Abakada Guro Party-list et. al vs. Executive Secretary (G.R. No.

168056) - Digest
Facts:
On May 24, 2005, the President signed into law Republic Act 9337 or the VAT Reform
Act. Before the law took effect on July 1, 2005, the Court issued a TRO enjoining
government from implementing the law in response to a slew of petitions for
certiorari and prohibition questioning the constitutionality of the new law.
The challenged section of R.A. No. 9337 is the common proviso in Sections 4, 5 and
6: That the President, upon the recommendation of the Secretary of Finance, shall,
effective January 1, 2006, raise the rate of value-added tax to 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%)
Petitioners allege that the grant of stand-by authority to the President to increase
the VAT rate is an abdication by Congress of its exclusive power to tax because such
delegation is not covered by Section 28 (2), Article VI Constitution. They argue that
VAT is a tax levied on the sale or exchange of goods and services which cant be
included within the purview of tariffs under the exemption delegation since this
refers to customs duties, tolls or tribute payable upon merchandise to the
government and usually imposed on imported/exported goods.
Petitioners further alleged that delegating to the President the legislative power to
tax is contrary to republicanism. They insist that accountability, responsibility and
transparency should dictate the actions of Congress and they should not pass to the
President the decision to impose taxes. They also argue that the law also effectively
nullified the Presidents power of control, which includes the authority to set aside
and nullify the acts of her subordinates like the Secretary of Finance, by mandating
the fixing of the tax rate by the President upon the recommendation of the
Secretary of Justice.
Issue:
Whether or not the RA 9337's stand-by authority to the Executive to increase the
VAT rate, especially on account of the recommendatory power granted to the
Secretary of Finance, constitutes undue delegation of legislative power?
Ruling:
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 is the authority to make a complete law- complete as to the

time when it shall take effect and as to whom it shall be applicable, and to
determine the expediency of its enactment. It is the nature of the power and not the
liability of its use or the manner of its exercise which determines the validity of its
delegation.
The exceptions are:
(a) delegation of tariff powers to President under Constitution
(b) delegation of emergency powers to President under Constitution
(c) delegation to the people at large
(d) delegation to local governments
(e) delegation to administrative bodies
For the delegation to be valid, it must be complete and it must fix a standard. A
sufficient standard is one which defines legislative policy, marks its limits, maps out
its boundaries and specifies the public agency to apply it.
In this case, it is not a delegation of legislative power BUT a delegation of
ascertainment of facts upon which enforcement and administration of the increased
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.
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. It is a clear directive to impose the 12%
VAT rate when the specified conditions are present.
Congress just granted the Secretary of Finance the authority to ascertain the
existence of a fact--- whether by December 31, 2005, the VAT collection as a
percentage of GDP of the previous year exceeds 2 4/5 % or the national government
deficit as a percentage of GDP of the previous year exceeds one and 1%. If either
of these two instances has occurred, the Secretary of Finance, by legislative
mandate, must submit such information to the President.
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. 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.
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.
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 did not delegate
the power to tax but the mere implementation of the law.

G.R. No. 168056

October 18, 2005
Agenda for Item No. 45
G.R. No. 168056 (ABAKADA Guro Party List Officer Samson S. Alcantara, et al. vs. The
Hon. Executive Secretary Eduardo R. Ermita); G.R. No. 168207 (Aquilino Q. Pimentel, Jr.,
et al. vs. Executive Secretary Eduardo R. Ermita, et al.); G.R. No. 168461 (Association of
Pilipinas Shell Dealers, Inc., et al. vs. Cesar V. Purisima, et al.); G.R. No. 168463 (Francis
Joseph G. Escudero vs. Cesar V. Purisima, et al); and G.R. No. 168730 (Bataan Governor
Enrique T. Garcia, Jr. vs. Hon. Eduardo R. Ermita, et al.)
RESOLUTION
For resolution are the following motions for reconsideration of the Courts Decision dated
September 1, 2005 upholding the constitutionality of Republic Act No. 9337 or the VAT Reform
Act1:
1) Motion for Reconsideration filed by petitioners in G.R. No. 168463, Escudero, et al., on the
following grounds:
A. THE DELETION OF THE "NO PASS ON PROVISIONS" FOR THE SALE OF PETROLEUM
PRODUCTS AND POWER GENERATION SERVICES CONSTITUTED GRAVE ABUSE OF
DISCRETION AMOUNTING TO LACK OR EXCESS OF JURISDICTION ON THE PART OF
THE BICAMERAL CONFERENCE COMMITTEE.
B. REPUBLIC ACT NO. 9337 GROSSLY VIOLATES THE CONSTITUTIONAL IMPERATIVE ON
EXCLUSIVE ORIGINATION OF REVENUE BILLS UNDER 24, ARTICLE VI, 1987 PHILIPPINE
CONSTITUTION.
C. REPUBLIC ACT NO. 9337S STAND-BY AUTHORITY TO THE EXECUTIVE TO INCREASE
THE VAT RATE, ESPECIALLY ON ACCOUNT OF THE EFFECTIVE RECOMMENDATORY
POWER GRANTED TO THE SECRETARY OF FINANCE, CONSTITUTES UNDUE
DELEGATION OF LEGISLATIVE AUTHORITY.
2) Motion for Reconsideration of petitioner in G.R. No. 168730, Bataan Governor Enrique T.
Garcia, Jr., with the argument that burdening the consumers with significantly higher prices
under a VAT regime vis--vis a 3% gross tax renders the law unconstitutional for being arbitrary,
oppressive and inequitable.

and
3) Motion for Reconsideration by petitioners Association of Pilipinas Shell Dealers, Inc. in G.R.
No. 168461, on the grounds that:
I. This Honorable Court erred in upholding the constitutionality of Section 110(A)(2) and Section
110(B) of the NIRC, as amended by the EVAT Law, imposing limitations on the amount of input
VAT that may be claimed as a credit against output VAT, as well as Section 114(C) of the NIRC,
as amended by the EVAT Law, requiring the government or any of its instrumentalities to
withhold a 5% final withholding VAT on their gross payments on purchases of goods and
services, and finding that the questioned provisions:
A. are not arbitrary, oppressive and confiscatory as to amount to a deprivation of property
without due process of law in violation of Article III, Section 1 of the 1987 Philippine Constitution;
B. do not violate the equal protection clause prescribed under Article III, Section 1 of the 1987
Philippine Constitution; and
C. apply uniformly to all those belonging to the same class and do not violate Article VI, Section
28(1) of the 1987 Philippine Constitution.
II. This Honorable Court erred in upholding the constitutionality of Section 110(B) of the NIRC,
as amended by the EVAT Law, imposing a limitation on the amount of input VAT that may be
claimed as a credit against output VAT notwithstanding the finding that the tax is not progressive
as exhorted by Article VI, Section 28(1) of the 1987 Philippine Constitution.
Respondents filed their Consolidated Comment. Petitioner Garcia filed his Reply.
Petitioners Escudero, et al., insist that the bicameral conference committee should not even
have acted on the no pass-on provisions since there is no disagreement between House Bill
Nos. 3705 and 3555 on the one hand, and Senate Bill No. 1950 on the other, with regard to
the no pass-on provision for the sale of service for power generation because both the Senate
and the House were in agreement that the VAT burden for the sale of such service shall not be
passed on to the end-consumer. As to the no pass-on provision for sale of petroleum products,
petitioners argue that the fact that the presence of such a no pass-on provision in the House
version and the absence thereof in the Senate Bill means there is no conflict because "a House
provision cannot be in conflict with something that does not exist."
Such argument is flawed. Note that the rules of both houses of Congress provide that a
conference committee shall settle the "differences" in the respective bills of each house. Verily,
the fact that a no pass-on provision is present in one version but absent in the other, and one
version intends two industries, i.e., power generation companies and petroleum sellers, to bear
the burden of the tax, while the other version intended only the industry of power generation,
transmission and distribution to be saddled with such burden, clearly shows that there are
indeed differences between the bills coming from each house, which differences should be

acted upon by the bicameral conference committee. It is incorrect to conclude that there is no
clash between two opposing forces with regard to the no pass-on provision for VAT on the sale
of petroleum products merely because such provision exists in the House version while it is
absent in the Senate version. It is precisely the absence of such provision in the Senate bill and
the presence thereof in the House bills that causes the conflict. The absence of the provision in
the Senate bill shows the Senates disagreement to the intention of the House of
Representatives make the sellers of petroleum bear the burden of the VAT. Thus, there are
indeed two opposing forces: on one side, the House of Representatives which wants petroleum
dealers to be saddled with the burden of paying VAT and on the other, the Senate which does
not see it proper to make that particular industry bear said burden. Clearly, such conflicts and
differences between the no pass-on provisions in the Senate and House bills had to be acted
upon by the bicameral conference committee as mandated by the rules of both houses of
Congress.
Moreover, the deletion of the no pass-on provision made the present VAT law more in
consonance with the very nature of VAT which, as stated in the Decision promulgated on
September 1, 2005, is a tax on spending or consumption, thus, the burden thereof is ultimately
borne by the end-consumer.
Escudero, et al., then claim that there had been changes introduced in the Rules of the House
of Representatives regarding the conduct of the House panel in a bicameral conference
committee, since the time of Tolentino vs. Secretary of Finance2 to act as safeguards against
possible abuse of authority by the House members of the bicameral conference committee.
Even assuming that the rule requiring the House panel to report back to the House if there are
substantial differences in the House and Senate bills had indeed been introduced
after Tolentino, the Court stands by its ruling that the issue of whether or not the House panel in
the bicameral conference committee complied with said internal rule cannot be inquired into by
the Court. To reiterate, "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."3
Escudero, et. al., also contend that Republic Act No. 9337 grossly violates the constitutional
imperative on exclusive origination of revenue bills under Section 24 of Article VI of the
Constitution when the Senate introduced amendments not connected with VAT.
The Court is not persuaded.
Article VI, Section 24 of the Constitution provides:
Sec. 24 All appropriation, revenue or tariff bills, bills authorizing increase of the public debt, bills
of local application, and private bills shall originate exclusively in the House of Representatives,
but the Senate may propose or concur with amendments.
Section 24 speaks of origination of certain bills from the House of Representatives which has
been interpreted in the Tolentino case as follows:

 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.
Given, then, the power of the Senate to propose amendments, the Senate can propose its
own version even with respect to bills which are required by the Constitution to originate in the
House.
...
Indeed, what the Constitution simply means is that the initiative for filing revenue, tariff, or tax
bills, bills authorizing an increase of the public debt, private bills and bills of local application
must come from the House of Representatives on the theory that, elected as they are from the
districts, the members of the House can be expected to be more sensitive to the local needs
and problems. On the other hand, the senators, who are elected at large, are expected to
approach the same problems from the national perspective. Both views are thereby made to
bear on the enactment of such laws.4
Clearly, after the House bills as approved on third reading are duly transmitted to the Senate,
the Constitution states that the latter can propose or concur with amendments. The Court finds
that the subject provisions found in the Senate bill are within the purview of such constitutional
provision as declared in the Tolentino case.
The intent of the House of Representatives in initiating House Bill Nos. 3555 and 3705 was to
solve the countrys serious financial problems. It was stated in the respective explanatory notes
that there is a need for the government to make significant expenditure savings and a credible
package of revenue measures. These measures include improvement of tax administration and
control and leakages in revenues from income taxes and value added tax. It is also stated that
one opportunity that could be beneficial to the overall status of our economy is to review existing
tax rates, evaluating the relevance given our present conditions. Thus, with these purposes in
mind and to accomplish these purposes for which the house bills were filed, i.e., to raise
revenues for the government, the Senate introduced amendments on income taxes, which as
admitted by Senator Ralph Recto, would yield about P10.5 billion a year.
Moreover, since the objective of these house bills is to raise revenues, the increase in corporate
income taxes would be a great help and would also soften the impact of VAT measure on the
consumers by distributing the burden across all sectors instead of putting it entirely on the
shoulders of the consumers.

As to the other National Internal Revenue Code (NIRC) provisions found in Senate Bill No.
1950, i.e., percentage taxes, franchise taxes, amusement and excise taxes, these provisions
are needed so as to cushion the effects of VAT on consumers. As we said in our decision,
certain goods and services which were subject to percentage tax and excise tax would no
longer be VAT exempt, thus, 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. The Court finds no reason to reverse the earlier ruling that the Senate introduced
amendments that are germane to the subject matter and purposes of the house bills.
Petitioners Escudero, et al., also reiterate that R.A. No. 9337s stand- by authority to the
Executive to increase the VAT rate, especially on account of the recommendatory power
granted to the Secretary of Finance, constitutes undue delegation of legislative power. They
submit that the recommendatory power given to the Secretary of Finance in regard to the
occurrence of either of two events using the Gross Domestic Product (GDP) as a benchmark
necessarily and inherently required extended analysis and evaluation, as well as policy making.
There is no merit in this contention. The Court reiterates that 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. 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. Congress granted the Secretary of Finance the
authority to ascertain the existence of a fact, namely, whether by December 31, 2005, the valueadded tax collection as a percentage of GDP of the previous year exceeds two and four-fifth
percent (24/5%) or the national government deficit as a percentage of GDP of the previous year
exceeds one and one-half percent (1%). If either of these two instances has occurred, the
Secretary of Finance, by legislative mandate, must submit such information to the President.
Then the 12% VAT rate must be imposed by the President effective January 1, 2006. 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.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 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 use the GDP as a benchmark to determine economic growth is not within the province
of the Court to inquire into, its task being to interpret the law.
With regard to petitioner Garcias arguments, the Court also finds the same to be without merit.
As stated in the assailed Decision, the Court recognizes the burden that the consumers will be
bearing with the passage of R.A. No. 9337. But as was also stated by the Court, it cannot strike

down the law as unconstitutional simply because of its yokes. The legislature has spoken and
the only role that the Court plays in the picture is to determine whether the law was passed with
due regard to the mandates of the Constitution. Inasmuch as the Court finds that there are no
constitutional infirmities with its passage, the validity of the law must therefore be upheld.
Finally, petitioners Association of Pilipinas Shell Dealers, Inc. reiterated their arguments in the
petition, citing this time, the dissertation of Associate Justice Dante O. Tinga in his Dissenting
Opinion.
The glitch in petitioners arguments is that it presents figures based on an event that is yet to
happen. Their illustration of the possible effects of the 70% limitation, while seemingly concrete,
still remains theoretical. Theories have no place in this case as the Court must only deal with
an existing case or controversy that is appropriate or ripe for judicial determination, not
one that is conjectural or merely anticipatory.5 The Court will not intervene absent an actual
and substantial controversy admitting of specific relief through a decree conclusive in nature, as
distinguished from an opinion advising what the law would be upon a hypothetical state of
facts.6
The impact of the 70% limitation on the creditable input tax will ultimately depend on how one
manages and operates its business. Market forces, strategy and acumen will dictate their
moves. With or without these VAT provisions, an entrepreneur who does not have the ken to
adapt to economic variables will surely perish in the competition. The arguments posed are
within the realm of business, and the solution lies also in business.
Petitioners also reiterate their argument that the input tax is a property or a property right. In the
same breath, the Court reiterates its finding that it is not a property or a property right, and a
VAT-registered persons entitlement to the creditable input tax is a mere statutory privilege.
Petitioners also contend that even if the right to credit the input VAT is merely a statutory
privilege, it has already evolved into a vested right that the State cannot remove.
As the Court stated in its Decision, the right to credit the input tax is a mere creation of law. Prior
to the enactment of multi-stage sales taxation, the sales taxes paid at every level of distribution
are not recoverable from the taxes payable. With the advent of Executive Order No. 273
imposing a 10% multi-stage tax on all sales, it was only 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 established. This continued with the Expanded VAT Law (R.A. No. 7716), and
The Tax Reform Act of 1997 (R.A. No. 8424). The right to credit input tax as against the output
tax is clearly a privilege created by law, a privilege that also the law can limit. It should be
stressed that a person has no vested right in statutory privileges.7
The concept of "vested right" is a consequence of the constitutional guaranty of due process
that expresses a present fixed interest which in right reason and natural justice is protected
against arbitrary state action; it includes not only legal or equitable title to the enforcement of a
demand but also exemptions from new obligations created after the right has become vested.

Rights are considered vested when the right to enjoyment is a present interest, absolute,
unconditional, and perfect or fixed and irrefutable. 8 As adeptly stated by Associate Justice Minita
V. Chico-Nazario in her Concurring Opinion, which the Court adopts, petitioners right to the
input VAT credits has not yet vested, thus
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.
The elucidation of Associate Justice Artemio V. Panganiban is likewise worthy of note, to wit:
Moreover, there is no vested right in generally accepted accounting principles. These refer to
accounting concepts, measurement techniques, and standards of presentation in a companys
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.
More importantly, the assailed provisions of R.A. No. 9337 already involve legislative policy and
wisdom. So long as there is a public end for which R.A. No. 9337 was passed, the means
through which such end shall be accomplished is for the legislature to choose so long as it is
within constitutional bounds. As stated in Carmichael vs. Southern Coal & Coke Co.:
If the question were ours to decide, we could not say that the legislature, in adopting the present
scheme rather than another, had no basis for its choice, or was arbitrary or unreasonable in its
action. But, as the state is free to distribute the burden of a tax without regard to the particular
purpose for which it is to be used, there is no warrant in the Constitution for setting the tax aside
because a court thinks that it could have distributed the burden more wisely. Those are
functions reserved for the legislature.9
WHEREFORE, the Motions for Reconsideration are hereby DENIED WITH FINALITY. The
temporary restraining order issued by the Court is LIFTED.
SO ORDERED.