted is not the most relevant statistic evaluated by the business. The
figure of primary concern of the enterprise would be the profit margin, which is
simply the excess of revenue less expenditures. Revenue is derived from the gross
sales of the business. Expenditures encompass all expenses incurred by the business
including overhead expenses, wages and purchases of capital goods. Crucially,
expenditures would include the input VAT prepaid by the business on its capital
expenditures.
Since a significant amount of the capital outlay incurred by a business is
subjected to the prepayment of input taxes, the necessity of recovering these losses
through the output VAT collected becomes more impelling. These output taxes are
obviously proportional to the volume of gross sales — the higher the gross sales, the
higher the output VAT collected. The output taxes collected on sales answer for
not only those input taxes paid on the purchase of the raw materials, but also for
the input taxes paid on the multifarious overhead expenses covered by VAT. The
burden carried by the sales volume on the stability, if not survival of the business thus
just became more crucial. The maintenance of the proper equilibrium is not an easy
matter. Increasing the selling price of the goods sold does not necessarily increase the
gross sales, as it could have the counter-effect of repelling the consumer and
diminishing the number of goods sold. At the same time, keeping the selling price low
may increase the volume of goods sold, but not necessarily the amount of gross sales.
Profit is a chancy matter, and in cases of small to medium enterprises, usually

small if any. It is quite common for retail and distribution enterprises to incur profits
of less than 1% of their gross revenues. Low profitability is not an automatic badge of
poor business skills, but a reality dictated by the laws of the marketplace. The
probability of profit is lower than that of capital expenditures, and ultimately, many
business establishments end up with a higher input tax than output tax in a given
quarter. This would be especially true for small to medium enterprises who do not
reap sufficient profits from its business in the first place, and for those firms that opt
to also invest in capital expenses in addition to the overhead. Whatever miniscule
profit margins that can be obtained usually spell the difference between life and death
of the business.
The possibility of profit is further diminished by the fact that businesses have
to shoulder the input VAT in the purchase of their capital expenses. Yet the erstwhile
VAT system was not tainted by the label of oppressiveness and neither did it
bear the confiscatory mode. This was because of the immediate relief afforded
from the input taxes paid by the crediting system. In theory, VAT is not
supposed to affect the profit margin. If such margin is affected, it is only because
of the prepayment of the input taxes, and this should be remedied by the
immediate recovery through the crediting system of the settled input taxes.
The new E-VAT law changes all that, and puts in jeopardy the survival of
small to medium enterprises.
The Effects of the 70% Cap on Creditable Input VAT
The first radical shift introduced by the E-VAT law to the creditable input
system — the 70% cap on the creditable input tax that may be carried over into the
next quarter — is provided in Section 8 of the law, which amends Section 110(A) of
the NIRC, among others. Section 110(A) as amended would now read:
Sec. 110. Tax Credits. —
(B) Excess Output or Input Tax. — If at the end of any taxable

quarter the output tax exceeds the input tax, the excess shall
be paid by the VAT-registered person. If the input tax
exceeds the output tax, the excess shall be carried over to
the succeeding quarter or quarters. Provided, That the
input tax inclusive of input VAT carried over from the
previous quarter that may be credited in every quarter
shall not exceed seventy percent (70%) of the output
VAT: Provided, however, That any input tax attributable to
zero rated sales by a VAT-registered person may at his
option be refunded or credited against other internal revenue
taxes, subject to the provisions of Section 112. (emphasis
supplied)
All hope for entrepreneurial stability is dashed with the imposition of the 70%
cap. Under the E-VAT Law, the business, regardless of stability or financial
capability, is obliged to remit to the government every quarter at least 30% of the
output VAT collected from customers, or roughly 3% of the amount of gross sales.
Thus, if a quarterly gross sales of Y Business totaled P1,000,000, and Y is prudent
enough to keep its capital expenses down 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 government P30,000, thus wiping out the profit margin for the quarter.
Y would be entitled to credit the excess input VAT it prepaid for the next quarter, but
the continuous operation of the 70% cap obviates whatever benefits this may give,
and cause the accumulation of the unutilized creditable input VAT which should be
returned to the business.
The difference is even more dramatic if seen how the unutilized creditable
input VAT accumulates over a one year period. To illustrate, Business Y prepays the
following amounts of input VAT over a one-year period: P100,000.00 — First
Quarter; P100,000.00 — 2nd Quarter; P34,000.00 — 3rd Quarter; and P50,000.00 —
4th Quarter. On the other hand, Y collects the following amounts of output VAT from
consumers: P60,000.00 — First Quarter; P60,000.00 — 2nd Quarter; P100,000.00 —
3rd Quarter; and P50,000.00 — 4th Quarter. Applying the 70% cap, which would
limit the amount of the declarable input VAT to 70% in a quarter, the following
results obtain, as presented in tabular form:
Particulars 1st Quarter 2nd Quarter 3rd Quarter 4th Quarter
Output VAT 60,000 60,000 100,000 50,000
Input VAT 100,000 34,000 50,000

(Actual) + [input] [input] [input]
Carry Over +58,000 +116,000 +80,000
[excess [excess [excess
creditable] creditable] creditable]
100,000 158,000 150,000 130,000
Declarable (60,000x70%) (60,000x70%) (100,000x70%) (50,000x70%)

Input VAT
(70% of
output VAT) 42,000 42,000 70,000 35,000
Lower of (60,000 – (60,000 – (100,000 – (50,000 –

actual and 42,000) 42,000) 70,000) 35,000)
70% cap –
allowable
VAT Payable 18,000 18,000 30,000 15,000
Creditable (100,000 – (158,000 – (150,000 – (130,000 –

Input VAT 42,000) 42,000) 70,000) 35,000)
58,000 116,000 80,000 95,000
This stands in contrast to same business VAT accountability under the present
system, using the same variables of output VAT and input VAT. The need to
distinguish a declarable input VAT is obviated with the elimination of the 70% cap.
Particulars 1st Quarter 2nd Quarter 3rd Quarter 4th Quarter
Output VAT 60,000 60,000 100,000 50,000

Input VAT 100,000 34,000 50,000
(Actual) + [input] [input] [input]
Carry Over +40,000 +80,000 +14,000
[excess [excess [excess
creditable] creditable] creditable]
100,000 140,000 114,000 50,000
VAT Payable 0 0 0 0
Creditable
Input VAT 40,000 80,000 14,000 14,000
The difference is dramatic, as is the impact on the business's profit margin and
available cash on hand. Under normal conditions, small to medium enterprises are
already encumbered with the likelihood of obtaining only a minimal profit margin.
Without the 70% cap, those businesses would nonetheless be able to expect an
immediate return on its input taxes earlier advanced, taxes which under the VAT
system it is not supposed to shoulder in the first place. However, with the 70% cap in
place, the unutilized input taxes would continue to accumulate, and the enterprise
precluded from immediate recovery thereof. The inability to utilize these input
taxes, which could spell the difference between profit and loss, solvency and
insolvency, will eventually impair, if not kill off the enterprise.
The majority fails to consider one of the most important concepts in finance,
time value for money. 37(317) Simply put, the value of one peso is worth more today
than in 2006. Money that you hold today is worth more because you can invest it and
earn interest. 38(318) By reason of the 70% cap, the amount of input VAT credit that
remains unutilized would continue accumulate for months and years. The longer the
amount remains unutilized, the higher the degree of its depreciation in value, in
accordance with the concept of time value of money. Even assuming that the business
eventually recovers the input VAT credit, the sum recovered would have decreased in
practical value.
It would be sad, but fair, if a business ceases because of its inability to

compete with other businesses. It would be utter malevolence to condemn an
enterprise to death solely through the employment of a deceptive accounting
wizardry. For the raison d'etre of this 70% cap is to make it appear on paper
that the government is more solvent than it actually is. Conceding for the nonce,
there is a temporary advantage gained by the government by this 70% cap, as the
steady remittance by businesses of the 30% output VAT would assure a cash flow.
Such collection may only momentarily resolve an endemic problem in our local tax
system, the problem of collection itself.
If the 70% cap was designed in order to enhance revenue collection, then I
submit that the means employed stand beyond reason. If sheer will proves insufficient
in assuring that the State all taxes due it, there should be allowable discretion for the
government to formulate creative means to enhance collection. But to do so by
depriving low profit enterprises of whatever meager income earned and consequently
assuring the death of these industries goes beyond any valid state purpose.
Only stable businesses with substantial cash flows, or extraordinarily

successful enterprises will be able to remain in operation should the 70% cap be
retained. The effect of the 70% cap is to effectively impose a tax amounting to 3% of
gross revenue. The amount may seem insignificant to those without working
knowledge of the ways of business, but anybody who is actually familiar with
business would be well aware the profit margins of the retailing and distribution
sectors typically amount to less than 1% of the gross revenues. A taxpayer has to earn
a margin of at least 3% on gross revenue in order to recoup the losses sustained due to
the 70% cap. But as stated earlier, profits are chancy, and the entrepreneur does not
have full control of the conditions that lead to profit.
Even more galling is the fact that the 70% cap, oppressive as it already is to the
business establishment, even limits the options of the business to recover the
unutilized input VAT credit. During the deliberations, the argument was raised that
the problem presented by the 70% cap was a business problem, which can only be
solved by business. Yet there is only one viable option for the enterprise to resolve the
problem, and that is to increase the selling price of goods. 39(319) It would be
incorrect to assume that increase the volume of the goods sold could solve the
problem, since for items with the same purchasing cost, the effect of the 70% cap
remains constant regardless of an increase in volume.
But the additional burden is not limited to the increase of prices by the retailer
to the end consumer. Since VAT is a transaction tax, every level of distribution
becomes subject not only to the VAT, but also to the 70% cap. The problem increases
due to a cascading effect as the number of distribution levels increases since it will
result in the collection of an effective 3% percentage tax at every distribution level.
In analyzing the effects of the 70% cap, and appreciating how it violates the
due process clause, we should not focus solely on the end consumers. Undoubtedly,
consumers will face hardships due to the increased prices, but their threshold of
physical survival, as individual people, is significantly less than that of enterprises.
Somehow, I do not think the new E-VAT would generally deprive consumers of the
bare necessities such as food, water, shelter and clothing. There may be significant
deprivation of comfort as a result, but not of life.
The same does not hold true for businesses. The standard of "deprivation of
life" of juridical persons employs different variables than that of natural persons.
What food and water may be for persons, profit is for an enterprise — the bare
necessity for survival. For businesses, the implementation of the same law, with the
70% cap and 60-month amortization period, would mean the deprivation of profit,
which is the determinative necessity for the survival of a business.
It is easy to admonish both the consumer and the enterprise to cut back on
expenditures to survive the new E-VAT Law. However, this can be realistically
expected only of the consumer. The small/medium enterprise cannot just cut back
easily on expenditures in order to survive the implementation of the E-VAT Law. For
such businesses, expenditures do not normally contemplate unnecessary expenses
such as executive perks which can be dispensed with without injury to the enterprises.
These expenditures pertain to expenses necessary for the survival of the enterprise,
such as wages, overhead and purchase of raw materials. Those three basic items of
expenditure cannot simply be reduced, as to do so with impair the ability of the
business to operate on a daily basis.
And reduction of expenditures is not the exclusive antidote to these

impositions under the E-VAT Law, as there must also be a corresponding increase in
the amount of gross sales. To do so though, would require an increase in the selling
price, dampening consumer enthusiasm, and further impairing the ability of the
enterprise to recover from the E-VAT Law. This is your basic Catch-22 40(320)
situation — no matter which means the enterprise employs to recover from the
E-VAT Law, it will still go down in flames.
Section 8 of the E-VAT law, while ostensibly even-handed in application, fails

to appreciate valid substantial distinctions between large scale enterprises and small
and medium enterprises. The latter group, owing to the limited capability for capital
investment, subsists on modest profit margins, whereas the former expects, by reason
of its substantial capital investments, a high margin. In essentially prohibiting the
recovery of small profit margins, the E-VAT law effectively sends the message
that only high margin businesses are welcome to do business in the Philippines.
It stifles any entrepreneurial ambitions of Filipinos unfortunate enough to have
been born poor yet seek a better life by sacrificing all to start a small business.
Pilipinas Shell Dealers, on whom the burden to establish the violation of due
process and equal protection lies, offers the following chart of the income statement
of a typical petroleum dealer:
QUARTERLY PROFIT AND LOSS STATEMENT

DEALER "A"
VAT VAT
Price (without (with
70% cap) 70% cap)
Sales/Output 32,748,534 3,274,853.40 3,274,853.40
Cost of Sales 31,834,717 3,183,471.70
Gross Margin 913,817
Operating
Expenses
Non-vatable
items 536,249
Vatable Items 317,584 31,758.40
Total Cost 853,833
Net Profit 59,984
Total Input Tax 3,215,230.10 2,292,397.38
VAT Payable 59,623.30 982,456.02
Unutilized Input VAT 922,832.72
* computed by multiplying output VAT by 70% [3,274,853.40 x 70% = 2,292.397.38]
The presentation of the Pilipinas Shell Dealers more or less jibes with my own
observations on the impact of the 70% cap. The dealer whose income is illustrated
above has to outlay a cash amount of P922,832.72 more than what would have been
shelled out if the 70% cap were not in place. Considering that the net profit of the
dealer is only P59,984.00, the consequences could very well be fatal, especially if
these state of events persist in succeeding quarters.
The burden of proof was on the Pilipinas Shell Dealers' to prove their
allegations, and accordingly, these figures have been duly presented to the Court for
appreciation and evaluation. Instead, the majority has shunted aside these
presentations as being merely theoretical, despite the fact that they present a clear and
present danger to the very life of our nation's enterprises. The majority's position
would have been more credible had it faced the issue squarely, and endeavored to
demonstrate in like numerical fashion why the 70% cap is not oppressive,
confiscatory, or otherwise violative of the due process clause.
Sadly, the majority refuses to confront the figures or engage in a meaningful

demonstration of how these assailed provisions truly operate. Instead, it counters with
platitudes and bromides that do not intellectually satisfy. Considering that the very
vitality, if not life of our domestic economy is at stake, I think it derelict to our duty to
block out these urgent concerns presented to the Court with blind faith tinged with
irrational Panglossian 41(321) optimism.
The obligation of the majority to refute on the merits the arguments of the
Petroleum Dealers becomes even more grave considering that the respondents have
abjectly failed in to convincingly dispute the claims. During oral arguments,
respondents attempted to counter the arguments that the 70% cap was oppressive and
confiscatory by presenting the following illustration, which I fear is severely
misleading:
Slide 1
Item Cost VAT

Sales 1,000,000.00 100,000.00
Purchases 800,000.00 80,000.00
Due BIR without cap Due BIR with 70% cap

Output VAT 100,000.00 Output VAT 100,000.00
Actual Input VAT 80,000.00 Allowable Input VAT 70,000.00
Net VAT Payable 20,000.00 Net VAT Payable 30,000.00
Excess Input VAT 10,000.00
Carry-over to next quarter
Slide 2
Item Cost VAT

Sales 1,000,000.00 100,000.00
Purchases 600,000.00 60,000.00
Due BIR without cap Due BIR with 70% cap
Output VAT 100,000.00 Output VAT 100,000.00
Actual Input VAT 60,000.00 Allowable Input VAT 60,000.00
(60% of output VAT
Net VAT Payable 40,000.00 Net VAT Payable 40,000.00
Excess Input VAT 0
Carry-over to next quarter
This presentation of the respondents is grossly deceptive, as it fails to account
for the excess creditable input VAT that remains unutilized due to the 70% cap. This
excess or creditable input VAT is supposed to be carried over for the computation of
the input VAT of the next quarter. Instead, this excess or creditable input VAT
magically disappears from the table of the respondents. In their memorandum, the
Pilipinas Shell Dealers counter with their own presentation using the same variables
as respondents', but taking into account the excess creditable input VAT and
extending the situation over a one-year period. I cite with approval the following chart
42(322) of the Pilipinas Shell Dealers:
Slide 1
Quarter 1
Item No. Cost VAT

Sales 1,000,000.00 100,000.00
Purchases 800,000.00 80,000.00
Due BIR with 70% cap
Output VAT 100,000.00
Allowable Input VAT 70,000.00
–––––––––
Net VAT Payable 30,000.00
–––––––––
Excess Input Vat
Carry-over to next quarter 10,000.00
–––––––––
Quarter 2
Cost VAT
Sales 1,000,000.00 100,000.00
Purchases 800,000.00 80,000.00
Due BIR with 7-% cap
Less: Input VAT
Excess Input VAT fr. 1st Quarter 10,000.00

Input VAT-Current Qtr. 80,000.00
–––––––––
Total Available Input VAT 90,000.00
–––––––––
Allowable Input VAT
(100,000 x 70%) 70,000.00 70,000.00
––––––––– –––––––––
========

–––––––––
Excess Input VAT to be carried over to next
Quarter 20,000.00
========
Quarter 3
Cost VAT
Sales 1,000,000.00 100,000.00
Purchases 800,000.00 80,000.00
Less: Input VAT
Excess Input VAT fr. 2nd Qtr. 20,000.00
–––––––––
–––––––––
Allowable Input VAT
(100,000 x 70%) 70,000.00 70,000.00
––––––––– –––––––––
========

–––––––––
Excess Input VAT to be carried over to next quarter 30,000.00
========
Quarter 4
Cost VAT
Sales 1,000,000.00 100,000.00
Purchases 800,000.00 80,000.00
Less: Input VAT
Excess Input VAT fr. 3rd Qtr. 30,000.00
–––––––––
–––––––––
Allowable Input VAT
(100,000 x 70%) 70,000.00 70,000.00
––––––––– –––––––––
========

–––––––––
Excess Input VAT to be carried over to next quarter 40,000.00
========
The 70% cap is not merely an unwise imposition. It is a burden designed,

either through sheer heedlessness or cruel calculation, to kill off the small and
medium enterprises that are the soul, if not the heart, of our economy. It is not
merely an undue taking of property, but constitutes an unjustified taking of life
as well. HcSaTI
And what legitimate, germane purposes does this lethal 70% cap serve? It
certainly does not increase the government's revenue since the unutilized
creditable input VAT should be entered in the government books as a debt
payable as it is supposed to be eventually repaid to the taxpayer, and so on the
contrary it increases the government's debts. I do see that the 70% cap
temporarily allows the government to brag to the world of an increased cash
flow. But this situation would be akin to the provincial man who borrows from
everybody in the barrio in order to show off money and maintain the pretense of
prosperity to visiting city relatives. The illusion of wealth is hardly a legitimate
state purpose, especially if projected at the expense of the very business life of
the country.
The majority, in an effort to belittle these concerns, points out that that the
excess input tax remains creditable in succeeding quarters. However, as seen in the
above illustration, the actual application of the excess input tax will always be limited
by the amount of output taxes collected in a quarter, as a result of the 70% cap. Thus,
it is entirely possible that a VAT-registered person, through the accumulation of
unutilized input taxes, would have in a quarter an express creditable input tax of
P50,000,000, but would be allowed to actually credit only P70,000 if the output tax
collected for that quarter were only P100,000.
The burden of the VAT may fall at first to the immediate buyers, but it is
supposed to be eventually shifted to the end-consumer. The 70% cap effectively
prevents this from happening, as it limits the ability of the business to recover the
prepaid input taxes. This is unconscionable, since in the first place, these intervening
players — the manufacturers, producers, traders, retailers — are not even supposed to
sustain the losses incurred by reason of the prepayment of the input taxes. Worse,
they would be obliged every quarter to pay to the government from out of their own
pockets the equivalent of 30% of the output taxes, no matter their own particular
financial condition. Worst, this twin yoke on the taxpayer of having to sustain a debit
equivalent to 30% of output taxes, and having to await forever in order to recover the
prepaid taxes would impair the cash flow and prove fatal for a shocking number of
businesses which, as they now stand, have to make do with a minimum profit that
stands to be wiped out with the introduction of the 70% cap.
Nonetheless, the majority notes that the excess creditable input tax may be the
subject of a tax credit certificate, which then could be used in payment of internal
revenue taxes, or a refund to the extent that such input taxes have not been applied
against output taxes. 43(323) 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:

SEC. 112. Refunds or Tax Credits of Input Tax. —
xxx xxx xxx
"(B) Cancellation of VAT Registration. — A person whose

registration has been cancelled due to retirement from or cessation
of business or due to changes or cessation of status under Section
106(C) of this Code may, within two (2) years from the date of
cancellation, apply for the issuance of a tax credit certificate for any
unused input tax which may be used in payment of his other
internal revenue taxes.
xxx xxx xxx
This stands in marked contrast to Section 112(B) of the NIRC as it read prior
to this amendment. Under the previous rule, a VAT-registered person was entitled to
apply for the tax credit certificate or refund paid on capital goods even while it
remained in operation:
SEC. 112. Refunds or Tax Credits of Input Tax. —
xxx xxx xxx
"(B) Capital Goods. — A VAT-registered person may apply for the

issuance of a tax credit certificate or refund of input taxes paid on capital goods
imported or locally purchased, to the extent that such input taxes have not been
applied against output taxes. The application may be made only within two (2)
years after the close of the taxable quarter when the importation or purchase was
made.
This provision, which could have provided foreseeable and useful relief to the
VAT-registered person, was deleted under the new E-VAT Law. At present, the
refund or tax credit certificate may only be issued upon two instances: on zero-rated
or effectively zero-rated sales, and upon cancellation of VAT registration due to
retirement from or cessation of business. 44(324) This is the cruelest cut of all. Only
after the business ceases to be may the State be compelled to repay the entire
amount of the unutilized input tax. It is like a macabre form of sweepstakes
wherein the winner is to be paid his fortune only when he is already dead.
Aanhin pa ang damo kung patay na ang kabayo.
Moreover, the inability to immediately credit or otherwise recover the

unutilized input VAT could cause such prepaid amount to actually be recognized in
the accounting books as a loss. Under international accounting practices, the
unutilized input VAT due to the 70% cap would not even be recognized as a deferred
asset. The same would not hold true if the 70% cap were eliminated. Under the
International Accounting Standards 45(325) , 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" 46(326) Thus, if the immediate accreditation of the input VAT credit can
be obtained, as it would without the 70% cap, the asset could be recognized.
However, the same Standards hold that "[t]o the extent that it is not probable
that taxable profit will be available against which the unused tax losses or unused tax
credits can be utili[z]ed, the deferred tax asset is not recogni[z]ed". 47(327) As
demonstrated, the continuous operation of the 70% cap precludes the recovery of
input VAT prepaid months or years prior. Moreover, the inability to claim a refund or
tax credit certificate until after the business has already ceased virtually renders it
improbable for the input VAT to be recovered. As such, under the International
Accounting Standards, it is with all likelihood that the prepaid input VAT, ostensibly
creditable, would actually be reflected as a loss. 48(328) What heretofore was
recognized as an asset would now, with the imposition of the 70% cap, be now
considered as a loss, enhancing the view that the 70% cap is ultimately confiscatory
in nature.
This leads to my next point. The majority asserts that the input tax is not a
property or property right within the purview of the due process clause. 49(329) I
respectfully but strongly disagree.
Tellingly, the BIR itself has recognized that unutilized input VAT is one of
those assets, corporate attributes or property rights that, in the event of a merger, are
transferred to the surviving corporation by operation of law. 50(330) Assets would
fall under the purview of property under the due process clause, and if the taxing arm
of the State recognizes that such property belongs to the taxpayer and not to the State,
then due respect should be given to such expert opinion.
Even under the International Accounting Standards I adverted to above, the

unutilized input VAT credit is may be recognized as an asset "to the extent that it is
probable that future taxable profit will be available against which the unused tax
losses and unused tax credits can be utili[z]ed" 51(331) If not probable, it would be
recognized as a loss. 52(332) Since these international standards, duly recognized by
the Securities and Exchange Commission as controlling in this jurisdiction, attribute
tangible gain or loss to the VAT credit, it necessarily follows that there is proprietary
value attached to such gain or loss.
Moreover, the prepaid input tax represents unutilized profit, which can only be
utilized if it is refunded or credited to output taxes. To assert that the input VAT is
merely a privilege is to correspondingly claim that the business profit is similarly a
mere privilege. The Constitution itself recognizes the right to profit by private
enterprises. As I stated earlier, one of the enunciated State policies under the
Constitution is the recognition of the indispensable role of the private sector, the
encouragement of private enterprise, and the provision of incentives to needed
investments. 53(333) Moreover, the Constitution also requires the State to
recognize the right of enterprises to reasonable returns on investments, and to
expansion and growth. 54(334) This, I believe, encompasses profit.
60-Month Amortization Period
Another portion of Section 8 of the E-VAT Law is unconstitutional, essentially

for the same reasons as above. The relevant portion reads:

"SEC. 110. Tax Credits. —
(A) Creditable Input Tax. —
xxx xxx xxx
Provided, That the input tax on goods purchased or imported

in a calendar month for use in trade or business for which deduction
for depreciation is allowed under this Code, shall be spread evenly
over the month of acquisition and the fifty-nine (59) succeeding
months if the aggregate acquisition cost for such goods, excluding
the VAT component thereof, exceeds One million pesos
(P1,000,000): Provided, however, That if the estimated useful life of the
capital good is less than five (5) years, as used for depreciation purposes,
then the input VAT shall be spread over such a shorter period: Provided,
finally, that in the case of purchase of services, lease or use of properties,
the input tax shall be creditable to the purchaser, lessee or licensee upon
payment of the compensation, rental, royalty or fee.
Again, this provision unreasonably severely limits the ability of an enterprise

to recover its prepaid input VAT. On its face, it might appear injurious primarily to
high margin enterprises, whose purchase of capital goods in a given quarter would
routinely exceed P1,000,000.00. The amortization over a five-year period of the input
VAT on these capital goods would definitely eat up into their profit margin. But it is
still possible for such big businesses to survive despite this new restriction, and their
financial pain alone may not be sufficient to cause the invalidity of a taxing statute.
However, this amortization plan will prove especially fatal to start-ups

and other new businesses, which need to purchase capital goods in order to start
up their new businesses. It is a known fact in the financial community that a
majority of businesses start earning profit only after the second or third year, and
many enterprises do not even get to survive that long. The first few years of a
business are the most crucial to its survival, and any financial benefits it can obtain in
those years, no matter how miniscule, may spell the difference between life and death.
For such emerging businesses, it is already difficult under the present system to
recover the prepaid input VAT from the output VAT collected from customers
because initial sales volumes are usually low. With this further limitation, diminishing
as it does any opportunity to have a sustainable cash flow, the ability of new
businesses to survive the first three years becomes even more endangered.
Even existing small to medium enterprises are imperiled by this 60 month

amortization restriction, especially considering the application of the 70% cap. The
additional purchase of capital goods bears as a means of adding value to the consumer
good, as a means to justify the increased selling price. However, the purchase of
capital goods in excess of P1,000,000.00 would impose another burden on the small
to medium enterprise by further restricting their ability to immediately recover the
entire prepaid input VAT (which would exceed at least P100,000.00), as they would
be compelled to wait for at least five years before they can do so. Another hurdle is
imposed for such small to medium enterprise to obtain the profit margin critical to
survival. For some lucky enterprises who may be able to survive the injury
brought about by the 70% cap, this 60 month amortization period might instead
provide the mortal head wound.
Moreover, the increased administrative burden on the taxpayer should not be

discounted, considering this Court's previous recognition of the aims of the VAT
system to "rationalize the system of taxes on goods and services, [and] simplify tax
administration". 55(335) With the amortization requirement, the taxpayer would be
forced to segregate assets into several classes and strictly monitor the useful life of
assets so that proper classification can be made. The administrative requirements of
the taxpayer in order to monitor the input VAT from the purchase of capital assets
thus has exponentially increased.
5% Withholding VAT on Sales
Pilipinas Shell Dealers argue that Section 12 of the E-VAT law, which amends
Section 114(C) of the NIRC, is also unconstitutional. The provision is supremely
unwise, oppressive and confiscatory in nature, and ruinous to private enterprise
and even State development. The provision reads:

"SEC. 114. Return and Payment of Value-Added Tax. —
xxx xxx xxx
"(C) Withholding of Value-added Tax. — The Government or

any of its political subdivisions, instrumentalities or agencies, including
government-owned or — controlled corporations (GOCCs) shall, before
making payment on account of each purchase of goods and services
which are subject to the value-added tax imposed in Sections 106 and
108 of this Code, deduct and withhold a final value-added tax at the rate
of five percent (5%) of the gross payment thereof: Provided, That the
payment for lease or use of properties or property rights to nonresident
owners shall be subject to ten percent (10%) withholding tax at the time
of payment. For purposes of this Section, the payor or person in control
of the payment shall be considered as the withholding payment. . . .
The principle that the Government and its subsidiaries may deduct and
withhold a final value-added tax on its purchase of goods and services is not new, as
the NIRC had allowed such deduction and withholding at the rate of 3% of the gross
payment for the purchase of goods, and 6% of the gross receipts for services.
However, the NIRC had also provided that this tax withheld would also be
creditable against the VAT liability of the seller or contractor, a mechanism that
was deleted by the E-VAT law. The deletion of this credit apparatus effectively
compels the private enterprise transacting with the government to shoulder the
output VAT that should have been paid by the government in excess of 5% of
the gross selling price, and at the same time unduly burdens the private
enterprise by precluding it from applying any creditable input VAT on the same
transaction.
Notably, the removal of the credit mechanism runs contrary to the essence of
the VAT system, which characteristically allows the crediting of input taxes against
output taxes. Without such crediting mechanism, which allows the shifting of the
VAT to only the final end user, the tax becomes a straightforward tax on
business or income. The effect on the enterprise doing business with the
government would be that two taxes would be imposed on the income by the
business derived on such transaction: the regular personal or corporate income
tax on such income, and this final withholding tax of 5%.
Granted that Congress is not bound to adopt with strict conformity the VAT
system, and that it has to power to impose new taxes on business income, this
amendment to Section 114(C) of the NIRC still remains unconstitutional. It unfairly
discriminates against entities which contract with the government by imposing
an additional tax on the income derived from such transactions. The end result
of such discrimination is double taxation on income that is both oppressive and
confiscatory.
It is a legitimate purpose of a tax law to devise a manner by which the

government could save money on its own transactions, but it is another matter if
a private enterprise is punished for doing business with the government. The
erstwhile NIRC worked towards such advantage, by allowing the government to
reduce its cash outlay on purchases of goods and services by withholding the payment
of a percentage thereof. While the new E-VAT law retains this benefit to the
government, at the same time it burdens the private enterprise with an additional tax
by refusing to allow the crediting of this tax withheld to the business's input VAT.
This imposition would be grossly unfair for private entities that transact with
the government, especially on a regular basis. It might be argued that the provision,
even if concededly unwise, nonetheless fails to meet the standard of
unconstitutionality, as it affects only those persons or establishments that choose to do
business with the government. However, it is an acknowledged fact that the
government and its subsidiaries rely on contracts with private enterprises in order to
be able to carry out innumerable functions of the State. This provision effectively
discourages private enterprises to do business with the State, as it would impose
on the business a higher rate of tax if it were to transact with the State, as
compared to transactions with other private entities.
Established industries with track records of quality performance could very

well be dissuaded from doing further business with government entities as the higher
tax rate would make no economic sense. Only those enterprises which really need the
money, such as those with substandard track records that have affected their viability
in the marketplace, would bother seeking out government contracts. The
corresponding sacrifice in quality would eventually prove detrimental to the State.
Our society can ill afford shoddy infrastructures such as roads, bridges and buildings
that would unnecessarily pose danger to the public at large simply because the
government wanted to skimp on expenses.
The provision squarely contradicts Section 20, Article II of the

Constitution as it vacuously discourages private enterprise, and provides
disincentives to needed investments such as those expected by the State from
private businesses. Whatever advantages may be gained by the temporary increase in
the government coffers would be overturned by the disadvantages of having a reduced
pool of private enterprises willing to do business with the government. Moreover,
since government contracts with private enterprises will still remain a necessary fact
of life, the amendment to Section 114(C) of the NIRC introduced by the E-VAT Law.
Double taxation means taxing for the same tax period the same thing or
activity twice, when it should be taxed but once, for the same purpose and with the
same kind of character of tax. 56(336) Double taxation is not expressly forbidden in
our constitution, but the Court has recognized it as obnoxious "where the taxpayer is
taxed twice for the benefit of the same governmental entity or by the same jurisdiction
for the same purpose." 57(337) Certainly, both the 5% final tax withheld and the
general corporate income tax are both paid for the benefit of the national government,
and for the same incidence of taxation, the sale/lease of goods and services to the
government.
The Court, in Re: Request of Atty. Bernardo Zialcita 58(338) had cause to
make the following observation I submit apropos to the case at bar, on double
taxation in a case involving the attempt of the BIR to tax the commuted accumulated
leave credits of a government lawyer upon his retirement:
Section 284 of the Revised Administrative Code grants to a government

employee 15 days vacation leave and 15 days sick leave for every year of
service. Hence, even if the government employee absents himself and exhausts
his leave credits, he is still deemed to have worked and to have rendered
services. His leave benefits are already imputed in, and form part of, his
salary which in turn is subject to withholding tax on income. He is taxed on
the entirety of his salaries without any deductions for any leaves not
utilized. It follows then that the money values corresponding to these leave
benefits both the used and unused have already been taxed during the year
that they were earned. To tax them again when the retiring employee
receives their money value as a form of government concern and
appreciation plainly constitutes an attempt to tax the employee a second
time. This is tantamount to double taxation. 59(339)
Conclusions
The VAT system, in itself, is intelligently designed, and stands as a fair means
to raise revenue. It has been adopted worldwide by countries hoping to employ an
efficient means of taxation. The concerns I have raised do not detract from my general
approval of the VAT system.
I do lament though that our government's wholehearted adoption of the VAT

system is endemic of what I deem a flaw in our national tax policy in the last few
decades. The power of taxation, inherent in the State and ever so powerful, has been
generally employed by our financial planners for a solitary purpose: the raising of
revenue. Revenue generation is a legitimate purpose of taxation, but standing alone, it
is a woefully unsophisticated design. Intelligent tax policy should extend beyond the
singular-minded goal of raising State funds — the old-time philosophy behind the
taxing schemes of war-mongering monarchs and totalitarian states — and should
sincerely explore the concept of taxation as a means of providing genuine incentives
to private enterprise to spur economic growth; of promoting egalitarian social justice
that would allow everyone to their fair share of the nation's wealth.
Instead, we are condemned by a national policy driven by the monomania for

State revenue. It may be beyond my oath as a Justice to compel the government to
adopt an economic policy in consonance with my personal views, but I offer these
observations since they lie at the very heart of the noxiousness of the assailed
provisions of the E-VAT law. The 70% cap, the 60-month amortization period and
the 5% withholding tax on government transactions were selfishly designed to
increase government revenue at the expense of the survival of local industries.
I am not insensitive to the concerns raised by the respondents as to the dire

consequences to the economy should the E-VAT law be struck down. I am aware that
the granting of the petition in G.R. No. 168461 will negatively affect the cash flow of
the government. If that were the only relevant concern at stake, I would have no
problems denying the petition. Unfortunately, under the device employed in the
E-VAT law, the price to be paid for a more sustainable liquidity of the
government's finances will be the death of local business, and correspondingly,
the demise of our society. It is a measure just as draconian as the standard issue
taxes of medieval tyrants.
I am not normally inclined towards the language of the overwrought, yet if the
sky were indeed truly falling, how else could that fact be communicated. The E-VAT
Law is of multiple fatal consequences. How are we to survive as a nation without the
bulwark of private industries? Perhaps the larger scale, established businesses may
ultimately remain standing, but they will be unable to sustain the void left by the
demise of small to medium enterprises. Or worse, domestic industry would be left in
the absolute control of monopolies, combines or cartels, whether dominated by
foreigners or local oligarchs. The destruction of subsisting industries would be bad
enough, the destruction of opportunity and the entrepreneurial spirit would be even
more grievous and tragic, as it would mark as well the end of hope. Taxes may be the
lifeblood of the state, but never at the expense of the life of its subjects.
Accordingly, I VOTE to:
1) DENY the Petitions in G.R. Nos. 168056, 168207, and 168730 for
lack of merit;
2) PARTIALLY GRANT the Petition in G.R. Nos. 168463 and

declare Section 21 of the E-VAT Law as unconstitutional;
3) GRANT the Petition in G.R. No. 168461 and declare as

unconstitutional Section 8 of Republic Act No. 9337, insofar as it
amends Section 110(A) and (B) of the National Internal Revenue
Code (NIRC) as well as Section 12 of the same law, with respect to
its amendment of Section 114(C) of the NIRC. DHaECI
CHICO-NAZARIO, J., concurring opinion:
Five petitions were filed before this Court questioning the constitutionality of
Republic Act No. 9337. Rep. Act No. 9337, which amended certain provisions of the
National Internal Revenue Code of 1997, 1(340) by essentially increasing the tax
rates and expanding the coverage of the Value-Added Tax (VAT). Undoubtedly,
during these financially difficult times, more taxes would be additionally burdensome
to the citizenry. However, like a bitter pill, all Filipino citizens must bear the burden
of these new taxes so as to raise the much-needed revenue for the ailing Philippine
economy. Taxation is the indispensable and inevitable price for a civilized society,
and without taxes, the government would be paralyzed. 2(341) Without the tax
reforms introduced by Rep. Act No. 9337, the then Secretary of the Department of
Finance, Cesar V. Purisima, assessed that "all economic scenarios point to the
National Government's inability to sustain its precarious fiscal position, resulting in
severe erosion of investor confidence and economic stagnation." 3(342)
Finding Rep. Act No. 9337 as not unconstitutional, both in its procedural
enactment and in its substance, I hereby concur in full in the foregoing majority
opinion, penned by my esteemed colleague, Justice Ma. Alicia Austria-Martinez.
According to petitioners, the enactment of Rep. Act No. 9337 by Congress was
riddled with irregularities and violations of the Constitution. In particular, they
alleged that: (1) The Bicameral Conference Committee exceeded its authority to
merely settle or reconcile the differences among House Bills No. 3555 and 3705 and
Senate Bill No. 1950, by including in Rep. Act No. 9337 provisions not found in any
of the said bills, or deleting from Rep. Act No. 9337 or amending provisions therein
even though they were not in conflict with the provisions of the other bills; (2) The
amendments introduced by the Bicameral Conference Committee violated Article VI,
Section 26(2), of the Constitution which forbids the amendment of a bill after it had
passed third reading; and (3) Rep. Act No. 9337 contravened Article VI, Section 24,
of the Constitution which prescribes that revenue bills should originate exclusively
from the House of Representatives.
Invoking the expanded power of judicial review granted to it by the

Constitution of 1987, petitioners are calling upon this Court to look into the
enactment of Rep. Act No. 9337 by Congress and, consequently, to review the
applicability of the enrolled bill doctrine in this jurisdiction. Under the said doctrine,
the enrolled bill, as signed by the Speaker of the House of Representatives and the
Senate President, and certified by the Secretaries of both Houses of Congress, shall be
conclusive proof of its due enactment. 4(343)
Petitioners' arguments failed to convince me of the wisdom of abandoning the

enrolled bill doctrine. I believe that it is more prudent for this Court to remain
conservative and to continue its adherence to the enrolled bill doctrine, for to abandon
the said doctrine would be to open a Pandora's Box, giving rise to a situation more
fraught with evil and mischief. Statutes enacted by Congress may not attain finality or
conclusiveness unless declared so by this Court. This would undermine the authority
of our statutes because despite having been signed and certified by the designated
officers of Congress, their validity would still be in doubt and their implementation
would be greatly hampered by allegations of irregularities in their passage by the
Legislature. Such an uncertainty in the statutes would indubitably result in confusion
and disorder. In all probability, it is the contemplation of such a scenario that led an
American judge to proclaim, thus —
. . . Better, far better, that a provision should occasionally find its way
into the statute through mistake, or even fraud, than, that every Act, state and
national, should at any and all times be liable to put in issue and impeached by
the journals, loose papers of the Legislature, and parol evidence. Such a state of
uncertainty in the statute laws of the land would lead to mischiefs absolutely
intolerable. . . . 5(344)
Moreover, this Court must attribute good faith and accord utmost respect to the
acts of a co-equal branch of government. While it is true that its jurisdiction has been
expanded by the Constitution, the exercise thereof should not violate the basic
principle of separation of powers. The expanded jurisdiction does not contemplate
judicial supremacy over the other branches of government. Thus, in resolving the
procedural issues raised by the petitioners, this Court should limit itself to a
determination of compliance with, or conversely, the violation of a specified
procedure in the Constitution for the passage of laws by Congress, and not of a mere
internal rule of proceedings of its Houses.
It bears emphasis that most of the irregularities in the enactment of Rep. Act
No. 9337 concern the amendments introduced by the Bicameral Conference
Committee. The Constitution is silent on such a committee, it neither prescribes the
creation thereof nor does it prohibit it. The creation of the Bicameral Conference
Committee is authorized by the Rules of both Houses of Congress. That the Rules of
both Houses of Congress provide for the creation of a Bicameral Conference
Committee is within the prerogative of each House under the Constitution to
determine its own rules of proceedings. TADIHE
The Bicameral Conference Committee is a creation of necessity and

practicality considering that our Congress is composed of two Houses, and it is highly
improbable that their respective bills on the same subject matter shall always be in
accord and consistent with each other. Instead of all their members, only the
appointed representatives of both Houses shall meet to reconcile or settle the
differences in their bills. The resulting bill from their meetings, embodied in the
Bicameral Conference Report, shall be subject to approval and ratification by both
Houses, voting separately.
It does perplex me that members of both Houses would again ask the Court to
define and limit the powers of the Bicameral Conference Committee when such
committee is of their own creation. In a number of cases, 6(345) this Court already
made a determination of the extent of the powers of the Bicameral Conference
Committee after taking into account the existing Rules of both Houses of Congress. In
gist, the power of the Bicameral Conference Committee to reconcile or settle the
differences in the two Houses' respective bills is not limited to the conflicting
provisions of the bills; but may include matters not found in the original bills but
germane to the purpose thereof. If both Houses viewed the pronouncement made by
this Court in such cases as extreme or beyond what they intended, they had the power
to amend their respective Rules to clarify or limit even further the scope of the
authority which they grant to the Bicameral Conference Committee. Petitioners'
grievance that, unfortunately, they cannot bring about such an amendment of the
Rules on the Bicameral Conference Committee because they are members of the
minority, deserves scant consideration. That the majority of the members of both
Houses refuses to amend the Rules on the Bicameral Conference Committee is an
indication that it is still satisfied therewith. At any rate, this is how democracy works
— the will of the majority shall be controlling.
Worth reiterating herein is the concluding paragraph in Arroyo v. De Venecia,

7(346) which reads —
It would be unwarranted invasion of the prerogative of a coequal

department for this Court either to set aside a legislative action as void because
the Court thinks the house has disregarded its own rules of procedure, or to
allow those defeated in the political arena to seek a rematch in the judicial
forum when petitioners can find remedy in that department. The Court has not
been invested with a roving commission to inquire into complaints, real or
imagined, of legislative skullduggery. It would be acting in excess of its power
and would itself be guilty of grave abuse of its discretion were it to do so. . . .
Present jurisprudence allows the Bicameral Conference Committee to amend,

add, and delete provisions of the Bill under consideration, even in the absence of
conflict thereon between the Senate and House versions, but only so far as said
provisions are germane to the purpose of the Bill. 8(347) Now, there is a question as
to whether the Bicameral Conference Committee, which produced Rep. Act No.
9337, exceeded its authority when it included therein amendments of provisions of
the National Internal Revenue Code of 1997 not related to VAT.
Although House Bills No. 3555 and 3705 were limited to the amendments of
the provisions on VAT of the National Internal Revenue Code of 1997, Senate Bill
No. 1950 had a much wider scope and included amendments of other provisions of
the said Code, such as those on income, percentage, and excise taxes. It should be
borne in mind that the very purpose of these three Bills and, subsequently, of Rep.
Act No. 9337, was to raise additional revenues for the government to address the dire
economic situation of the country. The National Internal Revenue Code of 1997, as its
title suggests, is the single Code that governs all our national internal revenue taxes.
While it does cover different taxes, all of them are imposed and collected by the
national government to raise revenues. If we have one Code for all our national
internal revenue taxes, then there is no reason why we cannot have a single statute
amending provisions thereof even if they involve different taxes under separate titles.
I hereby submit that the amendments introduced by the Bicameral Conference
Committee to non-VAT provisions of the National Internal Revenue Code of 1997 are
not unconstitutional for they are germane to the purpose of House Bills No. 3555 and
3705 and Senate Bill No. 1950, which is to raise national revenues.
Furthermore, the procedural issues raised by the petitioners were already

addressed and resolved by this Court in Tolentino v. Executive Secretary. 9(348)
Since petitioners failed to proffer novel factual or legal argument in support of their
positions that were not previously considered by this Court in the same case, then I
am not compelled to depart from the conclusions made therein.
The majority opinion has already thoroughly discussed each of the substantial
issues raised by the petitioners. I would just wish to discuss additional matters
pertaining to the petition of the petroleum dealers in G.R. No. 168461.
They claim that the provision of Rep. Act No. 9337 limiting their input VAT
credit to only 70% of their output VAT deprives them of their property without due
process of law. They argue further that such 70% cap violates the equal protection
and uniformity of taxation clauses under Article III, Section 1, and Article VI, Section
28(1), respectively, of the Constitution, because it will unduly prejudice taxpayers
who have high input VAT and who, because of the cap, cannot fully utilize their input
VAT as credit.
I cannot sustain the petroleum dealers' position for the following reasons —
First, I adhere to the view that the input VAT is not a property to which the
taxpayer has vested rights. Input VAT consists of the VAT a VAT-registered person
had paid on his purchases or importation of goods, properties, and services from a
VAT-registered supplier; more simply, it is VAT paid. It is not, as averred by
petitioner petroleum dealers, a property that the taxpayer acquired for valuable
consideration. 10(349) A VAT-registered person incurs input VAT because he
complied with the National Internal Revenue Code of 1997, which imposed the VAT
and made the payment thereof mandatory; and not because he paid for it or purchased
it for a price. DHITSc
Generally, when one pays taxes to the government, he cannot expect any direct
and concrete benefit to himself for such payment. The benefit of payment of taxes
shall redound to the society as a whole. However, by virtue of Section 110(A) of the
National Internal Revenue Code of 1997, prior to its amendment by Rep. Act No.
9337, a VAT-registered person is allowed, subject to certain substantiation
requirements, to credit his input VAT against his output VAT.
Output VAT is the VAT imposed by the VAT-registered person on his own
sales of goods, properties, and services or the VAT he passes on to his buyers. Hence,
the VAT-registered person selling the goods, properties, and services does not pay for
the output VAT; said output VAT is paid for by his consumers and he only collects
and remits the same to the government.
The crediting of the input VAT against the output VAT is a statutory privilege,
granted by Section 110 of the National Internal Revenue Code of 1997. It gives the
VAT-registered person the opportunity to recover the input VAT he had paid, so that,
in effect, the input VAT does not constitute an additional cost for him. While it is true
that input VAT credits are reported as assets in a VAT-registered person's financial
statements and books of account, this accounting treatment is still based on the
statutory provision recognizing the input VAT as a credit. Without Section 110 of the
National Internal Revenue Code of 1997, then the accounting treatment of any input
VAT will also change and may no longer be booked outright as an asset. Since the
privilege of an input VAT credit is granted by law, then an amendment of such law
may limit the exercise of or may totally withdraw the privilege.
The amendment of Section 110 of the National Internal Revenue Code of 1997
by Rep. Act No. 9337, which imposed the 70% cap on input VAT credits, is a
legitimate exercise by Congress of its law-making power. To say that Congress may
not trifle with Section 110 of the National Internal Revenue Code of 1997 would be to
violate a basic precept of constitutional law — that no law is irrepealable. 11(350)
There can be no vested right to the continued existence of a statute, which precludes
its change or repeal. 12(351)
It bears to emphasize that Rep. Act No. 9337 does not totally remove the
privilege of crediting the input VAT against the output VAT. It merely limits the
amount of input VAT one may credit against his output VAT per quarter to an
amount equivalent to 70% of the output VAT. What is more, any input VAT in excess
of the 70% cap may be carried-over to the next quarter. 13(352) It is certainly a
departure from the VAT crediting system under Section 110 of the National Internal
Revenue Code of 1997, but it is an innovation that Congress may very well introduce,
because —
VAT will continue to evolve from its pioneering original structure.

Dynamically, it will be subjected to reforms that will make it conform to many
factors, among which are: the changing requirements of government revenue;
the social, economic and political vicissitudes of the times; and the conflicting
interests in our society. In the course of its evolution, it will be injected with
some oddities and inevitably transformed into a structure which its revisionists
believe will be an improvement overtime. 14(353)
Second, assuming for the sake of argument, that the input VAT credit is indeed
a property, the petroleum dealers' right thereto has not vested. A right is deemed
vested and subject to constitutional protection when —
". . . [T]he right to enjoyment, present or prospective, has become the

property of some particular person or persons as a present interest. The right
must be absolute, complete, and unconditional, independent of a contingency,
and a mere expectancy of future benefit, or a contingent interest in property
founded on anticipated continuance of existing laws, does not constitute a
vested right. So, inchoate rights which have not been acted on are not vested."
(16 C. J. S. 214-215) 15(354)
Under the National Internal Revenue Code of 1997, before it was amended by
Rep. Act No. 9337, the sale or importation of petroleum products were exempt from
VAT, and instead, were subject to excise tax. 16(355) Petroleum dealers did not
impose any output VAT on their sales to consumers. Since they had no output VAT
against which they could credit their input VAT, they shouldered the costs of the
input VAT that they paid on their purchases of goods, properties, and services. Their
sales not being subject to VAT, the petroleum dealers had no input VAT credits to
speak of.
It is only under Rep. Act No. 9337 that the sales by the petroleum dealers have
become subject to VAT and only in its implementation may they use their input VAT
as credit against their output VAT. While eager to use their input VAT credit
accorded to it by Rep. Act No. 9337, the petroleum dealers reject the limitation
imposed by the very same law on such use.
It should be remembered that prior to Rep. Act No. 9337, the petroleum
dealers' input VAT credits were inexistent — they were unrecognized and disallowed
by law. The petroleum dealers had no such property called input VAT credits. It is
only rational, therefore, that they cannot acquire vested rights to the use of such input
VAT credits when they were never entitled to such credits in the first place, at least,
not until Rep. Act No. 9337.
My view, at this point, when Rep. Act No. 9337 has not yet even been
implemented, is that petroleum dealers' right to use their input VAT as credit against
their output VAT unlimitedly has not vested, being a mere expectancy of a future
benefit and being contingent on the continuance of Section 110 of the National
Internal Revenue Code of 1997, prior to its amendment by Rep. Act No. 9337.
Third, although the petroleum dealers presented figures and computations to

support their contention that the cap shall lead to the demise of their businesses, I
remain unconvinced.
Rep. Act No. 9337, while imposing the 70% cap on input VAT credits, allows
the taxpayer to carry-over to the succeeding quarters any excess input VAT. The
petroleum dealers presented a situation wherein their input VAT would always
exceed 70% of their output VAT, and thus, their excess input VAT will be perennially
carried-over and would remain unutilized. Even though they consistently questioned
the 70% cap on their input VAT credits, the petroleum dealers failed to establish what
is the average ratio of their input VAT vis-à-vis their output VAT per quarter.
Without such fact, I consider their objection to the 70% cap arbitrary because there is
no basis therefor.
On the other, I find that the 70% cap on input VAT credits was not imposed by
Congress arbitrarily. Members of the Bicameral Conference Committee settled on the
said percentage so as to ensure that the government can collect a minimum of 30%
output VAT per taxpayer. This is to put a VAT-taxpayer, at least, on equal footing
with a VAT-exempt taxpayer under Section 109(V) of the National Internal Revenue
Code, as amended by Rep. Act No. 9337. 17(356) The latter taxpayer is exempt from
VAT on the basis that his sale or lease of goods or properties or services do not
exceed P1,500,000; instead, he is subject to pay a three percent (3%) tax on his gross
receipts in lieu of the VAT. 18(357) If a taxpayer with presumably a smaller business
is required to pay three percent (3%) gross receipts tax, a type of tax which does not
even allow for any crediting, a VAT-taxpayer with a bigger business should be
obligated, likewise, to pay a minimum of 30% output VAT (which should be
equivalent to 3% of the gross selling price per good or property or service sold). The
cap assures the government a collection of at least 30% output VAT, contributing to
an improved cash flow for the government. cIACaT
Attention is further called to the fact that the output VAT is the VAT imposed
on the sales by a VAT-taxpayer; it is paid by the purchasers of the goods, properties,
and services, and merely collected through the VAT-registered seller. The latter,
therefore, serves as a collecting agent for the government. The VAT-registered seller
is merely being required to remit to the government a minimum of 30% of his output
VAT collection.
Fourth, I give no weight to the figures and computations presented before this
Court by the petroleum dealers, particularly the supposed quarterly profit and loss
statement of a "typical dealer." How these data represent the financial status of a
typical dealer, I would not know when there was no effort to explain the manner by
which they were surveyed, collated, and averaged out. Without establishing their
source therefor, the figures and computations presented by the petroleum dealers are
merely self-serving and unsubstantiated, deserving scant consideration by this Court.
Even assuming that these figures truly represent the financial standing of petroleum
dealers, the introduction and application thereto of the VAT factor, which forebode
the collapse of said petroleum dealers' businesses, would be nothing more than an
anticipated damage — an injury that may or may not happen. To resolve their petition
on this basis would be premature and contrary to the established tenet of ripeness of a
cause of action before this Court could validly exercise its power of judicial review.
Fifth, in response to the contention of the petroleum dealers during oral

arguments before this Court that they cannot pass on to the consumers the VAT
burden and increase the prices of their goods, it is worthy to quote below this Court's
ruling in Churchill v. Concepcion, 19(358) to wit —
It will thus be seen that the contention that the rates charged for
advertising cannot be raised is purely hypothetical, based entirely upon the
opinion of the plaintiffs, unsupported by actual test, and that the plaintiffs
themselves admit that a number of other persons have voluntarily and without
protest paid the tax herein complained of. Under these circumstances, can it be
held as a matter of fact that the tax is confiscatory or that, as a matter of law, the
tax is unconstitutional? Is the exercise of the taxing power of the Legislature
dependent upon and restricted by the opinion of two interested witnesses? There
can be but one answer to these questions, especially in view of the fact that
others are paying the tax and presumably making reasonable profit from their
business.
As a final observation, I perceive that what truly underlies the opposition to
Rep. Act No. 9337 is not the question of its constitutionality, but rather the wisdom of
its enactment. Would it truly raise national revenue and benefit the entire country, or
would it only increase the burden of the Filipino people? Would it contribute to a
revival of our economy or only contribute to the difficulties and eventual closure of
businesses? These are issues that we cannot resolve as the Supreme Court. As this
Court explained in Agustin v. Edu, 20(359) to wit —
It does appear clearly that petitioner's objection to this Letter of

Instruction is not premised on lack of power, the justification for a finding of
unconstitutionality, but on the pessimistic, not to say negative, view he
entertains as to its wisdom. That approach, it put it at its mildest, is
distinguished, if that is the appropriate word, by its unorthodoxy. It bears
repeating "that this Court, in the language of Justice Laurel, 'does not pass upon
questions of wisdom, justice or expediency of legislation.' As expressed by
Justice Tuason: 'It is not the province of the courts to supervise legislation and
keep it within the bounds of propriety and common sense. That is primarily and
exclusively a legislative concern.' There can be no possible objection then to the
observation of Justice Montemayor: 'As long as laws do not violate any
Constitutional provision, the Courts merely interpret and apply them regardless
of whether or not they are wise or salutary.' For they, according to Justice
Labrador, 'are not supposed to override legitimate policy and . . . never inquire
into the wisdom of the law.' It is thus settled, to paraphrase Chief Justice
Concepcion in Gonzales v. Commission on Elections, that only congressional
power or competence, not the wisdom of the action taken, may be the basis for
declaring a statute invalid. This is as it ought to be. The principle of separation
of powers has in the main wisely allocated the respective authority of each
department and confined its jurisdiction to such sphere. There would then be
intrusion not allowable under the Constitution if on a matter left to the
discretion of a coordinate branch, the judiciary would substitute its own . . ."
21(360)
To reiterate, we cannot substitute our discretion for Congress, and even though
there are provisions in Rep. Act No. 9337 which we may believe as unwise or
iniquitous, but not unconstitutional, we cannot strike them off by invoking our power
of judicial review. In such a situation, the recourse of the people is not judicial, but
rather political. If they severely doubt the wisdom of the present Congress for passing
a statute such as Rep. Act No. 9337, then they have the power to hold the members of
said Congress accountable by using their voting power in the next elections. ADScCE
In view of the foregoing, I vote for the denial of the present petitions and the
upholding of the constitutionality of Rep. Act No. 9337 in its entirety.

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EN BANC

[G.R. No. 168056. September 1, 2005.]

ABAKADA GURO PARTY LIST (Formerly AASJAS) OFFICERS

[G.R. No. 168207. September 1, 2005.]

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

[G.R. No. 168461. September 1, 2005.]

ASSOCIATION OF PILIPINAS SHELL DEALERS, INC.

[G.R. No. 168463. September 1, 2005.]

[G.R. No. 168730. September 1, 2005.]

BATAAN GOVERNOR ENRIQUE T. GARCIA, JR., petitioner, vs.

Carlos G. Banigued and Laura Victoria Yuson-Layug for petitioners in G.R.

1. TAXATION; VALUE-ADDED TAX (VAT); TAX ON SPENDING OR

2. POLITICAL LAW; LEGISLATIVE DEPARTMENT; POWER OF

3. ID.; SEPARATION OF POWERS; EXPANDED JURISDICTION OF

4. ID.; LEGISLATIVE DEPARTMENT; CONGRESS FINDS THE

5. ID.; ID.; ID.; MANDATED TO SETTLE THE DIFFERENCES

6. TAXATION; REPUBLIC ACT NO. 9337 (EXPANDED

7. POLITICAL LAW; LEGISLATIVE DEPARTMENT; BICAMERAL

8. ID.; ID.; "NO-AMENDMENT RULE"; CANNOT BE TAKEN TO

9. ID.; ID.; CONSTITUTION DOES NOT CONTAIN ANY

10. ID.; ID.; REVENUE BILLS; THE SENATE CAN INTRODUCE

11. ID.; PRINCIPLE OF SEPARATION OF POWERS; ELUCIDATED. —

12. ID.; LEGISLATIVE DEPARTMENT; CONGRESS IS PROHIBITED

15. ID.; ID.; ID.; THE LEGISLATURE MAY DELEGATE TO

17. ID.; STATUTORY CONSTRUCTION; THE USE OF THE WORD

18. TAXATION; REPUBLIC ACT NO. 9337; IT IS THE MINISTERIAL

19. POLITICAL LAW; EXECUTIVE DEPARTMENT; SECRETARY OF

20. TAXATION; REPUBLIC ACT NO. 9337; SECRETARY OF FINANCE

22. POLITICAL LAW; JUDICIAL DEPARTMENT; SUPREME COURT

23. ID.; STATUTORY CONSTRUCTION; WHERE THE PROVISION OF

24. TAXATION; BASIC PRINCIPLE; FISCAL ADEQUACY,

25. POLITICAL LAW; JUDICIAL DEPARTMENT; WHETHER THE

26. ID.; CONSTITUTIONAL LAW; BILL OF RIGHTS; DUE PROCESS

27. TAXATION; VALUE-ADDED TAX; INPUT TAX AND OUTPUT

29. ID.; ID.; IN COMPUTING THE VALUE-ADDED TAX PAYABLE,

31. ID.; ID.; INPUT TAX IS NOT A PROPERTY OR A PROPERTY

32. ID.; ID.; TAXABLE TRANSACTIONS WITH THE GOVERNMENT

33. POLITICAL LAW; JUDICIAL DEPARTMENT; SUPREME COURT

34. CONSTITUTIONAL LAW; BILL OF RIGHTS; EQUAL PROTECTION

35. ID.; ID.; ID.; DOES NOT REQUIRE THE UNIVERSAL

36. TAXATION; THE RULE OF UNIFORMITY DOES NOT DEPRIVE

37. ID.; REPUBLIC ACT NO. 9337 IS EQUITABLE; EQUIPPED WITH A

38. ID.; BASIC PRINCIPLE; PROGRESSIVITY; ELUCIDATED. —

PANGANIBAN, C.J., separate opinion:

1. POLITICAL LAW; JUDICIAL DEPARTMENT; JUDICIARY HAS

2. ID.; LEGISLATIVE DEPARTMENT; BICAMERAL CONFERENCE

3. ID.; ID.; ID.; FIVE OPTIONS IN PERFORMING ITS FUNCTIONS. —

4. ID.; ID.; ID.; IN ADOPTING THE HOUSE VERSION OF THE

5. ID.; ID.; REVENUE BILL; IN THE SENATE, THE REWRITING IS

6. ID.; ID.; ID.; SENATE IS NOT PROHIBITED TO FILE A

7. ID.; ID.; BICAMERAL CONFERENCE COMMITTEE; ITS REPORT

9. ID.; ID.; THE SECRETARY OF FINANCE IS NOT AN ALTER EGO

10. POLITICAL LAW; LEGISLATIVE DEPARTMENT; THE

12. TAXATION; REPUBLIC ACT NO. 9337; THE AMENDMENTS

13. ID.; ID.; ID.; IT IS INCONCEIVABLE HOW THE PROVISIONS

14. ID.; ID.; ID.; TAXES ON INTERCORPORATE DIVIDENDS ARE

15. ID.; ID.; ID.; INPUT VALUE-ADDED TAX CREDITS ARE

16. ID.; ID.; ID.; ITEMIZED DEDUCTIONS FROM GROSS INCOME

17. ID.; ID.; THE BICAMERAL CONFERENCE COMMITTEE HAD THE

18. ID.; NATIONAL INTERNAL REVENUE CODE; VALUE-ADDED

20. ID.; ID.; THERE IS NO VESTED RIGHT IN A DEFERRED INPUT

21. ID.; ID.; THERE IS NO VIOLATION OF THE EQUAL PROTECTION

22. ID.; INCOME TAX; ADDITIONAL IMPOSITION AND