Tax Cases 2

EN BANC
[G.R. No. L-41631. December 17, 1976.]
HON. RAMON D. BAGATSING, as Mayor of the City of Manila;

ROMAN G. GARGANTIEL, as Secretary to the Mayor; THE
MARKET ADMINISTRATOR; and THE MUNICIPAL BOARD OF
MANILA, petitioners, vs. HON. PEDRO A. RAMIREZ, in his
capacity as Presiding Judge of the Court of First Instance of Manila,
Branch XXX and the FEDERATION OF MANILA MARKET
VENDORS, INC., respondents.
Santiago F . Alidio and Restituto R. Villanueva for petitioners.
Antonio H . Abad, Jr. for private respondent.
Federico A. Blay for petitioner for intervention.
DECISION
MARTIN, J : p
The chief question to be decided in this case is what law shall govern the publication of a
tax ordinance enacted by the Municipal Board of Manila, the Revised City Charter (R.A.
409, as amended), which requires publication of the ordinance before its enactment and
after its approval, or the Local Tax Code (P.D. No. 231), which only demands publication
after approval. cd
On June 12, 1974, the Municipal Board of Manila enacted Ordinance No. 7522, "AN
ORDINANCE REGULATING THE OPERATION OF PUBLIC MARKETS AND
PRESCRIBING FEES FOR THE RENTALS OF STALLS AND PROVIDING
PENALTIES FOR VIOLATION THEREOF AND FOR OTHER PURPOSES." The
petitioner City Mayor, Ramon D. Bagatsing, approved the ordinance on June 15, 1974.
On February 17, 1975, respondent Federation of Manila Market Vendors, Inc.

commenced Civil Case 96787 before the Court of First Instance of Manila, presided over
by respondent Judge, seeking the declaration of nullity of Ordinance No. 7522 for the
reason that (a) the publication requirement under the Revised Charter of the City of
Manila has not been complied with; (b) the Market Committee was not given any
participation in the enactment of the ordinance, as envisioned by Republic Act 6039; (c)
Section 3 (e) of the Anti-Graft and Corrupt Practices Act has been violated; and (d) the
ordinance would violate Presidential Decree No. 7 of September 30, 1972 prescribing the
collection of fees and charges on livestock and animal products. prLL
Resolving the accompanying prayer for the issuance of a writ of preliminary injunction,
respondent Judge issued an order on March 1, 1975, denying the plea for failure of the
respondent Federation of Manila Market Vendors, Inc. to exhaust the administrative
remedies outlined in the Local Tax Code.
After due hearing on the merits, respondent Judge rendered its decision on August 29,
1975, declaring the nullity of Ordinance No. 7522 of the City of Manila on the primary
ground of non-compliance with the requirement of publication under the Revised City
Charter. Respondent Judge ruled:
"There is, therefore, no question that the ordinance in question was not
published at all in two daily newspapers of general circulation in the City of
Manila before its enactment. Neither was it published in the same manner after
approval, although it was posted in the legislative hall and in all city public
markets and city public libraries. There being no compliance with the
mandatory requirement of publication before and after approval, the ordinance
in question is invalid and, therefore, null and void."
Petitioners moved for reconsideration of the adverse decision, stressing that (a) only a
post-publication is required by the Local Tax Code; and (b) private respondent failed to
exhaust all administrative remedies before instituting an action in court.
On September 26, 1975, respondent Judge denied the motion.
Forthwith, petitioners brought the matter to Us through the present petition for review on
certiorari.
We find the petition impressed with merits.
1. The nexus of the present controversy is the apparent conflict between the Revised
Charter of the City of Manila and the Local Tax Code on the manner of publishing a tax
ordinance enacted by the Municipal Board of Manila. For, while Section 17 of the
Revised Charter provides:
"Each proposed ordinance shall be published in two daily newspapers of

general circulation in the city, and shall not be discussed or enacted by the
Board until after the third day following such publication. . . . Each approved
ordinance . . . shall be published in two daily newspapers of general circulation
in the city, within ten days after its approval; and shall take effect and be in
force on and after the twentieth day following its publication, if no date is fixed
in the ordinance."
Section 43 of the Local Tax Code directs: Cdpr
"Within ten days after their approval, certified true copies of all provincial, city,
municipal and barrio ordinances levying or imposing taxes, fees or other
charges shall be published for three consecutive days in a newspaper or
publication widely circulated within the jurisdiction of the local government, or
posted in the local legislative hall or premises and in two other conspicuous
places within the territorial jurisdiction of the local government. In either case,
copies of all provincial, city, municipal and barrio ordinances shall be furnished
the treasurers of the respective component and mother units of a local
government for dissemination."
In other words, while the Revised Charter of the City of Manila requires publication
before the enactment of the ordinance and after the approval thereof in two daily
newspapers of general circulation in the city, the Local Tax Code only prescribes for
publication after the approval of "ordinances levying or imposing taxes, fees or other
charges" either in a newspaper or publication widely circulated within the jurisdiction of
the local government or by posting the ordinance in the local legislative hall or premises
and in two other conspicuous places within the territorial jurisdiction of the local
government. Petitioners' compliance with the Local Tax Code rather than with the
Revised Charter of the City spawned this litigation.
There is no question that the Revised Charter of the City of Manila is a special act since
it relates only to the City of Manila, whereas the Local Tax Code is a general law
because it applies universally to all local governments. Blackstone defines general law as
a universal rule affecting the entire community and special law as one relating to
particular persons or things of a class. 1 And the rule commonly said is that a prior
special law is not ordinarily repealed by a subsequent general law. The fact that one is
special and the other general creates a presumption that the special is to be considered as
remaining an exception of the general, one as a general law of the land, the other as the
law of a particular case. 2 However, the rule readily yields to a situation where the special
statute refers to a subject in general, which the general statute treats in particular. The
exactly is the circumstance obtaining in the case at bar. Section 17 of the Revised Charter
of the City of Manila speaks of "ordinance" in general, i.e., irrespective of the nature and
scope thereof, whereas, Section 43 of the Local Tax Code relates to "ordinances levying
or imposing taxes, fees or other charges" in particular. In regard, therefore, to ordinances
in general, the Revised Charter of the City of Manila is doubtless dominant, but, that
dominant force loses its continuity when it approaches the realm of "ordinances levying
or imposing taxes, fees or other charges" in particular. There, the Local Tax Code
controls. Here, as always, a general provision must give way to a particular provision. 3
Special provision governs. 4 This is especially true where the law containing the
particular provision was enacted later than the one containing the general provision. The
City Charter of Manila was promulgated on June 18, 1949 as against the Local Tax Code
which was decreed on June 1, 1973. The law-making power cannot be said to have
intended the establishment of conflicting and hostile systems upon the same subject, or to
leave in force provisions of a prior law by which the new will of the legislating power
may be thwarted and overthrown. Such a result would render legislation a useless and
idle ceremony, and subject the law to the reproach of uncertainty and unintelligibility. 5
The case of City of Manila v. Teotico 6 is opposite. In that case, Teotico sued the City of
Manila for damages arising from the injuries he suffered when he fell inside an
uncovered and unlighted catchbasin or manhole on P. Burgos Avenue. The City of
Manila denied liability on the basis of the City Charter (R.A. 409) exempting the City of
Manila from any liability for damages or injury to persons or property arising from the
failure of the city officers to enforce the provisions of the charter or any other law or
ordinance, or from negligence of the City Mayor, Municipal Board, or other officers
while enforcing or attempting to enforce the provisions of the charter or of any other law
or ordinance. Upon the other hand, Article 2189 of the Civil Code makes cities liable for
damages for the death of, or injury suffered by any persons by reason of the defective
condition of roads, streets, bridges, public buildings, and other public works under their
control or supervision. On review, the Court held the Civil Code controlling. It is true
that, insofar as its territorial application is concerned, the Revised City Charter is a
special law and the subject matter of the two laws, the Revised City Charter establishes a
general rule of liability arising from negligence in general, regardless of the object
thereof, whereas the Civil Code constitutes a particular prescription for liability due to
defective streets in particular. In the same manner, the Revised Charter of the City
prescribes a rule for the publication of "ordinance" in general, while the Local Tax Code
establishes a rule for the publication of "ordinance levying or imposing taxes fees or
other charges in particular.LibLex
In fact, there is no rule which prohibits the repeal even by implication of a special or
specific act by a general or broad one. 7 A charter provision may be impliedly modified
or superseded by a later statute, and where a statute is controlling, it must be read into the
charter notwithstanding any particular charter provision. 8 A subsequent general law
similarly applicable to all cities prevails over any conflicting charter provision, for the
reason that a charter must not be inconsistent with the general laws and public policy of
the state. 9 A chartered city is not an independent sovereignty. The state remains supreme
in all matters not purely local. Otherwise stated, a charter must yield to the constitution
and general laws of the state, it is to have read into it that general law which governs the
municipal corporation and which the corporation cannot set aside but to which it must
yield. When a city adopts a charter, it in effect adopts as part of its charter general law of
such character. 10
2. The principle of exhaustion of administrative remedies is strongly asserted by
petitioners as having been violated by private respondent in bringing a direct suit in court.
This is because Section 47 of the Local Tax Code provides that any question or issue
raised against the legality of any tax ordinance, or portion thereof, shall be referred for
opinion to the city fiscal in the case of tax ordinance of a city. The opinion of the city
fiscal is appealable to the Secretary of Justice, whose decision shall be final and
executory unless contested before a competent court within thirty (30) days. But, the
petition below plainly shows that the controversy between the parties is deeply rooted in
a pure question of law: whether it is the Revised Charter of the City of Manila or the
Local Tax Code that should govern the publication of the tax ordinance. In other words,
the dispute is sharply focused on the applicability of the Revised City Charter or the
Local Tax Code on the point at issue, and not on the legality of the imposition of the tax.
Exhaustion of administrative remedies before resort to judicial bodies is not an absolute
rule. It admits of exceptions. Where the question litigated upon is purely a legal one, the
rule does not apply. 11 The principle may also be disregarded when it does not provide a
plain, speedy and adequate remedy. It may and should be relaxed when its application
may cause great and irreparable damage. 12
3. It is maintained by private respondent that the subject ordinance is not a "tax

ordinance," because the imposition of rentals, permit fees, tolls and other fees is not
strictly a taxing power but a revenue-raising function, so that the procedure for
publication under the Local Tax Code finds no application. The pretense bears its own
marks of fallacy. Precisely, the raising of revenues is the principal object of taxation.
Under Section 5, Article XI of the New Constitution, "Each local government unit shall
have the power to create its own sources of revenue and to levy taxes, subject to such
provisions as may be provided by law." 13 And one of those sources of revenue is what
the Local Tax Code points to in particular: "Local governments may collect fees or
rentals for the occupancy or use of public markets and premises . . ." 14 They can provide
for and regulate market stands, stalls and privileges, and, also, the sale, lease or
occupancy thereof. They can license, or permit the use of, lease, sell or otherwise dispose
of stands, stalls or marketing privileges. 15
It is a feeble attempt to argue that the ordinance violates Presidential Decree No. 7, dated
September 30, 1972, insofar as it affects livestock and animal products, because the said
decree prescribes the collection of other fees and charges thereon "with the exception of
ante-mortem and post-mortem inspection fees, as well as the delivery, stockyard and
slaughter fees as may be authorized by the Secretary of Agriculture and Natural
Resources." 16 Clearly, even the exception clause of the decree itself permits the
collection of the proper fees for livestock. And the Local Tax Code (P.D. 231, July 1,
1973) authorizes in its Section 31: "Local governments may collect fees for the slaughter
of animals and the use of corrals . . ."
4. The non-participation of the Market Committee in the enactment of Ordinance No.
7522 supposedly in accordance with Republic Act No. 6039, an amendment to the City
Charter of Manila, providing that "the market committee shall formulate, recommend and
adopt, subject to the ratification of the municipal board, and approval of the mayor,
policies and rules or regulation repealing or maneding existing provisions of the market
code" does not infect the ordinance with any germ of invalidity. 17 The function of the
committee is purely recommendatory as the underscored phrase suggests, its
recommendation is without binding effect on the Municipal Board and the City Mayor.
Its prior acquiescence of an intended or proposed city ordinance is not a condition sine
qua non before the Municipal Board could enact such ordinance. The native power of the
Municipal Board to legislate remains undisturbed even in the slightest degree. It can
move in its own initiative and the Market Committee cannot demur. At most, the Market
Committee may serve as a legislative aide of the Municipal Board in the enactment of
city ordinances affecting the city markets or, in plain words, in the gathering of the
necessary data, studies and the collection of consensus for the proposal of ordinances
regarding city markets. Much less could it be said that Republic Act 6039 intended to
delegate to the Market Committee the adoption of regulatory measures for the operation
and administration of the city markets. Potestas delegata non delegare potest. prcd
5. Private respondent bewails that the market stall fees imposed in the disputed ordinance
are diverted to the exclusive private use of the Asiatic Integrated Corporation since the
collection of said fees had been let by the City of Manila to the said corporation in a
"Management and Operating Contract." The assumption is of course saddled on
erroneous premise. The fees collected do not go direct to the private coffers of the
corporation. Ordinance No. 7522 was not made for the corporation but for the purpose of
raising revenues for the city. That is the object it serves. The entrusting of the collection
of the fees does not destroy the public purpose of the ordinance. So long as the purpose is
public, it does not matter whether the agency through which the money is dispensed is
public or private. The right to tax depends upon the ultimate use, purpose and object for
which the fund is raised. It is not dependent on the nature or character of the person or
corporation whose intermediate agency is to be used in applying it. The people may be
taxed for a public purpose, although it be under the direction of an individual or private
corporation. 18
Nor can the ordinance be stricken down as violative of Section 3(e) of the Anti-Graft and
Corrupt Practices Act because the increased rates of market stall fees as levied by the
ordinance will necessarily inure to the unwarranted benefit and advantage of the
corporation. 19 We are concerned only with the issue whether the ordinance in question
is intra vires. Once determined in the affirmative, the measure may not be invalidated
because of consequences that may arise from its enforcement. 20
ACCORDINGLY, the decision of the court below is hereby reversed and set aside.
Ordinance No. 7522 of the City of Manila, dated June 15, 1975, is hereby held to have
been validly enacted. No. costs. cdasia
SO ORDERED.
Castro, C .J ., Barredo, Makasiar, Antonio, Muoz Palma, Aquino and Concepcion, Jr.,
JJ ., concur.
Fernando, J ., concurs but qualifies his assent as to an ordinance intra vires not being
open to question "because of consequences that may arise from its enforcement."
Teehankee, J ., reserves his vote.
||| (Bagatsing v. Ramirez, G.R. No. L-41631, [December 17, 1976], 165 PHIL 909-920)
Republic of the Philippines
SUPREME COURT
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., Respondent.
x-------------------------x
G.R. No. 168207
AQUILINO Q. PIMENTEL, JR., LUISA P. EJERCITO-ESTRADA, JINGGOY E. ESTRADA,

PANFILO M. LACSON, ALFREDO S. LIM, JAMBY A.S. MADRIGAL, AND SERGIO R.
OSMEA 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, Respondent.
x-------------------------x
G.R. No. 168461
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"; 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 MAEBO doing business under the name and style of "CMA
MOTORISTS CENTER"; SUSAN M. ENTRATA doing business under the name and style of
"LEONAS 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 Vice-President for Operations, JOSELITO F.
FLORDELIZA; MOTORISTS HERITAGE CORPORATION represented by its Vice-President
for Operations, JOSELITO F. FLORDELIZA; PHILIPPINE STANDARD OIL
FLORDELIZA; 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,
Respondent.
x-------------------------x
G.R. No. 168463
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. CASIO, 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, Respondent.
x-------------------------x
G.R. No. 168730
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,
Respondent.
DECISION
AUSTRIA-MARTINEZ, J.:
The expenses of government, having for their object the interest of all, should be borne by
everyone, and the more man enjoys the advantages of society, the more he ought to hold himself
honored in contributing to those expenses.
-Anne Robert Jacques Turgot (1727-1781)
French statesman and economist
Mounting budget deficit, revenue generation, inadequate fiscal allocation for education,
increased emoluments for health workers, and wider coverage for full value-added tax benefits
these are the reasons why Republic Act No. 9337 (R.A. No. 9337)1 was enacted. Reasons, the
wisdom of which, the Court even with its extensive constitutional power of review, cannot
probe. The petitioners in these cases, however, question not only the wisdom of the law, but also
perceived constitutional infirmities in its passage.
Every law enjoys in its favor the presumption of constitutionality. Their arguments
notwithstanding, petitioners failed to justify their call for the invalidity of the law. Hence, R.A.
No. 9337 is not unconstitutional.
LEGISLATIVE HISTORY
R.A. No. 9337 is a consolidation of three legislative bills namely, House Bill Nos. 3555 and
3705, and Senate Bill No. 1950.
House Bill No. 35552 was introduced on first reading on January 7, 2005. The House Committee
on Ways and Means approved the bill, in substitution of House Bill No. 1468, which
Representative (Rep.) Eric D. Singson introduced on August 8, 2004. The President certified the
bill on January 7, 2005 for immediate enactment. On January 27, 2005, the House of
Representatives approved the bill on second and third reading.
House Bill No. 37053 on the other hand, substituted House Bill No. 3105 introduced by Rep.
Salacnib F. Baterina, and House Bill No. 3381 introduced by Rep. Jacinto V. Paras. Its "mother
bill" is House Bill No. 3555. The House Committee on Ways and Means approved the bill on
February 2, 2005. The President also certified it as urgent on February 8, 2005. The House of
Representatives approved the bill on second and third reading on February 28, 2005.
Meanwhile, the Senate Committee on Ways and Means approved Senate Bill No. 19504 on
March 7, 2005, "in substitution of Senate Bill Nos. 1337, 1838 and 1873, taking into
consideration House Bill Nos. 3555 and 3705." Senator Ralph G. Recto sponsored Senate Bill
No. 1337, while Senate Bill Nos. 1838 and 1873 were both sponsored by Sens. Franklin M.
Drilon, Juan M. Flavier and Francis N. Pangilinan. The President certified the bill on March 11,
2005, and was approved by the Senate on second and third reading on April 13, 2005.
On the same date, April 13, 2005, the Senate agreed to the request of the House of
Representatives for a committee conference on the disagreeing provisions of the proposed bills.
Before long, the Conference Committee on the Disagreeing Provisions of House Bill No. 3555,
House Bill No. 3705, and Senate Bill No. 1950, "after having met and discussed in full free and
conference," recommended the approval of its report, which the Senate did on May 10, 2005, and
with the House of Representatives agreeing thereto the next day, May 11, 2005.
On May 23, 2005, the enrolled copy of the consolidated House and Senate version was
transmitted to the President, who signed the same into law on May 24, 2005. Thus, came R.A.
No. 9337.
July 1, 2005 is the effectivity date of R.A. No. 9337. 5 When said date came, the Court issued a
temporary restraining order, effective immediately and continuing until further orders, enjoining
respondents from enforcing and implementing the law.
Oral arguments were held on July 14, 2005. Significantly, during the hearing, the Court speaking
through Mr. Justice Artemio V. Panganiban, voiced the rationale for its issuance of the
temporary restraining order on July 1, 2005, to wit:
J. PANGANIBAN : . . . But before I go into the details of your presentation, let me just tell you a
little background. You know when the law took effect on July 1, 2005, the Court issued a TRO at
about 5 oclock in the afternoon. But before that, there was a lot of complaints aired on television
and on radio. Some people in a gas station were complaining that the gas prices went up by 10%.
Some people were complaining that their electric bill will go up by 10%. Other times people
riding in domestic air carrier were complaining that the prices that theyll have to pay would
have to go up by 10%. While all that was being aired, per your presentation and per our own
understanding of the law, thats not true. Its not true that the e-vat law necessarily increased
prices by 10% uniformly isnt it?
ATTY. BANIQUED : No, Your Honor.
J. PANGANIBAN : It is not?
ATTY. BANIQUED : Its not, because, Your Honor, there is an Executive Order that granted the
Petroleum companies some subsidy . . . interrupted
J. PANGANIBAN : Thats correct . . .
ATTY. BANIQUED : . . . and therefore that was meant to temper the impact . . . interrupted
J. PANGANIBAN : . . . mitigating measures . . .

ATTY. BANIQUED : Yes, Your Honor.
J. PANGANIBAN : As a matter of fact a part of the mitigating measures would be the

elimination of the Excise Tax and the import duties. That is why, it is not correct to say that the
VAT as to petroleum dealers increased prices by 10%.
J. PANGANIBAN : And therefore, there is no justification for increasing the retail price by 10%
to cover the E-Vat tax. If you consider the excise tax and the import duties, the Net Tax would
probably be in the neighborhood of 7%? We are not going into exact figures I am just trying to
deliver a point that different industries, different products, different services are hit differently.
So its not correct to say that all prices must go up by 10%.
ATTY. BANIQUED : Youre right, Your Honor.
J. PANGANIBAN : Now. For instance, Domestic Airline companies, Mr. Counsel, are at present
imposed a Sales Tax of 3%. When this E-Vat law took effect the Sales Tax was also removed as
a mitigating measure. So, therefore, there is no justification to increase the fares by 10% at best
7%, correct?
ATTY. BANIQUED : I guess so, Your Honor, yes.
J. PANGANIBAN : There are other products that the people were complaining on that first day,
were being increased arbitrarily by 10%. And thats one reason among many others this Court
had to issue TRO because of the confusion in the implementation. Thats why we added as an
issue in this case, even if its tangentially taken up by the pleadings of the parties, the confusion
in the implementation of the E-vat. Our people were subjected to the mercy of that confusion of
an across the board increase of 10%, which you yourself now admit and I think even the
Government will admit is incorrect. In some cases, it should be 3% only, in some cases it should
be 6% depending on these mitigating measures and the location and situation of each product, of
each service, of each company, isnt it?
J. PANGANIBAN : Alright. So thats one reason why we had to issue a TRO pending the
clarification of all these and we wish the government will take time to clarify all these by means
of a more detailed implementing rules, in case the law is upheld by this Court. . . . 6
The Court also directed the parties to file their respective Memoranda.
G.R. No. 168056
Before R.A. No. 9337 took effect, petitioners ABAKADA GURO Party List, et al., filed a petition
for prohibition on May 27, 2005. They question the constitutionality of Sections 4, 5 and 6 of
R.A. No. 9337, amending Sections 106, 107 and 108, respectively, of the National Internal
Revenue Code (NIRC). Section 4 imposes a 10% VAT on sale of goods and properties, Section 5
imposes a 10% VAT on importation of goods, and Section 6 imposes a 10% VAT on sale of
services and use or lease of properties. These questioned provisions contain a uniform proviso
authorizing the President, upon recommendation of the Secretary of Finance, to raise the VAT
rate to 12%, effective January 1, 2006, after any of the following conditions have been satisfied,
to wit:
. . . 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 %).
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
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,
125,7 148, 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 governments fiscal reform
agenda. A reform in the value-added system of taxation is the core revenue measure that will tilt
the balance towards a sustainable macroeconomic environment necessary for economic growth.
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 Being an indirect tax on expenditure, the seller of goods or
services may pass on the amount of tax paid to the buyer, 9 with the seller acting merely as a tax
collector.10 The burden of VAT is intended to fall on the immediate buyers and ultimately, the
end-consumers.
In contrast, a direct tax is a tax for which a taxpayer is directly liable on the transaction or
business it engages in, without transferring the burden to someone else. 11 Examples are
individual and corporate income taxes, transfer taxes, and residence taxes. 12
In the Philippines, the value-added system of sales taxation has long been in existence, albeit in a
different mode. Prior to 1978, the system was a single-stage tax computed under the "cost
deduction method" and was payable only by the original sellers. The single-stage system was
subsequently modified, and a mixture of the "cost deduction method" and "tax credit method"
was used to determine the value-added tax payable.13 Under the "tax credit method," an entity
can credit against or subtract from the VAT charged on its sales or outputs the VAT paid on its
purchases, inputs and imports.14
It was only in 1987, when President Corazon C. Aquino issued Executive Order No. 273, that the
VAT system was rationalized by imposing a multi-stage tax rate of 0% or 10% on all sales using
the "tax credit method."15
E.O. No. 273 was followed by R.A. No. 7716 or the Expanded VAT Law, 16 R.A. No. 8241 or the
Improved VAT Law,17 R.A. No. 8424 or the Tax Reform Act of 1997, 18 and finally, the
presently beleaguered R.A. No. 9337, also referred to by respondents as the VAT Reform Act.
The Court will now discuss the issues in logical sequence.
PROCEDURAL ISSUE
I.
Whether R.A. No. 9337 violates the following provisions of the Constitution:
a. Article VI, Section 24, and
A. The Bicameral Conference Committee
Petitioners Escudero, et al., and Pimentel, et al., allege that the Bicameral Conference
Committee exceeded its authority by:
1) Inserting the stand-by authority in favor of the President in Sections 4, 5, and 6 of R.A. No.
9337;
2) Deleting entirely the no pass-on provisions found in both the House and Senate bills;
3) Inserting the provision imposing a 70% limit on the amount of input tax to be credited against
the output tax; and
4) Including the amendments introduced only by Senate Bill No. 1950 regarding other kinds of
taxes in addition to the value-added tax.
Petitioners now beseech the Court to define the powers of the Bicameral Conference Committee.
It should be borne in mind that the power of internal regulation and discipline are intrinsic in any
legislative body for, as unerringly elucidated by Justice Story, "[i]f the power did not exist, it
would be utterly impracticable to transact the business of the nation, either at all, or at
least with decency, deliberation, and order."19 Thus, Article VI, Section 16 (3) of the
Constitution provides that "each House may determine the rules of its proceedings." Pursuant to
this inherent constitutional power to promulgate and implement its own rules of procedure, the
respective rules of each house of Congress provided for the creation of a Bicameral Conference
Committee.
Thus, Rule XIV, Sections 88 and 89 of the Rules of House of Representatives provides as
follows:
Sec. 88. Conference Committee. In the event that the House does not agree with the Senate on
the amendment to any bill or joint resolution, the differences may be settled by the conference
committees of both chambers.
In resolving the differences with the Senate, the House panel shall, as much as possible, adhere
to and support the House Bill. If the differences with the Senate are so substantial that they
materially impair the House Bill, the panel shall report such fact to the House for the latters
appropriate action.
Sec. 89. Conference Committee Reports. . . . Each report shall contain a detailed, sufficiently
explicit statement of the changes in or amendments to the subject measure.
...
The Chairman of the House panel may be interpellated on the Conference Committee Report
prior to the voting thereon. The House shall vote on the Conference Committee Report in the
same manner and procedure as it votes on a bill on third and final reading.
Rule XII, Section 35 of the Rules of the Senate states:
Sec. 35. In the event that the Senate does not agree with the House of Representatives on the
provision of any bill or joint resolution, the differences shall be settled by a conference
committee of both Houses which shall meet within ten (10) days after their composition. The
President shall designate the members of the Senate Panel in the conference committee with the
approval of the Senate.
Each Conference Committee Report shall contain a detailed and sufficiently explicit statement of
the changes in, or amendments to the subject measure, and shall be signed by a majority of the
members of each House panel, voting separately.
A comparative presentation of the conflicting House and Senate provisions and a reconciled
version thereof with the explanatory statement of the conference committee shall be attached to
the report.
...
The creation of such conference committee was apparently in response to a problem, not
addressed by any constitutional provision, where the two houses of Congress find themselves in
disagreement over changes or amendments introduced by the other house in a legislative bill.
Given that one of the most basic powers of the legislative branch is to formulate and implement
its own rules of proceedings and to discipline its members, may the Court then delve into the
details of how Congress complies with its internal rules or how it conducts its business of
passing legislation? Note that in the present petitions, the issue is not whether provisions of the
rules of both houses creating the bicameral conference committee are unconstitutional, but
whether the bicameral conference committee has strictly complied with the rules of both
houses, thereby remaining within the jurisdiction conferred upon it by Congress.
In the recent case of Farias vs. The Executive Secretary,20 the Court En Banc, unanimously
reiterated and emphasized its adherence to the "enrolled bill doctrine," thus, declining therein
petitioners plea for the Court to go behind the enrolled copy of the bill. Assailed in said case
was Congresss creation of two sets of bicameral conference committees, the lack of records of
said committees proceedings, the alleged violation of said committees of the rules of both
houses, and the disappearance or deletion of one of the provisions in the compromise bill
submitted by the bicameral conference committee. It was argued that such irregularities in the
passage of the law nullified R.A. No. 9006, or the Fair Election Act.
Striking down such argument, the Court held thus:
Under the "enrolled bill doctrine," the signing of a bill by the Speaker of the House and the
Senate President and the certification of the Secretaries of both Houses of Congress that it was
passed are conclusive of its due enactment. A review of cases reveals the Courts consistent
adherence to the rule. The Court finds no reason to deviate from the salutary rule in this
case where the irregularities alleged by the petitioners mostly involved the internal rules of
Congress, e.g., creation of the 2nd or 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 Osmea v. Pendatun, it was
held: "At any rate, courts have declared that the rules adopted by deliberative bodies are subject
to revocation, modification or waiver at the pleasure of the body adopting them. And it has
been said that "Parliamentary rules are merely procedural, and with their observance, the
courts have no concern. They may be waived or disregarded by the legislative body."
Consequently, "mere failure to conform to parliamentary usage will not invalidate the
action (taken by a deliberative body) when the requisite number of members have agreed
to a particular measure."21 (Emphasis supplied)
The foregoing declaration is exactly in point with the present cases, where petitioners allege
irregularities committed by the conference committee in introducing changes or deleting
provisions in the House and Senate bills. Akin to the Farias case,22 the present petitions also
raise an issue regarding the actions taken by the conference committee on matters regarding
Congress compliance with its own internal rules. As stated earlier, one of the most basic and
inherent power of the legislature is the power to formulate rules for its proceedings and the
discipline of its members. Congress is the best judge of how it should conduct its own business
expeditiously and in the most orderly manner. It is also the sole
concern of Congress to instill discipline among the members of its conference committee if it
believes that said members violated any of its rules of proceedings. Even the expanded
jurisdiction of this Court cannot apply to questions regarding only the internal operation of
Congress, thus, the Court is wont to deny a review of the internal proceedings of a co-equal
branch of government.
Moreover, as far back as 1994 or more than ten years ago, in the case of Tolentino vs. Secretary
of Finance,23 the Court already made the pronouncement that "[i]f a change is desired in the
practice [of the Bicameral Conference Committee] it must be sought in Congress since this
question is not covered by any constitutional provision but is only an internal rule of each
house." 24 To date, Congress has not seen it fit to make such changes adverted to by the Court. It
seems, therefore, that Congress finds the practices of the bicameral conference committee to be
very useful for purposes of prompt and efficient legislative action.
Nevertheless, just to put minds at ease that no blatant irregularities tainted the proceedings of the
bicameral conference committees, the Court deems it necessary to dwell on the issue. The Court
observes that there was a necessity for a conference committee because a comparison of the
provisions of House Bill Nos. 3555 and 3705 on one hand, and Senate Bill No. 1950 on the
other, reveals that there were indeed disagreements. As pointed out in the petitions, said
disagreements were as follows:
House Bill No. 3555 House Bill No.3705 Senate Bill No. 1950
With regard to "Stand-By Authority" in favor of President
Provides for 12% VAT on Provides for 12% VAT in Provides for a single rate of
every sale of goods or general on sales of goods or 10% VAT on sale of goods
properties (amending Sec. properties and reduced rates for or properties (amending Sec.
106 of NIRC); 12% VAT sale of certain locally 106 of NIRC), 10% VAT on
on importation of goods manufactured goods and sale of services including
(amending Sec. 107 of petroleum products and raw sale of electricity by
NIRC); and 12% VAT on materials to be used in the generation companies,
sale of services and use or manufacture thereof (amending transmission and distribution
lease of properties Sec. 106 of NIRC); 12% VAT companies, and use or lease
(amending Sec. 108 of on importation of goods and of properties (amending Sec.
NIRC) reduced rates for certain 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 imposed Provides that the VAT
on power generation and on the imposed on sales of
sale of petroleum products shall electricity by generation
be absorbed by generation companies and services of
companies or sellers, transmission companies and
respectively, and shall not be distribution companies, as
passed on to consumers well as those of franchise
grantees of electric 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 tax No similar provision Provides that the input tax
credit for capital goods on credit for capital goods on
which a VAT has been paid which a VAT has been paid
shall be equally distributed shall be equally distributed
over 5 years or the over 5 years or the
depreciable life of such depreciable life of such
capital goods; the input tax capital goods; the input tax
credit for goods and credit for goods and services
services other than capital other than capital goods
goods shall not exceed 5% shall not exceed 90% of the
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.
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%, 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. . . .
...
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 To reconcile or harmonize disagreeing provisions, the Bicameral Conference
Committee may then (a) adopt the specific provisions of either the House bill or Senate bill, (b)
decide that neither provisions in the House bill or the provisions in the Senate bill would
be carried into the final form of the bill, and/or (c) try to arrive at a compromise between the
disagreeing provisions.
In the present case, the changes introduced by the Bicameral Conference Committee on
disagreeing provisions were meant only to reconcile and harmonize the disagreeing provisions
for it did not inject any idea or intent that is wholly foreign to the subject embraced by the
original provisions.
The so-called stand-by authority in favor of the President, whereby the rate of 10% VAT wanted
by the Senate is retained until such time that certain conditions arise when the 12% VAT wanted
by the House shall be imposed, appears to be a compromise to try to bridge the difference in the
rate of VAT proposed by the two houses of Congress. Nevertheless, such compromise is still
totally within the subject of what rate of VAT should be imposed on taxpayers.
The no pass-on provision was deleted altogether. In the transcripts of the proceedings of the
Bicameral Conference Committee held on May 10, 2005, Sen. Ralph Recto, Chairman of the
Senate Panel, explained the reason for deleting the no pass-on provision in this wise:
. . . the thinking was just to keep the VAT law or the VAT bill simple. And we were thinking that
no sector should be a beneficiary of legislative grace, neither should any sector be discriminated
on. The VAT is an indirect tax. It is a pass on-tax. And lets keep it plain and simple. Lets not
confuse the bill and put a no pass-on provision. 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, lets keep the VAT simple. 26 (Emphasis supplied)
Rep. Teodoro Locsin further made the manifestation that the no pass-on provision "never really
enjoyed the support of either House."27
With regard to the amount of input tax to be credited against output tax, the Bicameral
Conference Committee came to a compromise on the percentage rate of the limitation or cap on
such input tax credit, but again, the change introduced by the Bicameral Conference Committee
was totally within the intent of both houses to put a cap on input tax that may be
credited against the output tax. From the inception of the subject revenue bill in the House of
Representatives, one of the major objectives was to "plug a glaring loophole in the tax policy and
administration by creating vital restrictions on the claiming of input VAT tax credits . . ." and
"[b]y introducing limitations on the claiming of tax credit, we are capping a major leakage that
has placed our collection efforts at an apparent disadvantage."28
As to the amendments to NIRC provisions on taxes other than the value-added tax proposed in
Senate Bill No. 1950, since said provisions were among those referred to it, the conference
committee had to act on the same and it basically adopted the version of the Senate.
Thus, all the changes or modifications made by the Bicameral Conference Committee were
germane to subjects of the provisions referred
to it for reconciliation. Such being the case, the Court does not see any grave abuse of discretion
amounting to lack or excess of jurisdiction committed by the Bicameral Conference Committee.
In the earlier cases of Philippine Judges Association vs. Prado29 and Tolentino vs. Secretary of
Finance,30 the Court recognized the long-standing legislative practice of giving said conference
committee ample latitude for compromising differences between the Senate and the House. Thus,
in the Tolentino case, it was held that:
. . . it is within the power of a conference committee to include in its report an entirely new
provision that is not found either in the House bill or in the Senate bill. If the committee can
propose an amendment consisting of one or two provisions, there is no reason why it cannot
propose several provisions, collectively considered as an "amendment in the nature of a
substitute," so long as such amendment is germane to the subject of the bills before the
committee. After all, its report was not final but needed the approval of both houses of Congress
to become valid as an act of the legislative department. The charge that in this case the
Conference Committee acted as a third legislative chamber is thus without any basis.31
(Emphasis supplied)
B. R.A. No. 9337 Does Not Violate Article VI, Section 26(2) of the Constitution on the "No-
Amendment Rule"
Article VI, Sec. 26 (2) of the Constitution, states:
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 Committees 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 (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?
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 Senates
power not only to "concur with amendments" but also to "propose amendments." It would
be to violate the coequality of legislative power of the two houses of Congress and in fact make
the House superior to the Senate.
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.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 countrys serious financial problems. To do this, government expenditures must be
strictly monitored and controlled and revenues must be significantly increased. This may be
easier said than done, but our fiscal authorities are still optimistic the government will be
operating on a balanced budget by the year 2009. In fact, several measures that will result to
significant expenditure savings have been identified by the administration. It is supported with
a credible package of revenue measures that include measures to improve tax
administration and control the leakages in revenues from income taxes and the value-
added tax (VAT). (Emphasis supplied)
Rep. Eric D. Singson, in his sponsorship speech for House Bill No. 3555, declared that:
In the budget message of our President in the year 2005, she reiterated that we all acknowledged
that on top of our agenda must be the restoration of the health of our fiscal system.
In order to considerably lower the consolidated public sector deficit and eventually achieve a
balanced budget by the year 2009, we need to seize windows of opportunities which might
seem poignant in the beginning, but in the long run prove effective and beneficial to the
overall status of our economy. One such opportunity is a review of existing tax rates,
evaluating the relevance given our present conditions.34 (Emphasis supplied)
Notably therefore, the main purpose of the bills emanating from the House of Representatives is
to bring in sizeable revenues for the government
to supplement our countrys serious financial problems, and improve tax administration and
control of the leakages in revenues from income taxes and value-added taxes. As these house
bills were transmitted to the Senate, the latter, approaching the measures from the point of
national perspective, can introduce amendments within the purposes of those bills. It can provide
for ways that would soften the impact of the VAT measure on the consumer, i.e., by distributing
the burden across all sectors instead of putting it entirely on the shoulders of the consumers. The
sponsorship speech of Sen. Ralph Recto on why the provisions on income tax on corporation
were included is worth quoting:
All in all, the proposal of the Senate Committee on Ways and Means will raise P64.3 billion in
additional revenues annually even while by mitigating prices of power, services and petroleum
products.
However, not all of this will be wrung out of VAT. In fact, only P48.7 billion amount is from the
VAT on twelve goods and services. The rest of the tab P10.5 billion- will be picked by
corporations.
What we therefore prescribe is a burden sharing between corporate Philippines and the
consumer. Why should the latter bear all the pain? Why should the fiscal salvation be only on the
burden of the consumer?
The corporate worlds equity is in form of the increase in the corporate income tax from 32 to 35
percent, but up to 2008 only. This will raise P10.5 billion a year. After that, the rate will slide
back, not to its old rate of 32 percent, but two notches lower, to 30 percent.
Clearly, we are telling those with the capacity to pay, corporations, to bear with this emergency
provision that will be in effect for 1,200 days, while we put our fiscal house in order. This fiscal
medicine will have an expiry date.
For their assistance, a reward of tax reduction awaits them. We intend to keep the length of their
sacrifice brief. We would like to assure them that not because there is a light at the end of the
tunnel, this government will keep on making the tunnel long.
The responsibility will not rest solely on the weary shoulders of the small man. Big business will
be there to share the burden.35
As the Court has said, the Senate can propose amendments and in fact, the amendments made on
provisions in the tax on income of corporations are germane to the purpose of the house bills
which is to raise revenues for the government.
Likewise, the Court finds the sections referring to other percentage and excise taxes germane to
the reforms to the VAT system, as these sections would cushion the effects of VAT on
consumers. Considering that certain goods and services which were subject to percentage tax and
excise tax would no longer be VAT-exempt, the consumer would be burdened more as they
would be paying the VAT in addition to these taxes. Thus, there is a need to amend these
sections to soften the impact of VAT. Again, in his sponsorship speech, Sen. Recto said:
However, for power plants that run on oil, we will reduce to zero the present excise tax on
bunker fuel, to lessen the effect of a VAT on this product.
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.
...
What do all these exercises point to? These are not contortions of giving to the left hand what
was taken from the right. Rather, these sprang from our concern of softening the impact of VAT,
so that the people can cushion the blow of higher prices they will have to pay as a result of
VAT.36
The other sections amended by the Senate pertained to matters of tax administration which are
necessary for the implementation of the changes in the VAT system.
To reiterate, the sections introduced by the Senate are germane to the subject matter and
purposes of the house bills, which is to supplement our countrys fiscal deficit, among others.
Thus, the Senate acted within its power to propose those amendments.
SUBSTANTIVE ISSUES
I.
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 previous year exceeds one
and one-half percent (1 %).
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.
follows:
SEC. 108. Value-added Tax on Sale of Services and Use or Lease of Properties
(A) Rate and Base of Tax. There shall be levied, assessed and collected, a value-added tax
equivalent to ten percent (10%) of gross receipts derived from the sale or exchange of services:
provided, that the President, upon the recommendation of the Secretary of Finance, shall,
effective January 1, 2006, raise the rate of value-added tax to twelve percent (12%), after
any of the following conditions has been satisfied.
and one-half percent (1 %). (Emphasis supplied)
Petitioners allege that the grant of the stand-by authority to the President to increase the VAT
rate is a virtual abdication by Congress of its exclusive power to tax because such delegation is
not within the purview of Section 28 (2), Article VI of the Constitution, which provides:
The Congress may, by law, authorize the President to fix within specified limits, and may
impose, tariff rates, import and export quotas, tonnage and wharfage dues, and other duties or
imposts within the framework of the national development program of the government.
They argue that the VAT is a tax levied on the sale, barter or exchange of goods and properties
as well as on the sale or exchange of services, which cannot be included within the purview of
tariffs under the exempted delegation as the latter refers to customs duties, tolls or tribute
payable upon merchandise to the government and usually imposed on goods or merchandise
imported or exported.
Petitioners ABAKADA GURO Party List, et al., further contend that delegating to the President
the legislative power to tax is contrary to republicanism. They insist that accountability,
responsibility and transparency should dictate the actions of Congress and they should not pass
to the President the decision to impose taxes. They also argue that the law also effectively
nullified the Presidents power of control, which includes the authority to set aside and nullify
the acts of her subordinates like the Secretary of Finance, by mandating the fixing of the tax rate
by the President upon the recommendation of the Secretary of Finance.
Petitioners Pimentel, et al. aver that the President has ample powers to cause, influence or create
the conditions provided by the law to bring about either or both the conditions precedent.
On the other hand, petitioners Escudero, et al. find bizarre and revolting the situation that the
imposition of the 12% rate would be subject to the whim of the Secretary of Finance, an
unelected bureaucrat, contrary to the principle of no taxation without representation. They submit
that the Secretary of Finance is not mandated to give a favorable recommendation and he may
not even give his recommendation. Moreover, they allege that no guiding standards are provided
in the law on what basis and as to how he will make his recommendation. They claim,
nonetheless, that any recommendation of the Secretary of Finance can easily be brushed aside by
the President since the former is a mere alter ego of the latter, such that, ultimately, it is the
President who decides whether to impose the increased tax rate or not.
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 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 This doctrine is based on the ethical principle that such
as delegated power constitutes not only a right but a duty to be performed by the delegate
through the instrumentality of his own judgment and not through the intervening mind of
another.39
With respect to the Legislature, Section 1 of Article VI of the Constitution provides that "the
Legislative power shall be vested in the Congress of the Philippines which shall consist of a
Senate and a House of Representatives." The powers which Congress is prohibited from
delegating are those which are strictly, or inherently and exclusively, legislative. Purely
legislative power, which can never be delegated, has been described as the authority to make a
complete law complete as to the time when it shall take effect and as to whom it shall be
applicable and to determine the expediency of its enactment.40 Thus, the rule is that in order
that a court may be justified in holding a statute unconstitutional as a delegation of legislative
power, it must appear that the power involved is purely legislative in nature that is, one
appertaining exclusively to the legislative department. It is the nature of the power, and not the
liability of its use or the manner of its exercise, which determines the validity of its delegation.
Nonetheless, the general rule barring delegation of legislative powers is subject to the following
recognized limitations or exceptions:
(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.
In every case of permissible delegation, there must be a showing that the delegation itself is
valid. It is valid only if the law (a) is complete in itself, setting forth therein the policy to be
executed, carried out, or implemented by the delegate;41 and (b) fixes a standard the limits of
which are sufficiently determinate and determinable to which the delegate must conform in
the performance of his functions.42 A sufficient standard is one which defines legislative policy,
marks its limits, maps out its boundaries and specifies the public agency to apply it. It indicates
the circumstances under which the legislative command is to be effected. 43 Both tests are
intended to prevent a total transference of legislative authority to the delegate, who is not
allowed to step into the shoes of the legislature and exercise a power essentially legislative. 44
In People vs. Vera,45 the Court, through eminent Justice Jose P. Laurel, expounded on the
concept and extent of delegation of power in this wise:
In testing whether a statute constitutes an undue delegation of legislative power or not, it is usual
to inquire whether the statute was complete in all its terms and provisions when it left the hands
of the legislature so that nothing was left to the judgment of any other appointee or delegate of
the legislature.
...
The true distinction, says Judge Ranney, is between the delegation of power to make the
law, which necessarily involves a discretion as to what it shall be, and conferring an
authority or discretion as to its execution, to be exercised under and in pursuance of the
law. The first cannot be done; to the latter no valid objection can be made.
...
It is contended, however, that a legislative act may be made to the effect as law after it leaves the
hands of the legislature. It is true that laws may be made effective on certain contingencies, as by
proclamation of the executive or the adoption by the people of a particular community. In
Wayman vs. Southard, the Supreme Court of the United States ruled that the legislature may
delegate a power not legislative which it may itself rightfully exercise. The power to ascertain
facts is such a power which may be delegated. There is nothing essentially legislative in
ascertaining the existence of facts or conditions as the basis of the taking into effect of a
law. That is a mental process common to all branches of the government. Notwithstanding
the apparent tendency, however, to relax the rule prohibiting delegation of legislative authority
on account of the complexity arising from social and economic forces at work in this modern
industrial age, the orthodox pronouncement of Judge Cooley in his work on Constitutional
Limitations finds restatement in Prof. Willoughby's treatise on the Constitution of the United
States in the following language speaking of declaration of legislative power to administrative
agencies: The principle which permits the legislature to provide that the administrative
agent may determine when the circumstances are such as require the application of a law is
defended upon the ground that at the time this authority is granted, the rule of public
policy, which is the essence of the legislative act, is determined by the legislature. In other
words, the legislature, as it is its duty to do, determines that, under given circumstances,
certain executive or administrative action is to be taken, and that, under other
circumstances, different or no action at all is to be taken. What is thus left to the
administrative official is not the legislative determination of what public policy demands,
but simply the ascertainment of what the facts of the case require to be done according to
the terms of the law by which he is governed. The efficiency of an Act as a declaration of
legislative will must, of course, come from Congress, but the ascertainment of the
contingency upon which the Act shall take effect may be left to such agencies as it may
designate. The legislature, then, may provide that a law shall take effect upon the
happening of future specified contingencies leaving to some other person or body the power
to determine when the specified contingency has arisen. (Emphasis supplied).46
In Edu vs. Ericta,47 the Court reiterated:
What cannot be delegated is the authority under the Constitution to make laws and to alter and
repeal them; the test is the completeness of the statute in all its terms and provisions when it
leaves the hands of the legislature. To determine whether or not there is an undue delegation of
legislative power, the inquiry must be directed to the scope and definiteness of the measure
enacted. The legislative does not abdicate its functions when it describes what job must be
done, who is to do it, and what is the scope of his authority. For a complex economy, that
may be the only way in which the legislative process can go forward. A distinction has
rightfully been made between delegation of power to make the laws which necessarily
involves a discretion as to what it shall be, which constitutionally may not be done, and
delegation of authority or discretion as to its execution to be exercised under and in
pursuance of the law, to which no valid objection can be made. The Constitution is thus not
to be regarded as denying the legislature the necessary resources of flexibility and practicability.
(Emphasis supplied).48
Clearly, the legislature may delegate to executive officers or bodies the power to determine
certain facts or conditions, or the happening of contingencies, on which the operation of a statute
is, by its terms, made to depend, but the legislature must prescribe sufficient standards, policies
or limitations on their authority. 49 While the power to tax cannot be delegated to executive
agencies, details as to the enforcement and administration of an exercise of such power may be
left to them, including the power to determine the existence of facts on which its operation
depends.50
The rationale for this is that the preliminary ascertainment of facts as basis for the enactment of
legislation is not of itself a legislative function, but is simply ancillary to legislation. Thus, the
duty of correlating information and making recommendations is the kind of subsidiary activity
which the legislature may perform through its members, or which it may delegate to others to
perform. Intelligent legislation on the complicated problems of modern society is impossible in
the absence of accurate information on the part of the legislators, and any reasonable method of
securing such information is proper.51 The Constitution as a continuously operative charter of
government does not require that Congress find for itself
every fact upon which it desires to base legislative action or that it make for itself detailed
determinations which it has declared to be prerequisite to application of legislative policy to
particular facts and circumstances impossible for Congress itself properly to investigate. 52
In the present case, the challenged section of R.A. No. 9337 is the common proviso in Sections
4, 5 and 6 which reads as follows:
That the President, upon the recommendation of the Secretary of Finance, shall, effective
January 1, 2006, raise the rate of value-added tax to twelve percent (12%), after any of the
The case before the Court is not a delegation of legislative power. It is simply a delegation of
ascertainment of facts upon which enforcement and administration of the increase rate under the
law is contingent. The legislature has made the operation of the 12% rate effective January 1,
2006, contingent upon a specified fact or condition. It leaves the entire operation or non-
operation of the 12% rate upon factual matters outside of the control of the executive.
No discretion would be exercised by the President. Highlighting the absence of discretion is the
fact that the word shall is used in the common proviso. The use of the word shall connotes a
mandatory order. Its use in a statute denotes an imperative obligation and is inconsistent with the
idea of discretion.53 Where the law is clear and unambiguous, it must be taken to mean exactly
what it says, and courts have no choice but to see to it that the mandate is obeyed. 54
Thus, it is the ministerial duty of the President to immediately impose the 12% rate upon the
existence of any of the conditions specified by Congress. This is a duty which cannot be evaded
by the President. Inasmuch as the law specifically uses the word shall, the exercise of discretion
by the President does not come into play. It is a clear directive to impose the 12% VAT rate
when the specified conditions are present. The time of taking into effect of the 12% VAT rate is
based on the happening of a certain specified contingency, or upon the ascertainment of certain
facts or conditions by a person or body other than the legislature itself.
The Court finds no merit to the contention of petitioners ABAKADA GURO Party List, et al. that
the law effectively nullified the Presidents power of control over the Secretary of Finance by
mandating the fixing of the tax rate by the President upon the recommendation of the Secretary
of Finance. The Court cannot also subscribe to the position of petitioners
Pimentel, et al. that the word shall should be interpreted to mean may in view of the phrase
"upon the recommendation of the Secretary of Finance." Neither does the Court find persuasive
the submission of petitioners Escudero, et al. that any recommendation by the Secretary of
Finance can easily be brushed aside by the President since the former is a mere alter ego of the
latter.
When one speaks of the Secretary of Finance as the alter ego of the President, it simply means
that as head of the Department of Finance he is the assistant and agent of the Chief Executive.
The multifarious executive and administrative functions of the Chief Executive are performed by
and through the executive departments, and the acts of the secretaries of such departments, such
as the Department of Finance, performed and promulgated in the regular course of business, are,
unless disapproved or reprobated by the Chief Executive, presumptively the acts of the Chief
Executive. The Secretary of Finance, as such, occupies a political position and holds office in an
advisory capacity, and, in the language of Thomas Jefferson, "should be of the President's bosom
confidence" and, in the language of Attorney-General Cushing, is "subject to the direction of the
President."55
In the present case, in making his recommendation to the President on the existence of either of
the two conditions, the Secretary of Finance is not acting as the alter ego of the President or even
her subordinate. In such instance, he is not subject to the power of control and direction of the
President. He is acting as the agent of the legislative department, to determine and declare the
event upon which its expressed will is to take effect.56 The Secretary of Finance becomes the
means or tool by which legislative policy is determined and implemented, considering that he
possesses all the facilities to gather data and information and has a much broader perspective to
properly evaluate them. His function is to gather and collate statistical data and other pertinent
information and verify if any of the two conditions laid out by Congress is present. His
personality in such instance is in reality but a projection of that of Congress. Thus, being the
agent of Congress and not of the President, the President cannot alter or modify or nullify, or set
aside the findings of the Secretary of Finance and to substitute the judgment of the former for
that of the latter.
Congress simply granted the Secretary of Finance the authority to ascertain the existence of a
fact, namely, whether by December 31, 2005, the value-added tax collection as a percentage of
Gross Domestic Product (GDP) of the previous year exceeds two and four-fifth percent (24/5%)
or the national government deficit as a percentage of GDP of the previous year exceeds one and
one-half percent (1%). If either of these two instances has occurred, the Secretary of Finance,
by legislative mandate, must submit such information to the President. Then the 12% VAT rate
must be imposed by the President effective January 1, 2006. There is no undue delegation of
legislative power but only of the discretion as to the execution of a law. This is
constitutionally permissible.57 Congress does not abdicate its functions or unduly delegate
power when it describes what job must be done, who must do it, and what is the scope of his
authority; in our complex economy that is frequently the only way in which the legislative
process can go forward.58
As to the argument of petitioners ABAKADA GURO Party List, et al. that delegating to the
President the legislative power to tax is contrary to the principle of republicanism, the same
deserves scant consideration. Congress did not delegate the power to tax but the mere
implementation of the law. The intent and will to increase the VAT rate to 12% came from
Congress and the task of the President is to simply execute the legislative policy. That Congress
chose to do so in such a manner is not within the province of the Court to inquire into, its task
being to interpret the law.59
The insinuation by petitioners Pimentel, et al. that the President has ample powers to cause,
influence or create the conditions to bring about either or both the conditions precedent does not
deserve any merit as this argument is highly speculative. The Court does not rule on allegations
which are manifestly conjectural, as these may not exist at all. The Court deals with facts, not
fancies; on realities, not appearances. When the Court acts on appearances instead of realities,
justice and law will be short-lived.
B. The 12% Increase VAT Rate Does Not Impose an Unfair and Unnecessary Additional Tax
Burden
Petitioners Pimentel, et al. argue that the 12% increase in the VAT rate imposes an unfair and
additional tax burden on the people. Petitioners also argue that the 12% increase, dependent on
any of the 2 conditions set forth in the contested provisions, is ambiguous because it does not
state if the VAT rate would be returned to the original 10% if the rates are no longer satisfied.
Petitioners also argue that such rate is unfair and unreasonable, as the people are unsure of the
applicable VAT rate from year to year.
Under the common provisos of Sections 4, 5 and 6 of R.A. No. 9337, if any of the two conditions
set forth therein are satisfied, the President shall increase the VAT rate to 12%. The provisions of
the law are clear. It does not provide for a return to the 10% rate nor does it empower the
President to so revert if, after the rate is increased to 12%, the VAT collection goes below the
24/5 of the GDP of the previous year or that the national government deficit as a percentage of
GDP of the previous year does not exceed 1%.
Therefore, no statutory construction or interpretation is needed. Neither can conditions or

limitations be introduced where none is provided for. Rewriting the law is a forbidden ground
that only Congress may tread upon.60
Thus, in the absence of any provision providing for a return to the 10% rate, which in this case
the Court finds none, petitioners argument is, at best, purely speculative. There is no basis for
petitioners fear of a fluctuating VAT rate because the law itself does not provide that the rate
should go back to 10% if the conditions provided in Sections 4, 5 and 6 are no longer present.
The rule is that where the provision of the law is clear and unambiguous, so that there is no
occasion for the court's seeking the legislative intent, the law must be taken as it is, devoid of
judicial addition or subtraction.61
Petitioners also contend that the increase in the VAT rate, which was allegedly an incentive to
the President to raise the VAT collection to at least 2 4/5 of the GDP of the previous year, should
be based on fiscal adequacy.
Petitioners obviously overlooked that increase in VAT collection is not the only condition. There
is another condition, i.e., the national government deficit as a percentage of GDP of the previous
year exceeds one and one-half percent (1 %).
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. Natl Govt 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
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
It simply means that sources of revenues must be adequate to meet government expenditures and
their variations.64
The dire need for revenue cannot be ignored. Our country is in a quagmire of financial woe.
During the Bicameral Conference Committee hearing, then Finance Secretary Purisima bluntly
depicted the countrys gloomy state of economic affairs, thus:
First, let me explain the position that the Philippines finds itself in right now. We are in a
position where 90 percent of our revenue is used for debt service. So, for every peso of revenue
that we currently raise, 90 goes to debt service. Thats interest plus amortization of our debt. So
clearly, this is not a sustainable situation. Thats the first fact.
The 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 Id like to point out is the environment that we are presently operating in is
not as benign as what it used to be the past five years.
What do I mean by that?
In the past five years, weve been lucky because we were operating in a period of basically
global growth and low interest rates. The past few months, we have seen an inching up, in fact, a
rapid increase in the interest rates in the leading economies of the world. And, therefore, our
ability to borrow at reasonable prices is going to be challenged. In fact, ultimately, the question
is our ability to access the financial markets.
When the President made her speech in July last year, the environment was not as bad as it is
now, at least based on the forecast of most financial institutions. So, we were assuming that
raising 80 billion would put us in a position where we can then convince them to improve our
ability to borrow at lower rates. But conditions have changed on us because the interest rates
have gone up. In fact, just within this room, we tried to access the market for a billion dollars
because for this year alone, the Philippines will have to borrow 4 billion dollars. Of that amount,
we have borrowed 1.5 billion. We issued last January a 25-year bond at 9.7 percent cost. We
were trying to access last week and the market was not as favorable and up to now we have not
accessed and we might pull back because the conditions are not very good.
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
The image portrayed is chilling. Congress passed the law hoping for rescue from an inevitable
catastrophe. Whether the law is indeed sufficient to answer the states economic dilemma is not
for the Court to judge. In the Farias case, the Court refused to consider the various arguments
raised therein that dwelt on the wisdom of Section 14 of R.A. No. 9006 (The Fair Election Act),
pronouncing that:
. . . policy matters are not the concern of the Court. Government policy is within the exclusive
dominion of the political branches of the government. It is not for this Court to look into the
wisdom or propriety of legislative determination. Indeed, whether an enactment is wise or
unwise, whether it is based on sound economic theory, whether it is the best means to achieve
the desired results, whether, in short, the legislative discretion within its prescribed limits should
be exercised in a particular manner are matters for the judgment of the legislature, and the
serious conflict of opinions does not suffice to bring them within the range of judicial
cognizance.66
In the same vein, the Court in this case will not dawdle on the purpose of Congress or the
executive policy, given that it is not for the judiciary to "pass upon questions of wisdom, justice
or expediency of legislation."67
II.
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
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
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 businesss books of accounts and
remains creditable in the succeeding quarter/s. This is explicitly allowed by Section 110(B),
which provides that "if the input tax exceeds the output tax, the excess shall be carried over to
the succeeding quarter or quarters." In addition, Section 112(B) allows a VAT-registered person
to apply for the issuance of a tax credit certificate or refund for any unused input taxes, to the
extent that such input taxes have not been applied against the output taxes. Such unused input tax
may be used in payment of his other internal revenue taxes.
The non-application of the unutilized input tax in a given quarter is not ad infinitum, as
petitioners exaggeratedly contend. Their analysis of the effect of the 70% limitation is
incomplete and one-sided. It ends at the net effect that there will be unapplied/unutilized inputs
VAT for a given quarter. It does not proceed further to the fact that such unapplied/unutilized
input tax may be credited in the subsequent periods as allowed by the carry-over provision of
Section 110(B) or that it may later on be refunded through a tax credit certificate under Section
112(B).
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 and
Third, if the input taxes exceed the output taxes, the excess shall be carried over to the
succeeding quarter or quarters. Should the input taxes result from zero-rated or effectively zero-
rated transactions, any excess over the output taxes shall instead be refunded to the taxpayer or
credited against other internal revenue taxes, at the taxpayers option. 70
Section 8 of R.A. No. 9337 however, imposed a 70% limitation on the input tax. Thus, a person
can credit his input tax only up to the extent of 70% of the output tax. In laymans term, the
value-added taxes that a person/taxpayer paid and passed on to him by a seller can only be
credited up to 70% of the value-added taxes that is due to him on a taxable transaction. There is
no retention of any tax collection because the person/taxpayer has already previously paid the
input tax to a seller, and the seller will subsequently remit such input tax to the BIR. The party
directly liable for the payment of the tax is the seller. 71 What only needs to be done is for the
person/taxpayer to apply or credit these input taxes, as evidenced by receipts, against his output
taxes.
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 persons 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
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 This was
adopted by the Expanded VAT Law (R.A. No. 7716), 74 and The Tax Reform Act of 1997 (R.A.
No. 8424).75 The right to credit input tax as against the output tax is clearly a privilege created by
law, a privilege that also the law can remove, or in this case, limit.
Petitioners also contest as arbitrary, oppressive, excessive and confiscatory, Section 8 of R.A.
No. 9337, amending Section 110(A) of the NIRC, which provides:
SEC. 110. Tax Credits.
(A) Creditable Input Tax.
Provided, That the input tax on goods purchased or imported in a calendar month for use in trade
or business for which deduction for depreciation is allowed under this Code, shall be spread
evenly over the month of acquisition and the fifty-nine (59) succeeding months if the aggregate
acquisition cost for such goods, excluding the VAT component thereof, exceeds One million
pesos (P1,000,000.00): Provided, however, That if the estimated useful life of the capital goods
is less than five (5) years, as used for depreciation purposes, then the input VAT shall be spread
over such a shorter period: Provided, finally, That in the case of purchase of services, lease or
use of properties, the input tax shall be creditable to the purchaser, lessee or license upon
payment of the compensation, rental, royalty or fee.
The foregoing section imposes a 60-month period within which to amortize the creditable input
tax on purchase or importation of capital goods with acquisition cost of P1 Million pesos,
exclusive of the VAT component. Such spread out only poses a delay in the crediting of the input
tax. Petitioners argument is without basis because the taxpayer is not permanently deprived of
his privilege to credit the input tax.
It is worth mentioning that Congress admitted that the spread-out of the creditable input tax in
this case amounts to a 4-year interest-free loan to the government.76 In the same breath, Congress
also justified its move by saying that the provision was designed to raise an annual revenue of
22.6 billion.77 The legislature also dispelled the fear that the provision will fend off foreign
investments, saying that foreign investors have other tax incentives provided by law, and citing
the case of China, where despite a 17.5% non-creditable VAT, foreign investments were not
deterred.78 Again, for whatever is the purpose of the 60-month amortization, this involves
executive economic policy and legislative wisdom in which the Court cannot intervene.
With regard to the 5% creditable withholding tax imposed on payments made by the government
for taxable transactions, Section 12 of R.A. No. 9337, which amended Section 114 of the NIRC,
reads:
SEC. 114. Return and Payment of Value-added Tax.
(C) Withholding of Value-added Tax. The Government or any of its political subdivisions,
instrumentalities or agencies, including government-owned or controlled corporations (GOCCs)
shall, before making payment on account of each purchase of goods and services which are
subject to the value-added tax imposed in Sections 106 and 108 of this Code, deduct and
withhold a final value-added tax at the rate of five percent (5%) of the gross payment thereof:
Provided, That the payment for lease or use of properties or property rights to nonresident
owners shall be subject to ten percent (10%) withholding tax at the time of payment. For
purposes of this Section, the payor or person in control of the payment shall be considered as the
withholding agent.
The value-added tax withheld under this Section shall be remitted within ten (10) days following
the end of the month the withholding was made.
Section 114(C) merely provides a method of collection, or as stated by respondents, a more

simplified VAT withholding system. The government in this case is constituted as a withholding
agent with respect to their payments for goods and services.
Prior to its amendment, Section 114(C) provided for different rates of value-added taxes to be
withheld -- 3% on gross payments for purchases of goods; 6% on gross payments for services
supplied by contractors other than by public works contractors; 8.5% on gross payments for
services supplied by public work contractors; or 10% on payment for the lease or use of
properties or property rights to nonresident owners. Under the present Section 114(C), these
different rates, except for the 10% on lease or property rights payment to nonresidents, were
deleted, and a uniform rate of 5% is applied.
The Court observes, however, that the law the used the word final. In tax usage, final, as opposed
to creditable, means full. Thus, it is provided in Section 114(C): "final value-added tax at the rate
of five percent (5%)."
In Revenue Regulations No. 02-98, implementing R.A. No. 8424 (The Tax Reform Act of 1997),
the concept of final withholding tax on income was explained, to wit:
SECTION 2.57. Withholding of Tax at Source
(A) Final Withholding Tax. Under the final withholding tax system the amount of income tax
withheld by the withholding agent is constituted as full and final payment of the income tax due
from the payee on the said income. The liability for payment of the tax rests primarily on the
payor as a withholding agent. Thus, in case of his failure to withhold the tax or in case of
underwithholding, the deficiency tax shall be collected from the payor/withholding agent.
(B) Creditable Withholding Tax. Under the creditable withholding tax system, taxes withheld
on certain income payments are intended to equal or at least approximate the tax due of the
payee on said income. Taxes withheld on income payments covered by the expanded
withholding tax (referred to in Sec. 2.57.2 of these regulations) and compensation income
(referred to in Sec. 2.78 also of these regulations) are creditable in nature.
As applied to value-added tax, this means that taxable transactions with the government are
subject to a 5% rate, which constitutes as full payment of the tax payable on the transaction. This
represents the net VAT payable of the seller. The other 5% effectively accounts for the standard
input VAT (deemed input VAT), in lieu of the actual input VAT directly or attributable to the
taxable transaction.79
The Court need not explore the rationale behind the provision. It is clear that Congress intended
to treat differently taxable transactions with the government. 80 This is supported by the fact that
under the old provision, the 5% tax withheld by the government remains creditable against the
tax liability of the seller or contractor, to wit:
SEC. 114. Return and Payment of Value-added Tax.
(C) Withholding of Creditable Value-added Tax. The Government or any of its political
subdivisions, instrumentalities or agencies, including government-owned or controlled
corporations (GOCCs) shall, before making payment on account of each purchase of goods from
sellers and services rendered by contractors which are subject to the value-added tax imposed in
Sections 106 and 108 of this Code, deduct and withhold the value-added tax due at the rate of
three percent (3%) of the gross payment for the purchase of goods and six percent (6%) on gross
receipts for services rendered by contractors on every sale or installment payment which shall be
creditable against the 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 valued-added tax withheld under this Section shall be remitted within ten (10) days
following the end of the month the withholding was made. (Emphasis supplied)
As amended, the use of the word final and the deletion of the word creditable exhibits
Congresss intention to treat transactions with the government differently. Since it has not been
shown that the class subject to the 5% final withholding tax has been unreasonably narrowed,
there is no reason to invalidate the provision. Petitioners, as petroleum dealers, are not the only
ones subjected to the 5% final withholding tax. It applies to all those who deal with the
government.
Moreover, the actual input tax is not totally lost or uncreditable, as petitioners believe. Revenue
Regulations No. 14-2005 or the Consolidated Value-Added Tax Regulations 2005 issued by the
BIR, provides that should the actual input tax exceed 5% of gross payments, the excess may
form part of the cost. Equally, should the actual input tax be less than 5%, the difference is
treated as income.81
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 "full of sound and fury, signifying nothing."
Whats more, petitioners contention assumes the proposition that there is no profit or value-
added. It need not take an astute businessman to know that it is a matter of exception that a
business will sell goods or services without profit or value-added. It cannot be overstressed that a
business is created precisely for profit.
The equal protection clause under the Constitution means that "no person or class of persons
shall be deprived of the same protection of laws which is enjoyed by other persons or other
classes in the same place and in like circumstances."83
The power of the State to make reasonable and natural classifications for the purposes of taxation
has long been established. Whether it relates to the subject of taxation, the kind of property, the
rates to be levied, or the amounts to be raised, the methods of assessment, valuation and
collection, the States power is entitled to presumption of validity. As a rule, the judiciary will
not interfere with such power absent a clear showing of unreasonableness, discrimination, or
arbitrariness.84
Petitioners point out that the limitation on the creditable input tax if the entity has a high ratio of
input tax, or invests in capital equipment, or has several transactions with the government, is not
based on real and substantial differences to meet a valid classification.
The argument is pedantic, if not outright baseless. The law does not make any classification in
the subject of taxation, the kind of property, the rates to be levied or the amounts to be raised, the
methods of assessment, valuation and collection. Petitioners alleged distinctions are based on
variables that bear different consequences. While the implementation of the law may yield
varying end results depending on ones 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
Petitioners brought to the Courts attention the introduction of Senate Bill No. 2038 by Sens.
S.R. Osmea III and Ma. Ana Consuelo A.S. Madrigal on June 6, 2005, and House Bill No.
4493 by Rep. Eric D. Singson. The proposed legislation seeks to amend the 70% limitation by
increasing the same to 90%. This, according to petitioners, supports their stance that the 70%
limitation is arbitrary and confiscatory. On this score, suffice it to say that these are still proposed
legislations. Until Congress amends the law, and absent any unequivocal basis for its
unconstitutionality, the 70% limitation stays.
B. Uniformity and Equitability of Taxation
Article VI, Section 28(1) of the Constitution reads:
The rule of taxation shall be uniform and equitable. The Congress shall evolve a progressive
system of taxation.
Uniformity in taxation means that all taxable articles or kinds of property of the same class shall
be taxed at the same rate. Different articles may be taxed at different amounts provided that the
rate is uniform on the same class everywhere with all people at all times. 86
In this case, the tax law is uniform as it provides a standard rate of 0% or 10% (or 12%) on all
goods and services. Sections 4, 5 and 6 of R.A. No. 9337, amending Sections 106, 107 and 108,
respectively, of the NIRC, provide for a rate of 10% (or 12%) on sale of goods and properties,
importation of goods, and sale of services and use or lease of properties. These same sections
also provide for a 0% rate on certain sales and transaction.
Neither does the law make any distinction as to the type of industry or trade that will bear the
70% limitation on the creditable input tax, 5-year amortization of input tax paid on purchase of
capital goods or the 5% final withholding tax by the government. It must be stressed that the rule
of uniform taxation does not deprive Congress of the power to classify subjects of taxation, and
only demands uniformity within the particular class. 87
R.A. No. 9337 is also equitable. The law is equipped with a threshold margin. The VAT rate of
0% or 10% (or 12%) does not apply to sales of goods or services with gross annual sales or
receipts not exceeding P1,500,000.00.88 Also, basic marine and agricultural food products in
their original state are still not subject to the tax, 89 thus ensuring that prices at the grassroots level
will remain accessible. As was stated in Kapatiran ng mga Naglilingkod sa Pamahalaan ng
Pilipinas, Inc. vs. Tan:90
The disputed sales tax is also equitable. It is imposed only on sales of goods or services by
persons engaged in business with an aggregate gross annual sales exceeding P200,000.00. Small
corner sari-sari stores are consequently exempt from its application. Likewise exempt from the
tax are sales of farm and marine products, so that the costs of basic food and other necessities,
spared as they are from the incidence of the VAT, are expected to be relatively lower and within
the reach of the general public.
It is admitted that R.A. No. 9337 puts a premium on businesses with low profit margins, and
unduly favors those with high profit margins. Congress was not oblivious to this. Thus, to
equalize the weighty burden the law entails, the law, under Section 116, imposed a 3%
percentage tax on VAT-exempt persons under Section 109(v), i.e., transactions with gross annual
sales and/or receipts not exceeding P1.5 Million. This acts as a equalizer because in effect,
bigger businesses that qualify for VAT coverage and VAT-exempt taxpayers stand on equal-
footing.
Moreover, Congress provided mitigating measures to cushion the impact of the imposition of the
tax on those previously exempt. Excise taxes on petroleum products 91 and natural gas92 were
reduced. Percentage tax on domestic carriers was removed. 93 Power producers are now exempt
from paying franchise tax.94
Aside from these, Congress also increased the income tax rates of corporations, in order to
distribute the burden of taxation. Domestic, foreign, and non-resident corporations are now
subject to a 35% income tax rate, from a previous 32%. 95 Intercorporate dividends of non-
resident foreign corporations are still subject to 15% final withholding tax but the tax credit
allowed on the corporations domicile was increased to 20%. 96 The Philippine Amusement and
Gaming Corporation (PAGCOR) is not exempt from income taxes anymore. 97 Even the sale by
an artist of his works or services performed for the production of such works was not spared.
All these were designed to ease, as well as spread out, the burden of taxation, which would
otherwise rest largely on the consumers. It cannot therefore be gainsaid that R.A. No. 9337 is
equitable.
C. Progressivity of Taxation
Lastly, petitioners contend that the limitation on the creditable input tax is anything but
regressive. It is the smaller business with higher input tax-output tax ratio that will suffer the
consequences.
Progressive taxation is built on the principle of the taxpayers ability to pay. This principle was
also lifted from Adam Smiths Canons of Taxation, and it states:
I. The subjects of every state ought to contribute towards the support of the government, as
nearly as possible, in proportion to their respective abilities; that is, in proportion to the revenue
which they respectively enjoy under the protection of the state.
Taxation is progressive when its rate goes up depending on the resources of the person
affected.98
The VAT is an antithesis of progressive taxation. By its very nature, it is regressive. The
principle of progressive taxation has no relation with the VAT system inasmuch as the VAT paid
by the consumer or business for every goods bought or services enjoyed is the same regardless of
income. In
other words, the VAT paid eats the same portion of an income, whether big or small. The
disparity lies in the income earned by a person or profit margin marked by a business, such that
the higher the income or profit margin, the smaller the portion of the income or profit that is
eaten by VAT. A converso, the lower the income or profit margin, the bigger the part that the
VAT eats away. At the end of the day, it is really the lower income group or businesses with
low-profit margins that is always hardest hit.
Nevertheless, the Constitution does not really prohibit the imposition of indirect taxes, like the
VAT. What it simply provides is that Congress shall "evolve a progressive system of taxation."
The Court stated in the Tolentino case, thus:
The Constitution does not really prohibit the imposition of indirect taxes which, like the VAT,
are regressive. What it simply provides is that Congress shall evolve a progressive system of
taxation. The constitutional provision has been interpreted to mean simply that direct taxes are .
. . to be preferred [and] as much as possible, indirect taxes should be minimized. (E.
FERNANDO, THE CONSTITUTION OF THE PHILIPPINES 221 (Second ed. 1977)) Indeed,
the mandate to Congress is not to prescribe, but to evolve, a progressive tax system. Otherwise,
sales taxes, which perhaps are the oldest form of indirect taxes, would have been prohibited with
the proclamation of Art. VIII, 17 (1) of the 1973 Constitution from which the present Art. VI,
28 (1) was taken. Sales taxes are also regressive.
Resort to indirect taxes should be minimized but not avoided entirely because it is difficult, if not
impossible, to avoid them by imposing such taxes according to the taxpayers' ability to pay. In
the case of the VAT, the law minimizes the regressive effects of this imposition by providing for
zero rating of certain transactions (R.A. No. 7716, 3, amending 102 (b) of the NIRC), while
granting exemptions to other transactions. (R.A. No. 7716, 4 amending 103 of the NIRC) 99
CONCLUSION
It has been said that taxes are the lifeblood of the government. In this case, it is just an enema, a
first-aid measure to resuscitate an economy in distress. The Court is neither blind nor is it turning
a deaf ear on the plight of the masses. But it does not have the panacea for the malady that the
law seeks to remedy. As in other cases, the Court cannot strike down a law as unconstitutional
simply because of its yokes.
Let us not be overly influenced by the plea that for every wrong there is a remedy, and that the
judiciary should stand ready to afford relief. There are undoubtedly many wrongs the judicature
may not correct, for instance, those involving political questions. . . .
Let us likewise disabuse our minds from the notion that the judiciary is the repository of
remedies for all political or social ills; We should not forget that the Constitution has judiciously
allocated the powers of government to three distinct and separate compartments; and that judicial
interpretation has tended to the preservation of the independence of the three, and a zealous
regard of the prerogatives of each, knowing full well that one is not the guardian of the others
and that, for official wrong-doing, each may be brought to account, either by impeachment, trial
or by the ballot box.100
The words of the Court in Vera vs. Avelino101 holds true then, as it still holds true now. All things
considered, there is no raison d'tre for the unconstitutionality of R.A. No. 9337.
WHEREFORE, Republic Act No. 9337 not being unconstitutional, the petitions in G.R. Nos.
168056, 168207, 168461, 168463, and 168730, are hereby DISMISSED.
There being no constitutional impediment to the full enforcement and implementation of R.A.
No. 9337, the temporary restraining order issued by the Court on July 1, 2005 is LIFTED upon
finality of herein decision.
SO ORDERED.
MA. ALICIA AUSTRIA-MARTINEZ
Associate Justice
WE CONCUR:
HILARIO G. DAVIDE, JR.
Chief Justice
REYNATO S. PUNO ARTEMIO V. PANGANIBAN
Associate Justice Associate Justice

LEONARDO A. QUISUMBING CONSUELO YNARES-SANTIAGO

ANGELINA SANDOVAL-GUTIERREZ ANTONIO T. CARPIO
Associate Justice
Associate Justice
RENATO C. CORONA CONCHITA CARPIO-MORALES

ROMEO J. CALLEJO, SR. ADOLFO S. AZCUNA
Associate Justice
Associate Justice
DANTE O. TINGA MINITA V. CHICO-NAZARIO
Associate Justice
Associate Justice
CANCIO C. GARCIA
Associate Justice
CERTIFICATION
Pursuant to Section 13, Article VIII of the Constitution, it is hereby certified that the conclusions
in the above Decision were reached in consultation before the case was assigned to the writer of
the opinion of the Court.
Chief Justice
Footnotes
1
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."
2
Entitled, "An Act Restructuring the Value-Added Tax, Amending for the Purpose
Sections 106, 107, 108, 110 and 114 of the National Internal Revenue Code of 1997, As
Amended, and For Other Purposes."
3
Entitled, "An Act Amending Sections 106, 107, 108, 109, 110 and 111 of the National
Internal Revenue Code of 1997, As Amended, and For Other Purposes."
4
Entitled, "An Act Amending Sections 27, 28, 34, 106, 108, 109, 110, 112, 113, 114,
116, 117, 119, 121, 125, 148, 151, 236, 237 and 288 of the National Internal Revenue
Code of 1997, As Amended, and For Other Purposes."
5
Section 26, R.A. No. 9337.
6
TSN, July 14, 2005.
7
Section 125 of the National Internal Revenue Code, as amended, was not amended by
R.A. No. 9337, as can be gleaned from the title and body of the law.
8
Section 105, National Internal Revenue of the Philippines, as amended.
9
Ibid.
10
Deoferio, Jr., V.A. and Mamalateo, V.C., The Value Added Tax in the Philippines
(First Edition 2000).
11
Maceda vs. Macaraig, Jr., G.R. No. 88291, May 31, 1991, 197 SCRA 771.
12
Maceda vs. Macaraig, Jr., G.R. No. 88291, June 8, 1993, 223 SCRA, 217.
13
Id., Deoferio, Jr., V.A. and Mamalateo, V.C., The Value Added Tax in the Philippines
(First Edition 2000).
14
Commissioner of Internal Revenue vs. Seagate, G.R. No. 153866, February 11, 2005.
15
Kapatiran ng mga Naglilingkod sa Pamahalaan ng Pilipinas, Inc. vs. Tan, G.R. Nos. L-
81311, L-81820, L-81921, L-82152, June 30, 1988, 163 SCRA 371.
16
Entitled, "An Act Restructuring the Value-Added Tax (VAT) System, Widening its
Tax Base and Enhancing its Administration, And for these Purposes Amending and
Repealing the Relevant Provisions of the National Internal Revenue Code, as amended,
and for other Purposes."
17
Entitled, "An Act Amending Republic Act No. 7716, otherwise known as the Value-
Added Tax Law and Other Pertinent Provisions of the National Internal Revenue Code,
as Amended."
18
Entitled, "An Act Amending the National Internal Revenue Code, as Amended, and for
other Purposes."
19
Story, Commentaries 835 (1833).
20
G.R. No. 147387, December 10, 2003, 417 SCRA 503.
21
Id., pp. 529-530.
22
Supra., Note 20.
23
G.R. No. 115455, August 25, 1994, 235 SCRA 630.
24
Id., p. 670.
25
Westers Third New International Dictionary, p. 1897.
26
TSN, Bicameral Conference Committee on the Disagreeing Provisions of Senate Bill
No. 1950 and House Bill Nos. 3705 and 3555, May 10, 2005, p. 4.
27
Id., p. 3.
28
Sponsorship Speech of Representative Teves, in behalf of Representative Jesli Lapus,
TSN, January 7, 2005, pp. 34-35.
29
G.R. No. 105371, November 11, 1993, 227 SCRA 703.
30
Supra, Note 23.
31
Id., p. 668.
32
Id., p. 671.
33
Id., pp. 661-663.
34
Transcript of Session Proceedings, January 7, 2005, pp. 19-20.
35
Journal of the Senate, Session No. 67, March 7, 2005, pp. 727-728.
36
Id., p. 726.
37
See Angara vs. Electoral Commission, No. 45081, July 15, 1936, 63 Phil. 139, 156.
38
Defensor-Santiago vs. Commission on Elections, G.R. No. 127325, March 19, 1997,
270 SCRA 106, 153; People vs. Rosenthal, Nos. 46076 & 46077, June 12, 1939, 68 Phil.
328; ISAGANI A. CRUZ, Philippine Political Law 86 (1996). Judge Cooley enunciates
the doctrine in the following oft-quoted language: "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 intrusted 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." (Cooley on Constitutional
Limitations, 8th ed., Vol. I, p. 224)
39
United States vs. Barrias, No. 4349, September 24, 1908, 11 Phil. 327, 330.
40
16 Am Jur 2d, Constitutional Law, 337.
41
Pelaez vs. Auditor General, No. L-23825, December 24, 1965, 122 Phil. 965, 974
citing Calalang vs. Williams, No. 47800, December 2, 1940, 70 Phil. 726; Pangasinan
Transp. Co. vs. Public Service Commission, No. 47065, June 26, 1940, 70 Phil. 221;
Cruz vs. Youngberg, No. 34674, October 26, 1931, 56 Phil. 234; Alegre vs. Collector of
Customs, No. 30783, August 27, 1929, 53 Phil. 394 et seq.
42
Pelaez vs. Auditor General, supra, citing People vs. Lim Ho, No. L-12091-2, January
28, 1960, 106 Phil. 887; People vs. Jolliffee, No. L-9553, May 13, 1959, 105 Phil 677;
People vs. Vera, No. 45685, November 16, 1937, 65 Phil. 56; U.S. vs. Nag Tang Ho, No.
L-17122, February 27, 1922, 43 Phil. 1; Compaia General de Tabacos vs. Board of
Public Utility, No. 11216, March 6, 1916, 34 Phil. 136 et seq.
43
Edu vs. Ericta, No. L-32096, October 24, 1970, 35 SCRA 481, 497.
44
Eastern Shipping Lines, Inc. vs. POEA, No. L-76633, October 18, 1988, 166 SCRA
533, 543-544.
45
No. 45685, November 16, 1937, 65 Phil. 56.
46
Id., pp. 115-120.
47
Supra, note 43.
48
Id., pp. 496-497.
49
16 C.J.S., Constitutional Law, 138.
50
Ibid.
51
16 Am Jur 2d, Constitutional Law 340.
52
Yajus vs. United States, 321 US 414, 88 L Ed 834, 64 S Ct. 660, 28 Ohio Ops 220.
53
Province of Batangas vs. Romulo, G.R. No. 152774, May 27, 2004; Enriquez vs. Court
of Appeals, G.R. No. 140473, January 28, 2003, 396 SCRA 377; Codoy vs. Calugay,
G.R. No. 123486, August 12, 1999, 312 SCRA 333.
54
Province of Batangas vs. Romulo, supra; Quisumbing vs. Meralco, G.R. No. 142943,
April 3, 2002, 380 SCRA 195; Agpalo, Statutory Construction, 1990 ed., p. 45.
55
Villena vs. Secretary of Interior, No. 46570, April 21, 1939, 67 Phil 451, 463-464.
56
Alunan vs. Mirasol, G.R. No. 108399, July 31, 1997, 276 SCRA 501, 513-514, citing
Panama Refining Co. vs. Ryan, 293 U.S. 388, 79 L.Ed. 469 (1935).
57
Compaia General de Tabacos de Filipinas vs. The Board of Public Utility
Commissioners, No. 11216, 34 Phil. 136; Cruz vs. Youngberg, No. 34674, October 26,
1931, 56 Phil. 234; People vs. Vera, No. 45685, November 16, 1937, 65 Phil. 56, 113;
Edu vs. Ericta, No. L-32096, October 24, 1970, 35 SCRA 481; Tatad vs. Secretary of the
Department of Energy, G.R. No. 124360, November 5, 1997, 281 SCRA 330; Alunan vs.
Mirasol, supra.
58
Bowles vs. Willinghan, 321 US 503, 88 l Ed 892, 64 S Ct 641, 28 Ohio Ops 180.
59
United Residents of Dominican Hill, Inc. vs. Commission on the Settlement of Land
Problems, G.R. No. 135945, March 7, 2001, 353 SCRA 782; Commissioner of Internal
Revenue vs. Santos, G.R. No. 119252, August 18, 1997, 277 SCRA 617, 630.
60
Commission on Internal Revenue vs. American Express International, Inc. (Philippine
Branch), G.R. No. 152609, June 29, 2005.
61
Acting Commissioner of Customs vs. MERALCO, No. L-23623, June 30, 1977, 77
SCRA 469, 473.
62
Respondents Memorandum, pp. 168-169.
63
The Wealth of Nations, Book V, Chapter II.
64
Chavez vs. Ongpin, G.R. No. 76778, June 6, 1990, 186 SCRA 331, 338.
65
TSN, Bicameral Conference Committee on the Disagreeing Provisions of Senate Bill
No. 1950 and House Bill Nos. 3705 and 3555, April 25, 2005, pp. 5-6.
66
G.R. No. 147387, December 10, 2003, 417 SCRA 503, 524.
67
National Housing Authority vs. Reyes, G.R. No. L-49439, June 29, 1983, 123 SCRA
245, 249.
68
Sison vs. Ancheta, G.R. No. L-59431, July 25, 1984, 130 SCRA 654, 661.
69
Section 8, R.A. No. 9337, amending Section 110(A)(B),NIRC.
70
Ibid.
71
Commissioner of Internal Revenue vs. Benguet Corp., G.R. Nos. 134587 & 134588,
July 8, 2005.
72
United Paracale Mining Co. vs. Dela Rosa, G.R. Nos. 63786-87, April 7, 1993, 221
SCRA 108, 115.
73
E.O. No. 273, Section 1.
74
Section 5.
75
Section 110(B).
76
Journal of the Senate, Session No. 71, March 15, 2005, p. 803.
77
Id., Session No. 67, March 7, 2005, p. 726.
78
Id., Session No. 71, March 15, 2005, p. 803.
79
Revenue Regulations No. 14-2005, 4.114-2(a).
80
Commissioner of Internal Revenue vs. Philam, G.R. No. 141658, March 18, 2005.
81
Revenue Regulations No. 14-2005, Sec. 4. 114-2.
82
Act V, Scene V.
83
Philippine Rural Electric Cooperatives Association, Inc. vs. DILG, G.R. No. 143076,
June 10, 2003, 403 SCRA 558, 565.
84
Aban, Benjamin, Law of Basic Taxation in the Philippines (First Edition 1994).
85
Philippine Judges Association case, supra., note 29.
86
Commissioner of Internal Revenue vs. Court of Appeals, G.R. No. 119761, August 29,
1996, 261 SCRA 236, 249.
87
Kee vs. Court of Tax Appeals, No. L-18080, April 22, 1963, 117 Phil 682, 688.
88
Section 7, R.A. No. 9337.
89
Ibid.
90
No. L-81311, June 30, 1988, 163 SCRA 371, 383.
91
Section 17, R.A. No. 9337, amending Section 148, NIRC.
92
Section 18, amending Section 151, NIRC.
93
94
95
Sections 1 and 2, amending Sections 27 and 28, NIRC.
96
97
Section 1, amending Section 27(C), NIRC.
98
Reyes vs. Almanzor, G.R. Nos. 49839-46, April 26, 1991, 196 SCRA 322, 327.
99
Tolentino vs. Secretary of Finance, G.R. No. 115455, October 30, 1995, 249 SCRA
628, 659.
100
Vera vs. Avelino, G.R. No. L-543, August 31, 1946, 77 Phil. 365.
101
Ibid.
The Lawphil Project - Arellano Law Foundation

EN BANC
G.R. No. 168056 - ABAKADA GURO PARTY LIST, ET AL. V. EXECUTIVE

SECRETARY EDUARDO R. ERMITA, ET AL.
G.R. No. 168207 - AQUILINO PIMENTEL, JR., ET AL. V. EXECUTIVE SECRETARY

EDUARDO ERMITA, ET AL.
G.R. No. 168461 - ASSOCIATION OF PILIPINAS SHELL DEALERS, INC, ET AL. V.

CESAR V. PURISIMA, ET AL.
G.R. No. 168463 - FRANCIS JOSEPH G. ESCUDERO, ET AL. V. CESAR V. PURISIMA,

ET AL.
X- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - X
SEPARATE CONCURRING
AND DISSENTING OPINION
DAVIDE, JR., C.J.:
While I still hold on to my position expressed in my dissenting opinion in the first VAT cases, 1 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
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).
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 increase of the public debt,
Representatives but the Senate may propose or concur with amendments.
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. N0. 9337 even though they were not found in the Senate and House Bills.
In Philippine Judges Association v. Prado,3 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 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.
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 countrys 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.
Footnotes
1
Tolentino v. Secretary of Finance, G.R. No. 115455, 25 August 1994, 235 SCRA 630,
and companion cases.
2
ISAGANI A. CRUZ, POLITICAL LAW 154 (2002 ed.) citing U.S. v. Nortorn, 91 U.S.
566.
3
G.R. No. 105371, 11 November 1993, 27 SCRA 703, 708, citing Davies, Legislative
Law and Process: In a Nutshell 81 (1986 ed.)
4
Supra note 1.
G.R. No. 168056 ABAKADA GURO PARTY LIST, ET AL. VS. EXECUTIVE
SECRETARY EDUARDO ERMITA, ET AL.
G.R. No. 168207 AQUILINO PIMENTEL, JR., ET AL. VS. EXECUTIVE SECRETARY
EDUARDO ERMITA, ET AL.
G.R. No. 168461 ASSOCIATION OF PILIPINAS SHELL DEALERS, INC., ET AL. VS.
G.R. No. 168463 FRANCIS JOSEPH G. ESCUDERO, ET AL. VS. CESAR V.

PURISIMA, ET AL.
Promulgated: September 1, 2005
x- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - x
CONCURRING AND
DISSENTING OPINION
PUNO, J.:
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:
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 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 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 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 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 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
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.
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 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
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.
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.
x x x. Each report shall contain a detailed, sufficiently explicit statement of the changes in or
amendments to the subject measure. (Emphasis supplied)
The Jeffersons Manual has been adopted as a supplement to our parliamentary rules and
practice. Section 456 of Jeffersons 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.
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 xxx 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 xxx who shall be elected from
legislative districts xxx and those who xxx 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 peoples rightful
representatives subvert the peoples 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.
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 x x x." 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
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
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 sheriffs 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:
x x x. 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 sheriffs 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 kings 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 sheriffs 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 kings 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.
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 "x x x 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:
the amendment to any bill or joint resolution, the differences may be settled by the conference
appropriate action.
Sec. 89. Conference Committee Reports. - . . . Each report shall contain a detailed, sufficiently
...
prior to the voting thereon. The House shall vote 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:
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 latters 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 latters
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. 37059 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
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 x x x.
Sec. 3 of the same House bill provides:
Section 108 of the National Internal Revenue Code of 1997, as amended, is hereby further
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.
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.

x x x 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. x x x.
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 governments
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 units 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 Committees 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 (2) providing for quorum requirements;11 (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 (4) requiring
that bills embrace one subject expressed in the title thereof;13 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 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 Luces 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
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 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 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
Courts 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.
REYNATO S. PUNO
Associate Justice
Footnotes
1
Angara v. Electoral Commission, 63 Phil. 139 (1936); See also Tribe, American
Constitutional Law, pp. 311-314 (3rd ed.).
2
Mendoza, Judicial Review of Constitutional Questions: Cases and Materials, p. 86
(2004).
3
Id. at 87.
4
Abbott Laboratories v. Gardner, 387 U.S. 136 (1967); I Tribe, American Constitutional
Law, p. 334 (3rd ed.).
5
Texas v. United States, 523 U.S. 296 (1998); Thomas v. Union Carbide Agricultural
Products Co., 473 U.S. 568 (1985); I Tribe, American Constitutional Law, pp. 335-336
(3rd ed.).
6
Communist Party of the United States v. Subversive Activities Control Bd., 367 U.S. 1,
71 (1961); I Tribe, American Constitutional Law, p. 336 (3rd ed.); See also concurring
opinion of Justice Brandeis in Ashwander v. Tennessee Valley Authority, 297 U.S. 288
(1936).
7
235 SCRA 630 (1994).
8
See Opinion in 235 SCRA 630, 805-825.
9
H.B. No. 3555 has no "no pass on provision." House Bill No. 3705 expresses the latest
intent of the House on the matter.
10
1 Sutherland Statutory Construction 6:2 (6th ed.): The provision requiring that
legislative power shall be vested in a bicameral legislature seeks to "assure sound
judgment that comes from separate deliberations and actions in the respective bodies that
check and balance each other."
11
Const., Article VI, Section 16(2) (1987): "(2) A majority of each House shall constitute
a quorum to do business, but a smaller number may adjourn from day to day and may
compel the attendance of absent Members in such manner, and under such penalties, as
such House may provide."
12
Const., Article VI, Section 24 (1987); 1 Sutherland Statutory Construction 9:6 (6th
ed.): The provision helps guarantee that the exercise of the taxing power is well studied
as the lower house is "presumably more representative in character."
13
Const., Article VI, Section 26(1) (1987); I Cooley, A Treatise on Constitutional
Limitations, p. 143; Central Capiz v. Ramirez, 40 Phil. 883 (1920): "In the construction
and application of this constitutional restriction the courts have kept steadily in view the
correction of the mischief against which it was aimed. The object is to prevent the
practice, which was common in all legislative bodies where no such restrictions existed
of embracing in the same bill incongruous matters having no relation to each other or to
the subject specified in the title, by which measures were often adopted without attracting
attention. Such distinct subjects represented diverse interests, and were combined in order
to unite the members of the legislature who favor either in support of all. These
combinations were corruptive of the legislature and dangerous to the State. Such omnibus
bills sometimes included more than a hundred sections on as many different subjects,
with a title appropriate to the first section, and for other purposes."
"The failure to indicate in the title of the bill the object intended to be accomplished by
the legislation often resulted in members voting ignorantly for measures which they
would not knowingly have approved; and not only were legislators thus misled, but the
public also; so that legislative provisions were steadily pushed through in the closing
hours of a session, which, having no merit to commend them, would have been made
odious by popular discussion and remonstrance if their pendency had been seasonably
announced. The constitutional clause under discussion is intended to correct these evils;
to prevent such corrupting aggregations of incongruous measures, by confining each act
to one subject or object; to prevent surprise and inadvertence by requiring that subject or
object to be expressed in the title."
14
Const., Article VI, Section 26(2) (1987); 1 Sutherland Statutory Construction 10:4
(6th ed.); See also IV Laurel, Journal of the (1935) Constitutional Convention, pp. 436-
437, 440-441 where the 1934 Constitutional Convention noted the anomalous legislative
practice of railroading bills on the last day of the legislative year when members of
Congress were eager to go home. By this irregular procedure, legislators were able to
successfully insert matters into bills which would not otherwise stand scrutiny in leisurely
debate; I Cooley, A Treatise on the Constitutional Limitations, pp. 286-287(8th ed.);
Smith v. Mitchell, 69 W.Va 481, 72 S.E. 755 (1911): "The purpose of this provision of
the Constitution is to inform legislators and people of legislation proposed by a bill, and
to prevent hasty legislation."
15
235 SCRA 630, 783-784 citing Luce, Legislative Procedure, pp. 404-405, 407 (1922);
See also Davies, Legislative Law and Process, p. 81 (2nd ed.): "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."
16
268 SCRA 269, 289 (1997).
17
The Manila Standard Today, August 26, 2005, p. 1.
EN BANC
GR No. 168056 -- ABAKADA GURO PARTY LIST, etc. et al. v. HON. EXECUTIVE
SECRETARY EDUARDO R. ERMITA et al.
GR No. 168207 -- AQUILINO Q. PIMENTEL JR. et al. v. EXECUTIVE SECRETARY

EDUARDO R. ERMITA et al.
GR No. 168461 -- ASSOCIATION OF PILIPINAS SHELL DEALERS, INC., etc. et al. v.

CESAR V. PURISIMA, etc. et al.
GR No. 168463 -- FRANCIS JOSEPH G. ESCUDERO et al. v. CESAR V. PURISIMA etc.,

et al.
GR No. 168730 -- BATAAN GOVERNOR ENRIQUE T. GARCIA JR. v. HON.

EDUARDO R. ERMITA, etc. et al.
Promulgated: September 1, 2005
x -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- x
SEPARATE OPINION
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 judgments1 and
Farias v. Executive Secretary.2
Precedence of Mandatory
Constitutional Provisions
Over the Enrolled Bill Doctrine
I believe, however, that the enrolled bill doctrine3 is not absolute. It may be all-encompassing in
some countries like Great Britain,4 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
government5 in Great Britain.6 It is unlike that in our country and, therefore, the doctrine from
which it originated7 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 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
expanded9 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 Even the ponente of Tolentino,11 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
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 bills13 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?
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 under the
Constitution,15 it readily becomes apparent that no procedural impediment would arise. There
would also be no question as to their origination, 16 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 x x x bills x x x shall originate exclusively in
the House of Representatives, but the Senate may propose or concur with amendments."17
If the revenue bill originates exclusively from the Senate, then obviously the origination
provision18 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 I believe that such rewriting is
limited by the "germane" principle: although "relevant"20 or "related"21 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 economic22 or political -- interpretation. There must be an
"inherent logical connection."23 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 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 After all, the initiative for filing a revenue bill must come from the
House26 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 with a broader and more
circumspect outlook.28
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
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 while the bill from the Senate retained the
original 10 percent.31 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
In the computation of the percentage requirements in the alternative conditions under the law, the
amounts of the VAT collection, National Deficit, 33 and GDP34 -- 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 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.36 This eventuality has
been predetermined by Congress.37
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;
__________________
Culled from the same record, the following excerpts show the position of public respondents:
"Justice Panganiban: It will be based on actual figures?
"Usec. Bonoan: It will be based on actual figures.
"Justice Panganiban: That creates a problem[,] because where do you get the actual figures[?]
"Usec. Bonoan: I understand that[,] traditionally[,] we can come in March, but there is no
impediment to speeding up the gathering.
"Justice Panganiban: Speed it up. February 15?

"Usec. Bonoan: Even within January, Your Honor, I think this can be.
"Justice Panganiban: Alright at the end of January, its just estimate to get the figures in
January.
"Usec. Bonoan: Yes, Your Honor (pp. 661-662); and
xxx
"Justice Panganiban: My only point is, I raised this earlier and I promised counsel for the
petitioner whom I was questionin[g] that I will raise it with you, whether the date January 1,
2006 would present an impossibility of a condition happening.
"Usec. Bonoan: It will not, Your Honor.
"Justice Panganiban: So, your position [is] it will not present an impossibility. Elaborate on it in
your memorandum.
"Usec. Bonoan: Yes, Your Honor.
"Justice Panganiban: Because it is important. The administrative regulations are important[,]

because they clarify the law and it will guide taxpayers. So[,] by January 1[,] [taxpayers]
would not be wondering. Do we charge the end consumers 10 [percent] or 12 [percent]? The
regulations should be able to spell that out [i]n the same manner that even now the various
consumers of various products and services must be able to get from your
there was merely a declaration of an administrative, not a legislative, function.38
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 secretarys 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 Presidents alter ego in finance matters, to
determine the factual bases for making the increase in VAT rate operative. 39 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 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 nor an arbiter of
flaws within the latters internal rules. 42 Policy matters lie within the domain of the political
branches of government,43 outside the range of judicial cognizance. 44 "[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 Moreover, each house of
Congress has the power and authority to determine the rules of its proceedings. 46 The contention
that this case is not ripe for determination because there is no violation yet of the Constitution
regarding the exercise of the Presidents 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.
Amendments on Income Taxes. I respectfully submit that the amendments made by the BCC
(that were culled from the Senate version) regarding income taxes47 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 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 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 The former cannot be passed on to the consumer, but the latter can.51 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 The liability for the tax primarily rests upon the payor as a withholding agent. 53
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 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
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 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 It is an expense item that is paid or incurred within a given
taxable year on indebtedness in connection with a taxpayers trade, business or exercise of
profession.58 In order to reduce revenue losses, Congress enacted RA 842459 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 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 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 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 SB
1950 proposed an even spread over 60 months. 64 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 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 HB 3705 had no such equivalent
amendment, and SB 1950 pegged the rates at only 5 percent and 10 percent. 67 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.
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 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 Laur, a French engineer, 69 who invented the VAT. In 1954, he had the
idea of imposing an indirect tax on consumption, called taxe sur la valeur ajoute,70 which was
quickly adopted by the Direction Gnrale 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
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 there is no law
prohibiting that. Merely speculative and unproven, therefore, is the contention that the law is
arbitrary and oppressive.73 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 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 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 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 The
State may modify or withdraw such privilege, which is merely an asset granted by operation of
law.78 Moreover, there is no vested right in generally accepted accounting principles. 79 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.80 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 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 which is not constitutionally proscribed. 83
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 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 "rooted in the doctrine of separation of powers which enjoins upon
the three coordinate departments of the Government a becoming courtesy for each others
acts."86
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
RA 9337 was enacted precisely to achieve the objective of raising revenues to defray the
necessary expenses of government.88 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 neither public notice nor public
hearings were denied.
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, x x x
then we would have a serious problem, Your Honor.
"Justice Panganiban: Isnt 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.
"Justice Panganiban: That may be true[,] but its 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]ts unjust
and its unreasonable, Your Honor.
"Justice Panganiban: But it can be passed as a part of sales, sales costs rather.
"Atty. Baniqued: But the petroleum dealers here themselves interrupted
"Justice Panganiban: 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].
"Justice Panganiban: Yes.
"Atty. Baniqued: Its 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.
"Justice Panganiban: That might be true, but we are talking about whether that particular
provision would be unconstitutional. You say its oppressive, but you have a remedy, you just
pass it on to the customer. I am not sayin[g] its good[.] [N]either am I saying its wise[.] [A]ll
Im talking about is, whether its 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?
"Justice Panganiban: Yes.
"Atty. Baniqued: Then, it would complicate interrupted

"Justice Panganiban: 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, isnt 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
"Justice Panganiban: 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 its good. All I am saying is, is it constitutional or not[?] Were not here to
determine the wisdom of the law, thats 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 its [VAT]. If Congress
will just say all petroleum will pay 3 [percent] of their Gross Sales, but you dont bear that, you
pass that on, isnt 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.
"Justice Panganiban: 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.
"Justice Panganiban: 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 dont 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.
"Justice Panganiban: Its 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. Its 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 sidesinterrupted
"Justice Panganiban: Thats 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 therell be no confusion and therell 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], isnt it?
"Atty. Baniqued: It will be a very hard decision to make, Your Honor.
"Justice Panganiban: Why, you will not pass it on?
"Atty. Baniqued: I cannot speak for the dealers. interrupted.
"Justice Panganiban: As a consumer, I will thank you if you dont 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
"Justice Panganiban: You can find redress here, only if you can show that the law is
unconstitutional.
"Atty. Baniqued: We realized that, Your Honor.
"Justice Panganiban: Alright. Lets 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.
"Justice Panganiban: And that doesnt apply at all times, isnt it?
"Atty. Baniqued: Well
"Justice Panganiban: That doesnt at all times?
"Atty. Baniqued: For capital goods costing less than 1 million, Your Honor, then.
"Justice Panganiban: That will not apply?

"Atty. Baniqued: That will not apply, but you will have the 70 [percent] cap on input [VAT],
Your Honor.
"Justice Panganiban: Yes, but we talked already about the 70 [percent].
"Justice Panganiban: 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]hats 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].
"Justice Panganiban: Yes, but you combined it later on with the 70 [percent] cap to show that the
dealers are so disadvantaged. But you didnt 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.
"Justice Panganiban: But thats a different profit center, thats not from the sale of
"Atty. Baniqued: No, they would form part of their [VATable] sale, Your Honor.
Justice Panganiban: Its a different profit center[;] its 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.
"Atty. Baniqued: Yes, Your Honor, we apologize if it has caused a little confusion.
"Justice Panganiban: Again the solution could b[e] to pass that on, because thats an added
cost, isnt it?
"Atty. Baniqued: Well, yes, you can pass it on.
"Justice Panganiban: 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 wouldnt
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.
"Justice Panganiban: Alright. Lets go to the third. The 5 [percent] withholding tax, [f]inal
[w]ithholding [t]ax, but this applies to sales to government?
"Justice Panganiban: 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..
"Justice Panganiban: Why?
"Atty. Baniqued: By way of, for example sales to NAPOCOR or NTC. interrupted
"Justice Panganiban: 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.
"Justice Panganiban: Okay, lets see. You sell, lets 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?
"Justice Panganiban: You will charge that[.] [T]herefore[,] the sales to the Supreme Court by that
gas station will effectively be higher?
"Justice Panganiban: 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, thats of course we agree. Interrupted.
"Justice Panganiban: Not if, you can pass it on.
"Atty. Baniqued: Yes, we can. interrupted
"Justice Panganiban: 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[,] well 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, isnt it[?] So, how [will] you be affected?
"Atty. Baniqued: I hope the passing on of the burden, Your Honor, doesnt come back to party
litigants by way of increase in docket fees, Your Honor.
"Justice Panganiban: But thats 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 its not business in character.
"Atty. Baniqued: Yes, Your Honor, it is our submission that this limitation in the input [VAT]
credit as well as the amortization.
"Justice Panganiban: 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.
"Justice Panganiban: Yes, you can pass them on to customers[,] in other words. Its the
customers who should [complain].
"Atty. Baniqued: Yes, Your Honor interrupted
"Justice Panganiban: And perhaps will not elect their representatives anymore[.]
"Atty. Baniqued: Yes, Your Honor..
"Justice Panganiban: 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.
"Justice Panganiban: Yes, inflationary and inflammatory.
"Atty. Baniqued: just like what Justice Puno says it shakes the entire economic foundation,
Your Honor.
"Justice Panganiban: Yes, its 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.
"Justice Panganiban: There might be wisdom in what youre 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
"Justice Panganiban: Are these constraints [--] legal constraints?
"Atty. Baniqued: Well, it would be a different story, Your Honor[.] [T]hats something we
probably have to take up with the Department of Energy, lest [we may] be accused of ..
"Justice Panganiban: In other words, thats your remedy
[--] to take it up with the Department of Energy
"Atty. Baniqued: ..unreasonable price increases, Your Honor.
"Justice Panganiban: 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, [were] also going to bear the burden of
whatever they themselves pass on.
"Justice Panganiban: You know[,] as a consumer, I wish you can really show that the laws are
unconstitutional, so I dont 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 BCCs amendments
regarding other taxes90 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
measures91 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 Directly related to the proposed VAT changes, these amendments are
expected also to have a salutary effect on the national economy.
The no-amendment rule93 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 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
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
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.
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
ponencias 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 Executives 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 Thus, in
upholding the Philippine ratification of the treaty establishing the World Trade Organization
(WTO), Taada 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 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 Indeed, "there must be clear and unequivocal
showing that what the Constitutions prohibits, the statute permits." 100
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.
ARTEMIO V. PANGANIBAN
Associate Justice
Footnotes
1
235 SCRA 630, August 25, 1994; and 249 SCRA 628, October 30, 1995. The second
case is an en banc Resolution on the Motions for Reconsideration of the first case.
2
417 SCRA 503, December 10, 2003.
3
"[I]t is well settled that the enrolled bill doctrine is conclusive upon the courts as
regards the tenor of the measure passed by Congress and approved by the President."
Resins Inc. v. Auditor General, 134 Phil. 697, 700, October 29, 1968, per Fernando, J.,
later CJ.; (citing Casco Philippine Chemical Co., Inc. v. Gimenez, 117 Phil. 363, 366,
February 28, 1963, per Concepcin, J., later CJ.). It is a doctrine that flows as a corollary
to the separation of powers, and by which due respect is given by one branch of
government to the actions of the others. See Morales v. Subido, 136 Phil. 405, 412,
February 27, 1969.
Following Field v. Clark (143 US 649, 12 S.Ct. 495, February 29, 1892), such
conclusiveness refers not only to the provisions of the law, but also to its due enactment.
Mabanag v. Lopez Vito, 78 Phil. 1, 13-18, March 5, 1947.
"[T]he signing of a bill by the Speaker of the House and the Senate President and the
certification of the Secretaries of both [h]ouses of Congress that it was passed are
conclusive of its due enactment." Farias v. Executive Secretary, supra, p. 529, per
Callejo Sr., J.
4
Mabanag v. Lopez Vito, supra, p. 12.
5
1 of Rule 129 of the Rules of Court.
6
The United Kingdom has an uncodified Constitution, consisting of both written and
unwritten sources, capable of evolving to be responsive to political and social change,
and found partly in conventions and customs and partly in statute. Its Parliament has the
power to change or abolish any written or unwritten element of the Constitution. There is
neither separation of powers nor formal checks and balances. Every bill drafted has to be
approved by both the House of Commons and the House of Lords, before it receives the
Royal Assent and becomes an Act of Parliament. The House of Lords is the second
chamber that complements the work of the Commons, whose members are elected to
represent their constituents. The first is the House of Commons that alone may start bills
to raise taxes or authorize expenditures. Each bill goes through several stages in each
House. The first stage, called the first reading, is a mere formality. The second -- the
second reading -- is when general principles of the bill are debated upon. At the second
reading, the House may vote to reject the bill. Once the House considers the bill, the third
reading follows. In the House of Commons, no further amendments may be made, and
the passage of the motion amounts to passage of the whole bill. The House of Lords,
however, may not amend a bill so as to insert a provision relating to taxation.
http://en.wikipedia.org/wiki/Constitution_of_the_United_Kingdom; http://
www.oefre.unibe.ch/law/icl/uk00000_.html; www.parliament.uk; and
http://encyclopedia.thefreedictionary.com/British+Parliament (Last visited August 4,
2005, 11:30am PST).
7
See Dissenting Opinion of Puno, J. in Tolentino v. Secretary of Finance, supra, p. 818.
8
Cf. Francisco Jr. v. House of Representatives, 415 SCRA 44, November 10, 2003.
9
Tolentino v. Secretary of Finance, supra.
10
2nd paragraph, 1 of Article VIII of the 1987 Constitution.
11
Tolentino v. Secretary of Finance, supra.
12
Arroyo v. De Venecia, 343 Phil. 42, 61-62, August 14, 1997, per Mendoza, J.
13
These refer to House Bill Nos. 3555 & 3705; and Senate Bill No. 1950.
14
26(2) of Article VI of the 1987 Constitution.
15
"The purpose for which three readings on separate days is required is said to be two-
fold: (1) to inform the members of Congress of what they must vote on and (2) to give
them notice that a measure is progressing through the enacting process, thus enabling
them and others interested in the measure to prepare their positions with reference to it."
Tolentino v. Secretary of Finance, supra, p. 647, October 30, 1995, per Mendoza, J.
16
24 of Article VI of the 1987 Constitution.
17
The power of the Senate to propose or concur with amendments is, apparently, without
restriction. By virtue of this power, the Senate can practically rewrite a bill that is
required to come from the House and leave only a trace of the original bill. See Flint v.
Stone Tracy Co., 220 US 107, 31 S.Ct. 342, March 13, 1911.
18
19
Tolentino v. Secretary of Finance, supra, p. 661, August 25, 1994.
20
Garner (ed. in chief), Blacks Law Dictionary (8th ed., 2004), p. 708.
21
Statsky, Wests Legal Thesaurus/Dictionary (1986), p. 348.
22
To argue that the raising of revenues makes the non-VAT provisions of a VAT bill
automatically germane is to bring legal analysis within the penumbra of economic
scrutiny. The burden or impact of any tax depends on the relative elasticities of supply
and demand and is chiefly a matter of policy confined within the august halls of
Congress. See Pindyck and Rubinfeld, Microeconomics (5th ed., 2003), pp. 314-317.
23
Exxon Mobil Corp. v. Allapattah Services, Inc., 125 S.Ct. 2611, 2622, June 23, 2005,
per Kennedy, J.
24
Tolentino v. Secretary of Finance, supra, p. 663, August 25, 1994. See Cruz, Philippine
Political Law (2002), p. 154.
25
Tolentino v. Secretary of Finance, supra, August 25, 1994, per Mendoza, J.
26
Cruz, Philippine Political Law (2002), p. 155.
27
Tolentino v. Secretary of Finance, supra, August 25, 1994.
28
Cruz, Philippine Political Law (2002), p. 111.
29
Tolentino v. Secretary of Finance, supra, p. 668, August 25, 1994.
There is no allegation in any of the memoranda submitted to this Court that the
consolidated bill was not approved. In fact, both houses of Congress voted separately and
majority of each house approved it.
30
On the one hand, 1-3 of House Bill (HB) No. 3555 seek to amend 106, 107 & 108
the Tax Code by increasing the VAT rate to 12% on every sale, barter or exchange of
goods or properties; importation of goods; and sale or exchange of services, including the
use or lease of properties.
1-3 of HB 3705, on the other, seek to amend 106, 107 & 108 the Tax Code by also
increasing the VAT rate to 12% on every sale, barter or exchange of goods or properties;
importation of goods; and sale or exchange of services, including the use or lease of
properties, but decreasing such rate to 8% on every importation of certain goods; 6% on
the sale, barter or exchange of certain locally manufactured goods; and 4% on the sale,
barter or exchange, as well as importation, of petroleum products subject to excise tax
and raw materials to be used in their manufacture (subject to subsequent increases of such
reduced rates), and on the gross receipts derived from services rendered on the sale of
generated power.
The Tax Code referred to in this case is RA 8424, otherwise known as the "Tax Reform
Act of 1997."
31
4-5 of Senate Bill (SB) No. 1950 seek to amend 106 & 108 of the Tax Code by
retaining the VAT rate of 10% on every sale, barter or exchange of goods or properties;
and on the sale or exchange of services, including the use or lease of properties, and the
sale of electricity by generation, transmission, and distribution companies.
32
4-6 of the consolidated bill amending 106-108 of the Tax Code, respectively.
Conference Committee Report on HBs 3555 & 3705, and SB 1950, pp. 4-7.
The predetermined factual scenario in the above-cited sections of the consolidated bill
also appears in 4-6 of Republic Act (RA) No. 9337, amending the same provisions of
the Tax Code. Mathematically, it is expressed as follows:
VAT Collection > 2.8%
GDP
or
National Government Deficit > 1.5%
GDP
33
A negative budget surplus, or an excess of expenditure over revenues, is a budget
deficit. Dornbusch, Fischer, and Startz, Macroeconomics (9th ed., 2005), p. 231.
34
GDP refers to the value of all goods and services produced domestically; the sum of
gross value added of all resident institutional units engaged in production (plus any taxes,
and minus any subsidies, on products not included in the values of their outputs).
www.nscb.gov.ph/sna/default.asp (Last visited July 14, 2005 10am PST).
35
See Pelaez v. Auditor General, 122 Phil. 965, 974, December 24, 1965.
36
The acts of retroactively implementing the 12 percent VAT rate, should the finance
secretary be able to make recommendation only weeks or months after the end of fiscal
year 2005, or reverting to 10 percent if both conditions are not met, are best addressed to
the political branches of government.
The following excerpts from the Transcript of the Oral Arguments in GR Nos. 168461,
168463, 168056, and 168207, held on July 14, 2005 at the Supreme Court Session Hall,
are instructive on the position of petitioners:
"Atty. Gorospe: [Its] supposed to be 2005, Your Honor, but apparently, it [will] be
impossible to determine GDP the first day of 2006, Your Honor." (p. 57);
xxx
"Justice Panganiban: Now [lets see] when it is possible then to determine this formula. It
cannot be on the first day of January 2006, because the year [2005] ended just the
midnight before, isnt it?
"Atty. Gorospe: Yes, Your Honor.
"Justice Panganiban: x x x if its only determined on March 1[,] then how can the law
become effective January 1[.] In other words, how will the [people be] able to pay the tax
if ever that formula is exceeded x x x?" (pp. 59-60);
xxx
"Atty. Gana: Well, x x x it would take a grace period of 6 to 8 months[,] because

obviously, determination could not be made on January 1, 2006. Yes, they were
under the impression that at the earliest it would take 30 days.
"Justice Panganiban: Historically, when [will] these figures [be] available[:] the GDP,
[VAT] collection?" (p. 192);
xxx
"Justice Panganiban: But certainly not on January 1. Therefore, by January 1, people

would not know whether the rate would be increased or not, even if there is no
discretion?
"Atty. Gana: Thats true, Your Honor, even if there is no discretion.
"Justice Panganiban: It will take weeks, or months to be able to determine that?
"Atty. Gana: Well, they anticipated it, would take at most by March." (p. 193); and
xxx
"Justice Panganiban: March, I will ask the government later on when they argue.
"Atty. Gana: As early as January but not later than 60 to 90 days." (boldface supplied;
p. 194).
37
38
regulations how much they [would] be charged, how much should gasoline stations
charge in addition to their correct prices, how much carriers should charge[,] so there
[would] be no confusion.
"Usec. Bonoan: Yes, Your Honor." (boldface supplied; pp. 665-666).

37 Using available statistics, it is approximated that the 2 4/5 percent has been reached.
VAT collection (in million pesos) for the first quarter alone of 2004 is 83,542.83, or 83
percent of revenue collections amounting to 100,654.01. Divided into GDP of 13,053, the
quotient is already 6.4 percent.
http://www.nscb.gov.ph/sna/2005/1stQ2005/2005per1.asp; and the 2003 Bureau of
Internal Revenue (BIR) Annual Report found on www.bir.gov.ph (Last visited July 14,
2005, 10:45am PST).
[38] Besides, the use of the word "shall" in 106(A), 107(A) & 108(A) of the Tax Code,
as amended respectively by 4, 5 & 6 of RA 9337, is mandatory, imperative and
compulsory. See Agpalo, Statutory Construction (4th ed., 1998), p. 333.
39
See Separate Opinion (Concurring and Dissenting) of Panganiban, J., in Southern
Cross Cement Corp. v. Philippine Cement Manufacturers Corp., GR No. 158540, August
3, 2005, p. 31.
40
Escudero Memorandum, pp. 38-39.
GDP data are far from perfect measures of either economic output or welfare. There are
three major problems: (1) some outputs are poorly measured because they are not traded
in the market, and government services are not directly priced by such market; (2) some
activities measured as additions to GDP in fact only represent the use of resources in
order to avoid crime or risks to national security; and (3) it is difficult to account
correctly for improvements in the quality of goods. Dornbusch, Fischer, and Startz,
Macroeconomics (9th ed., 2005), pp. 35-36.
41
Farias v. Executive Secretary, 417 SCRA, 503, 530, December 10, 2003.
42
"Any meaningful change in the method and procedures of Congress or its committees
must x x x be sought in that body itself." Tolentino v. Secretary of Finance, supra, p. 650,
October 30, 1995, per Mendoza, J.
43
The necessity, desirability or expediency of a law must be addressed to Congress as the
body that is responsible to the electorate, for "legislators are the ultimate guardians of the
liberties and welfare of the people in quite as great a degree [as the] courts." Tolentino v.
Secretary of Finance, supra, p. 650, October 30, 1995, per Mendoza, J.; (citing Missouri,
K. & T. Ry. Co. v. May, 194 US 267, 270, 24 S.Ct. 638, 639, May 2, 1904, per Holmes,
J.)
44
Farias v. Executive Secretary, 417 SCRA, 503, 524, December 10, 2003.
45
Flint v. Stone Tracy Co., 220 US 107, 167, 31 S.Ct. 342, 355, March 13, 1911, per
Day, J.
46
"Parliamentary rules are merely procedural, and with their observance, the courts have no
concern. They may be waived or disregarded by the legislative body." Arroyo v. De
Venecia, supra, p. 61, August 14, 1997, per Mendoza, J.; (citing Osmea Jr. v. Pendatun,
109 Phil 863, 870-871, October 28, 1960, per Bengzon, J.).
47
HBs 3555 & 3705 do not contain any provision that seeks to revise non-VAT
provisions of the Tax Code, but SB 1950 has 1-3 that seek to amend the rates of
income tax on domestic, resident foreign and nonresident foreign corporations at 35%
(30% in 2009), with a tax credit on intercorporate dividends at 20% (15% in 2009); and
to reduce the allowable deductions for interest expense by 42% (33% in 2009) of the
interest income subject to final tax.
48
The amendments to income taxes also partake of the nature of taxation without
representation. As I will discuss in the succeeding paragraphs of this Opinion, they did
not emanate from the House of Representatives that, under 24 of Article VI of the 1987
Constitution, is the only body from which revenue bills should exclusively originate.
49
Mamalateo, Philippine Income Tax (2004), p. 1.
50
Commissioner of Internal Revenue v. American Express International, Inc. (Philippine
Branch), GR No. 152609, p. 20, June 29, 2005, per Panganiban, J. See Deoferio Jr. &
Mamalateo, The Value Added Tax in the Philippines (2000), p. 36.
51
De Leon, The Fundamentals of Taxation (12th ed., 1998), pp. 92 & 132.
52
53
Vitug, Tax Law and Jurisprudence (2nd ed., 2000), p. 188.
54
55
De Leon, The Law on Transfer and Business Taxation with Illustrations, Problems,
and Solutions (1998), pp. 195-196 & 222-224.
56
57
See 78 of Revenue Regulations No. 2-1940, recommended by Bibiano L. Meer, then
Collector of Internal Revenue, and promulgated by Manuel Roxas, then Secretary of
Finance, later President of the Republic of the Philippines, on February 11, 1941, XXXIX
OG 18, 325.
58
59
RA 8424 refers to the Tax Reform Act of 1997.
60
The 42 percent reduction rate under 3 of RA 9337, amending 34(B)(1) of the Tax
Code, is derived by first subtracting the 20 percent tax on interest income from the
increased tax rate of 35 percent imposed on domestic, resident foreign, and nonresident
foreign corporations, and then dividing the difference obtained by the increased rate.
Hence, it is computed as follows:
35% - 20% = 15%
15% : 35% = 42%, the amount of reduction.

61
1-3 of HB 3705.
62
5 of SB 1950. There seems to be a discrepancy between the Conference Committee
Report and the various pleadings before this Court. While such report, attaching a copy of
the bill as reconciled and approved by its conferees, as well as the report submitted by the
Senates Committee on Ways & Means to the Senate President on March 7, 2005, show
that SB 1950 does not contain a no-pass on provision, the petitioners and respondents
show that it does (Pimentel Memorandum, Annex A showing a "Matrix on the
Disagreeing Provisions of the [VAT] Bills," pp. 9-11; Escudero Memorandum, p. 42; and
Respondents Memorandum, pp. 109-110). Notably, the qualified dissent of Senator
Joker Arroyo to the Bicameral Conference Report states that the Senate version prohibits
the power companies from passing on the VAT that they will pay.
63
4 of HB 3555 seeks to amend 110(A) of the Tax Code by limiting to 5% and 11% of
their respective total amounts the claim for input tax credit of capital goods, through
equal distribution of the amount of such claim over their depreciable lives; and of goods
and services other than capital goods, and goods purchased by persons engaged in retail
trade.
64
7 of SB 1950 seeks to amend 110 of the Tax Code by also limiting the claim for
input tax credit of goods purchased or imported for use in trade or business, through an
even depreciation or amortization over the month of acquisition and the 59 succeeding
months, if the aggregate acquisition cost of such goods exceeds P 660,000.
The depreciation or amortization in the amendments is referred to as a "spread-out" in an

unnumbered Revenue Memorandum Circular dated July 12, 2005, submitted to this Court
by public respondents in their Compliance dated August 16, 2005. Such spread-out
recognizes industries where capital assets are constructed or assembled.
65
No cap is found in HB 3705.
66
5 of HB 3555 seeks to amend 114 of the Tax Code by requiring that the VAT be
deducted and withheld by the government or by any of its political subdivisions,
instrumentalities or agencies -- including government-owned-and-controlled corporations
(GOCCs) -- before making any payment on account of each purchase of goods from
sellers and services rendered by contractors. The VAT deducted and withheld shall be at
the rates of 5% of the gross payment for the purchase of goods and 8% of the gross
receipts for services rendered by contractors on every sale or installment payment. The
VAT that is deducted and withheld shall be creditable against their respective VAT
liabilities -- 10.5%, in case of government public works contractors; and 12% of the
payments for the lease or use of properties or property rights to nonresident owners.
67
11 of SB 1950 seeks to amend 114 of the Tax Code by requiring that the VAT be
deducted and withheld by the government or by any of its political subdivisions,
instrumentalities or agencies -- including government-owned or -controlled corporations
(GOCCs) -- before making any payment on account of each purchase of goods from
sellers and services rendered by contractors. The VAT deducted and withheld shall be at
the rates of 5% of the gross payment for the purchase of goods and on the gross receipts
for services rendered by contractors, including public works contractors. The VAT that is
deducted and withheld shall be creditable against the VAT liability of the seller; and 10%
of the gross payment for the lease or use of properties or property rights to nonresident
owners.
68
Deoferio Jr. & Mamalateo, The Value Added Tax in the Philippines (2000), pp. 34-35
& 44.
69
http://explanation-guide.info/meaning/Maurice-Laur.html (Last visited August 23,
2005, 3:25pm PST).
70
This refers to a "tax on value added" -- TVA in French and VAT in English.
71
http://en.wikipedia.org/wiki/ Maurice-Laur (Last visited August 23, 2005, 3:20pm
PST).
72
The Transcript of the Oral Arguments in GR Nos. 168461, 168463, 168056, and
168207, held on July 14, 2005 at the Supreme Court Session Hall, show that the act of
passing on to consumers is a mere cash flow problem, as agreed to by counsel for
petitioners in GR No. 168461:
"Justice Panganiban: So, the final consumer pays the tax?
"Justice Panganiban: The trade people in between the middlemen just take it as an input
and then [collect] it as output, isnt it?
Atty. Baniqued: Yes, Your Honor.
"Justice Panganiban: Its just a cash flow problem for them, essentially?
"Atty. Baniqued: Yes x x x." (p. 375).

73
The 5 percent final withholding tax may also be charged as part of a suppliers Cost of
Sales.
74
This refers to RA 8424, as amended.
75
In fact, 112(B) of the Tax Code, prior to and after its amendment by 10 of RA 9337,
does not at all prohibit the application of unused input taxes against other internal
revenue taxes. The manner of application is determined though by the BIR through
4.112-1(b) of Revenue Regulations No. 14-2005, otherwise known as the "Consolidated
VAT Regulations of 2005," dated June 22, 2005.
76
That the unutilized input VAT can be considered an ordinary and necessary expense
for which a corresponding deduction will be allowed against gross income under
34(A)(1) of the Tax Code -- instead of a deferred asset -- is another matter to be
adjudicated upon in proper cases.
77
See United Paracale Mining Co. v. De la Rosa, 221 SCRA 108, 115, April 7, 1993.
78
The law referred to is not only the Tax Code, but also RA 9298, otherwise known as
the "Philippine Accountancy Act of 2004."
79
These are based on pronouncements of recognized bodies involved in setting
accounting principles. Greatest weight shall be given to their pronouncements in the
order listed below:
1. Securities and Exchange Commission (SEC);
2. Accounting Standards Council;
3. Standards issued by the International Accounting Standards Board (now Committee);

and
4. Accounting principles and practices for which there has been a long history of
acceptance and usage.
If there appears to be a conflict between any of the bodies listed above, the
pronouncements of the first listed body shall be applied. SEC Securities Regulation Code
Rule 68(1)(b)(iv) as amended, cited in Appendix C of Morales, The Philippine Securities
Regulation Code (Annotated), [2005], p. 578.
Recommended by the World Bank and the Asian Development Bank, and increasingly
recognized worldwide, international accounting standards (IAS) have been merely
adopted by Philippine regulatory bodies and accredited professional organizations. The
SEC, for instance, complies with the agreement among co-members of the International
Organization of Securities Commissions to adopt IAS in order to ensure high-quality and
transparent financial reporting, with full disclosure as a means to promote credibility and
efficiency in the capital markets. In implementing the General Agreement on Trade in
Services, the Professional Regulatory Board of Accountancy (PRBOA) of the
Professional Regulatory Commission supports the adoption of IAS. The Philippine
Institute of Certified Public Accountants, a member of the International Accounting
Standards Committee (IASC), also has the commitment to support the work of the IASC
and uses best endeavors to foster compliance with IAS.
http://www.picpa.com.ph/adb/index.htm (Last visited August 23, 2005, 3:15pm PST).
80
Meigs & Meigs, Accounting: The Basis for Business Decisions (1981), pp. 28 & 515.
Under 9(b) & (g) of RA 9298, the PRBOA shall supervise the practice of accountancy
in the Philippines and adopt measures -- such as the promulgation of accounting and
auditing standards, rules and regulations, and best practices -- that may be deemed proper
for the enhancement and maintenance of high professional, ethical, accounting, and
auditing standards that include international accounting and auditing standards and
generally accepted best practices.
81
The VAT is collected on each sale of goods or properties or upon the actual or
constructive receipt of consideration for services, starting from the production stage,
followed by the intermediate stages in the distribution process, and culminating with the
sale to the final consumer. This is the essence of a VAT; it is a tax on the value added,
that is, on the excess of sales over purchases. See Deoferio Jr. & Mamalateo, The Value
Added Tax in the Philippines (2000), pp. 33-34. With the 70 percent cap on output tax
that is allowable as an input tax credit, the remaining 30 percent becomes an outright
expense that is, however, immediately payable and remitted by the business
establishment to the government. This amount can never be recovered or passed on to the
consumer, but it can be an allowable deduction from gross income under 34(A)(1) of the
Tax Code. In effect, it is a tax computed by multiplying 30 percent to the 10 percent VAT
that is imposed on gross sales, receipts or revenues. It is not a tax on tax and,
mathematically, it is derived as follows:
30% x 10% = 3% of gross sales, receipts or revenues.

82
"Double taxation means taxing the same property [or subject matter] twice when it
should be taxed only once; that is, taxing the same person twice by the same jurisdiction
for the same thing." Commissioner of Internal Revenue v. Solidbank Corp., 416 SCRA
436, November 25, 2003, per Panganiban, J.; (citing Afisco Insurance Corp. v. CA, 361
Phil. 671, 687, January 25, 1999, per Panganiban, J.). See Commissioner of Internal
Revenue v. Bank of Commerce, GR No. 149636, pp. 17-18, June 8, 2005.
83
"The rule x x x is well settled that there is no constitutional prohibition against double
taxation." China Banking Corp. v. CA, 403 SCRA 634, 664, June 10, 2003, per Carpio, J.
Cruz, Constitutional Law (1998), p. 89.
84
116 of the Tax Code as amended.
85
"[C]ourts accord the presumption of constitutionality to legislative enactments, not
only because the legislature is presumed to abide by the Constitution[,] but also because
the judiciary[,] in the determination of actual cases and controversies[,] must reflect the
wisdom and justice of the people as expressed through their representatives in the
executive and legislative departments of the government." Angara v. Electoral
Commission, 63 Phil. 139, 158-159, July 15, 1936, per Laurel, J.; (cited in Francisco Jr.
v. House of Representatives, supra, pp. 121-122.)
86
Cawaling Jr. v. COMELEC, 420 Phil. 524, 530, October 26, 2001, per Sandoval-
Gutierrez, J.
87
Ichong v. Hernandez, 101 Phil. 1155, 1164, May 31, 1957, per Labrador, J.
88
De Leon, The Fundamentals of Taxation (12th ed., 1998), p. 1.
89
Except, as earlier discussed, for Sections 1, 2 and 3 of the law.
90
13-20 of SB 1950 seek to amend Tax Code provisions on percentage taxes on
domestic carriers and keepers of garages in 117, and on international carriers in 118;
franchise taxes in 119; amusement taxes in 125; excise taxes on manufactured oils and
other fuels in 148; registration requirements in 236; issuance of receipts or sales or
commercial invoices in 237; and disposition of incremental revenues in 288.
91
"[T]he removal of the excise tax on diesel x x x and other socially sensitive products
such as kerosene and fuel oil substantially lessened the impact of VAT. The reduction in
import duty x x x also eased the impact of VAT." Manila Bulletin, "Impact of VAT on
prices of oil products should be less than 10%, says DoE," by James A. Loyola, Business
Bulletin B-3, Friday, July 1, 2005, attached as Annex A to the Memorandum filed by the
Association of Pilipinas Shell Dealers, Inc.
The Transcript of the Oral Arguments in GR Nos. 168461, 168463, 168056, and 168207
on July 14, 2005 also reveals the effect of mitigating measures upon petitioners in GR
No. 168461:
"Justice Panganiban: As a matter of fact[,] a part of the mitigating measures would be the
elimination of the [e]xcise [t]ax and the import duties. That is [why] it is not correct to
say that the [VAT] as to petroleum dealers increase to 10 [percent].
"Justice Panganiban: And[,] therefore, there is no justification for increasing the retail
price by 10 [percent] to cover the E-[VAT.] [I]f you consider the excise tax and the
import duties, the [n]et [t]ax would probably be in the neighborhood of 7 [percent]? We
are not going into exact figures[.] I am just trying to deliver a point that different
industries, different products, different services are hit differently. So its not correct to
say that all prices must go up by 10 [percent].
"Atty. Baniqued: Youre right, Your Honor.
"Justice Panganiban: Now. For instance, [d]omestic [a]irline companies, Mr. Counsel, are
at present imposed a [s]ales [t]ax of 3 [percent]. When this E-[VAT] law took effect[,]
the [s]ales [t]ax was also removed as a mitigating measure. So, therefore, there is no
justification to increase the fares by 10 [percent;] at best 7 [percent], correct?
"Atty. Baniqued: I guess so, Your Honor, yes." (pp. 367-368).

92
93
94
These bills refer to HB 3705 and SB 1950.
95
26(2), supra.
96
"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." US v.
Ballin, 144 US 1, 5, 12 S.Ct. 507, 509, February 29, 1892, per Brewer, J.
97
Panganiban, Leveling the Playing Field (2004), PRINTTOWN Group of Companies,
pp. 46-47.
98
338 Phil. 546, 604-605, May 2, 1997, per Panganiban, J.
99
420 Phil. 525, 531, October 26, 2001, per Sandoval-Gutierrez, J.; (citing The
Philippine Judges Association v. Prado, 227 SCRA 703, 706, November 11, 1993, per
Cruz, J.).
100
Veterans Federation Party v. COMELEC, 396 Phil. 419, 452-453, October 6, 2000,
per Panganiban, J.; (citing Garcia v. COMELEC, 227 SCRA 100, 107-108, October 5,
1993).
EN BANC
G.R. No. 168056 --- ABAKADA Guro Party List (Formerly AASJAS) Officers Samson S.
Alcantara and Ed Vincent S. Albano, Petitioners, versus The Honorable Executive Secretary
Eduardo Ermita, et al., Respondents.
G.R. No. 168207 --- Aquilino Q. Pimentel, Jr., et al., Petitioners, versus Executive Secretary
Eduardo R. Ermita, et al., Respondents.
G.R. No. 168461 --- Association of Pilipinas Shell Dealers, Inc., et al., Petitioners, versus
Cesar V. Purisima, et al., Respondents.
G.R. No. 168463 --- Francis Joseph G. Escudero, et al., Petitioners, versus Cesar V.
Purisima, et al., Respondents.
G.R. No. 168730 --- Bataan Governor Enrique T. Garcia, Jr., et al., Petitioners, versus Hon.
Eduardo R. Ermita, et al., Respondents.
Promulgated:
September 1, 2005
x ---------------------------------------------------------------------------------------- x
CONCURRING AND DISSENTING OPINION
YNARES-SANTIAGO, J.:
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 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 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 Finance3 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 Senates amendments, or (c) by way of a compromise, to agree that
neither provisions in the House bill amended by the Senate nor the latters 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.
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,
Thus, before a bill becomes a law, it must pass three readings. Hence, the ponencias 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 committees 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 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.
I, therefore, join the concurring and dissenting opinion of Mr. Justice Reynato S. Puno.
CONSUELO YNARES-SANTIAGO
Associate Justice
Footnotes
1
Cooley on Constitutional Limitations, 8th Ed., Vol. I, p. 332.
2
Angara v. Electoral Commission, 63 Phil. 139, 158 [1936].
3
G.R. Nos. 115455, 115525, 115543, 115544, 115754, 115781, 115852, 115873,
115931, 25 August 1994, 235 SCRA 630, 750.
4
Supra, p. 811.
G.R. NO. 168056 ABAKADA GURO PARTY LIST (FORMERLY AASJAS) OFFICERS
SAMSON S. ALCANTARA AND ED VINCENT S. ALBANO, petitioners versus THE
HONORABLE EXECUTIVE SECRETARY EDUARDO ERMITA, ET AL., respondents.
G.R. NO. 168207 AQUILINO Q. PIMENTEL, JR., ET AL., petitioners versus THE
HONORABLE EXECUTIVE SECRETARY EDUARDO ERMITA, ET AL., respondents.
G.R. NO. 168461 ASSOCIATION OF PILIPINAS SHELL DEALERS, INC., ET AL.,

petitioners versus CESAR V. PURISIMA, ET AL., respondents.
G.R. NO. 168463 FRANCIS JOSEPH G. ESCUDERO, ET AL., petitioners versus

CESAR V. PURISIMA, ET AL., respondents.
G.R. NO. 168730 BATAAN GOVERNOR ENRIQUE T. GARCIA, JR., ET AL., petitioners
versus HONORABLE EXECUTIVE SECRETARY EDUARDO ERMITA, ET AL.,
respondents.
Promulgated:
September 1, 2005
x----------------------------------------------------------------------------------------------x
SANDOVAL GUTIERREZ, J.:
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 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 Finance, shall, effective
January 1, 2006, raise the rate of value-added tax to twelve percent (12%) after any of the
(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
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 1682073 and 1684634 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 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 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 peoples 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 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.
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 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
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
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 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 import13 and export
quotas,14 tonnage15 and wharfage dues16 and other duties and imposts,17" 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
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 %).
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 % 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 Presidents 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
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
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.
xxxxxx
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.
xxxxxx
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. x x x 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
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--vis the needs of
government would be in keeping with the principle.22
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 ones 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 increase of the public debt,
Representatives, but the Senate may propose or concur with amendments.
In Tolentino vs. Secretary of Finance,23 this Court expounded on the foregoing provision by
holding that:
"x x x To begin with, it is not the law but the revenue bill which is required by the
Constitution to originate exclusively in the House of Representatives. It is important to
emphasize this, because a bill originating the in the House may undergo such extensive changes
in the Senate that the result may be a rewriting of the whole x x x. At this point, what is
important to note is that, as a result of the Senate action, a distinct bill may be produced. To
insist that a revenue statute -- and not only the bill which initiated the legislative process
culminating in the enactment of the law must substantially be the same as the House Bill would
be to deny the Senates power not only to concur with amendments: but also to propose
amendments. It would be to violate the 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 The term "exclusive" is defined as
"excluding or having power to exclude; limiting to or limited to; single, sole, undivided,
whole."25 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
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
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
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. 355529 and 370530. 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 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
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 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.
ANGELINA SANDOVAL-GUTIERREZ
Associate Justice
Footnotes
1
Book V of The Wealth of Nations.
2
ABAKADA GURO Party List (Formerly AASJAS), Officers Samson S. Alcantara and
Ed Vincent S. Albano.
3
Aquilino Q. Pimentel, Jr., Luisa P. Ejercito-Estrada, Jinggoy E. Estrada, Panfilo M.
Lacson, Alfredo S. Lim, Jamby A.S. Madrigal and Sergio R. Osmena III.
4
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. Casino.
5
Luzon Stevedoring Co. vs. Court of Tax Appeals, L-302332, July 29, 1998, 163 SCRA
647 cited in Vitug, Acosta, Tax Law and Jurisprudence, Second Edition, at 7.
6
Pepsi Cola Bottling Company of the Philippines vs. Municipality of Tanauan, Leyte,
G.R. No. L-31156, February 27, 1976, 69 SCRA 460. See also National Power
Corporation vs. Albay, G.R. No. 87479, June 4, 1990, 186 SCRA 198.
7
Bernas, SJ, The 1987 Constitution of the Republic of the Philippines, A Commentary,
1996 Edition, at 687.
8
People vs. Vera, 65 Phil. 56 (1937).
9
Cooley on Constitutional Limitations, 8th ed., Vol. I, p. 224.
10
Vitug, Acosta, Tax Law and Jurisprudence, Second Edition, at 8-9.
11
Espiritu vs. Cipriano, G.R. No. 32743, February 15, 1974, 55 SCRA 533, 538, citing
Sutherlands Statutory Construction, Vol. 2, Section 4945, p. 412.
12
A tariff is a list or schedule of articles on which a duty is imposed upon their
importation, with the rates at which they are severally taxed, it is also the custom or duty
payable on such articles. (Blacks Law Dictionary [6th Edition], 1990, at 1456).
13
An import quota is a quantitative restriction on the importation of an article into a
country, and is a remedy available to the executive department upon its determination
that an imported article threatens serious injury to a domestic industry. (Id. at 755).
14
An export quota is an amount of specific goods which may be exported and are set by
the government for purposes of national defense, economic stability and price support.
(Id. at 579).
15
Tonnage dues are duties laid upon vessels according to their tonnage or cubical
capacity. (Id. at 1488).
16
Wharfage dues are generally understood to be the fees paid for landing goods upon or
loading them from a wharf. It is a charge for the use of the wharf and may be treated
either as rent or compensation. (Marine Lighterage Corp. vs. Luckenbach S.S. Co., 119
Misc. 612, 248 NYS 71).
17
A duty is generally understood to be a tax on the importation or exportation of goods,
merchandise and other commodities, while imposts are duties or impositions levied for
various reasons. (Crew Levick Co. vs. Commonwealth of Pennsylvania, 245 US 292, 62
L. Ed. 295, 38 S. Ct. 126).
18
People vs. Vera, supra.
19
Walter E. Olsen & Co. vs. Aldanese and Trinidad (1922), 43 Phil., 259; 12 C. J., p.
786.
20
Cruz, Constitutional Law, 1987 Edition, at 101.
21
TSN, May 10, 2005, Annex E" of the Petition in G.R. No. 168056.
22
Vitug, Acosta, Tax Law and Jurisprudence, Second Edition, at 3.
23
G.R. No. 115455, August 25, 1994, 235 SCRA 630.
24
Merriam-Websters Third New International Dictionary (1993 Ed.), at 793.
25
Id.
26
City Mayor vs. The Chief of Philippine Constabulary, G.R. No. 20346, October 31,
1967, 21 SCRA 665, 673.
27
28
Davies, Legislative Law and Process, (2d. Ed. 1986), at 89.
29
Entitled "An Act Restructuring the Value-Added Tax, Amending for the Purpose
Sections 106, 107, 108, 110 and 114 of the National Internal Revenue Code of 1997, As
amended, and For Other Purposes." Approved on January 27, 2005.
30
Entitled "An Act Amending Sections 106, 107, 108, 109, 110 and 111 of the National
Internal Revenue Code of 1997, As Amended, and For Other Purposes." Approved on
February 28, 2005.
31
Entitled "An Act Amending Sections 27, 28, 34, 106,108, 109,110, 112, 113, 114, 116,
117, 119, 121, 125, 148, 151, 236, 237 and 288 of the National Internal Revenue Code of
1997, As Amended, and For Other Purposes." Approved on April1 3, 2005.
32
33
Supra.
G.R. No. 168056 (Abakada Guro Party List [Formerly AASJAS] Officers Samson S.
Alcantara and Ed Vincent S. Albano v. The Hon. Executive Secretary Eduardo Ermita, et al.)
G.R. No. 168207 (Aquilino Q. Pimentel, Jr., et al. v. Executive Secretary Eduardo R. Ermita,
et al.)
G.R. No. 168461 (Association of Filipinas Shell Dealers, Inc., et al. v. Cesar V. Purisima, et
al.)
G.R. No. 168463 (Francis Joseph G. Escudero, et al. v. Cesar V. Purisima, et al.)
G.R. No. 168730 (Bataan Governor Enrique T. Garcia, Jr. v. Hon. Eduardo R. Ermita, et
al.)
Promulgated:
September 1, 2005
X--------------------------------------------------X
CALLEJO, SR., J.:
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 Courts rulings in Tolentino v. Secretary of
Finance.1 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.
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--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
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 Constitutions and
our Constitutions 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
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
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
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 ponencias 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 Courts 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 Courts uncritical embrace of the practice of the American Congress and its conference
committees is to dismantle the no-amendment rule.5
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:
the amendments to any bill or joint resolution, the differences may be settled by the conference
appropriate action.
Sec. 89. Conference Committee Reports. - Each report shall contain a detailed, sufficiently
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.
and Rule XII, Section 35 of the Rules of the Senate:

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 Senates amendments, or (c) by
way of compromise, to agree that neither provisions in the House Bill amended by the Senate nor
the latters 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 Jeffersons
Manual, a conference committee may introduce germane matters in a particular bill. However,
such matters should be circumscribed by the committees 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 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 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
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 only 5 Senators10 unqualifiedly approved it. Senator Joker P. Arroyo expressed his
qualified dissent while Senators Sergio R. Osmea 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 fourteen (14)12 approved the same with reservations while three13
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.
This "take it or leave it" stance vis--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 committees limited powers but never to violations of the
Constitution. Congress is not above the Constitution."14
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 Farias v. Executive Secretary15
where the Court declined to go behind the enrolled bill vis--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 Farias is quite misplaced. The Courts 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 Osmea v. Pendatun, it was held:
"At any rate, courts have declared that the rules adopted by deliberative bodies are subject to
revocation, modification or waiver at the pleasure of the body adopting them. And it has been
said that Parliamentary rules are merely procedural, and with their observance, the courts have
no concern. They may be waived or disregarded by the legislative body. Consequently, mere
failure to conform to parliamentary usage will not invalidate the action (taken by a deliberative
body) when the requisite number of members have agreed to a particular measure.16
Thus, in Farias, the Courts 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
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
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.
ROMEO J. CALLEJO, SR.
Associate Justice
Footnotes
1
G.R. No. 115455, 25 August 1994, 235 SCRA 630.
2
Tolentino v. Secretary of Finance, supra, at 667-668.
3
See, for example, Vermuele, A., The Constitutional Law of Congressional Procedure,
71 U. Chi. L. Rev. 361 (Spring 2004).
4
Galloway, G., Congress at the Crossroads, pp. 98-100.
5
Bernas SJ, J., The 1987 Constitution of the Republic of the Philippines, A Commentary,
pp. 702-703 (1996 Ed.).
6
Dissenting Opinion of Justice Romero in Tolentino, supra.
7
Vermuele, supra.
8
Id. citing Bentham, J., Political Tactics.
9
Senators Ralph G. Recto, Joker P. Arroyo, Manuel B. Villar, Richard J. Gordon,
Rodolfo G. Biazon, Edgardo G. Angara, M.A. Madrigal, Sergio R. Osmena III, Juan
Ponce Enrile.
10
Senators Recto, Villar, Gordon, Biazon.
11
Representatives Jesli A. Lapus, Danilo E. Suarez, Arnulfo P. Fuentebella, Eric D.
Singson, Junie E. Cua, Teodoro L. Locsin, Jr., Salacnib Baterina, Edcel C. Lagman, Luis
R. Villafuerte, Herminio G. Teves, Eduardo G. Gullas, Joey Sarte Salceda, Prospero C.
Nograles, Exequiel B. Javier, Rolando G. Andaya, Jr., Guillermo P. Cua, Arthur D.
Defensor, Raul V. Del Mar, Ronaldo B. Zamora, Rolex P. Suplico, Jacinto V. Paras,
Vincent P. Crisologo, Alan Peter S. Cayetano, Joseph Santiago, Oscar G. Malapitan,
Catalino Figueroa, Antonino P. Roman and Imee R. Marcos.
12
Representatives Suarez, Fuentebella, Cua, Locsin, Jr., Teves, Gullas, Javier, Cua,
Defensor, Crisologo, Cayetano, Santiago, Malapitan and Marcos.
13
Representatives Del Mar, Suplico and Paras.
14
Dissenting Opinion in Tolentino, supra.
15
G.R. No. 147387, 10 December 2003, 417 SCRA 503.
16
Id., pp. 529-530. (Emphases mine.)
17
By way of explanation, the constitutional issues raised in Farias were (1) whether
Section 14 of R.A. No. 9006 was a rider or that it violated Article VI, Section 26(1) of the
Constitution requiring that "[e]very bill passed by Congress shall embrace only one
subject which shall be expressed in the title thereof;" and (2) whether Section 14 of R.A.
No. 9006 violated the equal protection clause of the Constitution. On both issues the
Court ruled in the negative. To reiterate, unlike in the present cases, the acts of the
conference committee with respect to R.A. No. 9006 in Farias allegedly violated the
internal rules of either house of Congress, but it was not alleged therein that they
amounted to a violation of any constitutional provision on legislative procedure.
18
Article VIII, Section 1, CONSTITUTION.
EN BANC
G.R. No. 168056 (ABAKADA Guro Party List [formerly ASSJS] Officers Samson S.
Alcantara, et al. v. Hon. Executive Secretary Eduardo Ermita, et al.);
G.R. No. 168207 (Aquilino Q. Pimentel, Jr., et al. v. Executive Secretary Eduardo R.
Ermita, et al.);
G.R. No. 168461 (Association of Pilipinas Shell Dealers, Inc., etc., et al. v. Cesar V.
Purisima, etc., et al.);
G.R. No. 168463 (Francis Joseph G. Escudero, et al. v. Cesar V. Purisima, etc., et al.); and
G.R. No. 168730 (Bataan Governor Enrique T. Garcia, Jr. v. Hon. Eduardo R. Ermita, etc.,
et al.)
Promulgated:
September 1, 2005
X----------------------------------------------------------------------------------------X
AZCUNA, J.:
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
The two conditions are:
one-half percent (1 %).2
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 % 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 % 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 % 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.
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 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
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.
ADOLFO S. AZCUNA
Associate Justice
Footnotes
1
The Constitution states that "Congress may, by law, allow the President to fix within
specified limits, and subject to such limitations and restrictions as it may impose, tariff
rates, import and export quotas, tonnage and wharfage dues, and other duties as imposts
within the framework of the national development program of the Government." (Art. VI,
Sec. 28 [2], emphasis supplied.)
Petitioners claim that the power does not extend to fixing the rates of taxes, since taxes
are not tariffs, import and export quotas, tonnage and wharfage dues, or other duties or
imposts.
2
Section 4, Republic Act No. 9337. The pertinent portion of the provision states:
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
"(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 %)."
3
Condition has been defined by Escriche as "every future and uncertain event upon
which an obligation or provision is made to depend." It is a future and uncertain event
upon which the acquisition or resolution of rights is made to depend by those who
execute the juridical act. Futurity and uncertainty must concur as characteristics of the
event.
...
An event which is not uncertain but must necessarily happen cannot be a condition; the
obligation will be considered as one with a term. (IV TOLENTINO, COMMENTARIES
AND JURISPRUDENCE ON THE CIVIL CODE OF THE PHILIPPINES, 144).
4
I voted for the issuance of the temporary restraining order to prevent the disorderly
implementation of the law that would have defeated its very purpose and disrupted the
entire VAT system, resulting in less revenues. The rationale, therefore, of the rule against
enjoining the collection of taxes, that taxes are the lifeblood of Government, leaned in
favor of the temporary restraining order.

GR No. 168056 - (ABAKADA GURO PARTY LIST (Formerly AASJAS) OFFICERS
SAMSON S. ALCANTARA and ED VINCENT S. ALBANO v. THE HONORABLE
EXECUTIVE SECRETARY EDUARDO ERMITA; HONORABLE SECRETARY OF THE
DEPARTMENT OF FINANCE CESAR PURISIMA; and HONORABLE COMMISSIONER
OF INTERNAL REVENUE GUILLERMO PARAYNO, JR.)
GR No. 168207 (AQUILINO Q. PIMENTEL, JR., LUISA P. EJERCITO-ESTRADA,

JINGGOY E. ESTRADA, PANFILO M. LACSON, ALFREDO S. LIM, JAMBY A.S.
MADRIGAL, and SERGIO R. OSMEA III v. EXECUTIVE SECRETARY EDUARDO R.
ERMITA, CESAR V. PURISIMA, SECRETARY OF FINANCE, GUILLERMO L.
PARAYNO, JR., COMMISSIONER OF THE BUREAU OF INTERNAL REVENUE)
GR No. 168461 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
"ADVANCED SHELL STATION"; 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 "REDFIELD SHELL SERVICE STATION"; DONICA
CORPORATION represented by its President, DESI TOMACRUZ; RUTH E. MARBIBI
doing business under the name and style of "R&R PETRO 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 "NTE
GASOLINE & SERVICE STATION"; JULIAN CESAR P. POSADAS doing business under
the name and style of "STARCARGA ENTERPRISES"; ADORACION MAEBO doing
business under the name and style of "CMA MOTORISTS CENTER"; SUSAN M.
ENTRATA doing business under the name and style of "LEONAS GASOLINE STATION
and SERVICE CENTER"; CARMELITA BALDONADO doing business under the name and
style of "FIRST CHOICE SERVICE CENTER: RHEAMAR A. RAMOS doing business
under the name and style of "RJAM PTT GAS STATION"; MA. ISABEL VIOLAGO doing
business under the name and style of "VIOLAGO-PTT SERVICE CENTER"; MOTORISTS
HEART CORPORATON represented by its Vice-President for Operations, JOSELITO F.
FLORDELIZA; MOTORISTS HARVARD CORPORATION represented by its Vice-
President for Operations, JOSELITO F. FLORDELIZA; MOTORISTS HERITAGE
FLORDELIZA; PHILIPPINE STANDARD OIL CORPORATION represented by its Vice-
President for Operations, JOSELITO F. FLORDELIZA; 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" v.
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.
GR No. 168463 FRANCIS JOSEPH G. ESCUDERO, VINCENT CRISOLOGO,
EMMANUEL JOSEL J. VILLANUEVA, RODOLFO G. PLAZA, DARLENE ANTONINO-
CUSTODIO, OSCAR G. MALAPITAN, BENJAMIN C. AGARAO, JR., JUAN EDGARDO
M. ANGARA, JUSTIN MARC SB. CHIPECO, FLORENCIOI 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.
CASIO, v. 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.
GR. No. 168730 BATAAN GOVERNOR ENRIQUE T. GARCIA, JR. v. 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 Customs.
x-------------------------------------------------------------------x
DISSENTING OPINION
Tinga, J.:
The E-VAT Law,1 as it stands, will exterminate our countrys 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 hangmans 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 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 and may be imposed or revoked only by the legislature. 4 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
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.
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 In
this regard, the situation stands different from that in the recent case Southern Cross v.
PHILCEMCOR,7 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 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
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 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.
and one-half percent 1 %).
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.
(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 previous year exceeds one and one-
half percent (1 %).
follows:
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
(ii) national government deficit as a percentage of GDP of the previous year exceed same and
on-half percent (1 %).
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 Gross Domestic Product (GDP) of the previous
year exceeds two and four-fifth 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 %).
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 While all reasonable doubts should be
resolved in favor, of the constitutionality of a statute,11 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 xxx." 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
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
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 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 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 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.
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 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 increase of the public debt,
Representatives, but the Senate may propose or concur with amendments.
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
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 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
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
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.
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 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".20 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 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 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 countrys 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
[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
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 so encompassing in
scope 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.
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 countrys 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 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 legislatures
inherent power to levy taxes. On the other hand, no quarter can be ceded, no concession yielded,
on the peoples 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 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
In Magnano Co. v. Hamilton,27 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 Locally, Sison v. Ancheta29 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
Sison pronounces more concretely how a tax statute may contravene the due process clause.
Arbitrariness, confiscation, overstepping the states 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 majority
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.
It is difficult though to put into quantifiable terms how onerous a taxation statute must be before
it contravenes the due process clause.31 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 such questions on these fields.
However, we should not cede ground to those transgressions of the peoples 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
laws unconstitutionality of course has the burden to demonstrate the violations in
understandable terms, but if such proof is presented, the Courts 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
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 to 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. 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 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
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 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 100,000 100,000 [input] 34,000 50,000
(Actual) + +58,000
Carry Over [input] [input]
[excess creditable]
+116,000 +80,000
158,000
[excess [excess
creditable] creditable]
150,000 130,000
Declarable (60,000x70%) (60,000x70%) (100,000x70%) (50,000x70%)
Input VAT
(70% of 42,000 42,000 70,000 35,000
output VAT)
Lower of (60,000 -42,000) (60,000 -42,000) (100,000- (50,000-
actual and 70,000) 35,000)
70% cap 18,000 18,000
allowable 30,000 15,000
VAT
Payable
Creditable (100,000 (158,000 42,000) (150,000- (130,000-
Input VAT 42,000) 35,000)
116,000 70,000)
58,000 95,000
80,000
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 100,000 100,000 [input] 34,000 50,000
(Actual) +
Carry Over +40,000 [input] [input]
[excess +80,000 + 14,000

creditable]
[excess (excess
140,000 creditable]
creditable)
114,000
50,000
VAT Payable 0 0 0 0
Creditable 40,000 80,000 14,000 14,000
Input VAT
The difference is dramatic, as is the impact on the businesss 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 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 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 detre 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 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-2240 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.
Among the enunciated State policies in the Constitution, as stated in Section 20, Article II, is that
"the State recognizes the indispensable role of the private sector, encourages private
enterprise, and provides incentives to needed investments."41 The provision, as with other
declared State policies in the Constitution, have sufficient import and consequence such that in
assessing the constitutionality of the governmental action, these provisions should be considered
and weighed as against the rationale for the assailed State action. 42 The incompatibility of the
70% cap with this provision is patent.
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"
Price VAT (without 70% VAT (with 70%

cap) 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 536,249 31,758.40
Non-vatable items 317,584
Vatable Items
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 nations enterprises.
The majoritys 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 Panglossian43 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 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
Actual Input VAT (60% of

output VAT) 60,000.00
Allowable Input VAT 60,000.00
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 44 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
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
=========
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

========
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.
And what legitimate, germane purposes does this lethal 70% cap serve? It certainly does
not increase the governments 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 governments 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. 45 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:
follows:
SEC. 112. Refunds or Tax Credits of Input Tax.
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
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
"(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.46 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 Standards47, 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" 48 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".49 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. 50 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. 51 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. 52 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"53 If not probable, it would be recognized as a loss. 54 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.55 Moreover, the Constitution also requires the State to recognize the right of
enterprises to reasonable returns on investments, and to expansion and growth. 56 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:
follows:
"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): 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 Courts previous recognition of the aims of the VAT system to "rationalize the
system of taxes on goods and services, [and] simplify tax administration". 57 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:
follows:
"SEC. 114. Return and Payment of Value-Added Tax.
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. xxx
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 businesss 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. 58
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."59 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 Zialcita60 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.61
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 governments 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 nations 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 governments 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.
DANTE O. TINGA
Associate Justice
Footnotes
1
Republic Act No. 9337. Referred to intext as "E-VAT Law."
2
Except insofar as it prays that Section 21 of the E-VAT Law be declared
unconstitutional. Infra.
3
J. Vitug and E. Acosta, Tax Law and Jurisprudence (2nd ed., 2000), at 7-8.
4
See National Power Corporation v. Province of Albay, G.R. No. 87479, 4 June 1990,
186 SCRA 198, 203.
5
See Section 24, Article VI, Constitution.
6
The recognized exceptions, both expressly provided by the Constitution, being the tariff
clause under Section 28(2), Article VI, and the powers of taxation of local government
units under Section 5, Article X.
7
G.R. No. 158540, 8 July 2005, 434 SCRA 65.
8
See People v. Vera, 65 Phil. 56, 117 (1937).
9
Decision, infra.
10
Carpio v. Executive Secretary, GR No. 96409 February 14,1992, 206 SCRA 290, 298;
citing In re Guarina, 24 Phil. 37.
11
People v. Vera, supra note 8.
12
See Section 2, National Internal Revenue Code.
13
There are two eminent tests for valid delegation, the "completeness test" and the
"sufficient standard test". The law must be complete in its essential terms and conditions
when it leaves the legislature so that there will be nothing left for the delegate to do when
it reaches him except enforce it. U.S. v. Ang Tang Ho, 43 Phil. 1, 6-7 (1922). On the
other hand, a sufficient standard is intended to map out the boundaries of the delegates
authority by defining legislative policy and indicating the circumstances under which it is
to be pursued and effected; intended to prevent a total transference of legislative power
from the legislature to the delegate.
14
Decision, infra, citing Alunan v. Mirasol, G.R. No. 108399, 31 July 1997, 276 SCRA
501, 513-514.
15
Notwithstanding, the Court in Southern Cross did rule that Section 5 of the Safeguard
Measures Act, which required a positive final determination by the Tariff Commission
before the DTI or Agriculture Secretaries could impose general safeguard measures,
operated as a valid restriction and limitation on the exercise by the executive branch of
government of its tariff powers.
16
G.R. No. 115455, 25 August 1994, 235 SCRA 630.
17
M. Evans, A Source of Frequent and Obstinate Altercations: The History and
Application of the Origination Clause.
18
The Federalist No. 58, at 394 (J. Madison) (J.Cooke ed. 1961), cited in J. M. Medina,
The Orignation Clause in the American Constitution: A Comparative Survey, 23 Tulsa
Law Journal 2, at 165.
19
Tolentino v. Secretary of Finance, supra note 16 at 661.
20
See Section 27(1), Article VI, Constitution.
21
Tolentino v. Secretary of Finance, supra note 16 at 668.
22
G.R. No. 124360, 5 November 1997, 281 SCRA 330.
23
Id. at 349-350.
24
People v. Tudtud, G.R. No. 144037, 26 September 2003, 412 SCRA 142, 168.
25
See Section 1, Article III, Constitution. Private corporations and partnerships are
persons within the scope of the guaranty insofar as their property is concerned. Smith
Bell & Co. v. Natividad, 40 Phil. 136, 145 (1919).
26
16 C.J.S., at 1150-1151.
27
292 U.S. 40 (1934).
28
Id. at 44.
29
G.R. No. L-59431, 25 July 1984, 130 SCRA 654.
30
Id. at 660-662.
31
Justice Isagani Cruz offers the following examples of taxes that contravene the due
process clause: "A tax, for example, that would claim 80 percent of a persons net income
would clearly be oppressive and could unquestionably struck down as a deprivation of his
property without due process of law. A property tax retroacting to as long as fifty years
back would by tyrannical and unrealistic, as the property might not yet have been then in
the possession of the taxpayer nor, presumably, would he have acquired it had he known
of the tax to be imposed on it." I. Cruz, Constitutional Law, p. 85.
32
"After defining religion, the Court, citing Tanada and Fernando, made this statement,
viz:
The constitutional guaranty of the free exercise and enjoyment of religious profession and
worship carries with it the right to disseminate religious information. Any restraint of
such right can only be justified like other restraints of freedom of expression on the
grounds that there is a clear and present danger of any substantive evil which the State
has the right to prevent. (Tanada and Fernando on the Constitution of the Philippines, vol.
1, 4th ed., p. 297) (emphasis supplied)
This was the Court's maiden unequivocal affirmation of the "clear and present danger"
rule in the religious freedom area, and in Philippine jurisprudence, for that matter."
Estrada v. Escritor, A.M. No. P-02-1651, 4 August 2003, 408 SCRA 1.
33
Separate Opinion, infra.
34
Ibid.
35
Art. 2, European Commission First Council Directive 67/227 of 11 April 1967 on the
Harmonization of Legislation of Member States Concerning Turnover Taxes, 1971 O.J.
(L 71) 1301.
36
Liam & Ebrill, The Modern VAT.
37
"The most basic law in finance!" Understand the Time Value of Money.
http://www.free-financial-advice.net/time-value-of-money.html. Last visited, 30 August
2005.
38
Time Value of Money. http://www.jetobjects.com/components/finance/
TVM/concepts.html. Last visited, 30 August 2005.
39
There is also the option for the business to go underground and avoid VAT registration,
and consequently avoid remitting VAT payments to the government. It would be
facetious though for a Justice of the Supreme Court to characterize this illegal option as
"viable."
40
In Joseph Hellers Catch-22, Yossarian, a World War II pilot reasoned that if he feigned
insanity, he would be necessarily exempt from assignment to dangerous bombing runs in
enemy territory. However, his superiors reasoned that if he were truly insane, he then
would be heedless enough to be sent on those dangerous bombing runs he had sought to
avoid in the first place.
41
Section 20, Article II, Constitution.
42
The due process clause alone is sufficient to invalidate any contravening taxing statute.
On the other hand, Section 20, Article II on its own might not be similarly sufficient.
However, if the taxing statute violates both the due process clause and Section 20, Article
II, then the impetus to strike down the offending law becomes even more compelling, so
as to defeat the generalist invocation of the States inherent powers of taxation.
43
Pangloss was a famed character ridiculed in Voltaires Candide, renowned for his
absolute blind faith in optimism, no matter how dire the circumstances.
44
Id. at 29-30.
45
Decision, infra.
46
This is confirmed by the BIR in its draft Revenue Memorandum Circular dated 12 July
2005, submitted by respondents in its Compliance dated 16 August 2005:
"[Q]: Is there a way by which such unapplied excess input tax credits can be claimed for
refund or issuance of TCC?
[A]: The only time application for refund/issuance of TCC is allowed for input taxes
incurred on the purchase of domestic goods/services is when the same are directly
attributable to zero-rated or effectively zero-rated sales (of goods/services). xxx
For those engaged purely in domestic transactions, the only time that unapplied
input taxes may be applied for the issuance of TCC is when the VAT registration of
the taxpayer is cancelled due to retirement or cessation of business or change in the
status of the taxpayer as a VAT registered taxpayer. As provided for in Section
112(B0, in case of cancellation of VAT registration due to cessation of business or
change in status of taxpayer, the only recourse given to such taxpayer is to apply for the
issuance of TCC on his excess input tax credits which may be used in payment of his
other internal revenue taxes, application for refund thereof is not an option."
See Annexes "18-N" and "18-O", Compliance dated 12 July 2005.

47
See SRC Rule 68(1)(b)(c), Implementing Rules and Regulations to the Securities and
Regulations Code.
48
Section 34, International Accounting Standards 12.
49
Section 36, id.
50
In his Separate Opinion, Justice Panganiban asserts that the deferred input tax credit is
not really confiscated by the government, as it remains an asset in the accounting records
of a business. See Separate Opinion, infra. By the same logic, a law requiring all
businesses to surrender to the government 100% of its gross sales subject to
reimbursement only after a five year period, would pass muster, since the amount is "not
really confiscated by the government as it remains an asset in the accounting records of a
business."
51
Justice Panganiban cites United Paracale Mining Co. v. De la Rosa (cited as 221 SCRA
108, 115, April 7, 1993) to bolster his stated position that ""[t]here is no vested right in a
deferred input tax account; it is a mere statutory privilege". Separate Opinion, infra.
United Paracale does not pertain to any deferred input taxes, but instead to "mining
claims which according to [petitioners] is private property would constitute impairment
of vested rights since by shifting the forum of the petitioners case from the courts to the
Bureau of Mines[the] substantive rights to full protection of its property rights shall be
greatly impaired." United Paracale Mining Co. v. Hon. Dela Rosa, G.R. Nos. 63786-87, 7
April 1993, 221 SCRA 108, `115. Clearly, United Paracale is not even a tax case,
involving as it does, questions of the jurisdiction of the Bureau of Mines.
52
See Part III, Paragraph 3, Revenue Memorandum Ruling No. 1-2002.
53
Section 32, International Accounting Standards 12.
54
Supra note 47.
55
Supra note 9.
56
Section 3, Article XIII, Constitution.
57
Kapatiran ng Mga Naglilingkod sa Pamahalaan ng Pilipinas, Inc. et al. v. Tan, G.R. No.
L-81311, 30 June 1988.
58
J. Vitug and E. Acosta, supra note 3 at 41.
59
Pepsi-Cola Bottling Co. of the Philippines, Inc. v. Municipality of Tanauan, G.R. No.
L-31156, 27 February 1976, 69 SCRA 460, 466-67; citing CIR v. Lednicky, L-18169,
July 31, 1964, 11 SACRA 609 and SMB, Inc. v. City of Cebu, L-20312, February 26,
1972, 43 SCRA 280.
60
A.M. No. 90-6-015-SC, 18 October 1990, 190 SCRA 851.
61
Id. at 856.

EN BANC
G.R. No. 168056 ABAKADA GURO PARTY LIST (Formerly AASJAS) OFFICERS
SAMSON S. ALCANTARA and ED VINCENT S. ALBANO v. THE HONORABLE
EXECUTIVE SECRETARY EDUARDO ERMITA, ET AL.
G.R. No. 168207 AQUILINO Q. PIMENTEL, JR., ET AL. v. EXECUTIVE

SECRETARY EDUARDO R. ERMITA
G.R. No. 168461 ASSOCIATION OF PILIPINAS SHELL DEALERS, INC., ET AL. v.

G.R. No. 168463 FRANCIS JOSEPH G. ESCUDERO, ET AL. v. CESAR V. PURISIMA,

ET AL.
G.R. No. 168730 BATAAN GOVERNOR ENRIQUE T. GARCIA, JR., ET AL. v. HON.
EDUARDO R. ERMITA, ET AL.
Promulgated:
September 1, 2005
x--------------------------------------------------x
CONCURRING OPINION
CHICO-NAZARIO, J.:
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 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 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 Governments inability to sustain its precarious
fiscal position, resulting in severe erosion of investor confidence and economic stagnation."3
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
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
Pandoras 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
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.
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 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 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 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 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 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.
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 persons 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 There can be no vested right to the continued existence of a statute, which
precludes its change or repeal.12
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 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
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
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 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--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 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 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.
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 Courts ruling in Churchill v. Concepcion,19 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 to wit
It does appear clearly that petitioners 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
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.
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.
MINITA V. CHICO-NAZARIO
Associate Justice
SECOND DIVISION
[G.R. No. L-1104. May 31, 1949.]
EASTERN THEATRICAL CO., INC., ET AL., plaintiffs-appellants,

vs. VICTOR ALFONSO, as City Treasurer of Manila, THE
MUNICIPAL BOARD OF THE CITY OF MANILA, and JUAN
NOLASCO, as Mayor of the City of Manila, defendants-appellees.
Francisco Zulueta and H. Poblador, Jr. for appellants.
City Fiscal Jose P. Bengzon and Assistant City Fiscal Julio Villamor for
appellees.
Assistant Solicitor General Carmelino G. Alvendia, Solicitor Guillermo E.

Torres and Manuel D. Baldeo as amici curiae.
SYLLABUS
1. TAXATION; STATUTORY CONSTRUCTION; TAX ON BUSINESS

AND ON AMUSEMENT; PROVISIONS OF SECTION 2444 (m) OF THE
REVISED ADMINISTRATIVE CODE, CONSTRUED. The whole argument of
plaintiffs hinges on the assumption that the power granted to the City of Manila by
section 2444 (m) of the Revised Administrative Code is limited to the authority to
impose a tax on business, with exclusion of the power to impose a tax on amusement;
but, the assumption is based on an arbitrary labeling of the kind of tax authorized by
said section 2444 (m). The distinction as to the power to tax business and the power to
tax amusement has no ground under the provisions of section 2444 (m) of the Revised
Administrative Code. The tax therein authorized cannot be defined as tax on business
and cannot be restricted within a smaller scope than what is authorized by the words
used, to the extent of excluding what plaintiffs describe as tax on amusement.
2. ID.; ID.; ID.; ID. They very fact that section 2444 (m) of the Revised
Administrative Code includes theaters, cinematography, public billiard tables, public
pool tables, bowling alleys, dance halls, public dancing halls, cabarets, circuses and
other similar places, race tracks, horse races, theatrical performances, public
exhibition, circus and other performances and places of amusements, will show
conclusively that the power to tax amusement is expressly included within the power
granted by section 2444 (m) of the Revised Administrative Code.
3. ID.; ID.; REPEAL BY IMPLICATION; COMMONWEALTH ACT NO.
466 DID NOT REPEAL SECTION 2444 (m) OF THE REVISED
ADMINISTRATIVE CODE. In support of the contention that section 2444 (m) of
the Revised Administrative Code was repealed, plaintiffs aver that the Charter of the
City of Manila, containing section 2444 (m) of the Revised Administrative Code, was
enacted on December 8, 1929. On April 25, 1940, the National Assembly enacted
Commonwealth Act No. 466, including provisions on amusement tax, covering the
whole field on taxation and provided for more than what the ordinance in question has
provided. As a result, there are two taxing powers seeking to occupy exactly the same
field of legislation, and so the apparent conflict must be resolved with the conclusion
that, with the enactment of Commonwealth Act No. 466, as later amended by
Republic Act No. 39, section 2444 (m) of the Revised Administrative Code has been
impliedly repealed and the power therein delegated to the City of Manila withdrawn.
Held: That the conflict pointed out is imaginary. Both provisions of law may stand
together and be enforced at the same time without any incompatibility.
4. CONSTITUTIONAL LAW; EQUALITY AND UNIFORMITY OF
TAXATION; VALIDITY OF ORDINANCE NO. 2958. Appellants point out to
the fact that the ordinance in question does not tax "may more kinds of amusements"
than those therein specified, such as "race tracks, cockpits, cabarets, concerts halls,
circuses, and other places of amusement." The argument has absolutely no merit. The
fact that some places of amusement are not taxed while others, such as
cinematographs, theaters, vaudeville companies, theatrical shows, and boxing
exhibitions and other kinds of amusements or places of amusements are taxed, is no
argument at all against the equality and uniformity of the tax imposition. Equality and
uniformity in taxation means that all taxable articles or kinds of property of the same
class shall be taxed at the same rate. The taxing power has the authority to make
reasonable and natural classifications for purposes of taxation; and the appellants
cannot point out what places of amusement taxed by the ordinance do not constitute a
class by themselves and which can be confused with those not included in the
ordinance.
DECISION
PERFECTO, J : p
Twelve corporations engaged in motion picture business have initiated these

proceedings through a complaint dated May 5, 1946, to impugn the validity of
Ordinance No. 2958 of the City of Manila, which was enacted by the Municipal
Board of said city on April 25, 1946, approved by the Mayor on April 27, 1946, and
took effect on May 1, 1946, said ordinance reading as follows:
"AN ORDINANCE IMPOSING A FEE ON THE PRICE OF EVERY
ADMISSION TICKET SOLD BY CINEMATOGRAPHS THEATERS,
VAUDEVILLE COMPANIES, THEATRICAL SHOWS AND BOXING
EXHIBITIONS; AND PROVIDING FOR OTHER PURPOSES.
"SEC. 1 In addition to the fees paid by cinematographs, theaters,
vaudeville companies, theatrical shows and boxing exhibitions, as provided for
in sections 633 and 778 of Ordinance No. 1600, known as the Revised
Ordinance of the City of Manila, as amended, there shall be collected from the
places of amusement, which are specifically mentioned above, the following
fees on the price of every admission ticket sold by such enterprises:
"a. For every ticket sold the price of which is from P0.25
to P0.99 P0.05
"b. For every ticket sold the price of which is from P1 to
P1.99 P0.10
"c. For every ticket sold the price of which is from P2 to
P2.99 P0.15
"d. For every ticket sold the price of which is from P3 to
P4.99 P0.20
"e. For every ticket sold the price of which is from P5 to
P5.99 P0.25
"f. For every ticket sold the price of which is from P10 to
P14.99 P0.35
"g. For every ticket sold the price of which is from P15
or more P0.50.
"SEC. 2. It shall be the duty of every proprietor. lessee, promoter, or

operator of such cinematographs, theaters, vaudeville companies, theatrical
shows and boxing exhibition to provide himself with tickets which shall be
serially numbered, indicating therein the name of amusement place and the fee
charged for admission. Before such tickets are sold, the same shall be presented
to the Office of the City Treasurer, for registration. Tickets once issued and
presented at the gate of entrance shall be cut by the gatekeeper into halves, the
first half to be returned to the customer and the other half to be retained by the
gatekeeper.
"It shall be the duty of every proprietor, lessee, promoter, or operator to
deliver to the Office of the City Treasurer the fees corresponding to the number
of tickets old by him within two days after the performance or exhibition has
taken place.
"SEC. 3. The fees herein prescribed shall not be paid where the
admission fees or charges are collected for and in behalf of any charitable,
educational or religious institution or association.
"All places of amusement which are operated by U. S. Army and Navy
with funds belonging to the U. S. Government are hereby exempted from fees
herein imposed.
'SEC. 4. Any person violating any of the provisions of this Ordinance
shall, upon conviction thereof, be punished by a fine of not more than P200 or
by imprisonment in the discretion of the court. If the violation is committed by
the club, firm or corporation, the manager, the managing director or person
charged with the management of the business of such club, firm or corporation,
shall be criminally responsible therefor.
SEC. 5. This Ordinance shall take effect on May 1, 1946."
Plaintiffs, operators of theaters in Manila and distributors of local or imported
films, allege that they are interested in the provisions of sections 1, 2 and 4 of said
ordinance, which they impugn as null and void upon the following grounds: (a) For
violating the Constitution, more particularly the provisions regarding the uniformity
and equality of taxation and the equal protection of the laws; (b) because the
Municipal Board of Manila exceeded and over-stepped the powers granted it by the
Charter of the City of Manila; (c) because it contravenes, violates, and is inconsistent
with, existing national legislation, more particularly revenue and tax laws; and, (d)
because it is unfair, unjust, arbitrary, capricious, unreasonable, oppressive, and is
contrary to and violates our basic and recognized principles of taxation and licensing
laws.
Defendants allege as affirmative defenses the following: (a) That the ordinance
was passed by the Municipal Board of Manila by virtue of its express legislative
powers to tax, fix the license fee and regulate the business of theaters, cinematographs
and further to fix the location of, and to tax, fix the license fee for, and regulate the
business, of theatrical performances, public exhibitions, circus and other
performances public exhibitions, circus and other performances and places of
amusements; (b) that the graduated tax required by said ordinance being applied to all
cinematographs, theaters, vaudeville companies, theatrical shows and boxing
exhibitions similarly situated and as a class without distinction or exception the same
does not violate the constitutional prohibition against uniformity and equality of
taxation; (c) that the graduated tax on admission tickets to theaters another places of
amusement imposed by the National Internal Revenue Code (Commonwealth Act No.
466) is collected by and for the purposes of the National Government, whereas,
Ordinance No. 2958 imposes and requires the collection of a similar tax by and for the
purposes of the Government of the City of Manila, and there is no case of double
taxation; (d) that said ordinance having been enacted under the express power of the
Municipal Board to tax for revenue, as distinguished from its power to license for
purely police purposes, the fact that the amounts collected thereunder are higher than
what are needed for police regulation and supervision does not render said ordinance
unfair, unjust, capricious. unreasonable and oppressive; (e) that, considering the
nature of the business they handle, the graduated tax fixed by the ordinance is not
unreasonable.
Defendants allege also that since May 1, 1946, when the ordinance in question
took effect, plaintiffs have been charging the theater- going public increased prices for
admissions to the cinematographs owned and operated by them at graduated rates
equal and corresponding to the graduated tax imposed by said ordinance, and as a
result, while refusing to pay said tax but at the same time collecting an amount equal
to said tax, plaintiffs have taken undue advantage of said ordinance to realize more
profits.
On September 5, 1946, Judge Emilio Pea of the Court of First Instance of
Manila rendered a decision upholding the validity of Ordinance No. 2958.
Plaintiffs-appellants assign in their brief three errors committed by the trial
court. We will consider them separately.
Appellants contend that the lower court erred in holding that under section
2444 (m) of the Revised Administrative Code the Municipal Board of the City of
Manila had the power to enact Ordinance No. 2958.
Section 2444 (m) of the Revised Administrative Code reads as follows:
"To tax, fix the license fee and regulate the business of hotels,
restaurants, refreshment places, cafes, lodging houses, boarding houses, livery
garages, public warehouses, pawnshops, theaters, cinematographs; and further
to fix the location of, and to tax, fix the license fee for, and regulate the
business, of livery stables, boarding stables, embalmers, public billiard tables,
public pool tables, bowling alleys, dance halls, public dancing halls, cabarets,
circus and other similar parades, public vehicles, race tracks, horse races, junk
dealers, theatrical performances, public exhibitions, circus and other
performances and places of amusements, match factories, blacksmith shops,
foundries, steam, boilers, lumber yards, shipyards, the storage and sale of
gunpowder, tar, pitch, resin, coal, oil, gasoline, benzine, turpentine, hemp.
cotton, nitroglycerin, petroleum or any of the products thereof and of all other
highly combustible or explosive materials and other establishments likely to
endanger the public safety or give rise to conflagrations or explosions, and
subject to the provisions of ordinances issued by the (Philippine Health Service)
Bureau of Health in accordance with law, tanneries, renderies, tallow
chandleries, bone factories, and soap factories."
Appellants' line of argument runs as follows:
By virtue of the specific power granted in the above quoted provision of the
Revised Administrative Code, Ordinance No. 2958 was enacted.
On August 7, 1940, the National Assembly enacted Commonwealth Act. No.
466, known as the National Internal Revenue Code, sections 18, 260 and 261 of
which read as follows:
"SEC. 18. Sources of revenue. The following taxes, fees, and charges
are deemed to be national internal-revenue taxes:
"(a) Income tax:
"(b) Estate, inheritance and gift taxes;
"(c) Specific taxes on certain articles;
"(d) Privilege taxes on business or occupation;
"(e) Documentary stamp taxes;
"(f) Mining taxes;
"(g) Miscellaneous taxes, fees and charges, namely, taxes on
banks, and insurance companies, franchise taxes, taxes on amusements,
charges on forest products, fees for sealing weights and measures,
firearms license fees, radio registration fees, tobacco inspection fees, and
water rentals."
"SEC. 260. Amusement taxes. There shall be collected from the
proprietor, lessee, or operator of theaters, cinematographs, concert halls,
circuses, boxing exhibitions, and other places of amusement the following
taxes:
"(a) When the amount paid for admission exceeds twenty-nine centavos,
two centavos on each admission;
"(b) When the amount paid for admission exceeds twenty-nine but does
not exceed thirty-nine centavos, three centavos on each admission;
"(c) When the amount paid for admission exceeds thirty-nine centavos
but does not exceed forty-nine centavos, four centavos on each admission;
"(d) When the amount paid for admission exceeds fifty-nine centavos
but does not exceed sixty-nine centavos, six centavos on each admission.
"(e) When the amount paid for admission exceeds fifty-nine centavos
but does not exceed sixty-nine centavos, six centavos on each admission.
"(f) When the amount paid for admission exceeds fifty-nine centavos but
does not exceed seventy-nine centavos, seven centavos on each admission.
"(g) When the amount paid for admission exceeds seventy-nine centavos
but does not exceed eighty-nine centavos, eight centavos on each admission;
"(h) When the amount paid for admission exceeds eighty-nine centavos
but does not exceed ninety-nine centavos, nine centavos on each admission;
"(i) When the amount paid for admission exceeds ninety-nine centavos,
ten centavos on each admission.
"In the case of cinematographs, the taxes herein prescribed shall first be
deducted and withheld by the proprietors, lessees, or operators of such theaters
or cinematographs and paid to the Collector of Internal Revenue before the
gross receipts are divided between the proprietors, lessees, or operators of the
theaters or cinematographs and the distributors of the cinematographic films.
"In the case of cockpits, race tracks, and cabarets, there shall be
collected from the proprietor, lessee, or operator a tax equivalent collected from
the proprietor, lessee, or operator a tax equivalent to ten per centum of the gross
receipts, irrespective of whether or not any amount is charged or paid for
admission: Provided, however, That in the case of race tracks, this tax is in
addition to the privilege tax prescribed in section 193. For the purpose of the
amusement tax, the term 'gross receipts' embraces all the receipts of the
proprietor, lessee, or operator of the amusement place, excluding the receipts
derived by him from the sale of liquors, beverages, or other articles subject to
specific tax, or from any business subject to tax under this Code." (This section
was amended by section 8, Republic Act No. 39, effective October 1, 1946. We
are quoting the original provision to show the status of the law when the
Ordinance was passed.)
"SEC. 261. Exemption. The tax herein imposed shall not be paid
where the admission fee or charges are collected by or for and in behalf of any
religious, charitable, scientific, or educational institution or association, and
where no part of the net proceeds of such admission fees or charges inures to the
benefit of any private stockholder or individual."
Ordinance No. 2958 does not specify the kind of the tax sought to be imposed
but the seven schedules and other details of said ordinance are, in every respect,
identical with the amusement tax provided by section 260 of Commonwealth Act No.
466.
But, plaintiffs argue, that section 2444(m) of the Revised Administrative Code
confers upon the City of Manila the power to impose a tax on business but not on
amusement and, consequently, Ordinance No. 2958 was enacted beyond the charter
powers of the City of Manila.
The whole argument of plaintiffs hinges, therefore, on the assumption that the
power granted to the City of Manila by section 2444(m) of the Revised
Administrative Code is limited to the authority to impose a tax on business, with
exclusion of the power to impose a tax on amusement; but, the assumption is based on
an arbitrary labeling of the kind of tax authorized by said section 2444(m). The
distinction made by plaintiffs as to the power to tax on business and the power to tax
on amusement has no ground under the provisions of section 2444(m) of the Revised
Administrative Code. The tax therein authorized cannot be defines as tax on business
and cannot be restricted within a smaller scope than what is authorized by the words
used, to the extent of excluding what plaintiffs describe as tax on amusement.
The very fact that section 2444 (m) of the Revised Administrative Code
includes theaters, cinematographs, public billiard tables, public pool tables, bowling
alleys, dance halls, public dancing halls, cabarets, circuses and other similar places,
race tracks, horse races, theatrical performances, public exhibition, circus and other
performances and places of amusements, will show conclusively that the power to tax
amusement is expressly included within the power granted by section 2444(m) of the
Revised Administrative Code.
Plaintiffs-appellants contend that the lower court erred in not holding that
section 2444(m) of the Revised Administrative Code was repealed or the power
therein contained was withdrawn by the National Assembly by the enactment of
Commonwealth Act No. 466 known as the National Internal Revenue Code.
In support of this contention, plaintiffs aver that the Charter of the City of
Manila, containing section 2444(m) of the Revised Administrative Code, was enacted
on December 8, 1929. On April 25, 1940, the National Assembly enacted
Commonwealth Act No. 466, including provisions on amusement tax, covering the
whole field on taxation and provided for more than what the ordinance in question has
provided. As a result, there are two taxing powers seeking to occupy exactly the same
field of legislation, and so the apparent conflict must be resolved with the conclusion
that, with the enactment of Commonwealth Act No. 466, as later amended by
Republic Act No. 39, section 2444(m) of the Revised Administrative Code has been
impliedly repealed and the power therein delegated to the City of Manila withdrawn.
We see absolutely no force in plaintiffs' contention. The conflict pointed out by
them is imaginary. Both provisions of law may stand together and be enforced at the
same time without any incompatibility among themselves.
Finally, plaintiffs contend that the trial court erred in not holding that
Ordinance No. 2958 violated the principle of equality and uniformity of taxation
enjoined by the Constitution (sec. 22, sub-sec. 1, Art. VI, Constitution of the
Philippines).
To support this contention, appellants point out to the fact that the ordinance in
question does not tax "many more kinds of amusements" than those therein specified
such as "race tracks, cockpits, cabarets, concert halls, circuses, and other places of
amusement." The argument has absolutely no merit. The fact that some places of
amusement are not taxed while others, such a cinematographs, theaters, vaudeville
companies, theatrical shows, and boxing exhibitions and other kinds of amusements
or places of amusement are taxed, is no argument at all against the equality and
uniformity of the tax imposition. Equality and uniformity in taxation means that all
taxable articles or kinds of property of the same class shall be taxed at the same rate.
The taxing power has the authority to make reasonable and natural classifications for
purposes of taxation; and the appellants cannot point out what places of amusement
taxed by the ordinance do not constitute a class by themselves and which can be
confused with those not included in the ordinance.
Paras, Pablo, Bengzon, Tuason, Montemayor and Reyes, JJ., concur.
(Eastern Theatrical Co., Inc. v. Alfonso, G.R. No. L-1104, [May 31, 1949], 83 PHIL
|||
852-862)
Republic of the Philippines
SUPREME COURT
Manila
EN BANC
G.R. No. 163583 August 20, 2008
BRITISH AMERICAN TOBACCO, petitioner,

vs.
JOSE ISIDRO N. CAMACHO, in his capacity as Secretary of the Department of Finance
and GUILLERMO L. PARAYNO, JR., in his capacity as Commissioner of the Bureau of
Internal Revenue, respondents.
Philip Morris Philippines Manufacturing, Inc., fortune tobacco, corp., MIGHTY
CORPORATION, and JT InTERNATIONAL, S.A., respondents-in-intervention.
DECISION
YNARES-SANTIAGO, J.:
This petition for review assails the validity of: (1) Section 145 of the National Internal Revenue
Code (NIRC), as recodified by Republic Act (RA) 8424; (2) RA 9334, which further amended
Section 145 of the NIRC on January 1, 2005; (3) Revenue Regulations Nos. 1-97, 9-2003, and
22-2003; and (4) Revenue Memorandum Order No. 6-2003. Petitioner argues that the said
provisions are violative of the equal protection and uniformity clauses of the Constitution.
RA 8240, entitled "An Act Amending Sections 138, 139, 140, and 142 of the NIRC, as Amended
and For Other Purposes," took effect on January 1, 1997. In the same year, Congress passed RA
8424 or The Tax Reform Act of 1997, re-codifying the NIRC. Section 142 was renumbered as
Section 145 of the NIRC.
Paragraph (c) of Section 145 provides for four tiers of tax rates based on the net retail price per
pack of cigarettes. To determine the applicable tax rates of existing cigarette brands, a survey of
the net retail prices per pack of cigarettes was conducted as of October 1, 1996, the results of
which were embodied in Annex "D" of the NIRC as the duly registered, existing or active
brands of cigarettes.
Paragraph (c) of Section 145, 1 states
SEC. 145. Cigars and cigarettes.
xxxx
(c) Cigarettes packed by machine. There shall be levied, assessed and collected on
cigarettes packed by machine a tax at the rates prescribed below:
(1) If the net retail price (excluding the excise tax and the value-added tax) is
above Ten pesos (P10.00) per pack, the tax shall be Thirteen pesos and forty-four
centavos (P13.44) per pack;
(2) If the net retail price (excluding the excise tax and the value-added tax)
exceeds Six pesos and fifty centavos (P6.50) but does not exceed Ten pesos
(10.00) per pack, the tax shall be Eight pesos and ninety-six centavos (P8.96) per
pack;
(3) If the net retail price (excluding the excise tax and the value-added tax) is Five
pesos (P5.00) but does not exceed Six pesos and fifty centavos (P6.50) per pack,
the tax shall be Five pesos and sixty centavos (P5.60) per pack;
(4) If the net retail price (excluding the excise tax and the value-added tax) is
below Five pesos (P5.00) per pack, the tax shall be One peso and twelve centavos
(P1.12) per pack.
Variants of existing brands of cigarettes which are introduced in the domestic market
after the effectivity of this Act shall be taxed under the highest classification of any
variant of that brand.
xxxx
New brands shall be classified according to their current net retail price.
For the above purpose, net retail price shall mean the price at which the cigarette is sold
on retail in 20 major supermarkets in Metro Manila (for brands of cigarettes marketed
nationally), excluding the amount intended to cover the applicable excise tax and the
value-added tax. For brands which are marketed only outside Metro Manila, the net retail
price shall mean the price at which the cigarette is sold in five major supermarkets in the
region excluding the amount intended to cover the applicable excise tax and the value-
added tax.
The classification of each brand of cigarettes based on its average net retail price as
of October 1, 1996, as set forth in Annex "D" of this Act, shall remain in force until
revised by Congress. (Emphasis supplied)
As such, new brands of cigarettes shall be taxed according to their current net retail price while
existing or "old" brands shall be taxed based on their net retail price as of October 1, 1996.
To implement RA 8240, the Bureau of Internal Revenue (BIR) issued Revenue Regulations No.
1-97,2 which classified the existing brands of cigarettes as those duly registered or active brands
prior to January 1, 1997. New brands, or those registered after January 1, 1997, shall be initially
assessed at their suggested retail price until such time that the appropriate survey to determine
their current net retail price is conducted. Pertinent portion of the regulations reads
SECTION 2. Definition of Terms.
xxxx
3. Duly registered or existing brand of cigarettes shall include duly registered, existing
or active brands of cigarettes, prior to January 1, 1997.
xxxx
6. New Brands shall mean brands duly registered after January 1, 1997 and shall
include duly registered, inactive brands of cigarette not sold in commercial quantity
before January 1, 1997.
Section 4. Classification and Manner of Taxation of Existing Brands, New Brands and
Variant of Existing Brands.
xxxx
B. New Brand
New brands shall be classified according to their current net retail price. In the meantime
that the current net retail price has not yet been established, the suggested net retail price
shall be used to determine the specific tax classification. Thereafter, a survey shall be
conducted in 20 major supermarkets or retail outlets in Metro Manila (for brands of
cigarette marketed nationally) or in five (5) major supermarkets or retail outlets in the
region (for brands which are marketed only outside Metro Manila) at which the cigarette
is sold on retail in reams/cartons, three (3) months after the initial removal of the new
brand to determine the actual net retail price excluding the excise tax and value added tax
which shall then be the basis in determining the specific tax classification. In case the
current net retail price is higher than the suggested net retail price, the former shall
prevail. Any difference in specific tax due shall be assessed and collected inclusive of
increments as provided for by the National Internal Revenue Code, as amended.
In June 2001, petitioner British American Tobacco introduced into the market Lucky Strike
Filter, Lucky Strike Lights and Lucky Strike Menthol Lights cigarettes, with a suggested retail
price of P9.90 per pack.3 Pursuant to Sec. 145 (c) quoted above, the Lucky Strike brands were
initially assessed the excise tax at P8.96 per pack.
On February 17, 2003, Revenue Regulations No. 9-2003,4 amended Revenue Regulations No.
1-97 by providing, among others, a periodic review every two years or earlier of the current net
retail price of new brands and variants thereof for the purpose of establishing and updating their
tax classification, thus:
For the purpose of establishing or updating the tax classification of new brands and
variant(s) thereof, their current net retail price shall be reviewed periodically through the
conduct of survey or any other appropriate activity, as mentioned above, every two (2)
years unless earlier ordered by the Commissioner. However, notwithstanding any
increase in the current net retail price, the tax classification of such new brands shall
remain in force until the same is altered or changed through the issuance of an
appropriate Revenue Regulations.
Pursuant thereto, Revenue Memorandum Order No. 6-20035 was issued on March 11, 2003,
prescribing the guidelines and procedures in establishing current net retail prices of new brands
of cigarettes and alcohol products.
Subsequently, Revenue Regulations No. 22-20036 was issued on August 8, 2003 to implement
the revised tax classification of certain new brands introduced in the market after January 1,
1997, based on the survey of their current net retail price. The survey revealed that Lucky Strike
Filter, Lucky Strike Lights, and Lucky Strike Menthol Lights, are sold at the current net retail
price of P22.54, P22.61 and P21.23, per pack, respectively. 7 Respondent Commissioner of the
Bureau of Internal Revenue thus recommended the applicable tax rate of P13.44 per pack
inasmuch as Lucky Strikes average net retail price is above P10.00 per pack.
Thus, on September 1, 2003, petitioner filed before the Regional Trial Court (RTC) of Makati,
Branch 61, a petition for injunction with prayer for the issuance of a temporary restraining order
(TRO) and/or writ of preliminary injunction, docketed as Civil Case No. 03-1032. Said petition
sought to enjoin the implementation of Section 145 of the NIRC, Revenue Regulations Nos. 1-
97, 9-2003, 22-2003 and Revenue Memorandum Order No. 6-2003 on the ground that they
discriminate against new brands of cigarettes, in violation of the equal protection and uniformity
provisions of the Constitution.
Respondent Commissioner of Internal Revenue filed an Opposition8 to the application for the
issuance of a TRO. On September 4, 2003, the trial court denied the application for TRO,
holding that the courts have no authority to restrain the collection of taxes. 9 Meanwhile,
respondent Secretary of Finance filed a Motion to Dismiss, 10 contending that the petition is
premature for lack of an actual controversy or urgent necessity to justify judicial intervention.
In an Order dated March 4, 2004, the trial court denied the motion to dismiss and issued a writ of
preliminary injunction to enjoin the implementation of Revenue Regulations Nos. 1-97, 9-2003,
22-2003 and Revenue Memorandum Order No. 6-2003.11 Respondents filed a Motion for
Reconsideration12 and Supplemental Motion for Reconsideration. 13 At the hearing on the said
motions, petitioner and respondent Commissioner of Internal Revenue stipulated that the only
issue in this case is the constitutionality of the assailed law, order, and regulations.14
On May 12, 2004, the trial court rendered a decision15 upholding the constitutionality of Section
145 of the NIRC, Revenue Regulations Nos. 1-97, 9-2003, 22-2003 and Revenue Memorandum
Order No. 6-2003. The trial court also lifted the writ of preliminary injunction. The dispositive
portion of the decision reads:
WHEREFORE, premises considered, the instant Petition is hereby DISMISSED for lack
of merit. The Writ of Preliminary Injunction previously issued is hereby lifted and
dissolved.
SO ORDERED.16
Petitioner brought the instant petition for review directly with this Court on a pure question of
law.
While the petition was pending, RA 9334 (An Act Increasing The Excise Tax Rates Imposed on
Alcohol And Tobacco Products, Amending For The Purpose Sections 131, 141, 143, 144, 145
and 288 of the NIRC of 1997, As Amended), took effect on January 1, 2005. The statute, among
others,
(1) increased the excise tax rates provided in paragraph (c) of Section 145;
(2) mandated that new brands of cigarettes shall initially be classified according to their
suggested net retail price, until such time that their correct tax bracket is finally determined under
a specified period and, after which, their classification shall remain in force until revised by
Congress;
(3) retained Annex "D" as tax base of those surveyed as of October 1, 1996 including the
classification of brands for the same products which, although not set forth in said Annex "D,"
were registered on or before January 1, 1997 and were being commercially produced and
marketed on or after October 1, 1996, and which continue to be commercially produced and
marketed after the effectivity of this Act. Said classification shall remain in force until revised by
Congress; and
(4) provided a legislative freeze on brands of cigarettes introduced between the period January 2,
199717 to December 31, 2003, such that said cigarettes shall remain in the classification under
which the BIR has determined them to belong as of December 31, 2003, until revised by
Congress.
Pertinent portions, of RA 9334, provides:
SEC. 145. Cigars and Cigarettes.
xxxx
(C) Cigarettes Packed by Machine. There shall be levied, assessed and collected on
(1) If the net retail price (excluding the excise tax and the value-added tax) is below Five
pesos (P5.00) per pack, the tax shall be:
Effective on January 1, 2005, Two pesos (P2.00) per pack;
Effective on January 1, 2007, Two pesos and twenty-three centavos (P2.23) per pack;
Effective on January 1, 2009, Two pesos and forty-seven centavos (P2.47) per pack; and
Effective on January 1, 2011, Two pesos and seventy-two centavos (P2.72) per pack.
(2) If the net retail price (excluding the excise tax and the value-added tax) is Five pesos
(P5.00) but does not exceed Six pesos and fifty centavos (P6.50) per pack, the tax shall
be:
Effective on January 1, 2005, Six pesos and thirty-five centavos (P6.35) per pack;
Effective on January 1, 2007, Six pesos and seventy-four centavos (P6.74) per pack;
Effective on January 1, 2009, Seven pesos and fourteen centavos (P7.14) per pack; and
Effective on January 1, 2011, Seven pesos and fifty-six centavos (P7.56) per pack.
(3) If the net retail price (excluding the excise tax and the value-added tax) exceeds Six
pesos and fifty centavos (P6.50) but does not exceed Ten pesos (P10.00) per pack, the tax
shall be:
Effective on January 1, 2005, Ten pesos and thirty-five centavos (10.35) per pack;
Effective on January 1, 2007, Ten pesos and eighty-eight centavos (P10.88) per pack;
Effective on January 1, 2009, Eleven pesos and forty-three centavos (P11.43) per pack;
and
Effective on January 1, 2011, Twelve pesos (P12.00) per pack.
(4) If the net retail price (excluding the excise tax and the value-added tax) is above Ten
Effective on January 1, 2005, Twenty-five pesos (P25.00) per pack;
Effective on January 1, 2007, Twenty-six pesos and six centavos (P26.06) per pack;
Effective on January 1, 2009, Twenty-seven pesos and sixteen centavos (P27.16) per
pack; and
Effective on January 1, 2011, Twenty-eight pesos and thirty centavos (P28.30) per pack.
xxxx
New brands, as defined in the immediately following paragraph, shall initially be

classified according to their suggested net retail price.
New brands shall mean a brand registered after the date of effectivity of R.A. No. 8240.
Suggested net retail price shall mean the net retail price at which new brands, as defined
above, of locally manufactured or imported cigarettes are intended by the manufacturer
or importer to be sold on retail in major supermarkets or retail outlets in Metro Manila for
those marketed nationwide, and in other regions, for those with regional markets. At the
end of three (3) months from the product launch, the Bureau of Internal Revenue shall
validate the suggested net retail price of the new brand against the net retail price as
defined herein and determine the correct tax bracket under which a particular new brand
of cigarette, as defined above, shall be classified. After the end of eighteen (18) months
from such validation, the Bureau of Internal Revenue shall revalidate the initially
validated net retail price against the net retail price as of the time of revalidation in order
to finally determine the correct tax bracket under which a particular new brand of
cigarettes shall be classified; Provided however, That brands of cigarettes introduced
in the domestic market between January 1, 1997 [should be January 2, 1997] and
December 31, 2003 shall remain in the classification under which the Bureau of
Internal Revenue has determined them to belong as of December 31, 2003. Such
classification of new brands and brands introduced between January 1, 1997 and
December 31, 2003 shall not be revised except by an act of Congress.
Net retail price, as determined by the Bureau of Internal Revenue through a price survey
to be conducted by the Bureau of Internal Revenue itself, or the National Statistics Office
when deputized for the purpose by the Bureau of Internal Revenue, shall mean the price
at which the cigarette is sold in retail in at least twenty (20) major supermarkets in Metro
Manila (for brands of cigarettes marketed nationally), excluding the amount intended to
cover the applicable excise tax and the value-added tax. For brands which are marketed
only outside Metro Manila, the "net retail price" shall mean the price at which the
cigarette is sold in at least five (5) major supermarkets in the region excluding the amount
intended to cover the applicable excise tax and value-added tax.
The classification of each brand of cigarettes based on its average net retail price as
of October 1, 1996, as set forth in Annex "D", including the classification of brands
for the same products which, although not set forth in said Annex "D", were
registered and were being commercially produced and marketed on or after
October 1, 1996, and which continue to be commercially produced and marketed
after the effectivity of this Act, shall remain in force until revised by Congress.
(Emphasis added)
Under RA 9334, the excise tax due on petitioners products was increased to P25.00 per pack. In
the implementation thereof, respondent Commissioner assessed petitioners importation of
911,000 packs of Lucky Strike cigarettes at the increased tax rate of P25.00 per pack, rendering
it liable for taxes in the total sum of P22,775,000.00.18
Hence, petitioner filed a Motion to Admit Attached Supplement 19 and a Supplement20 to the
petition for review, assailing the constitutionality of RA 9334 insofar as it retained Annex "D"
and praying for a downward classification of Lucky Strike products at the bracket taxable at
P8.96 per pack. Petitioner contended that the continued use of Annex "D" as the tax base of
existing brands of cigarettes gives undue protection to said brands which are still taxed based on
their price as of October 1996 notwithstanding that they are now sold at the same or even at a
higher price than new brands like Lucky Strike. Thus, old brands of cigarettes such as Marlboro
and Philip Morris which, like Lucky Strike, are sold at or more than P22.00 per pack, are taxed at
the rate of P10.88 per pack, while Lucky Strike products are taxed at P26.06 per pack.
In its Comment to the supplemental petition, respondents, through the Office of the Solicitor
General (OSG), argued that the passage of RA 9334, specifically the provision imposing a
legislative freeze on the classification of cigarettes introduced into the market between January 2,
1997 and December 31, 2003, rendered the instant petition academic. The OSG claims that the
provision in Section 145, as amended by RA 9334, prohibiting the reclassification of cigarettes
introduced during said period, "cured the perceived defect of Section 145 considering that, like
the cigarettes under Annex "D," petitioners brands and other brands introduced between January
2, 1997 and December 31, 2003, shall remain in the classification under which the BIR has
placed them and only Congress has the power to reclassify them.
On March 20, 2006, Philip Morris Philippines Manufacturing Incorporated filed a Motion for
Leave to Intervene with attached Comment-in-Intervention.21 This was followed by the Motions
for Leave to Intervene of Fortune Tobacco Corporation,22 Mighty Corporation, 23 and JT
International, S.A., with their respective Comments-in-Intervention. The Intervenors claim that
they are parties-in-interest who stand to be affected by the ruling of the Court on the
constitutionality of Section 145 of the NIRC and its Annex "D" because they are manufacturers
of cigarette brands which are included in the said Annex. Hence, their intervention is proper
since the protection of their interest cannot be addressed in a separate proceeding.
According to the Intervenors, no inequality exists because cigarettes classified by the BIR based
on their net retail price as of December 31, 2003 now enjoy the same status quo provision that
prevents the BIR from reclassifying cigarettes included in Annex "D." It added that the Court has
no power to pass upon the wisdom of the legislature in retaining Annex "D" in RA 9334; and
that the nullification of said Annex would bring about tremendous loss of revenue to the
government, chaos in the collection of taxes, illicit trade of cigarettes, and cause decline in
cigarette demand to the detriment of the farmers who depend on the tobacco industry.
Intervenor Fortune Tobacco further contends that petitioner is estopped from questioning the
constitutionality of Section 145 and its implementing rules and regulations because it entered
into the cigarette industry fully aware of the existing tax system and its consequences. Petitioner
imported cigarettes into the country knowing that its suggested retail price, which will be the
initial basis of its tax classification, will be confirmed and validated through a survey by the BIR
to determine the correct tax that would be levied on its cigarettes.
Moreover, Fortune Tobacco claims that the challenge to the validity of the BIR issuances should
have been brought by petitioner before the Court of Tax Appeals (CTA) and not the RTC
because it is the CTA which has exclusive appellate jurisdiction over decisions of the BIR in tax
disputes.
On August 7, 2006, the OSG manifested that it interposes no objection to the motions for
intervention.24 Therefore, considering the substantial interest of the intervenors, and in the higher
interest of justice, the Court admits their intervention.
Before going into the substantive issues of this case, we must first address the matter of
jurisdiction, in light of Fortune Tobaccos contention that petitioner should have brought its
petition before the Court of Tax Appeals rather than the regional trial court.
The jurisdiction of the Court of Tax Appeals is defined in Republic Act No. 1125, as amended
by Republic Act No. 9282. Section 7 thereof states, in pertinent part:
Sec. 7. Jurisdiction. The CTA shall exercise:
a. Exclusive appellate jurisdiction to review by appeal, as herein provided:
1. Decisions of the Commissioner of Internal Revenue in cases involving disputed

assessments, refunds of internal revenue taxes, fees or other charges, penalties in relation
thereto, or other matters arising under the National Internal Revenue or other laws
administered by the Bureau of Internal Revenue;
2. Inaction by the Commissioner of Internal Revenue in cases involving disputed

assessments, refunds of internal revenue taxes, fees or other charges, penalties in
relations thereto, or other matters arising under the National Internal Revenue Code or
other laws administered by the Bureau of Internal Revenue, where the National Internal
Revenue Code provides a specific period of action, in which case the inaction shall be
deemed a denial; xxx.25
While the above statute confers on the CTA jurisdiction to resolve tax disputes in general, this
does not include cases where the constitutionality of a law or rule is challenged. Where what is
assailed is the validity or constitutionality of a law, or a rule or regulation issued by the
administrative agency in the performance of its quasi-legislative function, the regular courts have
jurisdiction to pass upon the same. The determination of whether a specific rule or set of rules
issued by an administrative agency contravenes the law or the constitution is within the
jurisdiction of the regular courts. Indeed, the Constitution vests the power of judicial review or
the power to declare a law, treaty, international or executive agreement, presidential decree,
order, instruction, ordinance, or regulation in the courts, including the regional trial courts. This
is within the scope of judicial power, which includes the authority of the courts to determine in
an appropriate action the validity of the acts of the political departments. Judicial power includes
the duty of the courts of justice to settle actual controversies involving rights which are legally
demandable and enforceable, and 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.26
In Drilon v. Lim,27 it was held:

We stress at the outset that the lower court had jurisdiction to consider the
constitutionality of Section 187, this authority being embraced in the general definition of
the judicial power to determine what are the valid and binding laws by the criterion of
their conformity to the fundamental law. Specifically, B.P. 129 vests in the regional trial
courts jurisdiction over all civil cases in which the subject of the litigation is incapable of
pecuniary estimation, even as the accused in a criminal action has the right to question in
his defense the constitutionality of a law he is charged with violating and of the
proceedings taken against him, particularly as they contravene the Bill of Rights.
Moreover, Article X, Section 5(2), of the Constitution vests in the Supreme Court
appellate jurisdiction over final judgments and orders of lower courts in all cases in
which the constitutionality or validity of any treaty, international or executive agreement,
law, presidential decree, proclamation, order, instruction, ordinance, or regulation is in
question.
The petition for injunction filed by petitioner before the RTC is a direct attack on the
constitutionality of Section 145(C) of the NIRC, as amended, and the validity of its
implementing rules and regulations. In fact, the RTC limited the resolution of the subject case to
the issue of the constitutionality of the assailed provisions. The determination of whether the
assailed law and its implementing rules and regulations contravene the Constitution is within the
jurisdiction of regular courts. The Constitution vests the power of judicial review or the power to
declare a law, treaty, international or executive agreement, presidential decree, order, instruction,
ordinance, or regulation in the courts, including the regional trial courts.28 Petitioner, therefore,
properly filed the subject case before the RTC.
We come now to the issue of whether petitioner is estopped from assailing the authority of the
Commissioner of Internal Revenue. Fortune Tobacco raises this objection by pointing out that
when petitioner requested the Commissioner for a ruling that its Lucky Strike Soft Pack
cigarettes was a "new brand" rather than a variant of an existing brand, and thus subject to a
lower specific tax rate, petitioner executed an undertaking to comply with the procedures under
existing regulations for the assessment of deficiency internal revenue taxes.
Fortune Tobacco argues that petitioner, after invoking the authority of the Commissioner of
Internal Revenue, cannot later on turn around when the ruling is adverse to it.
Estoppel, an equitable principle rooted in natural justice, prevents persons from going back on
their own acts and representations, to the prejudice of others who have relied on them. 29 The
principle is codified in Article 1431 of the Civil Code, which provides:
Through estoppel, an admission or representation is rendered conclusive upon the person making
it and cannot be denied or disproved as against the person relying thereon.
Estoppel can also be found in Rule 131, Section 2 (a) of the Rules of Court, viz:
Sec. 2. Conclusive presumptions. The following are instances of conclusive

presumptions:
(a) Whenever a party has by his own declaration, act or omission, intentionally and
deliberately led another to believe a particular thing true, and to act upon such belief, he
cannot, in any litigation arising out of such declaration, act or omission be permitted to
falsify it.
The elements of estoppel are: first, the actor who usually must have knowledge, notice or
suspicion of the true facts, communicates something to another in a misleading way, either by
words, conduct or silence; second, the other in fact relies, and relies reasonably or justifiably,
upon that communication; third, the other would be harmed materially if the actor is later
permitted to assert any claim inconsistent with his earlier conduct; and fourth, the actor knows,
expects or foresees that the other would act upon the information given or that a reasonable
person in the actor's position would expect or foresee such action. 30
In the early case of Kalalo v. Luz,31 the elements of estoppel, as related to the party to be
estopped, are: (1) conduct amounting to false representation or concealment of material facts; or
at least calculated to convey the impression that the facts are other than, and inconsistent with,
those which the party subsequently attempts to assert; (2) intent, or at least expectation that this
conduct shall be acted upon by, or at least influence, the other party; and (3) knowledge, actual
or constructive, of the real facts.
We find that petitioner was not guilty of estoppel. When it made the undertaking to comply with
all issuances of the BIR, which at that time it considered as valid, petitioner did not commit any
false misrepresentation or misleading act. Indeed, petitioner cannot be faulted for initially
undertaking to comply with, and subjecting itself to the operation of Section 145(C), and only
later on filing the subject case praying for the declaration of its unconstitutionality when the
circumstances change and the law results in what it perceives to be unlawful discrimination. The
mere fact that a law has been relied upon in the past and all that time has not been attacked as
unconstitutional is not a ground for considering petitioner estopped from assailing its validity.
For courts will pass upon a constitutional question only when presented before it in bona fide
cases for determination, and the fact that the question has not been raised before is not a valid
reason for refusing to allow it to be raised later. 32
Now to the substantive issues.
To place this case in its proper context, we deem it necessary to first discuss how the assailed
law operates in order to identify, with precision, the specific provisions which, according to
petitioner, have created a grossly discriminatory classification scheme between old and new
brands. The pertinent portions of RA 8240, as amended by RA 9334, are reproduced below for
ready reference:
SEC. 145. Cigars and Cigarettes.
xxxx
(C) Cigarettes Packed by Machine. There shall be levied, assessed and collected on
Effective on January 1, 2005, Two pesos (P2.00) per pack;
Effective on January 1, 2007, Two pesos and twenty-three centavos (P2.23) per
pack;
Effective on January 1, 2009, Two pesos and forty-seven centavos (P2.47) per
pack; and
Effective on January 1, 2011, Two pesos and seventy-two centavos (P2.72) per
pack.
(P5.00) but does not exceed Six pesos and fifty centavos (P6.50) per pack, the tax shall
be:
Effective on January 1, 2005, Six pesos and thirty-five centavos (P6.35) per pack;
Effective on January 1, 2007, Six pesos and seventy-four centavos (P6.74) per
pack;
Effective on January 1, 2009, Seven pesos and fourteen centavos (P7.14) per
pack; and
Effective on January 1, 2011, Seven pesos and fifty-six centavos (P7.56) per pack.
pesos and fifty centavos (P6.50) but does not exceed Ten pesos (P10.00) per pack, the tax
shall be:
Effective on January 1, 2005, Ten pesos and thirty-five centavos (10.35) per pack;
Effective on January 1, 2007, Ten pesos and eighty-eight centavos (P10.88) per
pack;
Effective on January 1, 2009, Eleven pesos and forty-three centavos (P11.43) per
pack; and
Effective on January 1, 2011, Twelve pesos (P12.00) per pack.
Effective on January 1, 2005, Twenty-five pesos (P25.00) per pack;

Effective on January 1, 2007, Twenty-six pesos and six centavos (P26.06) per
pack;
Effective on January 1, 2009, Twenty-seven pesos and sixteen centavos (P27.16)

per pack; and
Effective on January 1, 2011, Twenty-eight pesos and thirty centavos (P28.30) per
pack.
xxxx

New brands shall mean a brand registered after the date of effectivity of R.A. No. 8240.
above, of locally manufactured or imported cigarettes are intended by the manufacturer
or importer to be sold on retail in major supermarkets or retail outlets in Metro Manila for
end of three (3) months from the product launch, the Bureau of Internal Revenue shall
validate the suggested net retail price of the new brand against the net retail price as
defined herein and determine the correct tax bracket under which a particular new brand
of cigarette, as defined above, shall be classified. After the end of eighteen (18) months
from such validation, the Bureau of Internal Revenue shall revalidate the initially
validated net retail price against the net retail price as of the time of revalidation in order
to finally determine the correct tax bracket under which a particular new brand of
cigarettes shall be classified; Provided however, That brands of cigarettes introduced in
the domestic market between January 1, 1997 [should be January 2, 1997] and December
31, 2003 shall remain in the classification under which the Bureau of Internal Revenue
has determined them to belong as of December 31, 2003. Such classification of new
brands and brands introduced between January 1, 1997 and December 31, 2003 shall not
be revised except by an act of Congress.
Net retail price, as determined by the Bureau of Internal Revenue through a price survey
to be conducted by the Bureau of Internal Revenue itself, or the National Statistics Office
when deputized for the purpose by the Bureau of Internal Revenue, shall mean the price
at which the cigarette is sold in retail in at least twenty (20) major supermarkets in Metro
Manila (for brands of cigarettes marketed nationally), excluding the amount intended to
cover the applicable excise tax and the value-added tax. For brands which are marketed
only outside Metro Manila, the "net retail price" shall mean the price at which the
cigarette is sold in at least five (5) major supermarkets in the region excluding the amount
intended to cover the applicable excise tax and value-added tax.
The classification of each brand of cigarettes based on its average net retail price as of
October 1, 1996, as set forth in Annex "D", including the classification of brands for the
same products which, although not set forth in said Annex "D", were registered and were
being commercially produced and marketed on or after October 1, 1996, and which
continue to be commercially produced and marketed after the effectivity of this Act, shall
remain in force until revised by Congress.
As can be seen, the law creates a four-tiered system which we may refer to as the low-priced,33
medium-priced,34 high-priced,35 and premium-priced36 tax brackets. When a brand is introduced
in the market, the current net retail price is determined through the aforequoted specified
procedure. The current net retail price is then used to classify under which tax bracket the brand
belongs in order to finally determine the corresponding excise tax rate on a per pack basis. The
assailed feature of this law pertains to the mechanism where, after a brand is classified based on
its current net retail price, the classification is frozen and only Congress can thereafter reclassify
the same. From a practical point of view, Annex "D" is merely a by-product of the whole
mechanism and philosophy of the assailed law. That is, the brands under Annex "D" were also
classified based on their current net retail price, the only difference being that they were the first
ones so classified since they were the only brands surveyed as of October 1, 1996, or prior to the
effectivity of RA 8240 on January 1, 1997. 37
Due to this legislative classification scheme, it is possible that over time the net retail price of a
previously classified brand, whether it be a brand under Annex "D" or a new brand classified
after the effectivity of RA 8240 on January 1, 1997, would increase (due to inflation, increase of
production costs, manufacturers decision to increase its prices, etc.) to a point that its net retail
price pierces the tax bracket to which it was previously classified.38 Consequently, even if its
present day net retail price would make it fall under a higher tax bracket, the previously
classified brand would continue to be subject to the excise tax rate under the lower tax bracket by
virtue of the legislative classification freeze.
Petitioner claims that this is what happened in 2004 to the Marlboro and Philip Morris brands,
which were permanently classified under Annex "D." As of October 1, 1996, Marlboro had net
retail prices ranging from P6.78 to P6.84 while Philip Morris had net retail prices ranging from
P7.39 to P7.48. Thus, pursuant to RA 8240, 39 Marlboro and Philip Morris were classified under
the high-priced tax bracket and subjected to an excise tax rate of P8.96 per pack. Petitioner then
presented evidence showing that after the lapse of about seven years or sometime in 2004,
Marlboros and Philip Morris net retail prices per pack both increased to about P15.59. 40 This
meant that they would fall under the premium-priced tax bracket, with a higher excise tax rate of
P13.44 per pack,41 had they been classified based on their 2004 net retail prices. However, due to
the legislative classification freeze, they continued to be classified under the high-priced tax
bracket with a lower excise tax rate. Petitioner thereafter deplores the fact that its Lucky Strike
Filter, Lucky Strike Lights, and Lucky Strike Menthol Lights cigarettes, introduced in the market
sometime in 2001 and validated by a BIR survey in 2003, were found to have net retail prices of
P11.53, P11.59 and P10.34,42 respectively, which are lower than those of Marlboro and Philip
Morris. However, since petitioners cigarettes were newly introduced brands in the market, they
were taxed based on their current net retail prices and, thus, fall under the premium-priced tax
bracket with a higher excise tax rate of P13.44 per pack. This unequal tax treatment between
Marlboro and Philip Morris, on the one hand, and Lucky Strike, on the other, is the crux of
petitioners contention that the legislative classification freeze violates the equal protection and
uniformity of taxation clauses of the Constitution.
It is apparent that, contrary to its assertions, petitioner is not only questioning the undue
favoritism accorded to brands under Annex "D," but the entire mechanism and philosophy of the
law which freezes the tax classification of a cigarette brand based on its current net retail price.
Stated differently, the alleged discrimination arising from the legislative classification freeze
between the brands under Annex "D" and petitioners newly introduced brands arose only
because the former were classified based on their "current" net retail price as of October 1, 1996
and petitioners newly introduced brands were classified based on their "current" net retail price
as of 2003. Without this corresponding freezing of the classification of petitioners newly
introduced brands based on their current net retail price, it would be impossible to establish that a
disparate tax treatment occurred between the Annex "D" brands and petitioners newly
introduced brands.
This clarification is significant because, under these circumstances, a declaration of

unconstitutionality would necessarily entail nullifying the whole mechanism of the law and not
just Annex "D." Consequently, if the assailed law is declared unconstitutional on equal
protection grounds, the entire method by which a brand of cigarette is classified would have to
be invalidated. As a result, no method to classify brands under Annex "D" as well as new brands
would be left behind and the whole Section 145 of the NIRC, as amended, would become
inoperative.43
To simplify the succeeding discussions, we shall refer to the whole mechanism and philosophy
of the assailed law which freezes the tax classification of a cigarette brand based on its current
net retail price and which, thus, produced different classes of brands based on the time of their
introduction in the market (starting with the brands in Annex "D" since they were the first brands
so classified as of October 1, 1996) as the classification freeze provision.44
As thus formulated, the central issue is whether or not the classification freeze provision violates
the equal protection and uniformity of taxation clauses of the Constitution.
In Sison, Jr. v. Ancheta,45 this Court, through Chief Justice Fernando, explained the applicable
standard in deciding equal protection and uniformity of taxation challenges:
Now for equal protection. The applicable standard to avoid the charge that there is a
denial of this constitutional mandate whether the assailed act is in the exercise of the
police power or the power of eminent domain is to demonstrate "that the governmental
act assailed, far from being inspired by the attainment of the common weal was prompted
by the spirit of hostility, or at the very least, discrimination that finds no support in
reason. It suffices then that the laws operate equally and uniformly on all persons under
similar circumstances or that all persons must be treated in the same manner, the
conditions not being different, both in the privileges conferred and the liabilities imposed.
Favoritism and undue preference cannot be allowed. For the principle is that equal
protection and security shall be given to every person under circumstances, which if not
identical are analogous. If law be looks upon in terms of burden or charges, those that fall
within a class should be treated in the same fashion, whatever restrictions cast on some in
the group equally binding on the rest." That same formulation applies as well to taxation
measures. The equal protection clause is, of course, inspired by the noble concept of
approximating the ideal of the laws's benefits being available to all and the affairs of men
being governed by that serene and impartial uniformity, which is of the very essence of
the idea of law. There is, however, wisdom, as well as realism, in these words of Justice
Frankfurter: "The equality at which the 'equal protection' clause aims is not a
disembodied equality. The Fourteenth Amendment enjoins 'the equal protection of the
laws,' and laws are not abstract propositions. They do not relate to abstract units A, B and
C, but are expressions of policy arising out of specific difficulties, addressed to the
attainment of specific ends by the use of specific remedies. The Constitution does not
require things which are different in fact or opinion to be treated in law as though they
were the same." Hence the constant reiteration of the view that classification if
rational in character is allowable. As a matter of fact, in a leading case of Lutz v.
Araneta, this Court, through Justice J.B.L. Reyes, went so far as to hold "at any rate, it is
inherent in the power to tax that a state be free to select the subjects of taxation, and it has
been repeatedly held that 'inequalities which result from a singling out of one particular
class for taxation, or exemption infringe no constitutional limitation.'"
Petitioner likewise invoked the kindred concept of uniformity. According to the

Constitution: "The rule of taxation shall be uniform and equitable." This requirement is
met according to Justice Laurel in Philippine Trust Company v. Yatco, decided in 1940,
when the tax "operates with the same force and effect in every place where the subject
may be found." He likewise added: "The rule of uniformity does not call for perfect
uniformity or perfect equality, because this is hardly attainable." The problem of
classification did not present itself in that case. It did not arise until nine years later, when
the Supreme Court held: "Equality and uniformity in taxation means that all taxable
articles or kinds of property of the same class shall be taxed at the same rate. The taxing
power has the authority to make reasonable and natural classifications for purposes
of taxation, . . . As clarified by Justice Tuason, where "the differentiation" complained of
"conforms to the practical dictates of justice and equity" it "is not discriminatory within
the meaning of this clause and is therefore uniform." There is quite a similarity then to
the standard of equal protection for all that is required is that the tax "applies equally to
all persons, firms and corporations placed in similar situation." 46 (Emphasis supplied)
In consonance thereto, we have held that "in our jurisdiction, the standard and analysis of equal
protection challenges in the main have followed the rational basis test, coupled with a
deferential attitude to legislative classifications and a reluctance to invalidate a law unless there
is a showing of a clear and unequivocal breach of the Constitution." 47 Within the present context
of tax legislation on sin products which neither contains a suspect classification nor impinges on
a fundamental right, the rational-basis test thus finds application. Under this test, a legislative
classification, to survive an equal protection challenge, must be shown to rationally further a
legitimate state interest.48 The classifications must be reasonable and rest upon some ground of
difference having a fair and substantial relation to the object of the legislation. 49 Since every law
has in its favor the presumption of constitutionality, the burden of proof is on the one attacking
the constitutionality of the law to prove beyond reasonable doubt that the legislative
classification is without rational basis. 50 The presumption of constitutionality can be overcome
only by the most explicit demonstration that a classification is a hostile and oppressive
discrimination against particular persons and classes, and that there is no conceivable basis
which might support it.51
A legislative classification that is reasonable does not offend the constitutional guaranty of the
equal protection of the laws. The classification is considered valid and reasonable provided that:
(1) it rests on substantial distinctions; (2) it is germane to the purpose of the law; (3) it applies,
all things being equal, to both present and future conditions; and (4) it applies equally to all those
belonging to the same class.52
The first, third and fourth requisites are satisfied. The classification freeze provision was inserted
in the law for reasons of practicality and expediency. That is, since a new brand was not yet in
existence at the time of the passage of RA 8240, then Congress needed a uniform mechanism to
fix the tax bracket of a new brand. The current net retail price, similar to what was used to
classify the brands under Annex "D" as of October 1, 1996, was thus the logical and practical
choice. Further, with the amendments introduced by RA 9334, the freezing of the tax
classifications now expressly applies not just to Annex "D" brands but to newer brands
introduced after the effectivity of RA 8240 on January 1, 1997 and any new brand that will be
introduced in the future.53 (However, as will be discussed later, the intent to apply the freezing
mechanism to newer brands was already in place even prior to the amendments introduced by
RA 9334 to RA 8240.) This does not explain, however, why the classification is "frozen" after its
determination based on current net retail price and how this is germane to the purpose of the
assailed law. An examination of the legislative history of RA 8240 provides interesting answers
to this question.
RA 8240 was the first of three parts in the Comprehensive Tax Reform Package then being
pushed by the Ramos Administration. It was enacted with the following objectives stated in the
Sponsorship Speech of Senator Juan Ponce Enrile (Senator Enrile), viz:
First, to evolve a tax structure which will promote fair competition among the players in
the industries concerned and generate buoyant and stable revenue for the government.
Second, to ensure that the tax burden is equitably distributed not only amongst the
industries affected but equally amongst the various levels of our society that are involved
in various markets that are going to be affected by the excise tax on distilled spirits,
fermented liquor, cigars and cigarettes.
In the case of firms engaged in the industries producing the products that we are about to
tax, this means relating the tax burden to their market share, not only in terms of quantity,
Mr. President, but in terms of value.
In case of consumers, this will mean evolving a multi-tiered rate structure so that low-
priced products are subject to lower tax rates and higher-priced products are subject to
higher tax rates.
Third, to simplify the tax administration and compliance with the tax laws that are about
to unfold in order to minimize losses arising from inefficiencies and tax avoidance
scheme, if not outright tax evasion. 54
In the initial stages of the crafting of the assailed law, the Department of Finance (DOF)
recommended to Congress a shift from the then existing ad valorem taxation system to a specific
taxation system with respect to sin products, including cigarettes. The DOF noted that the ad
valorem taxation system was a source of massive tax leakages because the taxpayer was able to
evade paying the correct amount of taxes through the undervaluation of the price of cigarettes
using various marketing arms and dummy corporations. In order to address this problem, the
DOF proposed a specific taxation system where the cigarettes would be taxed based on volume
or on a per pack basis which was believed to be less susceptible to price manipulation. The
reason was that the BIR would only need to monitor the sales volume of cigarettes, from which it
could easily compute the corresponding tax liability of cigarette manufacturers. Thus, the DOF
suggested the use of a three-tiered system which operates in substantially the same manner as the
four-tiered system under RA 8240 as earlier discussed. The proposal of the DOF was embodied
in House Bill (H.B.) No. 6060, the pertinent portions of which states
SEC. 142. Cigars and cigarettes.
(1) If the manufacturers or importers wholesale price (net of excise tax and value-added
tax) per pack exceeds four pesos and twenty centavos (P4.20), the tax shall be seven
pesos and fifty centavos (P7.50);
tax) per pack exceeds three pesos and ninety centavos (P3.90) but does not exceed four
pesos and twenty centavos (P4.20), the tax shall be five pesos and fifty centavos (P5.50):
provided, that after two (2) years from the effectivity of this Act, cigarettes otherwise
subject to tax under this subparagraph shall be taxed under subparagraph (1) above.
tax) per pack does not exceeds three pesos and ninety centavos (P3.90), the tax rate shall
be one peso (P1.00).
Variants of existing brands and new brands of cigarettes packed by machine to be

introduced in the domestic market after the effectivity of this Act, shall be taxed under
paragraph (c)(1) hereof.
The rates of specific tax on cigars and cigarettes under paragraphs (a), (b), and (c)
hereof, including the price levels for purposes of classifying cigarettes packed by
machine, shall be revised upward two (2) years after the effectivity of this Act and
every two years thereafter by the Commissioner of Internal Revenue, subject to the
approval of the Secretary of Finance, taking into account the movement of the
consumer price index for cigars and cigarettes as established by the National
Statistics Office: provided, that the increase in taxes and/or price levels shall be
equal to the present change in such consumer price index for the two-year period:
provided, further, that the President, upon the recommendation of the Secretary of
Finance, may suspend or defer the adjustment in price levels and tax rates when the
interest of the national economy and general welfare so require, such as the need to
obviate unemployment, and economic and social dislocation: provided, finally, that
the revised price levels and tax rates authorized herein shall in all cases be rounded
off to the nearest centavo and shall be in force and effect on the date of publication
thereof in a newspaper of general circulation. x x x (Emphasis supplied)
What is of particular interest with respect to the proposal of the DOF is that it contained a
provision for the periodic adjustment of the excise tax rates and tax brackets, and a
corresponding periodic resurvey and reclassification of cigarette brands based on the increase in
the consumer price index as determined by the Commissioner of Internal Revenue subject to
certain guidelines. The evident intent was to prevent inflation from eroding the value of the
excise taxes that would be collected from cigarettes over time by adjusting the tax rate and tax
brackets based on the increase in the consumer price index. Further, under this proposal, old
brands as well as new brands introduced thereafter would be subjected to a resurvey and
reclassification based on their respective values at the end of every two years in order to align
them with the adjustment of the excise tax rate and tax brackets due to the movement in the
consumer price index.55
Of course, we now know that the DOF proposal, insofar as the periodic adjustment of tax rates
and tax brackets, and the periodic resurvey and reclassification of cigarette brands are concerned,
did not gain approval from Congress. The House and Senate pushed through with their own
versions of the excise tax system on beers and cigarettes both denominated as H.B. No. 7198.
For convenience, we shall refer to the bill deliberated upon by the House as the House Version
and that of the Senate as the Senate Version.
The Houses Committee on Ways and Means, then chaired by Congressman Exequiel B. Javier
(Congressman Javier), roundly rejected the DOF proposal. Instead, in its Committee Report
submitted to the plenary, it proposed a different excise tax system which used a specific tax as a
basic tax with an ad valorem comparator. Further, it deleted the proposal to have a periodic
adjustment of tax rates and the tax brackets as well as periodic resurvey and reclassification of
cigarette brands, to wit:
The rigidity of the specific tax system calls for the need for frequent congressional
intervention to adjust the tax rates to inflation and to keep pace with the expanding needs
of government for more revenues. The DOF admits this flaw inherent in the tax system it
proposed. Hence, to obviate the need for remedial legislation, the DOF is asking
Congress to grant to the Commissioner the power to revise, one, the specific tax rates:
and two, the price levels of beer and cigarettes. What the DOF is asking, Mr. Speaker, is
for Congress to delegate to the Commissioner of Internal Revenue the power to fix the
tax rates and classify the subjects of taxation based on their price levels for purposes of
fixing the tax rates. While we sympathize with the predicament of the DOF, it is not for
Congress to abdicate such power. The power sought to be delegated to be exercised by
the Commissioner of Internal Revenue is a legislative power vested by the Constitution in
Congress pursuant to Section 1, Article VI of the Constitution. Where the power is
vested, there it must remain in Congress, a body of representatives elected by the
people. Congress may not delegate such power, much less abdicate it.
xxxx
Moreover, the grant of such power, if at all constitutionally permissible, to the

Commissioner of Internal Revenue is fraught with ethical implications. The debates on
how much revenue will be raised, how much money will be taken from the pockets of
taxpayers, will inexorably shift from the democratic Halls of Congress to the secret and
non-transparent corridors of unelected agencies of government, the Department of
Finance and the Bureau of Internal Revenue, which are not accountable to our people.
We cannot countenance the shift for ethical reasons, lest we be accused of betraying the
trust reposed on this Chamber by the people. x x x
A final point on this proposal, Mr. Speaker, is the exercise of the taxing power of the
Commissioner of Internal Revenue which will be triggered by inflation rates based on the
consumer price index. Simply stated, Mr. Speaker, the specific tax rates will be fixed by
the Commissioner depending on the price levels of beers and cigarettes as determined by
the consumers price index. This is a novel idea, if not necessarily weird in the field of
taxation. What if the brewer or the cigarette manufacturer sells at a price below the
consumers price index? Will it be taxed on the basis of the consumers price index
which is over and above its wholesale or retail price as the case may be? This is a weird
form of exaction where the tax is based not on what the brewer or manufacturer actually
realized but on an imaginary wholesale or retail price. This amounts to a taxation based
on presumptive price levels and renders the specific tax a presumptive tax. We hope, the
DOF and the BIR will also honor a presumptive tax payment.
Moreover, specific tax rates based on price levels tied to consumers price index as
proposed by the DOF engenders anti-trust concerns. The proposal if enacted into law will
serve as a barrier to the entry of new players in the beer and cigarette industries which are
presently dominated by shared monopolies. A new player in these industries will be
denied business flexibility to fix its price levels to promote its product and penetrate the
market as the price levels are dictated by the consumer price index. The proposed tax
regime, Mr. Speaker, will merely enhance the stranglehold of the oligopolies in the beer
and cigarette industries, thus, reversing the governments policy of dismantling
monopolies and combinations in restraint of trade.56
For its part, the Senates Committee on Ways and Means, then chaired by Senator Juan Ponce
Enrile (Senator Enrile), developed its own version of the excise tax system on cigarettes. The
Senate Version consisted of a four-tiered system and, interestingly enough, contained a periodic
excise tax rate and tax bracket adjustment as well as a periodic resurvey and reclassification of
brands provision ("periodic adjustment and reclassification provision," for brevity) to be
conducted by the DOF in coordination with the BIR and the National Statistics Office based on
the increase in the consumer price index similar to the one proposed by the DOF, viz:
SEC. 4 Section 142 of the National Internal Revenue Code, as amended, is hereby further
"SEC. 142. Cigars and cigarettes.
xxxx
pesos (P10.00) per pack, the tax shall be Twelve pesos (P12.00) per pack;
pesos and fifty centavos (P6.50) per pack, the tax shall be Eight pesos (P8.00) per pack;
(P5.00) up to Six pesos and fifty centavos (P6.50) per pack, the tax shall be Five pesos
(P5.00) per pack;
pesos (P5.00) per pack, the tax shall be One peso (P1.00) per pack.
Variants of existing brands of cigarettes which are introduced in the domestic market
after the effectivity of this Act shall be taxed under the highest classification of any
variant of that brand.
xxx
The rates of specific tax on cigars and cigarettes under subparagraph (a), (b) and (c)
hereof, including the net retail prices for purposes of classification, shall be adjusted
on the sixth of January three years after the effectivity of this Act and every three
years thereafter. The adjustment shall be in accordance with the inflation rate
measured by the average increase in the consumer price index over the three-year
period. The adjusted tax rates and net price levels shall be in force on the eighth of
January.
Within the period hereinabove mentioned, the Secretary of Finance shall direct the
conduct of a survey of retail prices of each brand of cigarettes in coordination with
the Bureau of Internal Revenue and the National Statistics Office.
For purposes of this Section, net retail price shall mean the price at which the cigarette is
sold on retail in 20 major supermarkets in Metro Manila (for brands of cigarettes
marketed nationally), excluding the amount intended to cover the applicable excise tax
and the value-added tax. For brands which are marketed only outside Metro Manila, the
net retail price shall mean the price at which the cigarette is sold in five major
supermarkets in the region excluding the amount intended to cover the applicable excise
tax and the value-added tax.
The classification of each brand of cigarettes in the initial year of implementation of

this Act shall be based on its average net retail price as of October 1, 1996. The said
classification by brand shall remain in force until January 7, 2000.
New brands shall be classified according to their current net retail price. 57 (Emphasis
supplied)
During the period of interpellations, the late Senator Raul S. Roco (Senator Roco) expressed
doubts as to the legality and wisdom of putting a periodic adjustment and reclassification
provision:
Senator Enrile: This will be the first time that a tax burden will be allowed to be
automatically adjusted upwards based on a system of indexing tied up with the
Consumers Price Index (CPI). Although I must add that we have adopted a similar
system in adjusting the personal tax exemption from income tax of our individual
taxpayers.
Senator Roco: They are not exactly the same, Mr. President. But even then, we do note
that this the first time we are trying to put an automatic adjustment. My concern is, why
do we propose now this automatic adjustment? What is the reason that impels the
committee? Maybe we can be enlightened and maybe we shall embrace it forthwith. But
what is the reason?
Senator Enrile: Mr. President, we will recall that in the House of Representatives, it has
adopted a tax proposal on these products based on a specific tax as a basic tax with an ad
valorem comparator. The Committee on Ways and Means of the Senate has not seen it fit
to adopt this system, but it recognized the possibility that there may be an occasion where
the price movement in the country might unwarrantedly move upwards, in which case, if
we peg the government to a specific tax rate of P6.30, P9.30 and P12.30 for beer, since
we are talking of beer, 58 the government might lose in the process.
In order to consider the interest of the government in this, Mr. President, and in order to
obviate the possibility that some of these products categorized under the different tiers
with different specific tax rates from moving upwards and piercing their own tiers and
thereby expose themselves to an incremental tax of higher magnitude, it was felt that we
should adopt a system where, in spite of any escalation in the price of these products in
the future, the tax rates could be adjusted upwards so that none of these products would
leave their own tier. That was the basic principle under which we crafted this portion of
the tax proposal.
Senator Roco: Mr. President, we certainly share the judgment of the distinguished
gentleman as regards the comparator provision in the House of Representatives and we
appreciate the reasons given. But we are under the impression that the House also, aside
from the comparator, has an adjustment clause that is fixed. It has fixed rates for the
adjustment. So that one of the basic differences between the Senate proposed version now
and the House version is that, the House of Representatives has manifested its will and
judgment as regards the tax to which we will adjust, whereas the Senate version relegates
fundamentally that judgment to the Department of Finance.
Senator Enrile: That is correct, Mr. President, because we felt that in imposing a fixed
adjustment, we might be fixing an amount that is either too high or too low. We cannot
foresee the economic trends in this country over a period of two years, three years, let
alone ten years. So we felt that a mechanism ought to be adopted in order to serve the
interest of the government, the interest of the producers, and the interest of the consuming
public.
Senator Roco: This is where, Mr. President, my policy difficulties start. Under the
Constitution I think it is Article VI, Section 24, and it was the distinguished chairman
of the Committee on Ways and Means who made this Chamber very conscious of this
provision revenue measures and tariff measures shall originate exclusively from the
House of Representatives.
The reason for this, Mr. President, is, there is a long history why the House of
Representatives must originate judgments on tax. The House members represent specific
districts. They represent specific constituencies, and the whole history of
parliamentarism, the whole history of Congress as an institution is founded on the
proposition that the direct representatives of the people must speak about taxes.
Mr. President, while the Senate can concur and can introduce amendments, the proposed
change here is radical. This is the policy difficulty that I wish to clarify with the
gentleman because the judgment call now on the amount of tax to be imposed is not
coming from Congress. It is shifted to the Department of Finance. True, the Secretary of
Finance may have been the best finance officer two years ago and now the best finance
officer in Asia, but that does not make him qualified to replace the judgment call of the
House of Representatives. That is my first difficulty.
Senator Enrile: Mr. President, precisely the law, in effect, authorizes this rate beforehand.
The computation of the rate is the only thing that was left to the Department of Finance
as a tax implementor of Congress. This is not unusual because we have already, as I said,
adopted a system similar to this. If we adjust the personal exemption of an individual
taxpayer, we are in effect adjusting the applicable tax rate to him.
Senator Roco: But the point I was trying to demonstrate, Mr. President, is that we depart
precisely from the mandate of the Constitution that judgment on revenue must emanate
from Congress. Here, it is shifted to the Department of Finance for no visible or patent
reason insofar as I could understand. The only difference is, who will make the
judgment? Should it be Congress?
Senator Enrile: Mr. President, forgive me for answering sooner than I should. My
understanding of the Constitution is that all revenue measures must emanate from the
House. That is all the Constitution says.
Now, it does not say that the judgment call must belong to the House. The judgment call
can belong both to the House and to the Senate. We can change whatever proposal the
House did. Precisely, we are now crafting a measure, and we are saying that this is the
rate subject to an adjustment which we also provide. We are not giving any unusual
power to the Secretary of Finance because we tell him, "This is the formula that you must
adopt in arriving at the adjustment so that you do not have to come back to us."59
Apart from his doubts as to the legality of the delegation of taxing power to the DOF and BIR,
Senator Roco also voiced out his concern about the possible abuse and corruption that will arise
from the periodic adjustment and reclassification provision. Continuing
Senator Roco: Mr. President, if that is the argument, that the distinguished gentleman has
a different legal interpretation, we will then now examine the choice. Because his legal
interpretation is different from mine, then the issues becomes: Is it more advantageous
that this judgment be exercised by the House? Should we not concur or modify in
terms of the exercise by the House of its power or are we better off giving this
judgment call to the Department of Finance?
Let me now submit, Mr. President, that in so doing, it is more advantageous to fix
the rate so that even if we modify the rates identified by Congress, it is better and
less susceptible to abuse.
For instance, Mr. President, would the gentlemen wish to demonstrate to us how this will
be done? On page 8, lines 5 to 9, there is a provision here as to when the Secretary of
Finance shall direct the conduct of survey of retail prices of each brand of fermented
liquor in coordination with the Bureau of Internal Revenue and the National Statistics
Office.
These offices are not exactly noted, Mr. President, for having been sanctified by the Holy
Spirit in their noble intentions. x x x60 (Emphasis supplied)
Pressing this point, Senator Roco continued his query:
Senator Roco: x x x [On page 8, lines 5 to 9] it says that during the two-year period, the
Secretary of Finance shall direct the conduct of the survey. How? When? Which retail
prices and what brand shall he consider? When he coordinates with the Bureau of Internal
Revenue, what is the Bureau of Internal Revenue supposed to be doing? What is the
National Statistics Office supposed to be doing, and under what guides and standards?
May the gentleman wish to demonstrate how this will be done? My point, Mr.
President, is, by giving the Secretary of Finance, the BIR and the National Statistics
Office discretion over a two-year period will invite corruption and arbitrariness,
which is more dangerous than letting the House of Representatives and this
Chamber set the adjustment rate. Why not set the adjustment rate? Why should
Congress not exercise that judgment now? x x x
Senator Enrile: x x x
Senator Roco: x x x We respectfully submit that the Chairman consider choosing the
judgment of this Chamber and the House of Representatives over a delegated judgment
of the Department of Finance.
Again, it is not to say that I do not trust the Department of Finance. It has won awards,
and I also trust the undersecretary. But that is beside the point. Tomorrow, they may not
be there.61 (Emphasis supplied)
This point was further dissected by the two senators. There was a genuine difference of opinion
as to which system one with a fixed excise tax rate and classification or the other with a
periodic adjustment of excise tax rate and reclassification was less susceptible to abuse, as the
following exchanges show:
Senator Enrile: Mr. President, considering the sensitivity of these products from the
viewpoint of exerted pressures because of the understandable impact of this measure on
the pockets of the major players producing these products, the committee felt that perhaps
to lessen such pressures, it is best that we now establish a norm where the tax will be
adjusted without incurring too much political controversy as has happened in the case of
this proposal.
Senator Roco: But that is exactly the same reason we say we must rely upon Congress
because Congress, if it is subjected to pressure, at least balances off because of political
factors.
When the Secretary of Finance is now subjected to pressure, are we saying that the
Secretary of Finance and the Department of Finance is better-suited to withstand the
pressure? Or are we saying "Let the Finance Secretary decide whom to yield"?
I am saying that the temptation and the pressure on the Secretary of Finance is more
dangerous and more corruption-friendly than ascertaining for ourselves now a fixed rate
of increase for a fixed period.
Senator Enrile: Mr. President, perhaps the gentleman may not agree with this
representation, but in my humble opinion, this formulation is less susceptible to pressure
because there is a definite point of reference which is the consumer price index, and that
consumer price index is not going to be used only for this purpose. The CPI is used for a
national purpose, and there is less possibility of tinkering with it. 62
Further, Senator Roco, like Congressman Javier, expressed the view that the periodic adjustment
and reclassification provision would create an anti-competitive atmosphere. Again, Senators
Roco and Enrile had genuine divergence of opinions on this matter, to wit:
Senator Roco: x x x On the marketing level, an adjustment clause may, in fact, be

disadvantageous to both companies, whether it is the Lucio Tan companies or the San
Miguel companies. If we have to adjust our marketing position every two years based on
the adjustment clause, the established company may survive, but the new ones will have
tremendous difficulty. Therefore, this provision tends to indicate an anticompetitive bias.
It is good for San Miguel and the Lucio Tan companies, but the new companies
assuming there may be new companies and we want to encourage them because of the
old point of liberalization will be at a disadvantage under this situation. If this
observation will find receptivity in the policy consideration of the distinguished
Gentleman, maybe we can also further, later on, seek amendments to this automatic
adjustment clause in some manner.
Senator Enrile: Mr. President, I cannot foresee any anti-competitiveness of this provision
with respect to a new entrant, because a new entrant will not just come in without
studying the market. He is a lousy businessman if he will just come in without studying
the market. If he comes in, he will determine at what retail price level he will market his
product, and he will be coming under any of the tiers depending upon his net retail price.
Therefore, I do not see how this particular provision will affect a new entrant.
Senator Roco: Be that as it may, Mr. President, we obviously will not resort to debate
until this evening, and we will have to look for other ways of resolving the policy
options.
Let me just close that particular area of my interpellation, by summarizing the points we
were hoping could be clarified.
1. That the automatic adjustment clause is at best questionable in law.
2. It is corruption-friendly in the sense that it shifts the discretion from the House
of Representatives and this Chamber to the Secretary of Finance, no matter how
saintly he may be.
3. There is, although the judgment call of the gentleman disagrees to our
view, an anticompetitive situation that is geared at63
After these lengthy exchanges, it appears that the views of Senator Enrile were sustained by the
Senate Body because the Senate Version was passed on Third Reading without substantially
altering the periodic adjustment and reclassification provision.
It was actually at the Bicameral Conference Committee level where the Senate Version
underwent major changes. The Senate Panel prevailed upon the House Panel to abandon the
basic excise tax rate and ad valorem comparator as the means to determine the applicable excise
tax rate. Thus, the Senates four-tiered system was retained with minor adjustments as to the
excise tax rate per tier. However, the House Panel prevailed upon the Senate Panel to delete the
power of the DOF and BIR to periodically adjust the excise tax rate and tax brackets, and
periodically resurvey and reclassify the cigarette brands based on the increase in the consumer
price index.
In lieu thereof, the classification of existing brands based on their average net retail price as of
October 1, 1996 was "frozen" and a fixed across-the-board 12% increase in the excise tax rate of
each tier after three years from the effectivity of the Act was put in place. There is a dearth of
discussion in the deliberations as to the applicability of the freezing mechanism to new brands
after their classification is determined based on their current net retail price. But a plain reading
of the text of RA 8240, even before its amendment by RA 9334, as well as the previously
discussed deliberations would readily lead to the conclusion that the intent of Congress was to
likewise apply the freezing mechanism to new brands. Precisely, Congress rejected the proposal
to allow the DOF and BIR to periodically adjust the excise tax rate and tax brackets as well as to
periodically resurvey and reclassify cigarettes brands which would have encompassed old and
new brands alike. Thus, it would be absurd for us to conclude that Congress intended to allow
the periodic reclassification of new brands by the BIR after their classification is determined
based on their current net retail price. We shall return to this point when we tackle the second
issue.
In explaining the changes made at the Bicameral Conference Committee level, Senator Enrile, in
his report to the Senate plenary, noted that the fixing of the excise tax rates was done to avoid
confusion.64 Congressman Javier, for his part, reported to the House plenary the reasons for
fixing the excise tax rate and freezing the classification, thus:
Finally, this twin feature, Mr. Speaker, fixed specific tax rates and frozen classification,
rejects the Senate version which seeks to abdicate the power of Congress to tax by
pegging the rates as well as the classification of sin products to consumer price index
which practically vests in the Secretary of Finance the power to fix the rates and to
classify the products for tax purposes.65 (Emphasis supplied)
Congressman Javier later added that the frozen classification was intended to give stability to the
industry as the BIR would be prevented from tinkering with the classification since it would
remain unchanged despite the increase in the net retail prices of the previously classified
brands.66 This would also assure the industry players that there would be no new impositions as
long as the law is unchanged.67
From the foregoing, it is quite evident that the classification freeze provision could hardly be
considered arbitrary, or motivated by a hostile or oppressive attitude to unduly favor older brands
over newer brands. Congress was unequivocal in its unwillingness to delegate the power to
periodically adjust the excise tax rate and tax brackets as well as to periodically resurvey and
reclassify the cigarette brands based on the increase in the consumer price index to the DOF and
the BIR. Congress doubted the constitutionality of such delegation of power, and likewise,
considered the ethical implications thereof. Curiously, the classification freeze provision was put
in place of the periodic adjustment and reclassification provision because of the belief that the
latter would foster an anti-competitive atmosphere in the market. Yet, as it is, this same criticism
is being foisted by petitioner upon the classification freeze provision.
To our mind, the classification freeze provision was in the main the result of Congresss earnest
efforts to improve the efficiency and effectivity of the tax administration over sin products while
trying to balance the same with other state interests. In particular, the questioned provision
addressed Congresss administrative concerns regarding delegating too much authority to the
DOF and BIR as this will open the tax system to potential areas for abuse and corruption.
Congress may have reasonably conceived that a tax system which would give the least amount of
discretion to the tax implementers would address the problems of tax avoidance and tax evasion.
To elaborate a little, Congress could have reasonably foreseen that, under the DOF proposal and
the Senate Version, the periodic reclassification of brands would tempt the cigarette
manufacturers to manipulate their price levels or bribe the tax implementers in order to allow
their brands to be classified at a lower tax bracket even if their net retail prices have already
migrated to a higher tax bracket after the adjustment of the tax brackets to the increase in the
consumer price index. Presumably, this could be done when a resurvey and reclassification is
forthcoming. As briefly touched upon in the Congressional deliberations, the difference of the
excise tax rate between the medium-priced and the high-priced tax brackets under RA 8240,
prior to its amendment, was P3.36. For a moderately popular brand which sells around 100
million packs per year, this easily translates to P336,000,000. 68 The incentive for tax avoidance,
if not outright tax evasion, would clearly be present. Then again, the tax implementers may use
the power to periodically adjust the tax rate and reclassify the brands as a tool to unduly oppress
the taxpayer in order for the government to achieve its revenue targets for a given year.
Thus, Congress sought to, among others, simplify the whole tax system for sin products to
remove these potential areas of abuse and corruption from both the side of the taxpayer and the
government. Without doubt, the classification freeze provision was an integral part of this overall
plan. This is in line with one of the avowed objectives of the assailed law "to simplify the tax
administration and compliance with the tax laws that are about to unfold in order to minimize
losses arising from inefficiencies and tax avoidance scheme, if not outright tax evasion."69 RA
9334 did not alter this classification freeze provision of RA 8240. On the contrary, Congress
affirmed this freezing mechanism by clarifying the wording of the law. We can thus reasonably
conclude, as the deliberations on RA 9334 readily show, that the administrative concerns in tax
administration, which moved Congress to enact the classification freeze provision in RA 8240,
were merely continued by RA 9334. Indeed, administrative concerns may provide a legitimate,
rational basis for legislative classification. 70 In the case at bar, these administrative concerns in
the measurement and collection of excise taxes on sin products are readily apparent as afore-
discussed.
Aside from the major concern regarding the elimination of potential areas for abuse and
corruption from the tax administration of sin products, the legislative deliberations also show that
the classification freeze provision was intended to generate buoyant and stable revenues for
government. With the frozen tax classifications, the revenue inflow would remain stable and the
government would be able to predict with a greater degree of certainty the amount of taxes that a
cigarette manufacturer would pay given the trend in its sales volume over time. The reason for
this is that the previously classified cigarette brands would be prevented from moving either
upward or downward their tax brackets despite the changes in their net retail prices in the future
and, as a result, the amount of taxes due from them would remain predictable. The classification
freeze provision would, thus, aid in the revenue planning of the government.71
All in all, the classification freeze provision addressed Congresss administrative concerns in the
simplification of tax administration of sin products, elimination of potential areas for abuse and
corruption in tax collection, buoyant and stable revenue generation, and ease of projection of
revenues. Consequently, there can be no denial of the equal protection of the laws since the
rational-basis test is amply satisfied.
Going now to the contention of petitioner that the classification freeze provision unduly favors
older brands over newer brands, we must first contextualize the basis of this claim. As previously
discussed, the evidence presented by the petitioner merely showed that in 2004, Marlboro and
Philip Morris, on the one hand, and Lucky Strike, on the other, would have been taxed at the
same rate had the classification freeze provision been not in place. But due to the operation of the
classification freeze provision, Lucky Strike was taxed higher. From here, petitioner generalizes
that this differential tax treatment arising from the classification freeze provision adversely
impacts the fairness of the playing field in the industry, particularly, between older and newer
brands. Thus, it is virtually impossible for new brands to enter the market.
Petitioner did not, however, clearly demonstrate the exact extent of such impact. It has not been
shown that the net retail prices of other older brands previously classified under this
classification system have already pierced their tax brackets, and, if so, how this has affected the
overall competition in the market. Further, it does not necessarily follow that newer brands
cannot compete against older brands because price is not the only factor in the market as there
are other factors like consumer preference, brand loyalty, etc. In other words, even if the newer
brands are priced higher due to the differential tax treatment, it does not mean that they cannot
compete in the market especially since cigarettes contain addictive ingredients so that a
consumer may be willing to pay a higher price for a particular brand solely due to its unique
formulation. It may also be noted that in 2003, the BIR surveyed 29 new brands72 that were
introduced in the market after the effectivity of RA 8240 on January 1, 1997, thus negating the
sweeping generalization of petitioner that the classification freeze provision has become an
insurmountable barrier to the entry of new brands. Verily, where there is a claim of breach of the
due process and equal protection clauses, 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. 73
Be that as it may, petitioners evidence does suggest that, at least in 2004, Philip Morris and
Marlboro, older brands, would have been taxed at the same rate as Lucky Strike, a newer brand,
due to certain conditions (i.e., the increase of the older brands net retail prices beyond the tax
bracket to which they were previously classified after the lapse of some time) were it not for the
classification freeze provision. It may be conceded that this has adversely affected, to a certain
extent, the ability of petitioner to competitively price its newer brands vis--vis the subject older
brands. Thus, to a limited extent, the assailed law seems to derogate one of its avowed
objectives, i.e. promoting fair competition among the players in the industry. Yet, will this
occurrence, by itself, render the assailed law unconstitutional on equal protection grounds?
We answer in the negative.
Whether Congress acted improvidently in derogating, to a limited extent, the states interest in
promoting fair competition among the players in the industry, while pursuing other state interests
regarding the simplification of tax administration of sin products, elimination of potential areas
for abuse and corruption in tax collection, buoyant and stable revenue generation, and ease of
projection of revenues through the classification freeze provision, and whether the questioned
provision is the best means to achieve these state interests, necessarily go into the wisdom of the
assailed law which we cannot inquire into, much less overrule. The classification freeze
provision has not been shown to be precipitated by a veiled attempt, or hostile attitude on the part
of Congress to unduly favor older brands over newer brands. On the contrary, we must
reasonably assume, owing to the respect due a co-equal branch of government and as revealed by
the Congressional deliberations, that the enactment of the questioned provision was impelled by
an earnest desire to improve the efficiency and effectivity of the tax administration of sin
products. For as long as the legislative classification is rationally related to furthering some
legitimate state interest, as here, the rational-basis test is satisfied and the constitutional
challenge is perfunctorily defeated.
We do not sit in judgment as a supra-legislature to decide, after a law is passed by Congress,

which state interest is superior over another, or which method is better suited to achieve one,
some or all of the states interests, or what these interests should be in the first place. This policy-
determining power, by constitutional fiat, belongs to Congress as it is its function to determine
and balance these interests or choose which ones to pursue. Time and again we have ruled that
the judiciary does not settle policy issues. The Court can only declare what the law is and not
what the law should be. Under our system of government, policy issues are within the domain of
the political branches of government and of the people themselves as the repository of all state
power.74 Thus, the legislative classification under the classification freeze provision, after having
been shown to be rationally related to achieve certain legitimate state interests and done in good
faith, must, perforce, end our inquiry.
Concededly, the finding that the assailed law seems to derogate, to a limited extent, one of its
avowed objectives (i.e. promoting fair competition among the players in the industry) would
suggest that, by Congresss own standards, the current excise tax system on sin products is
imperfect. But, certainly, we cannot declare a statute unconstitutional merely because it can be
improved or that it does not tend to achieve all of its stated objectives. 75 This is especially true
for tax legislation which simultaneously addresses and impacts multiple state interests.76 Absent
a clear showing of breach of constitutional limitations, Congress, owing to its vast experience
and expertise in the field of taxation, must be given sufficient leeway to formulate and
experiment with different tax systems to address the complex issues and problems related to tax
administration. Whatever imperfections that may occur, the same should be addressed to the
democratic process to refine and evolve a taxation system which ideally will achieve most, if not
all, of the states objectives.
In fine, petitioner may have valid reasons to disagree with the policy decision of Congress and
the method by which the latter sought to achieve the same. But its remedy is with Congress and
not this Court. As succinctly articulated in Vance v. Bradley:77
The Constitution presumes that, absent some reason to infer antipathy, even improvident
decisions will eventually be rectified by the democratic process, and that judicial
intervention is generally unwarranted no matter how unwisely we may think a political
branch has acted. Thus, we will not overturn such a statute unless the varying treatment
of different groups or persons is so unrelated to the achievement of any combination of
legitimate purposes that we can only conclude that the legislature's actions were
irrational.78
We now tackle the second issue.
Petitioner asserts that Revenue Regulations No. 1-97, as amended by Revenue Regulations No.
9-2003, Revenue Regulations No. 22-2003 and Revenue Memorandum Order No. 6-2003, are
invalid insofar as they empower the BIR to reclassify or update the classification of new brands
of cigarettes based on their current net retail prices every two years or earlier. It claims that RA
8240, even prior to its amendment by RA 9334, did not authorize the BIR to conduct said
periodic resurvey and reclassification.
The questioned provisions are found in the following sections of the assailed issuances:
(1) Section 4(B)(e)(c), 2nd paragraph of Revenue Regulations No. 1-97, as amended by Section 2
of Revenue Regulations 9-2003, viz:
For the purpose of establishing or updating the tax classification of new brands and
variant(s) thereof, their current net retail price shall be reviewed periodically through the
conduct of survey or any other appropriate activity, as mentioned above, every two (2)
years unless earlier ordered by the Commissioner. However, notwithstanding any
increase in the current net retail price, the tax classification of such new brands shall
remain in force until the same is altered or changed through the issuance of an
appropriate Revenue Regulations.
(2) Sections II(1)(b), II(4)(b), II(6), II(7), III (Large Tax Payers Assistance Division II) II(b) of
Revenue Memorandum Order No. 6-2003, insofar as pertinent to cigarettes packed by machine,
viz:
II. POLICIES AND GUIDELINES
1. The conduct of survey covered by this Order, for purposes of determining the current
retail prices of new brands of cigarettes and alcohol products introduced in the market on
or after January 1, 1997, shall be undertaken in the following instances:
xxxx
b. For reclassification of new brands of said excisable products that were introduced in
the market after January 1, 1997.
xxxx
4. The determination of the current retail prices of new brands of the aforesaid excisable
products shall be initiated as follows:
xxxx
b. After the lapse of the prescribed two-year period or as the Commissioner may
otherwise direct, the appropriate tax reclassification of these brands based on the current
net retail prices thereof shall be determined by a survey to be conducted upon a written
directive by the Commissioner.
For this purpose, a memorandum order to the Assistant Commissioner, Large Taxpayers
Service, Heads, Excise Tax Areas, and Regional Directors of all Revenue Regions,
except Revenue Region Nos. 4, 5, 6, 7, 8 and 9, shall be issued by the Commissioner for
the submission of the list of major supermarkets/retail outlets where the above excisable
products are being sold, as well as the list of selected revenue officers who shall be
designated to conduct the said activity(ies).
xxxx
6. The results of the survey conducted in Revenue Region Nos. 4 to 9 shall be submitted
directly to the Chief, LT Assistance Division II (LTAD II), National Office for
consolidation. On the other hand, the results of the survey conducted in Revenue Regions
other than Revenue Region Nos. 4 to 9, shall be submitted to the Office of the Regional
Director for regional consolidation. The consolidated regional survey, together with the
accomplished survey forms shall be transmitted to the Chief, LTAD II for national
consolidation within three (3) days from date of actual receipt from the survey teams. The
LTAD II shall be responsible for the evaluation and analysis of the submitted survey
forms and the preparation of the recommendation for the updating/revision of the tax
classification of each brand of cigarettes and alcohol products. The said recommendation,
duly validated by the ACIR, LTS, shall be submitted to the Commissioner for final
review within ten (10) days from the date of actual receipt of complete reports from all
the surveying Offices.
7. Upon final review by the Commissioner of the revised tax classification of the
different new brands of cigarettes and alcohol products, the appropriate revenue
regulations shall be prepared and submitted for approval by the Secretary of Finance.
xxxx
III. PROCEDURES
xxxx
Large Taxpayers Assistance Division II
xxxx
1. Perform the following preparatory procedures on the identification of brands to be

surveyed, supermarkets/retail outlets where the survey shall be conducted, and the
personnel selected to conduct the survey.
xxxx
b. On the tax reclassification of new brands
i. Submit a master list of registered brands covered by the survey pursuant to the
provisions of Item II.2 of this Order containing the complete description of each brand,
existing net retail price and the corresponding tax rate thereof.
ii. Submit to the ACIR, LTS, a list of major supermarkets/retail outlets within the
territorial jurisdiction of the concerned revenue regions where the survey will be
conducted to be used as basis in the issuance of Mission Orders. Ensure that the
minimum number of establishments to be surveyed, as prescribed under existing revenue
laws and regulations, is complied with. In addition, the names and designations of
revenue officers selected to conduct the survey shall be clearly indicated opposite the
names of the establishments to be surveyed.
There is merit to the contention.
In order to implement RA 8240 following its effectivity on January 1, 1997, the BIR issued
Revenue Regulations No. 1-97, dated December 13, 1996, which mandates a one-time
classification only.79 Upon their launch, new brands shall be initially taxed based on their
suggested net retail price. Thereafter, a survey shall be conducted within three (3) months to
determine their current net retail prices and, thus, fix their official tax classifications. However,
the BIR made a turnaround by issuing Revenue Regulations No. 9-2003, dated February 17,
2003, which partly amended Revenue Regulations No. 1-97, by authorizing the BIR to
periodically reclassify new brands (i.e., every two years or earlier) based on their current net
retail prices. Thereafter, the BIR issued Revenue Memorandum Order No. 6-2003, dated March
11, 2003, prescribing the guidelines on the implementation of Revenue Regulations No. 9-2003.
This was patent error on the part of the BIR for being contrary to the plain text and legislative
intent of RA 8240.
It is clear that the afore-quoted portions of Revenue Regulations No. 1-97, as amended by
Section 2 of Revenue Regulations 9-2003, and Revenue Memorandum Order No. 6-2003
unjustifiably emasculate the operation of Section 145 of the NIRC because they authorize the
Commissioner of Internal Revenue to update the tax classification of new brands every two years
or earlier subject only to its issuance of the appropriate Revenue Regulations, when nowhere in
Section 145 is such authority granted to the Bureau. Unless expressly granted to the BIR, the
power to reclassify cigarette brands remains a prerogative of the legislature which cannot be
usurped by the former.
More importantly, as previously discussed, the clear legislative intent was for new brands to
benefit from the same freezing mechanism accorded to Annex "D" brands. To reiterate, in
enacting RA 8240, Congress categorically rejected the DOF proposal and Senate Version which
would have empowered the DOF and BIR to periodically adjust the excise tax rate and tax
brackets, and to periodically resurvey and reclassify cigarette brands. (This resurvey and
reclassification would have naturally encompassed both old and new brands.) It would thus, be
absurd for us to conclude that Congress intended to allow the periodic reclassification of new
brands by the BIR after their classification is determined based on their current net retail price
while limiting the freezing of the classification to Annex "D" brands. Incidentally, Senator Ralph
G. Recto expressed the following views during the deliberations on RA 9334, which later
amended RA 8240:
Senator Recto: Because, like I said, when Congress agreed to adopt a specific tax system
[under R.A. 8240], when Congress did not index the brackets, and Congress did not index
the rates but only provided for a one rate increase in the year 2000, we shifted from ad
valorem which was based on value to a system of specific which is based on volume.
Congress then, in effect, determined the classification based on the prices at that
particular period of time and classified these products accordingly.
Of course, Congress then decided on what will happen to the new brands or variants of
existing brands. To favor government, a variant would be classified as the highest rate of
tax for that particular brand. In case of a new brand, Mr. President, then the BIR should
classify them. But I do not think it was the intention of Congress then to give the BIR the
authority to reclassify them every so often. I do not think it was the intention of Congress
to allow the BIR to classify a new brand every two years, for example, because it will be
arbitrary for the BIR to do so. x x x80 (Emphasis supplied)
For these reasons, the amendments introduced by RA 9334 to RA 8240, insofar as the freezing
mechanism is concerned, must be seen merely as underscoring the legislative intent already in
place then, i.e. new brands as being covered by the freezing mechanism after their classification
based on their current net retail prices.
Unfortunately for petitioner, this result will not cause a downward reclassification of Lucky
Strike. It will be recalled that petitioner introduced Lucky Strike in June 2001. However, as
admitted by petitioner itself, the BIR did not conduct the required market survey within three
months from product launch. As a result, Lucky Strike was never classified based on its actual
current net retail price. Petitioner failed to timely seek redress to compel the BIR to conduct the
requisite market survey in order to fix the tax classification of Lucky Strike. In the meantime,
Lucky Strike was taxed based on its suggested net retail price of P9.90 per pack, which is within
the high-priced tax bracket. It was only after the lapse of two years or in 2003 that the BIR
conducted a market survey which was the first time that Lucky Strikes actual current net retail
price was surveyed and found to be from P10.34 to P11.53 per pack, which is within the
premium-priced tax bracket. The case of petitioner falls under a situation where there was no
reclassification based on its current net retail price which would have been invalid as previously
explained. Thus, we cannot grant petitioners prayer for a downward reclassification of Lucky
Strike because it was never reclassified by the BIR based on its actual current net retail price.
It should be noted though that on August 8, 2003, the BIR issued Revenue Regulations No. 22-
2003 which implemented the revised tax classifications of new brands based on their current net
retail prices through the market survey conducted pursuant to Revenue Regulations No. 9-2003.
Annex "A" of Revenue Regulations No. 22-2003 lists the result of the market survey and the
corresponding recommended tax classification of the new brands therein aside from Lucky
Strike. However, whether these other brands were illegally reclassified based on their actual
current net retail prices by the BIR must be determined on a case-to-case basis because it is
possible that these brands were classified based on their actual current net retail price for the first
time in the year 2003 just like Lucky Strike. Thus, we shall not make any pronouncement as to
the validity of the tax classifications of the other brands listed therein.
Finally, it must be noted that RA 9334 introduced changes in the manner by which the current
net retail price of a new brand is determined and how its classification is permanently fixed, to
wit:

New brands shall mean a brand registered after the date of effectivity of R.A. No. 8240
[on January 1, 1997].
above, of locally manufactured or imported cigarettes are intended by the manufacture or
importer to be sold on retail in major supermarkets or retail outlets in Metro Manila for
end of three (3) months from the product launch, the Bureau of Internal Revenue
shall validate the suggested net retail price of the new brand against the net retail
price as defined herein and determine the correct tax bracket under which a
particular new brand of cigarette, as defined above, shall be classified. After the end
of eighteen (18) months from such validation, the Bureau of Internal Revenue shall
revalidate the initially validated net retail price against the net retail price as of the
time of revalidation in order to finally determine the correct tax bracket under
which a particular new brand of cigarettes shall be classified; Provided however, That
brands of cigarettes introduced in the domestic market between January 1, 1997 and
December 31, 2003 shall remain in the classification under which the Bureau of Internal
Revenue has determined them to belong as of December 31, 2003. Such classification of
new brands and brands introduced between January 1, 1997 and December 31,
2003 shall not be revised except by an act of Congress. (Emphasis supplied)
Thus, Revenue Regulations No. 9-2003 and Revenue Memorandum Order No. 6-2003 should be
deemed modified by the above provisions from the date of effectivity of RA 9334 on January 1,
2005.
In sum, Section 4(B)(e)(c), 2nd paragraph of Revenue Regulations No. 1-97, as amended by
Section 2 of Revenue Regulations 9-2003, and Sections II(1)(b), II(4)(b), II(6), II(7), III (Large
Tax Payers Assistance Division II) II(b) of Revenue Memorandum Order No. 6-2003, as
pertinent to cigarettes packed by machine, are invalid insofar as they grant the BIR the power to
reclassify or update the classification of new brands every two years or earlier. Further, these
provisions are deemed modified upon the effectivity of RA 9334 on January 1, 2005 insofar as
the manner of determining the permanent classification of new brands is concerned.
We now tackle the last issue.
Petitioner contends that RA 8240, as amended by RA 9334, and its implementing rules and
regulations violate the General Agreement on Tariffs and Trade (GATT) of 1947, as amended,
specifically, Paragraph 2, Article III, Part II:
2. The products of the territory of any contracting party imported into the territory of any
other contracting party shall not be subject, directly or indirectly, to internal taxes or
other internal charges of any kind in excess of those applied, directly or indirectly, to like
domestic products. Moreover, no contracting party shall otherwise apply internal taxes or
other internal charges to imported or domestic products in a manner contrary to the
principles set forth in paragraph 1.
It claims that it is the duty of this Court to correct, in favor of the GATT, whatever inconsistency
exists between the assailed law and the GATT in order to prevent triggering the international
dispute settlement mechanism under the GATT-WTO Agreement.
We disagree.
The classification freeze provision uniformly applies to all newly introduced brands in the
market, whether imported or locally manufactured. It does not purport to single out imported
cigarettes in order to unduly favor locally produced ones. Further, petitioners evidence was
anchored on the alleged unequal tax treatment between old and new brands which involves a
different frame of reference vis--vis local and imported products. Petitioner has, therefore,
failed to clearly prove its case, both factually and legally, within the parameters of the GATT.
At any rate, even assuming arguendo that petitioner was able to prove that the classification
freeze provision violates the GATT, the outcome would still be the same. The GATT is a treaty
duly ratified by the Philippine Senate and under Article VII, Section 21 81 of the Constitution, it
merely acquired the status of a statute.82 Applying the basic principles of statutory construction
in case of irreconcilable conflict between statutes, RA 8240, as amended by RA 9334, would
prevail over the GATT either as a later enactment by Congress or as a special law dealing with
the taxation of sin products. Thus, in Abbas v. Commission on Elections,83 we had occasion to
explain:
Petitioners premise their arguments on the assumption that the Tripoli Agreement is part
of the law of the land, being a binding international agreement. The Solicitor General
asserts that the Tripoli Agreement is neither a binding treaty, not having been entered into
by the Republic of the Philippines with a sovereign state and ratified according to the
provisions of the 1973 or 1987 Constitutions, nor a binding international agreement.
We find it neither necessary nor determinative of the case to rule on the nature of the
Tripoli Agreement and its binding effect on the Philippine Government whether under
public international or internal Philippine law. In the first place, it is now the Constitution
itself that provides for the creation of an autonomous region in Muslim Mindanao. The
standard for any inquiry into the validity of R.A. No. 6734 would therefore be what is so
provided in the Constitution. Thus, any conflict between the provisions of R.A. No. 6734
and the provisions of the Tripoli Agreement will not have the effect of enjoining the
implementation of the Organic Act. Assuming for the sake of argument that the Tripoli
Agreement is a binding treaty or international agreement, it would then constitute part of
the law of the land. But as internal law it would not be superior to R.A. No. 6734, an
enactment of the Congress of the Philippines, rather it would be in the same class as the
latter [SALONGA, PUBLIC INTERNATIONAL LAW 320 (4th ed., 1974), citing Head
Money Cases, 112 U.S. 580 (1884) and Foster v. Nelson, 2 Pet. 253 (1829)]. Thus, if at
all, R.A. No. 6734 would be amendatory of the Tripoli Agreement, being a subsequent
law. Only a determination by this Court that R.A. No. 6734 contravenes the Constitution
would result in the granting of the reliefs sought. (Emphasis supplied)
WHEREFORE, the petition is PARTIALLY GRANTED and the decision of the Regional
Trial Court of Makati, Branch 61, in Civil Case No. 03-1032, is AFFIRMED with
MODIFICATION. As modified, this Court declares that:
(1) Section 145 of the NIRC, as amended by Republic Act No. 9334, is CONSTITUTIONAL;
and that
(2) Section 4(B)(e)(c), 2nd paragraph of Revenue Regulations No. 1-97, as amended by Section 2
of Revenue Regulations 9-2003, and Sections II(1)(b), II(4)(b), II(6), II(7), III (Large Tax Payers
Assistance Division II) II(b) of Revenue Memorandum Order No. 6-2003, insofar as pertinent to
cigarettes packed by machine, are INVALID insofar as they grant the BIR the power to
reclassify or update the classification of new brands every two years or earlier.
SO ORDERED.
CONSUELO YNARES-SANTIAGO
Associate Justice
EN BANC
[G.R. No. 163583. April 15, 2009.]
BRITISH AMERICAN TOBACCO, petitioner, vs. JOSE ISIDRO N.

CAMACHO, in his capacity as Secretary of the Department of
Finance and GUILLERMO L. PARAYNO, JR., in his capacity as
Commissioner of the Bureau of Internal Revenue, respondents.
PHILIP MORRIS PHILIPPINES MANUFACTURING, INC.,

FORTUNE TOBACCO CORP., MIGHTY CORPORATION, and JT
INTERNATIONAL, S.A., respondents-in-intervention.
RESOLUTION
YNARES-SANTIAGO, J : p
On August 20, 2008, the Court rendered a Decision partially granting the petition in this
case, viz.:
WHEREFORE, the petition is PARTIALLY GRANTED and the decision of

the Regional Trial Court of Makati, Branch 61, in Civil Case No. 03-1032, is
AFFIRMED with MODIFICATION. As modified, this Court declares that:
(1) Section 145 of the NIRC, as amended by Republic Act No. 9334, is
CONSTITUTIONAL; and that
(2) Section 4(B)(e)(c), 2nd paragraph of Revenue Regulations No. 1-97, as

amended by Section 2 of Revenue Regulations 9-2003, and Sections II(1)(b),
II(4)(b), II(6), II(7), III (Large Tax Payers Assistance Division II) II(b) of
Revenue Memorandum Order No. 6-2003, insofar as pertinent to cigarettes
packed by machine, are INVALID insofar as they grant the BIR the power to
reclassify or update the classification of new brands every two years or earlier.
SO ORDERED.
In its Motion for Reconsideration, petitioner insists that the assailed provisions (1) violate
the equal protection and uniformity of taxation clauses of the Constitution, (2) contravene
Section 19, 1 Article XII of the Constitution on unfair competition, and (3) infringe the
constitutional provisions on regressive and inequitable taxation. Petitioner further argues
that assuming the assailed provisions are constitutional, petitioner is entitled to a
downward reclassification of Lucky Strike from the premium-priced to the high-priced
tax bracket.EADCHS
The Court is not persuaded.
The assailed law does not violate the

equal protection and uniformity of
taxation clauses.
Petitioner argues that the classification freeze provision violates the equal protection and
uniformity of taxation clauses because Annex "D" brands are taxed based on their 1996
net retail prices while new brands are taxed based on their present day net retail prices.
Citing Ormoc Sugar Co. v. Treasurer of Ormoc City, 2 petitioner asserts that the assailed
provisions accord a special or privileged status to Annex "D" brands while at the same
time discriminate against other brands.
These contentions are without merit and a rehash of petitioner's previous arguments
before this Court. As held in the assailed Decision, the instant case neither involves a
suspect classification nor impinges on a fundamental right. Consequently, the rational
basis test was properly applied to gauge the constitutionality of the assailed law in the
face of an equal protection challenge. It has been held that "in the areas of social and
economic policy, a statutory classification that neither proceeds along suspect lines nor
infringes constitutional rights must be upheld against equal protection challenge if there
is any reasonably conceivable state of facts that could provide a rational basis for the
classification." 3 Under the rational basis test, it is sufficient that the legislative
classification is rationally related to achieving some legitimate State interest. As the
Court ruled in the assailed Decision, viz.:
A legislative classification that is reasonable does not offend the constitutional

guaranty of the equal protection of the laws. The classification is considered
valid and reasonable provided that: (1) it rests on substantial distinctions; (2) it
is germane to the purpose of the law; (3) it applies, all things being equal, to
both present and future conditions; and (4) it applies equally to all those
belonging to the same class.
The first, third and fourth requisites are satisfied. The classification freeze
provision was inserted in the law for reasons of practicality and expediency.
That is, since a new brand was not yet in existence at the time of the passage of
RA 8240, then Congress needed a uniform mechanism to fix the tax bracket of a
new brand. The current net retail price, similar to what was used to classify the
brands under Annex "D" as of October 1, 1996, was thus the logical and
practical choice. Further, with the amendments introduced by RA 9334, the
freezing of the tax classifications now expressly applies not just to Annex "D"
brands but to newer brands introduced after the effectivity of RA 8240 on
January 1, 1997 and any new brand that will be introduced in the future.
(However, as will be discussed later, the intent to apply the freezing mechanism
to newer brands was already in place even prior to the amendments introduced
by RA 9334 to RA 8240.) This does not explain, however, why the
classification is "frozen" after its determination based on current net retail price
and how this is germane to the purpose of the assailed law. An examination of
the legislative history of RA 8240 provides interesting answers to this question.
SCIAaT
xxx xxx xxx
From the foregoing, it is quite evident that the classification freeze provision
could hardly be considered arbitrary, or motivated by a hostile or oppressive
attitude to unduly favor older brands over newer brands. Congress was
unequivocal in its unwillingness to delegate the power to periodically adjust the
excise tax rate and tax brackets as well as to periodically resurvey and reclassify
the cigarette brands based on the increase in the consumer price index to the
DOF and the BIR. Congress doubted the constitutionality of such delegation of
power, and likewise, considered the ethical implications thereof. Curiously, the
classification freeze provision was put in place of the periodic adjustment and
reclassification provision because of the belief that the latter would foster an
anti-competitive atmosphere in the market. Yet, as it is, this same criticism is
being foisted by petitioner upon the classification freeze provision.
To our mind, the classification freeze provision was in the main the result of
Congress's earnest efforts to improve the efficiency and effectivity of the tax
administration over sin products while trying to balance the same with other
State interests. In particular, the questioned provision addressed Congress's
administrative concerns regarding delegating too much authority to the DOF
and BIR as this will open the tax system to potential areas for abuse and
corruption. Congress may have reasonably conceived that a tax system which
would give the least amount of discretion to the tax implementers would address
the problems of tax avoidance and tax evasion.
To elaborate a little, Congress could have reasonably foreseen that, under the
DOF proposal and the Senate Version, the periodic reclassification of brands
would tempt the cigarette manufacturers to manipulate their price levels or bribe
the tax implementers in order to allow their brands to be classified at a lower tax
bracket even if their net retail prices have already migrated to a higher tax
bracket after the adjustment of the tax brackets to the increase in the consumer
price index. Presumably, this could be done when a resurvey and
reclassification is forthcoming. As briefly touched upon in the Congressional
deliberations, the difference of the excise tax rate between the medium-priced
and the high-priced tax brackets under RA 8240, prior to its amendment, was
P3.36. For a moderately popular brand which sells around 100 million packs per
year, this easily translates to P336,000,000. The incentive for tax avoidance, if
not outright tax evasion, would clearly be present. Then again, the tax
implementers may use the power to periodically adjust the tax rate and
reclassify the brands as a tool to unduly oppress the taxpayer in order for the
government to achieve its revenue targets for a given year.
Thus, Congress sought to, among others, simplify the whole tax system for sin
products to remove these potential areas of abuse and corruption from both the
side of the taxpayer and the government. Without doubt, the classification
freeze provision was an integral part of this overall plan. This is in line with one
of the avowed objectives of the assailed law "to simplify the tax administration
and compliance with the tax laws that are about to unfold in order to minimize
losses arising from inefficiencies and tax avoidance scheme, if not outright tax
evasion." RA 9334 did not alter this classification freeze provision of RA 8240.
On the contrary, Congress affirmed this freezing mechanism by clarifying the
wording of the law. We can thus reasonably conclude, as the deliberations on
RA 9334 readily show, that the administrative concerns in tax administration,
which moved Congress to enact the classification freeze provision in RA 8240,
were merely continued by RA 9334. Indeed, administrative concerns may
provide a legitimate, rational basis for legislative classification. In the case at
bar, these administrative concerns in the measurement and collection of excise
taxes on sin products are readily apparent as afore-discussed. EHTISC
Aside from the major concern regarding the elimination of potential areas for
abuse and corruption from the tax administration of sin products, the legislative
deliberations also show that the classification freeze provision was intended to
generate buoyant and stable revenues for government. With the frozen tax
classifications, the revenue inflow would remain stable and the government
would be able to predict with a greater degree of certainty the amount of taxes
that a cigarette manufacturer would pay given the trend in its sales volume over
time. The reason for this is that the previously classified cigarette brands would
be prevented from moving either upward or downward their tax brackets despite
the changes in their net retail prices in the future and, as a result, the amount of
taxes due from them would remain predictable. The classification freeze
provision would, thus, aid in the revenue planning of the government.
All in all, the classification freeze provision addressed Congress's administrative

concerns in the simplification of tax administration of sin products, elimination
of potential areas for abuse and corruption in tax collection, buoyant and stable
revenue generation, and ease of projection of revenues. Consequently, there can
be no denial of the equal protection of the laws since the rational-basis test is
amply satisfied.
Moreover, petitioner's contention that the assailed provisions violate the uniformity of
taxation clause is similarly unavailing. In Churchill v. Concepcion, 4 we explained that a
tax "is uniform when it operates with the same force and effect in every place where the
subject of it is found." 5 It does not signify an intrinsic but simply a geographical
uniformity. 6 A levy of tax is not unconstitutional because it is not intrinsically equal and
uniform in its operation. 7 The uniformity rule does not prohibit classification for
purposes of taxation. 8 As ruled in Tan v. Del Rosario, Jr.: 9
Uniformity of taxation, like the kindred concept of equal protection, merely

requires that all subjects or objects of taxation, similarly situated, are to be
treated alike both in privileges and liabilities (citations omitted). Uniformity
does not forfend classification as long as: (1) the standards that are used therefor
are substantial and not arbitrary, (2) the categorization is germane to achieve the
legislative purpose, (3) the law applies, all things being equal, to both present
and future conditions, and (4) the classification applies equally well to all those
belonging to the same class (citations omitted). 10
In the instant case, there is no question that the classification freeze provision meets
the geographical uniformity requirement because the assailed law applies to all
cigarette brands in the Philippines. And, for reasons already adverted to in our August
20, 2008 Decision, the above four-fold test has been met in the present case.
Petitioner's reliance on Ormoc Sugar Co. is misplaced. In said case, the controverted
municipal ordinance specifically named and taxed only the Ormoc Sugar Company, and
excluded any subsequently established sugar central from its coverage. Thus, the
ordinance was found unconstitutional on equal protection grounds because its terms do
not apply to future conditions as well. This is not the case here. The classification freeze
provision uniformly applies to all cigarette brands whether existing or to be introduced in
the market at some future time. It does not purport to exempt any brand from its
operation nor single out a brand for the purpose of imposition of excise taxes. SACEca
At any rate, petitioner's real disagreement lies with the legitimate State interests.
Although it concedes that the Court utilized the rationality test and that the classification
freeze provision was necessitated by several legitimate State interests, however, it refuses
to accept the justifications given by Congress for the classification freeze provision. As
we elucidated in our August 20, 2008 Decision, this line of argumentation revolves
around the wisdom and expediency of the assailed law which we cannot inquire into,
much less overrule. Equal protection is not a license for courts to judge the wisdom,
fairness, or logic of legislative choices. 11 We reiterate, therefore, that petitioner's
remedy is with Congress and not this Court.
The assailed provisions do not violate

the constitutional prohibition on
unfair competition.
Petitioner asserts that the Court erroneously applied the rational basis test allegedly
because this test does not apply in a constitutional challenge based on a violation of
Section 19, Article XII of the Constitution on unfair competition. Citing Tatad v.
Secretary of the Department of Energy, 12 it argues that the classification freeze
provision gives the brands under Annex "D" a decisive edge because it constitutes a
substantial barrier to the entry of prospective players; that the Annex "D" provision is no
different from the 4% tariff differential which we invalidated in Tatad; that some of the
new brands, like Astro, Memphis, Capri, L&M, Bowling Green, Forbes, and Canon,
which were introduced into the market after the effectivity of the assailed law on January
1, 1997, were "killed" by Annex "D" brands because the former brands were reclassified
by the BIR to higher tax brackets; that the finding that price is not the only factor in the
market as there are other factors like consumer preference, active ingredients, etc. is
contrary to the evidence presented and the deliberations in Congress; that the
classification freeze provision will encourage predatory pricing in contravention of the
constitutional prohibition on unfair competition; and that the cumulative effect of the
operation of the classification freeze provision is to perpetuate the oligopoly of
intervenors Philip Morris and Fortune Tobacco in contravention of the constitutional
edict for the State to regulate or prohibit monopolies, and to disallow combinations in
restraint of trade and unfair competition.
The argument lacks merit. While previously arguing that the rational basis test was not
satisfied, petitioner now asserts that this test does not apply in this case and that the
proper matrix to evaluate the constitutionality of the assailed law is the prohibition on
unfair competition under Section 19, Article XII of the Constitution. It should be noted
that during the trial below, petitioner did not invoke said constitutional provision as it
relied solely on the alleged violation of the equal protection and uniformity of taxation
clauses. Well-settled is the rule that points of law, theories, issues and arguments not
adequately brought to the attention of the lower court will not be ordinarily considered by
a reviewing court as they cannot be raised for the first time on appeal. 13 At any rate,
even if we were to relax this rule, as previously stated, the evidence presented before the
trial court is insufficient to establish the alleged violation of the constitutional
proscription against unfair competition.
Indeed, in Tatad we ruled that a law which imposes substantial barriers to the entry and
exit of new players in our downstream oil industry may be struck down for being
violative of Section 19, Article XII of the Constitution. 14 However, we went on to say in
that case that "if they are insignificant impediments, they need not be stricken down." 15
As we stated in our August 20, 2008 Decision, petitioner failed to convincingly prove
that there is a substantial barrier to the entry of new brands in the cigarette market due to
the classification freeze provision. We further observed that several new brands were
introduced in the market after the assailed law went into effect thus negating petitioner's
sweeping claim that the classification freeze provision is an insurmountable barrier to the
entry of new brands. We also noted that price is not the only factor affecting competition
in the market for there are other factors such as taste, brand loyalty, etc.
ITScHa
We see no reason to depart from these findings for the following reasons:
First, petitioner did not lay down the factual foundations, as supported by verifiable
documentary proof, which would establish, among others, the cigarette brands in
competition with each other; the current net retail prices of Annex "D" brands, as
determined through a market survey, to provide a sufficient point of comparison with
those covered by the BIR's market survey of new brands; and the causal connection with
as well as the extent of the impact on the competition in the cigarette market of the
classification freeze provision. Other than petitioner's self-serving allegations and
testimonial evidence, no adequate documentary evidence was presented to substantiate its
claims. Absent ample documentary proof, we cannot accept petitioner's claim that the
classification freeze provision is an insurmountable barrier to the entry of new players.
Second, we cannot lend credence to petitioner's claim that it cannot produce cigarettes
that can compete with Marlboro and Philip Morris in the high-priced tax bracket. Except
for its self-serving testimonial evidence, no sufficient documentary evidence was
presented to substantiate this claim. The current net retail price, which is the basis for
determining the tax bracket of a cigarette brand, more or less consists of the costs of raw
materials, labor, advertising and profit margin. To a large extent, these factors are
controllable by the manufacturer, as such, the decision to enter which tax bracket will
depend on the pricing strategy adopted by the individual manufacturer. The same holds
true for its claims that other new brands, like Astro, Memphis, Capri, L&M, Bowling
Green, Forbes, and Canon, were "killed" by Annex "D" brands due to the effects of the
operation of the classification freeze provision over time. The evidence that petitioner
presented before the trial court failed to substantiate the basis for these claims.
Essentially, petitioner would want us to accept its conclusions of law without first laying
down the factual foundations of its arguments. This Court, which is not a trier of facts,
cannot take judicial notice of the factual premises of these arguments as petitioner now
seems to suggest. The evidence should have been presented before the trial court to allow
it to examine and determine for itself whether such factual premises, as supported by
sufficient documentary evidence, provide reasonable basis for petitioner's conclusion that
there arose an unconstitutional unfair competition due to the operation of the
classification freeze provision. Petitioner should be reminded that it appealed this case
from the adverse ruling of the trial court directly to this Court on pure questions of law
instead of resorting to the Court of Appeals.
Third, Tatad is not applicable to the instant case. In Tatad, we found that the 4% tariff
differential between imported crude oil and imported refined petroleum products erects a
high barrier to the entry of new players because (1) it imposes an undue burden on new
players to spend billions of pesos to build refineries in order to compete with the old
players, and (2) new players, who opt not to build refineries, suffer from the huge
disadvantage of increasing their product cost by 4%. 16 The tariff was imposed on the
raw materials uniformly used by the players in the oil industry. Thus, the adverse effect
on competition arising from this discriminatory treatment was readily apparent. In
contrast, the excise tax under the assailed law is imposed based on the current net retail
price of a cigarette brand. As previously explained, the current net retail price is
determined by the pricing strategy of the manufacturer. This Court cannot simply
speculate that the reason why a new brand cannot enter a specific tax bracket and
compete with the brands therein was because of the classification freeze provision, rather
than the manufacturer's own pricing decision or some other factor solely attributable to
the manufacturer. Again, the burden of proof in this regard is on petitioner which it failed
to muster.TAECSD
Fourth, the finding in our August 20, 2008 Decision that price is not the only factor
which affects consumer behavior in the cigarette market is based on petitioner's own
evidence. On cross-examination, petitioner's witness admitted that notwithstanding the
change in price, a cigarette smoker may prefer the old brand because of its addictive
formulation. 17 As a result, even if we were to assume that the classification freeze
provision distorts the pricing scheme of the market players, it is not clear whether a
substantial barrier to the entry of new players would thereby be created because of these
other factors affecting consumer behavior.
Last, the claim that the assailed provisions encourage predatory pricing was never raised
nor substantiated before the trial court. It is merely an afterthought and cannot be given
weight.
In sum, the totality of the evidence presented by petitioner before the trial court failed to
convincingly establish the alleged violation of the constitutional prohibition on unfair
competition. It is a basic postulate that the one who challenges the constitutionality of a
law carries the heavy burden of proof for laws enjoy a strong presumption of
constitutionality as it is an act of a co-equal branch of government. Petitioner failed to
carry this burden.
The assailed law does not transgress

the constitutional provisions on
regressive and inequitable taxation.
Petitioner argues that the classification freeze provision is a form of regressive and
inequitable tax system which is proscribed under Article VI, Section 28 (1) 18 of the
Constitution. It claims that people in equal positions should be treated alike. The use of
different tax bases for brands under Annex "D" vis--vis new brands is discriminatory,
and thus, iniquitous. Petitioner further posits that the classification freeze provision is
regressive in character. It asserts that the harmonization of revenue flow projections and
ease of tax administration cannot override this constitutional command.
We note that the points raised by petitioner with respect to alleged inequitable taxation
perpetuated by the classification freeze provision are a mere reformulation of its equal
protection challenge. As stated earlier, the assailed provisions do not infringe the equal
protection clause because the four-fold test is satisfied. In particular, the classification
freeze provision has been found to rationally further legitimate State interests consistent
with rationality review. Petitioner's repackaged argument has, therefore, no merit.
Anent the issue of regressivity, it may be conceded that the assailed law imposes an
excise tax on cigarettes which is a form of indirect tax, and thus, regressive in character.
While there was an attempt to make the imposition of the excise tax more equitable by
creating a four-tiered taxation system where higher priced cigarettes are taxed at a higher
rate, still, every consumer, whether rich or poor, of a cigarette brand within a specific tax
bracket pays the same tax rate. To this extent, the tax does not take into account the
person's ability to pay. Nevertheless, this does not mean that the assailed law may be
declared unconstitutional for being regressive in character because the Constitution does
not prohibit the imposition of indirect taxes but merely provides that Congress shall
evolve a progressive system of taxation. As we explained in Tolentino v. Secretary of
Finance: 19
[R]egressivity is not a negative standard for courts to enforce. What Congress is

required by the Constitution to do is to "evolve a progressive system of
taxation." This is a directive to Congress, just like the directive to it to give
priority to the enactment of laws for the enhancement of human dignity and the
reduction of social, economic and political inequalities [Art. XIII, Section 1] or
for the promotion of the right to "quality education" [Art. XIV, Section 1].
These provisions are put in the Constitution as moral incentives to legislation,
not as judicially enforceable rights. 20
CIHTac
Petitioner is not entitled to a

downward reclassification of Lucky
Strike.
Petitioner alleges that assuming the assailed law is constitutional, its Lucky Strike brand
should be reclassified from the premium-priced to the high-priced tax bracket. Relying on
BIR Ruling No. 018-2001 dated May 10, 2001, it claims that it timely sought redress
from the BIR to have the market survey conducted within three months from product
launch, as provided for under Section 4 (B) 21 of Revenue Regulations No. 1-97, in order
to determine the actual current net retail price of Lucky Strike, and thus, fix its tax
classification. Further, the upward reclassification of Lucky Strike amounts to deprivation
of property right without due process of law. The conduct of the market survey after two
years from product launch constitutes gross neglect on the part of the BIR. Consequently,
for failure of the BIR to conduct a timely market survey, Lucky Strike's classification
based on its suggested gross retail price should be deemed its official tax classification.
Finally, petitioner asserts that had the market survey been timely conducted sometime in
2001, the current net retail price of Lucky Strike would have been found to be under the
high-priced tax bracket.
These contentions are untenable and misleading.
First, BIR Ruling No. 018-2001 was requested by petitioner for the purpose of fixing
Lucky Strike's initial tax classification based on its suggested gross retail price relative to
its planned introduction of Lucky Strike in the market sometime in 2001 and not for the
conduct of the market survey within three months from product launch. In fact, the said
Ruling contained an express reservation that the tax classification of Lucky Strike set
therein "is without prejudice, however, to the subsequent conduct of a survey . . . in order
to determine if the actual gross retail price thereof is consistent with [petitioner's]
suggested gross retail price." 22 In short, petitioner acknowledged that the initial tax
classification of Lucky Strike may be modified depending on the outcome of the survey
which will determine the actual current net retail price of Lucky Strike in the market.
Second, there was no upward reclassification of Lucky Strike because it was taxed based
on its suggested gross retail price from the time of its introduction in the market in 2001
until the BIR market survey in 2003. We reiterate that Lucky Strikes' actual current net
retail price was surveyed for the first time in 2003 and was found to be from P10.34 to
P11.53 per pack, which is within the premium-priced tax bracket. There was, thus, no
prohibited upward reclassification of Lucky Strike by the BIR based on its current net
retail price.
Third, the failure of the BIR to conduct the market survey within the three-month period
under the revenue regulations then in force can in no way make the initial tax
classification of Lucky Strike based on its suggested gross retail price permanent.
Otherwise, this would contravene the clear mandate of the law which provides that the
basis for the tax classification of a new brand shall be the current net retail price and not
the suggested gross retail price. It is a basic principle of law that the State cannot be
estopped by the mistakes of its agents.
Last, the issue of timeliness of the market survey was never raised before the trial court
because petitioner's theory of the case was wholly anchored on the alleged
unconstitutionality of the classification freeze provision. As a consequence, no
documentary evidence as to the actual net retail price of Lucky Strike in 2001, based on a
market survey at least comparable to the one mandated by law, was presented before the
trial court. Evidently, it cannot be assumed that had the BIR conducted the market survey
within three months from its product launch sometime in 2001, Lucky Strike would have
been found to fall under the high-priced tax bracket and not the premium-priced tax
bracket. To so hold would run roughshod over the State's right to due process. Verily,
petitioner prosecuted its case before the trial court solely on the theory that the assailed
law is unconstitutional instead of merely challenging the timeliness of the market survey.
The rule is that a party is bound by the theory he adopts and by the cause of action he
stands on. He cannot be permitted after having lost thereon to repudiate his theory and
cause of action, and thereafter, adopt another and seek to re-litigate the matter anew
either in the same forum or on appeal. 23 Having pursued one theory and lost thereon,
petitioner may no longer pursue another inconsistent theory without thereby trifling with
court processes and burdening the courts with endless litigation. SaHcAC
WHEREFORE, the motion for reconsideration is DENIED.
SO ORDERED.
Puno, C.J., Quisumbing, Carpio, Austria-Martinez, Corona, Carpio-Morales, Tinga,

Chico-Nazario, Velasco, Jr., Leonardo-de Castro, Brion, Peralta and Bersamin, JJ.,
concur.
Nachura, J., took no part.
(British American Tobacco v. Camacho, G.R. No. 163583 (Resolution), [April 15,
|||
2009], 603 PHIL 38-58)

Tax Cases 2

Caricato da

Informazioni sul documento

Titolo originale

Copyright

Formati disponibili

Condividi questo documento

Condividi o incorpora il documento

Opzioni di condivisione

Hai trovato utile questo documento?

Questo contenuto è inappropriato?

Copyright:

Formati disponibili

Tax Cases 2

Caricato da

Copyright:

Formati disponibili

EN BANC

[G.R. No. L-41631. December 17, 1976.]

HON. RAMON D. BAGATSING, as Mayor of the City of Manila;

Santiago F . Alidio and Restituto R. Villanueva for petitioners.

Antonio H . Abad, Jr. for private respondent.

Federico A. Blay for petitioner for intervention.

On February 17, 1975, respondent Federation of Manila Market Vendors, Inc.

On September 26, 1975, respondent Judge denied the motion.

We find the petition impressed with merits.

"Each proposed ordinance shall be published in two daily newspapers of

Section 43 of the Local Tax Code directs: Cdpr

3. It is maintained by private respondent that the subject ordinance is not a "tax

Teehankee, J ., reserves his vote.

G.R. No. 168056 September 1, 2005

ABAKADA GURO PARTY LIST (Formerly AASJAS) OFFICERS SAMSON S.

G.R. No. 168207

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

G.R. No. 168461

ASSOCIATION OF PILIPINAS SHELL DEALERS, INC. represented by its President,

G.R. No. 168463

FRANCIS JOSEPH G. ESCUDERO, VINCENT CRISOLOGO, EMMANUEL JOEL J.

G.R. No. 168730

BATAAN GOVERNOR ENRIQUE T. GARCIA, JR. Petitioner,

-Anne Robert Jacques Turgot (1727-1781)

French statesman and economist

ATTY. BANIQUED : No, Your Honor.

J. PANGANIBAN : Thats correct . . .

J. PANGANIBAN : . . . mitigating measures . . .

J. PANGANIBAN : As a matter of fact a part of the mitigating measures would be the

ATTY. BANIQUED : Yes, Your Honor.

ATTY. BANIQUED : Youre right, Your Honor.

ATTY. BANIQUED : I guess so, Your Honor, yes.

ATTY. BANIQUED : Yes, Your Honor.

G.R. No. 168056

Petitioners argue that the law is unconstitutional, as it constitutes abandonment by Congress of

G.R. No. 168207

G.R. No. 168461

Petitioners argument is premised on the constitutional right of non-deprivation of life, liberty or

G.R. No. 168463

G.R. No. 168730

Relying on the case of Tolentino vs. Secretary of Finance, 235 SCRA

The Court defined the issues, as follows:

a. Article VI, Section 24, and

b. Article VI, Section 26(2)

a. Article VI, Section 28(1), and

b. Article VI, Section 28(2)

a. Article VI, Section 28(1), and

b. Article III, Section 1

RULING OF THE COURT

The Court will now discuss the issues in logical sequence.

a. Article VI, Section 24, and

b. Article VI, Section 26(2)

A. The Bicameral Conference Committee

Rule XII, Section 35 of the Rules of the Senate states:

Striking down such argument, the Court held thus:

end-users. VAT shall be

(A) Creditable Input Tax. . . .

Article VI, Sec. 26 (2) of the Constitution, states:

Section 27 Rates of Income Tax on Domestic Corporation

The argument does not hold water.

Article VI, Section 24 of the Constitution reads:

a. Article VI, Section 28(1), and

b. Article VI, Section 28(2)