1.a. Full ABAKADA Vs Ermita

G.R. No.
168056 September 1, 2005
ABAKADA GURO PARTY LIST (Formerly AASJAS) OFFICERS SAMSON S. ALCANTARA and ED VINCENT S.
ALBANO, Petitioners,
vs.
THE HONORABLE EXECUTIVE SECRETARY EDUARDO ERMITA; HONORABLE SECRETARY OF THE
DEPARTMENT OF FINANCE CESAR PURISIMA; and HONORABLE COMMISSIONER OF INTERNAL
REVENUE GUILLERMO PARAYNO, JR., Respondent.
DECISION
AUSTRIA-MARTINEZ, J.:
The expenses of government, having for their object the interest of all, should be borne by everyone,
and the more man enjoys the advantages of society, the more he ought to hold himself honored in
contributing to those expenses.
-Anne Robert Jacques Turgot (1727-1781)
French statesman and economist
Mounting budget deficit, revenue generation, inadequate fiscal allocation for education, increased
emoluments for health workers, and wider coverage for full value-added tax benefits … these are the
reasons why Republic Act No. 9337 (R.A. No. 9337)1 was enacted. Reasons, the wisdom of which, the
Court even with its extensive constitutional power of review, cannot probe. The petitioners in these
cases, however, question not only the wisdom of the law, but also perceived constitutional infirmities in
its passage.
Every law enjoys in its favor the presumption of constitutionality. Their arguments notwithstanding,
petitioners failed to justify their call for the invalidity of the law. Hence, R.A. No. 9337 is not
unconstitutional.
LEGISLATIVE HISTORY
R.A. No. 9337 is a consolidation of three legislative bills namely, House Bill Nos. 3555 and 3705, and
Senate Bill No. 1950.
House Bill No. 35552 was introduced on first reading on January 7, 2005. The House Committee on Ways
and Means approved the bill, in substitution of House Bill No. 1468, which Representative (Rep.) Eric D.
Singson introduced on August 8, 2004. The President certified the bill on January 7, 2005 for immediate
enactment. On January 27, 2005, the House of Representatives approved the bill on second and third
reading.
House Bill No. 37053 on the other hand, substituted House Bill No. 3105 introduced by Rep. Salacnib F.
Baterina, and House Bill No. 3381 introduced by Rep. Jacinto V. Paras. Its "mother bill" is House Bill No.
3555. The House Committee on Ways and Means approved the bill on February 2, 2005. The President
also certified it as urgent on February 8, 2005. The House of Representatives approved the bill on
second and third reading on February 28, 2005.
Meanwhile, the Senate Committee on Ways and Means approved Senate Bill No. 19504 on March 7,
2005, "in substitution of Senate Bill Nos. 1337, 1838 and 1873, taking into consideration House Bill Nos.
3555 and 3705." Senator Ralph G. Recto sponsored Senate Bill No. 1337, while Senate Bill Nos. 1838 and
1873 were both sponsored by Sens. Franklin M. Drilon, Juan M. Flavier and Francis N. Pangilinan. The
President certified the bill on March 11, 2005, and was approved by the Senate on second and third
reading on April 13, 2005.
On the same date, April 13, 2005, the Senate agreed to the request of the House of Representatives for
a committee conference on the disagreeing provisions of the proposed bills.
Before long, the Conference Committee on the Disagreeing Provisions of House Bill No. 3555, House Bill
No. 3705, and Senate Bill No. 1950, "after having met and discussed in full free and conference,"
recommended the approval of its report, which the Senate did on May 10, 2005, and with the House of
Representatives agreeing thereto the next day, May 11, 2005.
On May 23, 2005, the enrolled copy of the consolidated House and Senate version was transmitted to
the President, who signed the same into law on May 24, 2005. Thus, came R.A. No. 9337.
July 1, 2005 is the effectivity date of R.A. No. 9337.5 When said date came, the Court issued a temporary
restraining order, effective immediately and continuing until further orders, enjoining respondents from
enforcing and implementing the law.
Oral arguments were held on July 14, 2005. Significantly, during the hearing, the Court speaking through
Mr. Justice Artemio V. Panganiban, voiced the rationale for its issuance of the temporary restraining
order on July 1, 2005, to wit:
J. PANGANIBAN : . . . But before I go into the details of your presentation, let me just tell you a little
background. You know when the law took effect on July 1, 2005, the Court issued a TRO at about 5
o’clock in the afternoon. But before that, there was a lot of complaints aired on television and on radio.
Some people in a gas station were complaining that the gas prices went up by 10%. Some people were
complaining that their electric bill will go up by 10%. Other times people riding in domestic air carrier
were complaining that the prices that they’ll have to pay would have to go up by 10%. While all that was
being aired, per your presentation and per our own understanding of the law, that’s not true. It’s not
true that the e-vat law necessarily increased prices by 10% uniformly isn’t it?
ATTY. BANIQUED : No, Your Honor.
J. PANGANIBAN : It is not?
ATTY. BANIQUED : It’s not, because, Your Honor, there is an Executive Order that granted the Petroleum
companies some subsidy . . . interrupted
J. PANGANIBAN : That’s correct . . .
ATTY. BANIQUED : . . . and therefore that was meant to temper the impact . . . interrupted
J. PANGANIBAN : . . . mitigating measures . . .
ATTY. BANIQUED : Yes, Your Honor.
J. PANGANIBAN : As a matter of fact a part of the mitigating measures would be the elimination of the
Excise Tax and the import duties. That is why, it is not correct to say that the VAT as to petroleum
dealers increased prices by 10%.
J. PANGANIBAN : And therefore, there is no justification for increasing the retail price by 10% to cover
the E-Vat tax. If you consider the excise tax and the import duties, the Net Tax would probably be in the
neighborhood of 7%? We are not going into exact figures I am just trying to deliver a point that different
industries, different products, different services are hit differently. So it’s not correct to say that all
prices must go up by 10%.
ATTY. BANIQUED : You’re right, Your Honor.
J. PANGANIBAN : Now. For instance, Domestic Airline companies, Mr. Counsel, are at present imposed a
Sales Tax of 3%. When this E-Vat law took effect the Sales Tax was also removed as a mitigating
measure. So, therefore, there is no justification to increase the fares by 10% at best 7%, correct?
ATTY. BANIQUED : I guess so, Your Honor, yes.
J. PANGANIBAN : There are other products that the people were complaining on that first day, were
being increased arbitrarily by 10%. And that’s one reason among many others this Court had to issue
TRO because of the confusion in the implementation. That’s why we added as an issue in this case, even
if it’s tangentially taken up by the pleadings of the parties, the confusion in the implementation of the E-
vat. Our people were subjected to the mercy of that confusion of an across the board increase of 10%,
which you yourself now admit and I think even the Government will admit is incorrect. In some cases, it
should be 3% only, in some cases it should be 6% depending on these mitigating measures and the
location and situation of each product, of each service, of each company, isn’t it?
J. PANGANIBAN : Alright. So that’s one reason why we had to issue a TRO pending the clarification of all
these and we wish the government will take time to clarify all these by means of a more detailed
implementing rules, in case the law is upheld by this Court. . . .6
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 ½%).
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 (₱1, 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 ₱1,000,000.00, and the 5% final withholding tax by government agencies, is arbitrary,
oppressive, and confiscatory, and that it violates the constitutional principle on progressive taxation,
among others.
Finally, respondents manifest that R.A. No. 9337 is the anchor of the government’s fiscal reform agenda.
A reform in the value-added system of taxation is the core revenue measure that will tilt the balance
towards a sustainable macroeconomic environment necessary for economic growth.
ISSUES
The Court defined the issues, as follows:
PROCEDURAL ISSUE
Whether R.A. No. 9337 violates the following provisions of the Constitution:
a. Article VI, Section 24, and
b. Article VI, Section 26(2)
SUBSTANTIVE ISSUES
1. Whether Sections 4, 5 and 6 of R.A. No. 9337, amending Sections 106, 107 and 108 of the NIRC,
violate the following provisions of the Constitution:
a. Article VI, Section 28(1), and
2. Whether Section 8 of R.A. No. 9337, amending Sections 110(A)(2) and 110(B) of the NIRC; and Section
12 of R.A. No. 9337, amending Section 114(C) of the NIRC, violate the following provisions of the
Constitution:
b. Article III, Section 1
RULING OF THE COURT
As a prelude, the Court deems it apt to restate the general principles and concepts of value-added tax
(VAT), as the confusion and inevitably, litigation, breeds from a fallacious notion of its nature.
The VAT is a tax on spending or consumption. It is levied on the sale, barter, exchange or lease of goods
or properties and services.8 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 latter’s appropriate action.
Sec. 89. Conference Committee Reports. – . . . Each report shall contain a detailed, sufficiently explicit
statement of the changes in or amendments to the subject measure.
...
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 Fariñas 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 Congress’s creation of two
sets of bicameral conference committees, the lack of records of said committees’ proceedings, the
alleged violation of said committees of the rules of both houses, and the disappearance or deletion of
one of the provisions in the compromise bill submitted by the bicameral conference committee. It was
argued that such irregularities in the passage of the law nullified R.A. No. 9006, or the Fair Election Act.
Striking down such argument, the Court held thus:
Under the "enrolled bill doctrine," the signing of a bill by the Speaker of the House and the Senate
President and the certification of the Secretaries of both Houses of Congress that it was passed are
conclusive of its due enactment. A review of cases reveals the Court’s consistent adherence to the rule.
The Court finds no reason to deviate from the salutary rule in this case where the irregularities alleged
by the petitioners mostly involved the internal rules of Congress, e.g., creation of the 2nd or 3rd
Bicameral Conference Committee by the House. This Court is not the proper forum for the enforcement
of these internal rules of Congress, whether House or Senate. Parliamentary rules are merely procedural
and with their observance the courts have no concern. Whatever doubts there may be as to the formal
validity of Rep. Act No. 9006 must be resolved in its favor. The Court reiterates its ruling in Arroyo vs. De
Venecia, viz.:
But the cases, both here and abroad, in varying forms of expression, all deny to the courts the power to
inquire into allegations that, in enacting a law, a House of Congress failed to comply with its own rules,
in the absence of showing that there was a violation of a constitutional provision or the rights of private
individuals. In Osmeña v. Pendatun, it was held: "At any rate, courts have declared that ‘the rules
adopted by deliberative bodies are subject to revocation, modification or waiver at the pleasure of the
body adopting them.’ And it has been said that "Parliamentary rules are merely procedural, and with
their observance, the courts have no concern. They may be waived or disregarded by the legislative
body." Consequently, "mere failure to conform to parliamentary usage will not invalidate the action
(taken by a deliberative body) when the requisite number of members have agreed to a particular
measure."21 (Emphasis supplied)
The foregoing declaration is exactly in point with the present cases, where petitioners allege
irregularities committed by the conference committee in introducing changes or deleting provisions in
the House and Senate bills. Akin to the Fariñas case,22 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 every sale of goods or properties (amending Sec. 106 of NIRC); 12% VAT on
importation of goods (amending Sec. 107 of NIRC); and 12% VAT on sale of services and use or lease of
properties (amending Sec. 108 of NIRC)
Provides for 12% VAT in general on sales of goods or properties and reduced rates for sale of certain
locally manufactured goods and petroleum products and raw materials to be used in the manufacture
thereof (amending Sec. 106 of NIRC); 12% VAT on importation of goods and reduced rates for certain
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)
Provides for a single rate of 10% VAT on sale of goods or properties (amending Sec. 106 of NIRC), 10%
VAT on sale of services including sale of electricity by generation companies, transmission and
distribution companies, and use or lease of properties (amending Sec. 108 of NIRC)
With regard to the "no pass-on" provision
No similar provision
Provides that the VAT imposed on power generation and on the sale of petroleum products shall be
absorbed by generation companies or sellers, respectively, and shall not be passed on to consumers
Provides that the VAT imposed on sales of electricity by generation companies and services of
transmission companies and distribution companies, as 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 credit for capital goods on which a VAT has been paid shall be equally
distributed over 5 years or the depreciable life of such capital goods; the input tax credit for goods and
services other than capital goods shall not exceed 5% of the total amount of such 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.
Provides that the input tax credit for capital goods on which a VAT has been paid shall be equally
distributed over 5 years or the depreciable life of such capital goods; the input tax credit for goods and
services other than capital goods shall not exceed 90% of the output VAT.
With regard to amendments to be made to NIRC provisions regarding income and excise taxes
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 1½%, 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 (₱1,000,000.00):
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 let’s keep it plain and simple. Let’s not confuse the bill and put a no
pass-on provision. Two-thirds of the world have a VAT system and in this two-thirds of the globe, I have
yet to see a VAT with a no pass-though provision. So, the thinking of the Senate is basically simple, let’s
keep the VAT simple.26 (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 Committee’s Report in these cases must have undergone
three readings in each of the two houses. If that be the case, there would be no end to negotiation since
each house may seek modification of the compromise bill. . . .
Art. VI. § 26 (2) must, therefore, be construed as referring only to bills introduced for the first time in
either house of Congress, not to the conference committee report.32 (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 Senate’s power not only to "concur with amendments" but
also to "propose amendments." It would be to violate the coequality of legislative power of the two
houses of Congress and in fact make the House superior to the Senate.
…Given, then, the power of the Senate to propose amendments, the Senate can propose its own version
even with respect to bills which are required by the Constitution to originate in the House.
...
Indeed, what the Constitution simply means is that the initiative for filing revenue, tariff or tax bills, bills
authorizing an increase of the public debt, private bills and bills of local application must come from the
House of Representatives on the theory that, elected as they are from the districts, the members of the
House can be expected to be more sensitive to the local needs and problems. On the other hand, the
senators, who are elected at large, are expected to approach the same problems from the national
perspective. Both views are thereby made to bear on the enactment of such laws.33 (Emphasis
supplied)
Since there is no question that the revenue bill exclusively originated in the House of Representatives,
the Senate was acting within its
constitutional power to introduce amendments to the House bill when it included provisions in Senate
Bill No. 1950 amending corporate income taxes, percentage, excise and franchise taxes. Verily, Article VI,
Section 24 of the Constitution does not contain any prohibition or limitation on the extent of the
amendments that may be introduced by the Senate to the House revenue bill.
Furthermore, the amendments introduced by the Senate to the NIRC provisions that had not been
touched in the House bills are still in furtherance of the intent of the House in initiating the subject
revenue bills. The Explanatory Note of House Bill No. 1468, the very first House bill introduced on the
floor, which was later substituted by House Bill No. 3555, stated:
One of the challenges faced by the present administration is the urgent and daunting task of solving the
country’s serious financial problems. To do this, government expenditures must be strictly monitored
and controlled and revenues must be significantly increased. This may be easier said than done, but our
fiscal authorities are still optimistic the government will be operating on a balanced budget by the year
2009. In fact, several measures that will result to significant expenditure savings have been identified by
the administration. It is supported with a credible package of revenue measures that include measures
to improve tax administration and control the leakages in revenues from income taxes and the value-
added tax (VAT). (Emphasis supplied)
Rep. Eric D. Singson, in his sponsorship speech for House Bill No. 3555, declared that:
In the budget message of our President in the year 2005, she reiterated that we all acknowledged that
on top of our agenda must be the restoration of the health of our fiscal system.
In order to considerably lower the consolidated public sector deficit and eventually achieve a balanced
budget by the year 2009, we need to seize windows of opportunities which might seem poignant in the
beginning, but in the long run prove effective and beneficial to the overall status of our economy. One
such opportunity is a review of existing tax rates, evaluating the relevance given our present
conditions.34 (Emphasis supplied)
Notably therefore, the main purpose of the bills emanating from the House of Representatives is to
bring in sizeable revenues for the government
to supplement our country’s serious financial problems, and improve tax administration and control of
the leakages in revenues from income taxes and value-added taxes. As these house bills were
transmitted to the Senate, the latter, approaching the measures from the point of national perspective,
can introduce amendments within the purposes of those bills. It can provide for ways that would soften
the impact of the VAT measure on the consumer, i.e., by distributing the burden across all sectors
instead of putting it entirely on the shoulders of the consumers. The sponsorship speech of Sen. Ralph
Recto on why the provisions on income tax on corporation were included is worth quoting:
All in all, the proposal of the Senate Committee on Ways and Means will raise ₱64.3 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 ₱48.7 billion amount is from the VAT on
twelve goods and services. The rest of the tab – ₱10.5 billion- will be picked by corporations.
What we therefore prescribe is a burden sharing between corporate Philippines and the consumer. Why
should the latter bear all the pain? Why should the fiscal salvation be only on the burden of the
consumer?
The corporate world’s equity is in form of the increase in the corporate income tax from 32 to 35
percent, but up to 2008 only. This will raise ₱10.5 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 country’s fiscal deficit, among others. Thus, the Senate acted
within its power to propose those amendments.
SUBSTANTIVE ISSUES
I.
Whether Sections 4, 5 and 6 of R.A. No. 9337, amending Sections 106, 107 and 108 of the NIRC, violate
the following provisions of the Constitution:

A. No Undue Delegation of Legislative Power
Petitioners ABAKADA GURO Party List, et al., Pimentel, Jr., et al., and Escudero, et al. contend in
common that Sections 4, 5 and 6 of R.A. No. 9337, amending Sections 106, 107 and 108, respectively, of
the NIRC giving the President the stand-by authority to raise the VAT rate from 10% to 12% when a
certain condition is met, constitutes undue delegation of the legislative power to tax.
The assailed provisions read as follows:
SEC. 4. Sec. 106 of the same Code, as amended, is hereby further amended to read as follows:
SEC. 106. Value-Added Tax on Sale of Goods or Properties. –
(A) Rate and Base of Tax. – There shall be levied, assessed and collected on every sale, barter or
exchange of goods or properties, a value-added tax equivalent to ten percent (10%) of the gross selling
price or gross value in money of the goods or properties sold, bartered or exchanged, such tax to be paid
by the seller or transferor: provided, that the President, upon the recommendation of the Secretary of
Finance, shall, effective January 1, 2006, raise the rate of value-added tax to twelve percent (12%), after
any of the following conditions has been satisfied.
(i) value-added tax collection as a percentage of Gross Domestic Product (GDP) of the previous year
exceeds two and four-fifth percent (2 4/5%) or
(ii) national government deficit as a percentage of GDP of the previous year exceeds one and one-half
percent (1 ½%).
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.
percent (1 ½%).
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
the rate of value-added tax to twelve percent (12%), after any of the following conditions has been
satisfied.
percent (1 ½%). (Emphasis supplied)
Petitioners allege that the grant of the stand-by authority to the President to increase the VAT rate is a
virtual abdication by Congress of its exclusive power to tax because such delegation is not within the
purview of Section 28 (2), Article VI of the Constitution, which provides:
The Congress may, by law, authorize the President to fix within specified limits, and may impose, tariff
rates, import and export quotas, tonnage and wharfage dues, and other duties or imposts within the
framework of the national development program of the government.
They argue that the VAT is a tax levied on the sale, barter or exchange of goods and properties as well as
on the sale or exchange of services, which cannot be included within the purview of tariffs under the
exempted delegation as the latter refers to customs duties, tolls or tribute payable upon merchandise to
the government and usually imposed on goods or merchandise imported or exported.
Petitioners ABAKADA GURO Party List, et al., further contend that delegating to the President the
legislative power to tax is contrary to republicanism. They insist that accountability, responsibility and
transparency should dictate the actions of Congress and they should not pass to the President the
decision to impose taxes. They also argue that the law also effectively nullified the President’s power of
control, which includes the authority to set aside and nullify the acts of her subordinates like the
Secretary of Finance, by mandating the fixing of the tax rate by the President upon the recommendation
of the Secretary of Finance.
Petitioners Pimentel, et al. aver that the President has ample powers to cause, influence or create the
conditions provided by the law to bring about either or both the conditions precedent.
On the other hand, petitioners Escudero, et al. find bizarre and revolting the situation that the
imposition of the 12% rate would be subject to the whim of the Secretary of Finance, an unelected
bureaucrat, contrary to the principle of no taxation without representation. They submit that the
Secretary of Finance is not mandated to give a favorable recommendation and he may not even give his
recommendation. Moreover, they allege that no guiding standards are provided in the law on what basis
and as to how he will make his recommendation. They claim, nonetheless, that any recommendation of
the Secretary of Finance can easily be brushed aside by the President since the former is a mere alter
ego of the latter, such that, ultimately, it is the President who decides whether to impose the increased
tax rate or not.
A brief discourse on the principle of non-delegation of powers is instructive.
The principle of separation of powers ordains that each of the three great branches of government has
exclusive cognizance of and is supreme in matters falling within its own constitutionally allocated
sphere.37 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 following conditions has
been satisfied:
percent (1 ½%).
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 President’s power of control over the Secretary of Finance by mandating the
fixing of the tax rate by the President upon the recommendation of the Secretary of Finance. The Court
cannot also subscribe to the position of petitioners
Pimentel, et al. that the word shall should be interpreted to mean may in view of the phrase "upon the
recommendation of the Secretary of Finance." Neither does the Court find persuasive the submission of
petitioners Escudero, et al. that any recommendation by the Secretary of Finance can easily be brushed
aside by the President since the former is a mere alter ego of the latter.
When one speaks of the Secretary of Finance as the alter ego of the President, it simply means that as
head of the Department of Finance he is the assistant and agent of the Chief Executive. The multifarious
executive and administrative functions of the Chief Executive are performed by and through the
executive departments, and the acts of the secretaries of such departments, such as the Department of
Finance, performed and promulgated in the regular course of business, are, unless disapproved or
reprobated by the Chief Executive, presumptively the acts of the Chief Executive. The Secretary of
Finance, as such, occupies a political position and holds office in an advisory capacity, and, in the
language of Thomas Jefferson, "should be of the President's bosom confidence" and, in the language of
Attorney-General Cushing, is "subject to the direction of the President."55
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 (1½
%). 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 1½%.
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 ½%).
Respondents explained the philosophy behind these alternative conditions:
1. VAT/GDP Ratio > 2.8%
The condition set for increasing VAT rate to 12% have economic or fiscal meaning. If VAT/GDP is less
than 2.8%, it means that government has weak or no capability of implementing the VAT or that VAT is
not effective in the function of the tax collection. Therefore, there is no value to increase it to 12%
because such action will also be ineffectual.
2. Nat’l Gov’t Deficit/GDP >1.5%
The condition set for increasing VAT when deficit/GDP is 1.5% or less means the fiscal condition of
government has reached a relatively sound position or is towards the direction of a balanced budget
position. Therefore, there is no need to increase the VAT rate since the fiscal house is in a relatively
healthy position. Otherwise stated, if the ratio is more than 1.5%, there is indeed a need to increase the
VAT rate.62
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
country’s gloomy state of economic affairs, thus:
First, let me explain the position that the Philippines finds itself in right now. We are in a position where
90 percent of our revenue is used for debt service. So, for every peso of revenue that we currently raise,
90 goes to debt service. That’s interest plus amortization of our debt. So clearly, this is not a sustainable
situation. That’s the first fact.
The second fact is that our debt to GDP level is way out of line compared to other peer countries that
borrow money from that international financial markets. Our debt to GDP is approximately equal to our
GDP. Again, that shows you that this is not a sustainable situation.
The third thing that I’d like to point out is the environment that we are presently operating in is not as
benign as what it used to be the past five years.
What do I mean by that?
In the past five years, we’ve been lucky because we were operating in a period of basically global growth
and low interest rates. The past few months, we have seen an inching up, in fact, a rapid increase in the
interest rates in the leading economies of the world. And, therefore, our ability to borrow at reasonable
prices is going to be challenged. In fact, ultimately, the question is our ability to access the financial
markets.
When the President made her speech in July last year, the environment was not as bad as it is now, at
least based on the forecast of most financial institutions. So, we were assuming that raising 80 billion
would put us in a position where we can then convince them to improve our ability to borrow at lower
rates. But conditions have changed on us because the interest rates have gone up. In fact, just within
this room, we tried to access the market for a billion dollars because for this year alone, the Philippines
will have to borrow 4 billion dollars. Of that amount, we have borrowed 1.5 billion. We issued last
January a 25-year bond at 9.7 percent cost. We were trying to access last week and the market was not
as favorable and up to now we have not accessed and we might pull back because the conditions are not
very good.
So given this situation, we at the Department of Finance believe that we really need to front-end our
deficit reduction. Because it is deficit that is causing the increase of the debt and we are in what we call
a debt spiral. The more debt you have, the more deficit you have because interest and debt service eats
and eats more of your revenue. We need to get out of this debt spiral. And the only way, I think, we can
get out of this debt spiral is really have a front-end adjustment in our revenue base.65
The image portrayed is chilling. Congress passed the law hoping for rescue from an inevitable
catastrophe. Whether the law is indeed sufficient to answer the state’s economic dilemma is not for the
Court to judge. In the Fariñas case, the Court refused to consider the various arguments raised therein
that dwelt on the wisdom of Section 14 of R.A. No. 9006 (The Fair Election Act), pronouncing that:
. . . policy matters are not the concern of the Court. Government policy is within the exclusive dominion
of the political branches of the government. It is not for this Court to look into the wisdom or propriety
of legislative determination. Indeed, whether an enactment is wise or unwise, whether it is based on
sound economic theory, whether it is the best means to achieve the desired results, whether, in short,
the legislative discretion within its prescribed limits should be exercised in a particular manner are
matters for the judgment of the legislature, and the serious conflict of opinions does not suffice to bring
them within the range of judicial cognizance.66
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 business’s books of accounts and remains
creditable in the succeeding quarter/s. This is explicitly allowed by Section 110(B), which provides that
"if the input tax exceeds the output tax, the excess shall be carried over to the succeeding quarter or
quarters." In addition, Section 112(B) allows a VAT-registered person to apply for the issuance of a tax
credit certificate or refund for any unused input taxes, to the extent that such input taxes have not been
applied against the output taxes. Such unused input tax may be used in payment of his other internal
revenue taxes.
The non-application of the unutilized input tax in a given quarter is not ad infinitum, as petitioners
exaggeratedly contend. Their analysis of the effect of the 70% limitation is incomplete and one-sided. It
ends at the net effect that there will be unapplied/unutilized inputs VAT for a given quarter. It does not
proceed further to the fact that such unapplied/unutilized input tax may be credited in the subsequent
periods as allowed by the carry-over provision of Section 110(B) or that it may later on be refunded
through a tax credit certificate under Section 112(B).
Therefore, petitioners’ argument must be rejected.
On the other hand, it appears that petitioner Garcia failed to comprehend the operation of the 70%
limitation on the input tax. According to petitioner, the limitation on the creditable input tax in effect
allows VAT-registered establishments to retain a portion of the taxes they collect, which violates the
principle that tax collection and revenue should be for public purposes and expenditures
As earlier stated, the input tax is the tax paid by a person, passed on to him by the seller, when he buys
goods. Output tax meanwhile is the tax due to the person when he sells goods. In computing the VAT
payable, three possible scenarios may arise:
First, if at the end of a taxable quarter the output taxes charged by the seller are equal to the input taxes
that he paid and passed on by the suppliers, then no payment is required;
Second, when the output taxes exceed the input taxes, the person shall be liable for the excess, which
has to be paid to the Bureau of Internal Revenue (BIR);69 and
Third, if the input taxes exceed the output taxes, the excess shall be carried over to the succeeding
quarter or quarters. Should the input taxes result from zero-rated or effectively zero-rated transactions,
any excess over the output taxes shall instead be refunded to the taxpayer or credited against other
internal revenue taxes, at the taxpayer’s option.70
Section 8 of R.A. No. 9337 however, imposed a 70% limitation on the input tax. Thus, a person can credit
his input tax only up to the extent of 70% of the output tax. In layman’s term, the value-added taxes that
a person/taxpayer paid and passed on to him by a seller can only be credited up to 70% of the value-
added taxes that is due to him on a taxable transaction. There is no retention of any tax collection
because the person/taxpayer has already previously paid the input tax to a seller, and the seller will
subsequently remit such input tax to the BIR. The party directly liable for the payment of the tax is the
seller.71 What only needs to be done is for the person/taxpayer to apply or credit these input taxes, as
evidenced by receipts, against his output taxes.
Petitioners Association of Pilipinas Shell Dealers, Inc., et al. also argue that the input tax partakes the
nature of a property that may not be confiscated, appropriated, or limited without due process of law.
The input tax is not a property or a property right within the constitutional purview of the due process
clause. A VAT-registered person’s entitlement to the creditable input tax is a mere statutory privilege.
The distinction between statutory privileges and vested rights must be borne in mind for persons have
no vested rights in statutory privileges. The state may change or take away rights, which were created
by the law of the state, although it may not take away property, which was vested by virtue of such
rights.72
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
such goods, excluding the VAT component thereof, exceeds One million pesos (₱1,000,000.00):
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 ₱1 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 Congress’s
intention to treat transactions with the government differently. Since it has not been shown that the
class subject to the 5% final withholding tax has been unreasonably narrowed, there is no reason to
invalidate the provision. Petitioners, as petroleum dealers, are not the only ones subjected to the 5%
final withholding tax. It applies to all those who deal with the government.
Moreover, the actual input tax is not totally lost or uncreditable, as petitioners believe. Revenue
Regulations No. 14-2005 or the Consolidated Value-Added Tax Regulations 2005 issued by the BIR,
provides that should the actual input tax exceed 5% of gross payments, the excess may form part of the
cost. Equally, should the actual input tax be less than 5%, the difference is treated as income.81
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."
What’s more, petitioners’ contention assumes the proposition that there is no profit or value-added. It
need not take an astute businessman to know that it is a matter of exception that a business will sell
goods or services without profit or value-added. It cannot be overstressed that a business is created
precisely for profit.
The equal protection clause under the Constitution means that "no person or class of persons shall be
deprived of the same protection of laws which is enjoyed by other persons or other classes in the same
place and in like circumstances."83
The power of the State to make reasonable and natural classifications for the purposes of taxation has
long been established. Whether it relates to the subject of taxation, the kind of property, the rates to be
levied, or the amounts to be raised, the methods of assessment, valuation and collection, the State’s
power is entitled to presumption of validity. As a rule, the judiciary will not interfere with such power
absent a clear showing of unreasonableness, discrimination, or arbitrariness.84
Petitioners point out that the limitation on the creditable input tax if the entity has a high ratio of input
tax, or invests in capital equipment, or has several transactions with the government, is not based on
real and substantial differences to meet a valid classification.
The argument is pedantic, if not outright baseless. The law does not make any classification in the
subject of taxation, the kind of property, the rates to be levied or the amounts to be raised, the methods
of assessment, valuation and collection. Petitioners’ alleged distinctions are based on variables that bear
different consequences. While the implementation of the law may yield varying end results depending
on one’s profit margin and value-added, the Court cannot go beyond what the legislature has laid down
and interfere with the affairs of business.
The equal protection clause does not require the universal application of the laws on all persons or
things without distinction. This might in fact sometimes result in unequal protection. What the clause
requires is equality among equals as determined according to a valid classification. By classification is
meant the grouping of persons or things similar to each other in certain particulars and different from all
others in these same particulars.85
Petitioners brought to the Court’s attention the introduction of Senate Bill No. 2038 by Sens. S.R.
Osmeña III and Ma. Ana Consuelo A.S. – Madrigal on June 6, 2005, and House Bill No. 4493 by Rep. Eric
D. Singson. The proposed legislation seeks to amend the 70% limitation by increasing the same to 90%.
This, according to petitioners, supports their stance that the 70% limitation is arbitrary and confiscatory.
On this score, suffice it to say that these are still proposed legislations. Until Congress amends the law,
and absent any unequivocal basis for its unconstitutionality, the 70% limitation stays.
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
₱1,500,000.00.88 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 ₱200,000.00. 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
₱1.5 Million. This acts as a equalizer because in effect, bigger businesses that qualify for VAT coverage
and VAT-exempt taxpayers stand on equal-footing.
Moreover, Congress provided mitigating measures to cushion the impact of the imposition of the tax on
those previously exempt. Excise taxes on petroleum products91 and natural gas92 were reduced.
Percentage tax on domestic carriers was removed.93 Power producers are now exempt from paying
franchise tax.94
Aside from these, Congress also increased the income tax rates of corporations, in order to distribute
the burden of taxation. Domestic, foreign, and non-resident corporations are now subject to a 35%
income tax rate, from a previous 32%.95 Intercorporate dividends of non-resident foreign corporations
are still subject to 15% final withholding tax but the tax credit allowed on the corporation’s 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 taxpayer’s ability to pay. This principle was also lifted
from Adam Smith’s Canons of Taxation, and it states:
I. The subjects of every state ought to contribute towards the support of the government, as nearly as
possible, in proportion to their respective abilities; that is, in proportion to the revenue which they
respectively enjoy under the protection of the state.
Taxation is progressive when its rate goes up depending on the resources of the person affected.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'être for the unconstitutionality of R.A. No. 9337.
WHEREFORE, Republic Act No. 9337 not being unconstitutional, the petitions in G.R. Nos. 168056,
168207, 168461, 168463, and 168730, are hereby DISMISSED.
There being no constitutional impediment to the full enforcement and implementation of R.A. No. 9337,
the temporary restraining order issued by the Court on July 1, 2005 is LIFTED upon finality of herein
decision.
SO ORDERED.
MA. ALICIA AUSTRIA-MARTINEZ
Associate Justice
WE CONCUR:
HILARIO G. DAVIDE, JR.
Chief Justice
REYNATO S. PUNO
Associate Justice
ARTEMIO V. PANGANIBAN
Associate Justice
LEONARDO A. QUISUMBING
Associate Justice
CONSUELO YNARES-SANTIAGO
Associate Justice
ANGELINA SANDOVAL-GUTIERREZ
Associate Justice
ANTONIO T. CARPIO
Associate Justice
RENATO C. CORONA
Associate Justice
CONCHITA CARPIO-MORALES
Associate Justice
ROMEO J. CALLEJO, SR.
Associate Justice
ADOLFO S. AZCUNA
Associate Justice
DANTE O. TINGA
Associate Justice
MINITA V. CHICO-NAZARIO
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 Wester’s 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; Compañia 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 Compañia 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.
95 Sections 1 and 2, amending Sections 27 and 28, NIRC.
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, bills of local
application, and private bills shall originate exclusively in the House of 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 country’s financial problems by bringing more revenues for the
government. However, these commendable intentions do not justify a deviation from the Constitution,
which mandates that the initiative for filing revenue bills should come from the House of
Representatives, not from the Senate. After all, these aims may still be realized by means of another bill
that may later be initiated by the House of Representatives.
Therefore, I vote to declare R.A. No. 9337 as constitutional insofar as it amends provisions pertaining to
VAT. However, I vote to declare as unconstitutional Sections 1, 2, 3, 14, 15, 16, 17, and 18 thereof which,
respectively, amend Sections 27, 28, 34, 117, 119, 121, 148, and 151 of the NIRC, as amended because
these amendments deal with subject matters which were not touched or covered by the bills emanating
from the House of Representatives, thereby violating Section 24 of Article VI of the Constitution.
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. CESAR V. PURISIMA, ET
AL.
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:
percent (1 ½%).
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.
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 Jefferson’s Manual has been adopted as a supplement to our parliamentary rules and practice.
Section 456 of Jefferson’s Manual similarly confines the powers of a conference committee, viz:
The managers of a conference must confine themselves to the differences committed to them … and
may not include subjects not within the disagreements, even though germane to a question in issue.
This rule of antiquity has been honed and honored in practice by the Congress of the United States.
Thus, it is chronicled by Floyd Biddick, Parliamentarian Emeritus of the United States Senate, viz:
Committees of conference are appointed for the sole purpose of compromising and adjusting the
differing and conflicting opinions of the two Houses and the committees of conference alone can grant
compromises and modify propositions of either Houses within the limits of the disagreement. Conferees
are limited to the consideration of differences between the two Houses.
Congress shall not insert in their report matters not committed to them by either House, nor shall they
strike from the bill matters agreed to by both Houses. No matter on which there is nothing in either the
Senate or House passed versions of a bill may be included in the conference report and actions to the
contrary would subject the report to a point of order. (Emphasis ours)
In fine, there is neither a sound nor a syllable in the Rules of the Senate and the House of
Representatives to support the thesis of the respondents that a bicameral conference committee is
clothed with an ex post veto power.
But the thesis that a Bicameral Conference Committee can wield ex post veto power does not only
contravene the rules of both the Senate and the House. It wages war against our settled ideals of
representative democracy. For the inevitable, catastrophic effect of the thesis is to install a Bicameral
Conference Committee as the Third Chamber of our Congress, similarly vested with the power to make
laws but with the dissimilarity that its laws are not the subject of a free and full discussion of both
Houses of Congress. With such a vagrant power, a Bicameral Conference Committee acting as a Third
Chamber will be a constitutional monstrosity.
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 people’s rightful representatives subvert the people’s sovereignty. Bicameral
Conference Committees, with their ad hoc character and limited membership, cannot pass laws for they
do not represent the people. The Constitution does not allow the tyranny of the majority. Yet, the
respondents will impose the worst kind of tyranny – the tyranny of the minority over the majority.
Secondly, the Constitution delineated in deft strokes the steps to be followed in making laws. The
overriding purpose of these procedural rules is to assure that only bills that successfully survive the
searching scrutiny of the proper committees of Congress and the full and unfettered deliberations of
both Houses can become laws. For this reason, a bill has to undergo three (3) mandatory separate
readings in each House. In the case at bench, the additions and deletions made by the Bicameral
Conference Committee did not enjoy the enlightened studies of appropriate committees. It is meet to
note that the complexities of modern day legislations have made our committee system a significant
part of the legislative process. Thomas Reed called the committee system as "the eye, the ear, the hand,
and very often the brain of the house." President Woodrow Wilson of the United States once referred to
the government of the United States as "a government by the Chairmen of the Standing Committees of
Congress …" Neither did these additions and deletions of the Bicameral Conference Committee pass
through the coils of collective deliberation of the members of the two Houses acting separately. Due to
this shortcircuiting of the constitutional procedure of making laws, confusion shrouds the enactment of
R.A. No. 7716. Who inserted the additions and deletions remains a mystery. Why they were inserted is a
riddle. To use a Churchillian phrase, lawmaking should not be a riddle wrapped in an enigma. It cannot
be, for Article II, section 28 of the Constitution mandates the State to adopt and implement a "policy of
full public disclosure of all its transactions involving public interest." The Constitution could not have
contemplated a Congress of invisible and unaccountable John and Mary Does. A law whose rationale is a
riddle and whose authorship is obscure cannot bind the people.
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 sheriff’s return
cannot be attacked; (2) that the enrolled bill is prima facie correct and only in case the legislative journal
shows affirmative contradiction of the constitutional requirement will the bill be held invalid; (3) that
although the enrolled bill is prima facie correct, evidence from the journals, or other extrinsic sources is
admissible to strike the bill down; (4) that the legislative journal is conclusive and the enrolled bills is
valid only if it accords with the recital in the journal and the constitutional procedure.
Various jurisdictions have adopted these alternative approaches in view of strong dissent and
dissatisfaction against the philosophical underpinnings of the conclusiveness of an enrolled bill. Prof.
Sutherland further observed:
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 sheriff’s return. Indeed, they had the same origin, that is, the
sheriff was an officer of the king and likewise the parliamentary act was a regal act and no official might
dispute the king’s word. Transposed to our democratic system of government, courts held that as the
legislature was an official branch of government the court must indulge every presumption that the
legislative act was valid. The doctrine of separation of powers was advanced as a strong reason why the
court should treat the acts of a co-ordinate branch of government with the same respect as it treats the
action of its own officers; indeed, it was thought that it was entitled to even greater respect, else the
court might be in the position of reviewing the work of a supposedly equal branch of government. When
these arguments failed, as they frequently did, the doctrine of convenience was advanced, that is, that it
was not only an undue burden upon the legislature to preserve its records to meet the attack of persons
not affected by the procedure of enactment, but also that it unnecessarily complicated litigation and
confused the trial of substantive issues.
Although many of these arguments are persuasive and are indeed the basis for the rule in many states
today, they are not invulnerable to attack. The rule most relied on – the sheriff’s return or sworn official
rule – did not in civil litigation deprive the injured party of an action, for always he could sue the sheriff
upon his official bond. Likewise, although collateral attack was not permitted, direct attack permitted
raising the issue of fraud, and at a later date attack in equity was also available; and that the evidence of
the sheriff was not of unusual weight was demonstrated by the fact that in an action against the sheriff
no presumption of its authenticity prevailed.
The argument that the enrolled bill is a "record" and therefore unimpeachable is likewise misleading, for
the correction of records is a matter of established judicial procedure. Apparently, the justification is
either the historical one that the king’s word could not be questioned or the separation of powers
principle that one branch of the government must treat as valid the acts of another.
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:
amendment to any bill or joint resolution, the differences may be settled by the conference committees
of both chambers.
Sec. 89. Conference Committee Reports. - . . . Each report shall contain a detailed, sufficiently explicit
...
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 latter’s appropriate action; and (3) the Committee report has to be voted
upon in the same manner and procedure as a bill on third and final reading. Similarly, the Senate rule
underscores in crimson that (1) the power of the Committee is limited - - - to settle differences with the
House; (2) it can make changes or amendments only in the discharge of this limited power to settle
differences with the House; and (3) the changes or amendments are merely recommendatory for they
still have to be approved by the Senate.
Under both rules, it is obvious that a Bicameral Conference Committee is a mere agent of the House or
the Senate with limited powers. The House contingent in the Committee cannot, on its own, settle
differences which are substantial in character. If it is confronted with substantial differences, it has to go
back to the chamber that created it "for the latter’s appropriate action." In other words, it must take the
proper instructions from the chambers that created it. It cannot exercise its unbridled discretion. Where
there is no difference between the bills, it cannot make any change. Where the difference is substantial,
it has to return to the chamber of its origin and ask for appropriate instructions. It ought to be
indubitable that it cannot create a new law, i.e., that which has never been discussed in either chamber
of Congress. Its parameters of power are not porous, for they are hedged by the clear limitation that its
only power is to settle differences in bills and joint resolutions of the two chambers of Congress.
Fourth. Prescinding from these premises, I respectfully submit that the following acts of the Bicameral
Conference Committee constitute grave abuse of discretion amounting to lack or excess of jurisdiction
and should be struck down as unconstitutional nullities, viz:
a. Its deletion of the pro poor "no pass on provision" which is common in both Senate Bill No. 1950 and
House Bill No. 3705.
Sec. 1 of House Bill No. 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 amended to
read as follows:
Sec. 108. Value-added Tax on Sale of Goods or Properties. –

Provided, further, that notwithstanding the provision of the second paragraph of Section 105 of this
Code, the Value-added Tax imposed under this paragraph shall be paid and absorbed by the subject
generation companies who shall be prohibited from passing on the cost of such tax payments, either
directly or indirectly[,] to any consumer in whatever form or manner, it being the express intent of this
act that the Value-added Tax shall be borne and absorbed exclusively [by] the power-generating
companies.
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 government’s use of
incremental revenue from the VAT in Section 21 of R.A. No. 9337 which were not present in the Senate
or House Bills. Section 21 of R.A. No. 9337 provides:
Fifty percent of the local government unit’s share from VAT shall be allocated and used exclusively for
the following purposes:
1. Fifteen percent (15%) for public elementary and secondary education to finance the construction of
buildings, purchases of school furniture and in-service teacher trainings;
2. Ten percent (10%) for health insurance premiums of enrolled indigents as a counterpart contribution
of the local government to sustain the universal coverage of the national health insurance program;
3. Fifteen percent (15%) for environmental conservation to fully implement a comprehensive national
reforestation program; and
4. Ten percent (10%) for agricultural modernization to finance the construction of farm-to-market roads
and irrigation facilities.
Such allocations shall be segregated as separate trust funds by the national treasury and shall be over
and above the annual appropriation for similar purposes.
These amendments did not harmonize conflicting provisions between the constituent bills of R.A. No.
9337 but are entirely new and extraneous concepts which fall beyond the median thereof. They
transgress the limits of the Bicameral Conference Committee’s authority and must be struck down.
I cannot therefore subscribe to the thesis of the majority that "the changes introduced by the Bicameral
Conference Committee on disagreeing provisions were meant only to reconcile and harmonize the
disagreeing provisions for it did not inject any idea or intent that is wholly foreign to the subject
embraced by the original provisions."
Fifth. The majority further defends the constitutionality of the above provisions by holding that "all the
changes or modifications were germane to subjects of the provisions referred to it for reconciliation."
With due respect, it is high time to re-examine the test of germaneness proffered in Tolentino.
The test of germaneness is overly broad and is the fountainhead of mischief for it allows the Bicameral
Conference Committee to change provisions in the bills of the House and the Senate when they are not
even in disagreement. Worse still, it enables the Committee to introduce amendments which are
entirely new and have not previously passed through the coils of scrutiny of the members of both
houses. The Constitution did not establish a Bicameral Conference Committee that can act as a "third
house" of Congress with super veto power over bills passed by the Senate and the House. We cannot
concede that super veto power without wrecking the delicate architecture of legislative power so
carefully laid down in our Constitution. The clear intent of our fundamental law is to install a lawmaking
structure composed only of two houses whose members would thoroughly debate proposed legislations
in representation of the will of their respective constituents. The institution of this lawmaking structure
is unmistakable from the following provisions: (1) requiring that legislative power shall be vested in a
bicameral legislature;10 (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 Luce’s disconcerting observations are apropos:
"Their power lies chiefly in the fact that reports of conference committees must be accepted without
amendment or else rejected in toto. The impulse is to get done with the matters and so the motion to
accept has undue advantage, for some members are sure to prefer swallowing unpalatable provisions
rather than prolong controversy. This is more likely if the report comes in the rush of business toward
the end of the session, when to seek further conference might result in the loss of the measure
altogether. At any time in the session there is some risk of such a result following the rejection of a
conference report, for it may not be possible to secure a second conference, or delay may give
opposition to the main proposal chance to develop more strength.
xxx xxx xxx
Entangled in a network of rule and custom, the Representative who resents and would resist this theft
of his rights, finds himself helpless. Rarely can be vote, rarely can he voice his mind, in the matter of any
fraction of the bill. Usually he cannot even record himself as protesting against some one feature while
accepting the measure as whole. Worst of all, he cannot by argument or suggested change, try to
improve what the other branch has done.
This means more than the subversion of individual rights. It means to a degree the abandonment of
whatever advantage the bicameral system may have. By so much it in effect transfers the lawmaking
power to small group of members who work out in private a decision that almost always prevails. What
is worse, these men are not chosen in a way to ensure the wisest choice. It has become the practice to
name as conferees the ranking members of the committee, so that the accident of seniority determines.
Exceptions are made, but in general it is not a question of who are most competent to serve. Chance
governs, sometimes giving way to favor, rarely to merit.
xxx xxx xxx
Speaking broadly, the system of legislating by conference committee is unscientific and therefore
defective. Usually it forfeits the benefit of scrutiny and judgment by all the wisdom available.
Uncontrolled, it is inferior to that process by which every amendment is secured independent discussion
and vote. . . ."15
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 Court’s uncompromising obligation to defend
the Constitution at all times lest it be condemned as an irrelevant relic.
WHEREFORE, I concur with the majority but dissent on the following points:
a) I vote to withhold judgment on the constitutionality of the "standby authority" in Sections 4 to 6 of

Republic Act No. 9337 as this issue is not ripe for adjudication.;
b) I vote to declare unconstitutional the deletion by the Bicameral Conference Committee of the pro
poor "no pass on provision" on electricity to residential consumers as it contravened the unequivocal
intent of both Houses of Congress; and
c) I vote to declare Section 21 of Republic Act No. 9337 as unconstitutional as it contains extraneous
provisions not found in its constituent bills.
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 Fariñas 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 requirement14 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, it’s 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 secretary’s personality "is in reality but a projection of that of Congress."
The secretary of finance is not an alter ego of Congress, but of the President. The mandate given by RA
9337 to the secretary is not equipollent to an authority to make laws. In passing this law, Congress did
not restrict or curtail the constitutional power of the President to retain control and supervision over the
entire Executive Department. The law should be construed to be merely asking the President, with a
recommendation from the President’s alter ego in finance matters, to determine the factual bases for
making the increase in VAT rate operative.39 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 latter’s 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 President’s standby authority has no basis.
The question raised is whether the BCC, in passing the law, committed grave abuse of discretion, not
whether the provision in question had been violated. Hence, this case is not premature and is, in fact,
subject to judicial determination.
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 taxpayer’s 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 Lauré, 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 ajoutée,70 which was quickly adopted
by the Direction Générale des Impost, the new French tax authority of which he became joint director.
Consequently, taxpayers at all levels in the production process, rather than retailers or tax authorities,
were forced to administer and account for the tax themselves.71
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 company’s financial statements,
and are not rooted in laws of nature, as are the laws of physical science, for these are merely developed
and continually modified by local and international regulatory accounting bodies.80 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 other’s 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: Isn’t the solution to increase the price then?

"Atty. Baniqued: If you increase the price which you can very well do, Your Honor, then that [will] be
deflationary and it [will] have a cascading effect on all other basic commodities[, especially] because
what is involved here is petroleum, Your Honor.
"Justice Panganiban: That may be true[,] but it’s not unconstitutional?
"Atty. Baniqued: That may be true, Your Honor, but the very limitation of the [seventy percent] input
[VAT], when applied to the case of the petroleum dealers[,] is oppressive[.] [I]t’s unjust and it’s
unreasonable, Your Honor.
"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: It’s not 100 [percent] credi[ta]bility[,] unlike if it were applied against your [output
VAT], you get to claim 100 [percent] of it, Your Honor.
"Justice Panganiban: That might be true, but we are talking about whether that particular provision
would be unconstitutional. You say it’s oppressive, but you have a remedy, you just pass it on to the
customer. I am not sayin[g] it’s good[.] [N]either am I saying it’s wise[.] [A]ll I’m talking about is, whether
it’s constitutional or not.
"Atty. Baniqued: Yes, in fact we acknowledge, Your Honor, that that is a remedy available to the
petroleum dealers, but considering the impact of that limitation[,] and were just talking of the 70
[percent cap] on [input VAT] in the level of the petroleum dealers. Were not even talking yet of the
limitation on the [input VAT] available to the manufacturers, so, what if they pass that on as well?
"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,
isn’t it?
"Atty. Baniqued: It does, Your Honor, if it can be shown. And as we have shown, it is oppressive and
unreasonable, it is excessive, Your Honor… interrupted
"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 it’s good. All I am saying is, is it constitutional or not[?] We’re not here to determine the wisdom of
the law, that’s up for Congress. As pointed out earlier, if the law is not wise, the law makers will be
changed by the people[.] [T]hat is their solution t[o] the lack of wisdom of a law. If the law is
unconstitutional[,] then the Supreme Court will declare it unconstitutional and void it, but[,] in this
case[,] there seems to be a business remedy in the same manner that Congress may just impose that tax
straight without saying it’s [VAT]. If Congress will just say all petroleum will pay 3 [percent] of their Gross
Sales, but you don’t bear that, you pass that on, isn’t it?
"Atty. Baniqued: We acknowledge your concern, Your Honor, but we should not forget that when the
petroleum dealers pass these financial burden or this tax differential to the consumers, they themselves
are consumers in their own right. As a matter of fact, they filed this case both as petroleum dealer[s] and
as taxpayers. If they pass if on, they themselves would ultimately bear the burden[, especially] in
increase[d] cost of electricity, land transport, food, everything, Your Honor.
"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 don’t go up. And as a matter of fact, he had pronouncements that, the increase in
petroleum price should only be limited to the effect of 10 [percent] E-VAT.
"Justice Panganiban: It’s becaus[e] the implementing rules were not clear and were not extensive
enough to cover how much really should be the increase for various oil products, refined oil products.
It’s up for the dealers to guess, and the dealers were guessing to their advantage by saying plus 10
[percent] anyway, right?
"Atty. Baniqued: In fact, the petroleum dealers, Your Honors, are not only faced with constitutional
issues before this Court. They are also faced with a possibility of the Department of Energy not allowing
them to pass it on[,] because this would be an unreasonable price increase. And so, they are being hit
from both sides…interrupted
"Justice Panganiban: That’s why I say, that there is need to refine the implementing rules so that
everyone will know, the customers will know how much to pay for gasoline, not only gasoline, gasoline,
and so on, diesel and all kinds of products, so there’ll be no confusion and there’ll be no undue taking
advantage. There will be a smooth implementation[,] if the law were to be upheld by the Court. In your
case, as I said, it may be unwise to pass that on to the customers, but definitely, the dealers will not bear
that [--] to suffer the loss that you mentioned in your consolidated balance sheets. Certainly, the dealers
will not bear that [cost], isn’t it?
"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 don’t pass it on[;] but you or your clients as
businessm[e]n, I know, will pass it on.
"Atty. Baniqued: As I have said, Your Honor, there are many constraints on their ability to do that[,] and
that is why the first step that we are seeking is to seek redress from this Honorable Court[,] because we
feel that the imposition is excessive and oppressive….. interrupted
"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. Let’s talk about the 5 [percent] [d]epreciation rate, but that applies only to
the capital equipment worth over a million?
"Atty. Baniqued: Yes, Your Honor.
"Justice Panganiban: And that doesn’t apply at all times, isn’t it?
"Atty. Baniqued: Well……
"Justice Panganiban: That doesn’t 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]hat’s not so. So, the presentation you made is a little inaccurate and misleading.
"Atty. Baniqued: At the start of our presentation, Your Honor[,] we stated clearly that this applies only to
capital goods costing more than one [million].
"Justice Panganiban: Yes, but you combined it later on with the 70 [percent] cap to show that the
dealers are so disadvantaged. But you didn’t tell us that that will apply only when capital equipment or
goods is one million or more. And in your case, what kind of capital goods will be worth one million or
more in your existing gas stations?
"Atty. Baniqued: Well, you would have petroleum dealers, Your Honor, who would have[,] aside from
sale of petroleum[,] they would have their service centers[,] like[…] to service cars and they would have
those equipments, they are, Your Honor.
"Justice Panganiban: But that’s a different profit center, that’s not from the sale of…
"Atty. Baniqued: No, they would form part of their [VATable] sale, Your Honor.
Justice Panganiban: It’s a different profit center[;] it’s not in the sale of petroleum products. In fact the
mode now is to put up super stores in huge gas stations. I do not begrudge the gas station[.] [A]ll I am
saying is it should be presented to us in perspective. Neither am I siding with the government. All I am
saying is, when I saw your complicated balance sheet and mathematics, I saw that you were to put in all
the time the depreciation that should be spread over [five] years. But we have agreed that that applies
only to capital equipment [-- ]not to any kind of goods [--] but to capital equipment costing over 1
million pesos.
"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 that’s an added cost, isn’t 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 wouldn’t want that to be
done to me.
"Atty. Baniqued: We realiz[e] that, Your Honor, but the fact remain[s] that whether it is in the hands of
the petroleum dealers or in the hands of the consumers[,] if this imposition is unreasonable and
oppressive, it will remain so, even after it is passed on, Your Honor.
"Justice Panganiban: Alright. Let’s go to the third. The 5 [percent] withholding tax, [f]inal [w]ithholding
[t]ax, but this applies to sales to government?
"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, let’s see. You sell, let’s say[,] your petroleum products to the Supreme Court,
as a gas station that sells gasoline to us here. Under this law, the 5 [percent] withholding tax will have to
be charged, right?
"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, that’s 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[,] we’ll just have to [charge] you 5 [percent] more. Well, the Supreme Court will
probably say, well, anyway, that 5 [percent] that we will pay the gas dealer, will be paid back to the
government, isn’t it[?] So, how [will] you be affected?
"Atty. Baniqued: I hope the passing on of the burden, Your Honor, doesn’t come back to party litigants
by way of increase in docket fees, Your Honor.
"Justice Panganiban: But that’s quite another m[a]tter, though…(laughs) [W]hat I am saying, Mr.
[C]ounsel is, you still have to show to us that your remedy is to declare the law unconstitutional[,] and
it’s not business in character.
"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. It’s 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, it’s inflationary[,] brings up the prices of everything…
"Atty. Baniqued: And it is our submission that[,] if the petroleum dealers cannot absorb it and they pass
it on to the customers, a lot of consumers would neither be in a position to absorb it too and that[’s]
why we patronize, Your Honor.
"Justice Panganiban: There might be wisdom in what you’re saying, but is that unconstitutional?
"Atty. Baniqued: Yes, because as I said, Your Honor, there are even constraints in the petroleum dealers
to pass it on, and we[‘]re not even sure whether….interrupted
"Justice Panganiban: Are these constraints [--] legal constraints?
"Atty. Baniqued: Well, it would be a different story, Your Honor[.] [T]hat’s something we probably have
to take up with the Department of Energy, lest [we may] be accused of …..
"Justice Panganiban: In other words, that’s 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, [we’re] 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 don’t have to pay it. But as a magistrate of this Court, I will have to pass upon
judgment on the basis of [--] whether the law is unconstitutional or not. And I hope you can in your
memorandum show that.
"Atty. Baniqued: We recognized that, Your Honor." (boldface supplied, pp. 386-410).
Amendments on Other Taxes and Administrative Matters. Finally, the BCC’s amendments regarding
other 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 ponencia’s view
that the President was given merely the power to ascertain the facts to bring the law into operation --
clearly an administrative, not a legislative, function -- I stress that the finance secretary remains the
Chief Executive’s alter ego, not an agent of Congress.
The BCC exercised its prerogative to delete the no pass-on provisions, because these were in conflict. I
believe, however, that it blatantly violated the origination and the germaneness principles when it
inserted provisions not found in the House versions of the E-VAT Law: (1) increasing the tax rates on
domestic, resident foreign and nonresident foreign corporations; (2) increasing the tax credit against
taxes due from nonresident foreign corporations on intercorporate dividends; and (3) reducing the
allowable deduction for interest expense. Hence, I find these insertions unconstitutional.
Some have criticized the E-VAT Law as oppressive to our already suffering people. On the other hand,
respondents have justified it by comparing it to bitter medicine that patients must endure to be healed
eventually of their maladies. The advantages and disadvantages of the E-VAT Law, as well as its long-
term effects on the economy, are beyond the reach of judicial review. The economic repercussions of
the statute are policy in nature and are beyond the power of the courts to pass upon.
I have combed through the specific points raised in the Petitions. Other than the three items on income
taxes that I respectfully submit are unconstitutional, I cannot otherwise attribute grave abuse of
discretion to the BCC, or Congress for that matter, for passing the law.
"[T]he Court -- as a rule -- is deferential to the actions taken by the other branches of government that
have primary responsibility for the economic development of our country."97 Thus, in upholding the
Philippine ratification of the treaty establishing the World Trade Organization (WTO), Tañada v. Angara
held that "this Court never forgets that the Senate, whose act is under review, is one of two sovereign
houses of Congress and is thus entitled to great respect in its actions. It is itself a constitutional body,
independent and coordinate, and thus its actions are presumed regular and done in good faith. Unless
convincing proof and persuasive arguments are presented to overthrow such presumption, this Court
will resolve every doubt in its favor."98 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 Concepción, 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." Fariñas
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.
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.
19 Tolentino v. Secretary of Finance, supra, p. 661, August 25, 1994.
20 Garner (ed. in chief), Black’s Law Dictionary (8th ed., 2004), p. 708.
21 Statsky, West’s 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: [It’s] supposed to be 2005, Your Honor, but apparently, it [will] be impossible to
determine GDP the first day of 2006, Your Honor." (p. 57);
xxx
"Justice Panganiban: Now [let’s see] when it is possible then to determine this formula. It cannot be on
the first day of January 2006, because the year [2005] ended just the midnight before, isn’t it?
"Atty. Gorospe: Yes, Your Honor.

"Justice Panganiban: x x x if it’s 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: That’s 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
38regulations 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 24/5 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 Fariñas 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 Fariñas v. Executive Secretary, 417 SCRA, 503, 524, December 10, 2003.
45 Flint v. Stone Tracy Co., 220 US 107, 167, 31 S.Ct. 342, 355, March 13, 1911, per Day, J.
"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 Osmeña 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.
53 Vitug, Tax Law and Jurisprudence (2nd ed., 2000), p. 188.
55 De Leon, The Law on Transfer and Business Taxation with Illustrations, Problems, and Solutions
(1998), pp. 195-196 & 222-224.
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.
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 Senate’s 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 ₱ 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-LaurÃ©.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-LaurÃ© (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, isn’t it?
Atty. Baniqued: Yes, Your Honor.
"Justice Panganiban: It’s 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 supplier’s 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 it’s not correct to say that all prices must go up by 10 [percent].
"Atty. Baniqued: You’re 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).
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 Senate’s amendments, or (c) by
way of a compromise, to agree that neither provisions in the House bill amended by the Senate nor the
latter’s amendments thereto be carried into the final form of the former.
Otherwise stated, the Bicameral Conference Committee is authorized only to adopt either the version of
the House bill or the Senate bill, or adopt neither. It cannot, as the ponencia proposed, "try to arrive at a
compromise", such as introducing provisions not included in either the House or Senate bill, as it would
allow a mere ad hoc committee to substitute the will of the entire Congress and without undergoing the
requisite three-reading, which are both constitutionally proscribed. To allow the committee unbridled
discretion to overturn the collective will of the whole Congress defies logic considering that the bills are
passed presumably after study, deliberation and debate in both houses. A lesser body like the Bicameral
Conference Committee should not be allowed to substitute its judgment for that of the entire Congress,
whose will is expressed collectively through the passed bills.
When the Bicameral Conference Committee goes beyond its limited function by substituting its own
judgment for that of either of the two houses, it violates the internal rules of Congress and contravenes
material restrictions imposed by the Constitution, particularly on the passage of law. While concededly,
the internal rules of both Houses do not explicitly limit the Bicameral Conference Committee to a
consideration only of conflicting provisions, it is understood that the provisions of the Constitution
should be read into these rules as imposing limits on what the committee can or cannot do. As such, it
cannot perform its delegated function in violation of the three-reading requirement and the no-
amendment rule.
Section 26(2) of Article VI of the 1987 Constitution provides that:
(2) No bill shall be passed by either House shall become a law unless it has passed three readings on
separate days, and printed copies thereof in its final form have been distributed to its Members three
days before its passage, except when the President certifies to the necessity of its immediate enactment
to meet a public calamity or emergency. Upon the last reading of a bill, no amendment hereto shall be
allowed, and the vote thereon shall be taken immediately thereafter, and the yeas and nays entered in
the Journal.
Thus, before a bill becomes a law, it must pass three readings. Hence, the ponencia’s submission that
despite its limited authority, the Bicameral Conference Committee could "compromise the disagreeing
provisions" by substituting it with its own version – clearly violate the three-reading requirement, as the
committee’s version would no longer undergo the same since it would be immediately put into vote by
the respective houses. In effect, it is not a bill that was passed by the entire Congress but by the
members of the ad hoc committee only, which of course is constitutionally infirm.
I disagree that the no-amendment rule referred only to "the procedure to be followed by each house of
Congress with regard to bills initiated in each of said respective houses" because it would relegate the
no-amendment rule to a mere rule of procedure. To my mind, the no-amendment rule should be
construed as prohibiting the Bicameral Conference Committee from introducing amendments and
modifications to non-disagreeing provisions of the House and Senate bills. In sum, the committee could
only either adopt the version of the House bill or the Senate bill, or adopt neither. As Justice Reynato S.
Puno said in his Dissenting Opinion in Tolentino v. Secretary of Finance,4 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 following conditions has
been satisfied:
percent (1 ½%).
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 people’s representatives, it is "closer to the pulse of the people and… are
therefore in a better position to determine both the extent of the legal burden the people are capable of
bearing and the benefits they need."7 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 ½%).
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 ½% ceiling. On the other hand, if she
does not wish to increase the VAT rate, she may discourage the Secretary of Finance from making the
recommendation.
That the President’s exercise of an authority is practically within her control is tantamount to giving no
conditions at all. I believe this amounts to a virtual surrender of legislative power to her. It must be
stressed that the validity of a law is not tested by what has been done but by what may be done under
its provisions.19
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-à-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 one’s whim.
III
Exclusive Origination from the
House of Representatives
Section 24, Article VI of the Constitution provides:
SEC. 24. All appropriations, revenue or tariff bills, bills authorizing 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 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 Senate’s power not only to ‘concur with amendments: but
also to ‘propose amendments.’ It would be to violate the co-equality of the legislative power of the two
houses of Congress and in fact, make the House superior to the Senate."
The case at bar gives us an opportunity to take a second hard look at the efficacy of the foregoing
jurisprudence.
Section 25, Article VI is a verbatim re-enactment of Section 18, Article VI of the 1935 Constitution. The
latter provision was modeled from Section 7 (1), Article I of the United States Constitution, which states:
"All bills for raising revenue shall originate in the House of Representatives, but the Senate may propose
or concur with amendments, as on other bills."
The American people, in entrusting what James Madison termed "the power of the purse" to their
elected representatives, drew inspiration from the British practice and experience with the House of
Commons. As one commentator puts it:
"They knew the inestimable value of the House of Commons, as a component branch of the British
parliament; and they believed that it had at all times furnished the best security against the oppression
of the crown and the aristocracy. While the power of taxation, of revenue, and of supplies remained in
the hands of a popular branch, it was difficult for usurpation to exist for any length of time without
check, and prerogative must yield of that necessity which controlled at once the sword and the purse."
But while the fundamental principle underlying the vesting of the power to propose revenue bills solely
in the House of Representatives is present in both the Philippines and US Constitutions, stress must be
laid on the differences between the two quoted provisions. For one, the word "exclusively" appearing in
Section 24, Article VI of our Constitution is nowhere to be found in Section 7 (1), Article I of the US
Constitution. For another, the phrase "as on other bills," present in the same provision of the US
Constitution, is not written in our Constitution.
The adverb "exclusively" means "in an exclusive manner."24 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. (Black’s
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-Webster’s 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.
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.
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 Court’s 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-à-vis
Article VI, Section 26(2) of the Constitution.
The crucial issue posed by the present petitions is whether the Bicameral Conference Committee may
validly introduce amendments that were not contained in the respective bills of the Senate and the
House of Representatives. As a corollary, whether it may validly delete provisions uniformly contained in
the respective bills of the Senate and the House of Representatives.
In Tolentino, the Court declared as valid amendments introduced by the Bicameral Conference
Committee even if these were not contained in the Senate and House bills. The majority opinion therein
held:
As to the possibility of an entirely new bill emerging out of a Conference Committee, it has been
explained:
Under congressional rules of procedures, conference committees are not expected to make any material
change in the measure at issue, either by deleting provisions to which both houses have already agreed
or by inserting new provisions. But this is a difficult provision to enforce. Note the problem when one
house amends a proposal originating in either house by striking out everything following the enacting
clause and substituting provisions which make it an entirely new bill. The versions are now altogether
different, permitting a conference committee to draft essentially a new bill …
The result is a third version, which is considered an "amendment in the nature of a substitute," the only
requirement for which being that the third version be germane to the subject of the House and Senate
bills.
Indeed, this Court recently held that it is within the power of a conference committee to include in its
report an entirely new provision that is not found either in the House bill or in the Senate Bill. If the
committee can propose an amendment consisting of one or two provisions, collectively considered as an
"amendment in the nature of a substitute," so long as such an amendment is germane to the subject of
the bills before the committee. After all, its report was not final but needed the approval of both houses
of Congress to become valid as an act of the legislative department. The charge that in this case the
Conference Committee acted a third legislative chamber is thus without any basis.2
The majority opinion in Tolentino relied mainly on the practice of the United States legislature in making
the foregoing disquisition. It was held, in effect, that following the US Congress’ practice where a
conference committee is permitted to draft a bill that is entirely different from the bills of either the
House of Representatives or Senate, the Bicameral Conference Committee is similarly empowered to
make amendments not found in either the House or Senate bills.
The ponencia upholds the acts of the Bicameral Conference Committee with respect to R.A. No. 9337,
following the said ruling in Tolentino.
To my mind, this unqualified adherence by the majority opinion in Tolentino, and now by the ponencia,
to the practice of the US Congress and its conference committee system ought to be re-examined. There
are significant textual differences between the US Federal Constitution’s and our Constitution’s
prescribed congressional procedure for enacting laws. Accordingly, the degree of freedom accorded by
the US Federal Constitution to the US Congress markedly differ from that accorded by our Constitution
to the Philippine Congress.
Section 7, Article I of the US Federal Constitution reads:
[1] All Bills for raising Revenue shall originate in the House of Representatives; but the Senate may
propose or concur with Amendments as on other Bills.
[2] Every Bill which shall have passed the House of Representatives and the Senate, shall, before it
become a Law, be presented to the President of the United States; If he approve he shall it, but if not he
shall return it, with his Objections to the House in which it shall have originated, who shall enter the
Objections at large on their Journal, and proceed to reconsider it. If after such Reconsideration two
thirds of that House shall agree to pass the Bill, it shall be sent together with the Objections, to the other
House, by which it shall, likewise, be reconsidered, and if approved by two thirds of that House, it shall
become a Law. But in all such Cases the Votes of both Houses shall be determined by yeas and Nays, and
the Names of the Persons voting for and against the Bill shall be entered on the Journal of each House
respectively. If any Bill shall not be returned by the President within ten Days (Sundays excepted) after it
shall have been presented to him, the Same shall be a Law, in like Manner as if he had signed it, unless
the Congress by their Adjournment prevent its return in which Case it shall not be a Law.
[3] Every Order, Resolution, or Vote to Which the Concurrence of the Senate and House of
Representatives may be necessary (except on a question of Adjournment) shall be presented to the
President of the United States; and before the Same shall take Effect, shall be approved by him, or being
disapproved by him, shall be repassed by two thirds of the Senate and House of Representatives,
according to the Rules and Limitations prescribed in the Case of a Bill.
On the other hand, Article VI of our Constitution prescribes for the following procedure for enacting a
law:
Sec. 26. (1) Every bill passed by Congress shall embrace only one subject which shall be expressed in the
title thereof.
(2) No bill passed by either House shall become a law unless it has passed three readings on separate
days, and printed copies thereof in its final form have been distributed to its Members three days before
its passage, except when the President certifies to the necessity of its immediate enactment to meet a
public calamity or emergency. Upon the last reading of a bill, no amendment thereto shall be allowed,
and the vote thereon shall be taken immediately thereafter, and the yeas and nays entered in the
Journal.
Sec. 27. (1) Every bill passed by Congress shall, before it becomes a law, be presented to the President. If
he approves the same, he shall sign it; otherwise, he shall veto it and return the same with his objections
to the House where it originated, which shall enter the objections at large in its Journal and proceed to
reconsider it. If, after such reconsideration, two-thirds of all the Members of such House shall agree to
pass the bill, it shall be sent, together with the objections, to the other House by which it shall likewise
be reconsidered, and if approved by two-thirds of all the Members of that House, it shall become a law.
In all such cases, the votes of each House shall be determined by yeas and nays, and the names of the
Members voting for or against shall be entered in its Journal. The President shall communicate his veto
of any bill to the House where it originated within thirty days after the date of receipt thereof;
otherwise, it shall become a law as if he had signed it.
(2) The President shall have the power to veto any particular item or items in an appropriation, revenue,
or tariff bill, but the veto shall not affect the item or items to which he does not object.
Two distinctions are readily apparent between the two procedures:
1. Unlike the US Federal Constitution, our Constitution prescribes the "three-reading" rule or that no bill
shall become a law unless it shall have been read on three separate days in each house except when its
urgency is certified by the President; and
2. Unlike the US Federal Constitution, our Constitution prescribes the "no-amendment" rule or that no
amendments shall be allowed upon the last reading of the bill.
American constitutional experts have lamented that certain congressional procedures have not been
entrenched in the US Federal Constitution. According to a noted constitutional law professor, the
absence of the "three-reading" requirement as well as similar legislative-procedure rules from the US
Federal Constitution is a "cause for regret."3
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 ponencia’s refusal to apply Article VI, Section 26(2) of the Constitution on the Bicameral
Conference Committee and the amendments it introduced to R.A. No. 9337 has "effectively dismantled"
the "three-reading rule" and "no-amendment rule." As posited by Fr. Joaquin Bernas, a member of the
Constitutional Commission:
In a bicameral system, bills are independently processed by both House of Congress. It is not unusual
that the final version approved by one House differs from what has been approved by the other. The
"conference committee," consisting of members nominated from both Houses, is an extra-constitutional
creation of Congress whose function is to propose to Congress ways of reconciling conflicting provisions
found in the Senate version and in the House version of a bill. It performs a necessary function in a
bicameral system. However, since conference committees have merely delegated authority from
Congress, they should not perform functions that Congress itself may not do. Moreover, their proposals
need confirmation by both Houses of Congress.
In Tolentino v. Secretary of Finance, the Court had the opportunity to delve into the limits of what
conference committees may do. The petitioners contended that the consolidation of the House and
Senate bills made by the conference committee contained provisions which neither the Senate bill nor
the House bill had. In her dissenting opinion, Justice Romero laid out in great detail the provisions that
had been inserted by the conference committee. These provisions, according to the petitioners had
been introduced "surreptitiously" during a closed door meeting of the committee.
The Court’s answer to this was that in United States practice conference committees could be held in
executive sessions and amendments germane to the purpose of the bill could be introduced even if
these were not in either original bill. But the Court did not bother to check whether perhaps the
American practice was based on a constitutional text different from that of the Philippine Constitution.
There are as a matter of fact significant differences in the degree of freedom American and Philippine
legislators have. The only rule that binds the Federal Congress is that it may formulate its own rules of
procedure. For this reason, the Federal Congress is master of its own procedures. It is different with the
Philippine Congress. Our Congress indeed is also authorized to formulate its own rules of procedure –
but within limits not found in American law. For instance, there is the "three readings on separate days"
rule. Another important rule is that no amendments may be introduced by either house during third
reading. These limitations were introduced by the 1935 and 1973 Constitutions and confirmed by the
1987 Constitution as a defense against the inventiveness of the stealthy and surreptitious. These,
however, were disregarded by the Court in Tolentino in favor of contrary American practice.
This is not to say that conference committees should not be allowed. But an effort should be made to lay
out the scope of what conference committees may do according to the requirements and the reasons of
the Philippine Constitution and not according to the practice of the American Congress. For instance, if
the two Houses are not allowed to introduce and debate amendments on third reading, can they
circumvent this rule by coursing new provisions through the instrumentality of a conference committee
created by Congress and meeting in secret? The effect of the Court’s uncritical embrace of the practice
of the American Congress and its conference committees is to dismantle the no-amendment rule.5
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:
amendments to any bill or joint resolution, the differences may be settled by the conference committees
of both chambers.
Sec. 89. Conference Committee Reports. - …Each report shall contain a detailed, sufficiently explicit
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 Senate’s amendments, or (c) by way of compromise, to agree that
neither provisions in the House Bill amended by the Senate nor the latter’s amendments thereto be
carried into the final form of the former. Justice Romero, who also dissented in Tolentino, added that
the conference committee is not authorized to initiate or propose completely new matters although
under certain legislative rules like the Jefferson’s Manual, a conference committee may introduce
germane matters in a particular bill. However, such matters should be circumscribed by the committee’s
sole authority and function to reconcile differences.
In the case of R.A. No. 9337, the Bicameral Conference Committee made an "amendment by deletion"
with respect to the "no pass on provision" contained in both House Bill (HB) No. 3705 and Senate Bill
(SB) No. 1950. HB 3705 proposed to amend Sections 106 and 108 of the NIRC by expressly stating
therein that sellers of petroleum products and power generation companies selling electricity are
prohibited from passing on the VAT to the consumers. SB 1950 proposed to amend Section 108 by
likewise prohibiting power generation companies from passing on the VAT to the consumers. However,
these "no pass on provisions" were altogether deleted by the Bicameral Conference Committee. At the
least, since there was no disagreement between HB 3705 and SB 1950 with respect to the "no pass on
provision" on the sale of electricity, the Bicameral Conference Committee acted beyond the scope of its
authority in deleting the pertinent proviso.
At this point, it is well to recall the rationale for the "no-amendment rule" and the "three-reading rule"
in Article VI, Section 26(2) of the Constitution. The proscription on amendments upon the last reading is
intended to subject all bills and their amendments to intensive deliberation by the legislators and the
ample ventilation of issues to afford the public an opportunity to express their opinions or objections
thereon.6 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. Osmeña III and Juan Ponce Enrile approved it with reservations. On the other hand, of the twenty-
eight (28) Members of the House of Representatives-Conferees,11 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-à-vis conference committee reports opens the possibility of
amendments, which are substantial and not even germane to the original bills of either house, being
introduced by the conference committees and voted upon by the legislators without knowledge of their
contents. This practice cannot be countenanced as it patently runs afoul of the essence of Article VI,
Section 26(2) of the Constitution. Worse, it is tantamount to Congress surrendering its legislative
functions to the conference committees.
Ratification by Congress did not cure the
unconstitutional act of the Bicameral Conference
Committee of deleting the "no pass on provision"
That both the Senate and the House of Representatives approved the Bicameral Conference Committee
Report which deleted the "no pass on provision" did not cure the unconstitutional act of the said
committee. As succinctly put by Chief Justice Davide in his dissent in Tolentino, "[t]his doctrine of
ratification may apply to minor procedural flaws or tolerable breaches of the parameters of the
bicameral conference committee’s limited powers but never to violations of the Constitution. Congress
is not above the Constitution."14
Enrolled Bill Doctrine is not applicable where, as in
this case, there is grave violation of the Constitution
As expected, the ponencia invokes the enrolled bill doctrine to buttress its refusal to pass upon the
validity of the assailed acts of the Bicameral Conference Committee. Under the "enrolled bill doctrine,"
the signing of a bill by the Speaker of the House and the Senate President and the certification of the
Secretaries of both houses of Congress that it was passed are conclusive of its due enactment. In
addition to Tolentino, the ponencia cites Fariñas v. Executive Secretary15 where the Court declined to
go behind the enrolled bill vis-à-vis the allegations of the petitioners therein that irregularities attended
the passage of Republic Act No. 9006, otherwise known as the Fair Election Act.
Reliance by the ponencia on Fariñas is quite misplaced. The Court’s adherence to the enrolled bill
doctrine in the said case was justified for the following reasons:
The Court finds no reason to deviate from the salutary in this case where the irregularities alleged by the
petitioners mostly involved the internal rules of Congress, whether House or Senate. Parliamentary rules
are merely procedural and with their observance the courts have no concern. Whatever doubts there
may be as to the formal validity of Rep. Act No. 9006 must be resolved in its favor. The Court reiterates
its ruling in Arroyo v. De Venecia, viz.:
But the cases, both here and abroad, in varying forms of expression, all deny to the courts the power to
inquire into the allegations that, in enacting a law, a House of Congress failed to comply with its own
rules, in the absence of showing that there was a violation of a constitutional provision or the rights of
private individuals. In Osmeña v. Pendatun, it was held: "At any rate, courts have declared that ‘the rules
adopted by deliberative bodies are subject to revocation, modification or waiver at the pleasure of the
body adopting them.’ And it has been said that ‘Parliamentary rules are merely procedural, and with
their observance, the courts have no concern. They may be waived or disregarded by the legislative
body.’ Consequently, ‘mere failure to conform to parliamentary usage will not invalidate the action
(taken by a deliberative body) when the requisite number of members have agreed to a particular
measure.16
Thus, in Fariñas, the Court’s refusal to go behind the enrolled bill was based on the fact that the alleged
irregularities that attended the passage of R.A. No. 9006 merely involved the internal rules of both
houses of Congress. The procedural irregularities allegedly committed by the conference committee
therein did not amount to a violation of a provision of the Constitution.17
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 Fariñas 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 Fariñas 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:

percent (1 ½%).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 ½% 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 ½% 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 ½%
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 ₱5.3 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:
"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
by the seller or transferor: Provided, That the President, upon the recommendation of the Secretary of
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
"(ii) National government deficit as a percentage of GDP of the previous year exceeds one and one-half
percent (1 ½%)."
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. OSMEÑA 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 MAÑEBO doing
business under the name and style of "CMA MOTORISTS CENTER"; SUSAN M. ENTRATA doing business
under the name and style of "LEONA’S GASOLINE STATION and SERVICE CENTER"; CARMELITA
BALDONADO doing business under the name and style of "FIRST CHOICE SERVICE CENTER’: 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 CORPORATION represented by its Vice-President for Operations, JOSELITO F.
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. CASIÑO, 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 country’s small to medium enterprises. This will be
the net effect of affirming Section 8 of the law, which amends Sections 110 of the National Internal
Revenue Code (NIRC) by imposing a seventy percent (70%) cap on the creditable input tax a VAT-
registered person may apply every quarter and a mandatory sixty (60) -month amortization period on
the input tax on goods purchased or imported in a calendar month if the acquisition cost of such goods
exceeds One Million Pesos (₱1,000,000.00).
Taxes may be inherently punitive, but when the fine line between damage and destruction is crossed,
the courts must step forth and cut the hangman’s noose. Justice Holmes once confidently asserted that
"the power to tax is not the power to destroy while this Court sits", and we should very well live up to
this expectation not only of the revered Holmes, but of the Filipino people who rely on this Court as the
guardian of their rights. At stake is the right to exist and subsist despite taxes, which is encompassed in
the due process clause.
I respectfully submit these views while maintaining the deepest respect for the prerogative of the
legislature to impose taxes, and of the national government to chart economic policy. Such respect
impels me to vote to deny the petitions in G.R. Nos. 168056, 168207, 168463,2 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
by the seller or transferor; provided, that the President, upon the recommendation of the Secretary of
any of the following conditions has been satisfied.
percent 1 ½%).
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
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
½%).
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
the rate of value-added tax to twelve percent (12%), after any of the following conditions has been
satisfied.
(ii) national government deficit as a percentage of GDP of the previous year exceed same and on-half
percent (1 ½%).
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 ½%).
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, bills of
local application, and private bills shall originate exclusively in the House of Representatives, but the
Senate may propose or concur with amendments.
Section 26(2): No bill passed by either House shall become a law unless it has passed three readings on
separate days, and printed copies thereof in its final form have been distributed to its Members three
days before its passage, except when the President certifies to the necessity of its immediate enactment
to meet a public calamity or emergency. Upon the last reading of a bill, no amendment thereto shall be
allowed, and the vote thereon shall be taken immediately thereafter, and the yeas and nays entered in
the Journal.
Section 24 is also known as the origination clause, which derives origin from British practice. From the
assertion that the power to tax the public at large must reside in the representatives of the people, the
principle evolved that money bills must originate in the House of Commons and may not be amended by
the House of Lords.17 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
country’s dire fiscal situation.
The mere fact that the law is popularly known as the E-VAT Law, or that most of its provisions pertain to
the VAT, or indirect taxes, does not mean that any and all amendments which are introduced by the
Bicameral Conference Committee must pertain to the VAT system. As the Court noted in Tatad v.
Secretary of Energy:22
[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 country’s financial woes are sadly obviated with the realization that a key
amendment introduced in the law is not only unconstitutional, but of fatal consequences. The clarion
call of judicial review is most critical when it stands as the sole barrier against the deprivation of life,
liberty and property without due process of law. It becomes even more impelling now as we are faced
with provisions of the E-VAT Law which, though in bland disguise, would operate as the most destructive
of tax measures enacted in generations.
Tax Statutes and the Due Process Clause
It is the duty of the courts to nullify laws that contravene the due process clause of the Bill of Rights. This
task is at the heart not only of judicial review, but of the democratic system, for the fundamental
guarantees in the Bill of Rights become merely hortatory if their judicial enforcement is unavailing. Even
if the void law in question is a tax statute, or one that encompasses national economic policy, the courts
should not shirk from striking it down notwithstanding any notion of deference to the executive or
legislative branch on questions of policy. Neither Congress nor the President has the right to enact or
enforce unconstitutional laws.
The Bill of Rights is by no means the only constitutional yardstick by which the validity of a tax law can
be measured. Nonetheless, it stands as the most unyielding of constitutional standards, given its
position of primacy in the fundamental law way above the articles on governmental power.24 If the
question lodged, for example, hinges on the proper exercise of legislative powers in the enactment of
the tax law, leeway can be appreciated in favor of affirming the legislature’s inherent power to levy
taxes. On the other hand, no quarter can be ceded, no concession yielded, on the people’s fundamental
rights as enshrined in the Bill of Rights, even if the sacrifice is ostensibly made "in the national interest."
It is my understanding that "the national interests," however comported, always subsumes in the first
place recognition and enforcement of the Bill of Rights, which manifests where we stand as a
democratic society.
The constitutional safeguard of due process is embodied in the fiat "No person shall be deprived of life,
liberty or property without due process of law".25 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 state’s jurisdiction, and lack of a public purpose are all
grounds for nullity encompassed under the due process invocation.
Yet even these more particular standards as enunciated in Sison are quite exacting, and difficult to
reach. Even the constitutional challenge posed in Sison failed to pass muster. The 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 people’s fundamental rights simply
because the mechanism employed to violate constitutional guarantees is steeped in disciplines not
normally associated with the legal profession. Venality cannot be allowed to triumph simply due to its
sophistication. This petition imputes in the E-VAT Law unconstitutional oppression of the fatal variety,
but in order to comprehend exactly how and why that is so, one has to delve into the complex milieu of
the VAT system. The party alleging the law’s unconstitutionality of course has the burden to
demonstrate the violations in understandable terms, but if such proof is presented, the Court’s duty is
to engage accordingly.
The Viability of the Clear and Present
Danger Doctrine as Counterweight
To the Shibboleths of Speculation
and Wisdom
I do not see as an impediment to the annulment of a tax law the fact that it has yet to be implemented,
or the fear that doing so constitutes an undue attack on the wisdom, rather than the legality of a
statute. However, my position in this petition has been challenged on those grounds, and I see it fit to
refute these preemptive allegations before delving into the operative aspect of the E-VAT Law.
If there is cause to characterize my arguments as speculative, it is only because the E-VAT Law has yet to
be implemented. No person as of yet can claim to have sustained actual injury by reason of the
implementation of the assailed provisions in G.R. No. 168461. Yet this should not mean that the Court is
impotent from declaring a provision of law as violative of the due process clause if it is clear that its
implementation will cause the illegal deprivation of life, liberty or property without due process of
law. This is especially so if, as in this case, the injury is of mathematical certainty, and the extent of the
loss quantifiable through easy reference to the most basic of business practices.
These arguments are conjectural for the same reason that the bare statement "firing a gunshot into the
head will cause a fatal wound" would be conjectural. Some people are lucky enough to survive gunshot
wounds to the head, while many others are not. Yet just because the fear of mortality would be merely
speculative, it does not mean that there should be less compulsion to avoid a situation of getting shot in
the head.
Indeed, the Court has long responded to strike down prospective actions, even if the injury has not yet
even occurred. One of the most significant legal principles of the last century, the "clear and present
danger" doctrine in free speech cases, in fact emanates from the prospectivity, and not the actuality of
danger. The Court has not been hesitant to nullify acts which might cause injury, owing to the presence
of a clear and present danger of a substantive evil which the State has the right to prevent. It has even
extended the "clear and present danger rule" beyond the confines of freedom of expression to the
realm of freedom of religion, as noted by Justice Puno in his ponencia in Estrada v. Escritor.32
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 ₱1,000,000.00 as output VAT and
incurs ₱500,000.00 as input VAT, the ₱500,000.00 is deducted from the ₱1,000,000.00 output VAT, and
X is required to remit only ₱500,000.00 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 ₱1,000,000.00 as input VAT, and collects only
₱500,000.00 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 ₱500,000.00 as part of its input VAT for that
quarter. Hence, if in the Second Quarter, X actually prepays ₱400,000.00 as input VAT, and collects
₱500,000.00 as output VAT, it may add the ₱500,000.00 input VAT from the previous quarter to the
₱400,000.00 prepaid in the current quarter, bringing the total input VAT it could claim to ₱900,000.00.
Since the input VAT of ₱900,000.00 now exceeds the output VAT collected of ₱500,000, 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 ₱1,000,000, and Y is prudent enough to
keep its capital expenses down to ₱980,000, it would then appear on paper that Y incurred a profit of
₱20,000. However, with the 70% cap, Y would be obliged to remit to the government ₱30,000, 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: ₱100,000.00 - First Quarter; ₱100,000.00 – 2nd Quarter; ₱34,000.00 – 3rd Quarter; and
₱50,000.00 – 4th Quarter. On the other hand, Y collects the following amounts of output VAT from
consumers: ₱60,000.00 - First Quarter; ₱60,000.00 – 2nd Quarter; ₱100,000.00 – 3rd Quarter; and
₱50,000.00 – 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 (Actual) + Carry Over
100,000
100,000 [input] +58,000
[excess creditable]
158,000
34,000
[input]
+116,000
[excess creditable]
150,000
50,000
[input]
+80,000
[excess creditable]
130,000
Declarable Input VAT (70% of output VAT)
(60,000x70%)
42,000
(60,000x70%)
42,000
(100,000x70%)
70,000
(50,000x70%)
35,000
Lower of actual and 70% cap – allowable
VAT
Payable
(60,000 -42,000)
18,000
(60,000 -42,000)
18,000
(100,000-70,000)
30,000
(50,000- 35,000)
15,000
Creditable Input VAT
(100,000 – 42,000)
58,000
(158,000 – 42,000)
116,000
(150,000-
70,000)
80,000
(130,000- 35,000)
95,000
This stands in contrast to same business VAT accountability under the present system, using the same
variables of output VAT and input VAT. The need to distinguish a declarable input VAT is obviated with
the elimination of the 70% cap.
Particulars
1st Quarter
2nd Quarter
3rd Quarter
4th Quarter
Output VAT
60,000
60,000
100,000
50,000
Input VAT (Actual) + Carry Over
100,000
100,000 [input]
+40,000
[excess creditable]
140,000
34,000
[input]
+80,000
[excess creditable]
114,000
50,000
[input]
+ 14,000
(excess
creditable)
50,000
VAT Payable
Creditable
Input VAT
40,000
80,000
14,000
14,000
The difference is dramatic, as is the impact on the business’s profit margin and available cash on hand.
Under normal conditions, small to medium enterprises are already encumbered with the likelihood of
obtaining only a minimal profit margin. Without the 70% cap, those businesses would nonetheless be
able to expect an immediate return on its input taxes earlier advanced, taxes which under the VAT
system it is not supposed to shoulder in the first place. However, with the 70% cap in place, the
unutilized input taxes would continue to accumulate, and the enterprise precluded from immediate
recovery thereof. The inability to utilize these input taxes, which could spell the difference between
profit and loss, solvency and insolvency, will eventually impair, if not kill off the enterprise.
The majority fails to consider one of the most important concepts in finance, time value for money.37
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 d’etre of this 70% cap is to make it appear on paper that
the government is more solvent than it actually is. Conceding for the nonce, there is a temporary
advantage gained by the government by this 70% cap, as the steady remittance by businesses of the
30% output VAT would assure a cash flow. Such collection may only momentarily resolve an endemic
problem in our local tax system, the problem of collection itself.
If the 70% cap was designed in order to enhance revenue collection, then I submit that the means
employed stand beyond reason. If sheer will proves insufficient in assuring that the State all taxes due it,
there should be allowable discretion for the government to formulate creative means to enhance
collection. But to do so by depriving low profit enterprises of whatever meager income earned and
consequently assuring the death of these industries goes beyond any valid State purpose.
Only stable businesses with substantial cash flows, or extraordinarily successful enterprises will be able
to remain in operation should the 70% cap be retained. The effect of the 70% cap is to effectively
impose a tax amounting to 3% of gross revenue. The amount may seem insignificant to those without
working knowledge of the ways of business, but anybody who is actually familiar with business would be
well aware the profit margins of the retailing and distribution sectors typically amount to less than 1% of
the gross revenues. A taxpayer has to earn a margin of at least 3% on gross revenue in order to recoup
the losses sustained due to the 70% cap. But as stated earlier, profits are chancy, and the entrepreneur
does not have full control of the conditions that lead to profit.
Even more galling is the fact that the 70% cap, oppressive as it already is to the business establishment,
even limits the options of the business to recover the unutilized input VAT credit. During the
deliberations, the argument was raised that the problem presented by the 70% cap was a business
problem, which can only be solved by business. Yet there is only one viable option for the enterprise to
resolve the problem, and that is to increase the selling price of goods.39 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% cap)
VAT (with 70% cap)
Sales/Output
32,748,534
3,274,853.40
3,274,853.40
Cost of Sales
31,834,717
3,183,471.70
Gross Margin
913,817
Operating Expenses Non-vatable items
Vatable Items
536,249
317,584
31,758.40
Total Cost
853,833
Net Profit
59,984
Total Input Tax
3,215,230.10
2,292,397.38
VAT Payable
59,623.30
982,456.02
Unutilized Input VAT 922,832.72
*computed by multiplying output VAT by 70% [3,274,853.40 x 70% = 2,292.397.38]

The presentation of the Pilipinas Shell Dealers more or less jibes with my own observations on the
impact of the 70% cap. The dealer whose income is illustrated above has to outlay a cash amount of
₱922,832.72 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 ₱59,984.00, the consequences could very well be fatal, especially
if these state of events persist in succeeding quarters.
The burden of proof was on the Pilipinas Shell Dealers’ to prove their allegations, and accordingly, these
figures have been duly presented to the Court for appreciation and evaluation. Instead, the majority has
shunted aside these presentations as being merely theoretical, despite the fact that they present a clear
and present danger to the very life of our nation’s enterprises. The majority’s position would have been
more credible had it faced the issue squarely, and endeavored to demonstrate in like numerical fashion
why the 70% cap is not oppressive, confiscatory, or otherwise violative of the due process clause.
Sadly, the majority refuses to confront the figures or engage in a meaningful demonstration of how
these assailed provisions truly operate. Instead, it counters with platitudes and bromides that do not
intellectually satisfy. Considering that the very vitality, if not life of our domestic economy is at stake, I
think it derelict to our duty to block out these urgent concerns presented to the Court with blind faith
tinged with irrational 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 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 chart44 of the Pilipinas Shell Dealers:
Slide 1
Quarter 1
Item No. Cost VAT
Sales 1,000,000.00 100,000.00
Purchases 800,000.00 80,000.00
Due BIR with 70% cap
Output VAT 100,000.00
Allowable Input VAT 70,000.00
Net VAT Payable 30,000.00
Excess Input Vat
Carry-over to next quarter 10,000.00
Quarter 2
Cost VAT
Sales 1,000,000.00 100,000.00
Purchases 800,000.00 80,000.00
Due BIR with 7-% cap
Less: Input VAT
Excess Input VAT fr. 1st Quarter 10,000.00
Input VAT-Current Qtr. 80,000.00
Total Available Input VAT 90,000.00
Allowable Input VAT (100,000 x 70%) 70,000.00 70,000.00

=========
Excess Input VAT to be carried over to next
Quarter 20,000.00
=========
Quarter 3
Cost VAT
Sales 1,000,000.00 100,000.00
Purchases 800,000.00 80,000.00
Less: Input VAT
Excess Input VAT fr. 2nd Qtr. 20,000.00
=========
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 government’s revenue since the unutilized creditable input VAT should be entered in the
government books as a debt payable as it is supposed to be eventually repaid to the taxpayer, and so on
the contrary it increases the government’s debts. I do see that the 70% cap temporarily allows the
government to brag to the world of an increased cash flow. But this situation would be akin to the
provincial man who borrows from everybody in the barrio in order to show off money and maintain the
pretense of prosperity to visiting city relatives. The illusion of wealth is hardly a legitimate state purpose,
especially if projected at the expense of the very business life of the country.
The majority, in an effort to belittle these concerns, points out that that the excess input tax remains
creditable in succeeding quarters. However, as seen in the above illustration, the actual application of
the excess input tax will always be limited by the amount of output taxes collected in a quarter, as a
result of the 70% cap. Thus, it is entirely possible that a VAT-registered person, through the
accumulation of unutilized input taxes, would have in a quarter an express creditable input tax of
₱50,000,000, but would be allowed to actually credit only ₱70,000 if the output tax collected for that
quarter were only ₱100,000.
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:
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:
"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
such goods, excluding the VAT component thereof, exceeds One million pesos (₱1,000,000): 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 ₱1,000,000.00. 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 ₱1,000,000.00 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 ₱100,000.00), as they would be compelled to wait for at least
five years before they can do so. Another hurdle is imposed for such small to medium enterprise to
obtain the profit margin critical to survival. For some lucky enterprises who may be able to survive the
injury brought about by the 70% cap, this 60 month amortization period might instead provide the
mortal head wound.
Moreover, the increased administrative burden on the taxpayer should not be discounted, considering
this Court’s previous recognition of the aims of the VAT system to "rationalize the system of taxes on
goods and services, [and] simplify tax administration".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:
"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
business’s input VAT.
This imposition would be grossly unfair for private entities that transact with the government, especially
on a regular basis. It might be argued that the provision, even if concededly unwise, nonetheless fails to
meet the standard of unconstitutionality, as it affects only those persons or establishments that choose
to do business with the government. However, it is an acknowledged fact that the government and its
subsidiaries rely on contracts with private enterprises in order to be able to carry out innumerable
functions of the State. This provision effectively discourages private enterprises to do business with the
State, as it would impose on the business a higher rate of tax if it were to transact with the State, as
compared to transactions with other private entities.
Established industries with track records of quality performance could very well be dissuaded from
doing further business with government entities as the higher tax rate would make no economic sense.
Only those enterprises which really need the money, such as those with substandard track records that
have affected their viability in the marketplace, would bother seeking out government contracts. The
corresponding sacrifice in quality would eventually prove detrimental to the State. Our society can ill
afford shoddy infrastructures such as roads, bridges and buildings that would unnecessarily pose danger
to the public at large simply because the government wanted to skimp on expenses.
The provision squarely contradicts Section 20, Article II of the Constitution as it vacuously discourages
private enterprise, and provides disincentives to needed investments such as those expected by the
State from private businesses. Whatever advantages may be gained by the temporary increase in the
government coffers would be overturned by the disadvantages of having a reduced pool of private
enterprises willing to do business with the government. Moreover, since government contracts with
private enterprises will still remain a necessary fact of life, the amendment to Section 114(C) of the NIRC
introduced by the E-VAT Law.
Double taxation means taxing for the same tax period the same thing or activity twice, when it should be
taxed but once, for the same purpose and with the same kind of character of tax.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 government’s wholehearted adoption of the VAT system is endemic of what
I deem a flaw in our national tax policy in the last few decades. The power of taxation, inherent in the
State and ever so powerful, has been generally employed by our financial planners for a solitary
purpose: the raising of revenue. Revenue generation is a legitimate purpose of taxation, but standing
alone, it is a woefully unsophisticated design. Intelligent tax policy should extend beyond the singular-
minded goal of raising State funds ─ the old-time philosophy behind the taxing schemes of war-
mongering monarchs and totalitarian states ─ and should sincerely explore the concept of taxation as a
means of providing genuine incentives to private enterprise to spur economic growth; of promoting
egalitarian social justice that would allow everyone to their fair share of the nation’s wealth.
Instead, we are condemned by a national policy driven by the monomania for State revenue. It may be
beyond my oath as a Justice to compel the government to adopt an economic policy in consonance with
my personal views, but I offer these observations since they lie at the very heart of the noxiousness of
the assailed provisions of the E-VAT law. The 70% cap, the 60-month amortization period and the 5%
withholding tax on government transactions were selfishly designed to increase government revenue at
the expense of the survival of local industries.
I am not insensitive to the concerns raised by the respondents as to the dire consequences to the
economy should the E-VAT law be struck down. I am aware that the granting of the petition in G.R. No.
168461 will negatively affect the cash flow of the government. If that were the only relevant concern at
stake, I would have no problems denying the petition. Unfortunately, under the device employed in the
E-VAT law, the price to be paid for a more sustainable liquidity of the government’s finances will be the
death of local business, and correspondingly, the demise of our society. It is a measure just as draconian
as the standard issue taxes of medieval tyrants.
I am not normally inclined towards the language of the overwrought, yet if the sky were indeed truly
falling, how else could that fact be communicated. The E-VAT Law is of multiple fatal consequences.
How are we to survive as a nation without the bulwark of private industries? Perhaps the larger scale,
established businesses may ultimately remain standing, but they will be unable to sustain the void left
by the demise of small to medium enterprises. Or worse, domestic industry would be left in the absolute
control of monopolies, combines or cartels, whether dominated by foreigners or local oligarchs. The
destruction of subsisting industries would be bad enough, the destruction of opportunity and the
entrepreneurial spirit would be even more grievous and tragic, as it would mark as well the end of hope.
Taxes may be the lifeblood of the state, but never at the expense of the life of its subjects.
Accordingly, I VOTE to:
1) DENY the Petitions in G.R. Nos. 168056, 168207, and 168730 for lack of merit;
2) PARTIALLY GRANT the Petition in G.R. Nos. 168463 and declare Section 21 of the E-VAT Law as
unconstitutional;
3) GRANT the Petition in G.R. No. 168461 and declare as unconstitutional Section 8 of Republic Act No.
9337, insofar as it amends Section 110(A) and (B) of the National Internal Revenue Code (NIRC) as well
as Section 12 of the same law, with respect to its amendment of Section 114(C) of the NIRC.
DANTE O. TINGA
Associate Justice
Footnotes
1Republic Act No. 9337. Referred to intext as "E-VAT Law."
2Except insofar as it prays that Section 21 of the E-VAT Law be declared unconstitutional. Infra.
3J. Vitug and E. Acosta, Tax Law and Jurisprudence (2nd ed., 2000), at 7-8.
4See National Power Corporation v. Province of Albay, G.R. No. 87479, 4 June 1990, 186 SCRA 198, 203.
5See Section 24, Article VI, Constitution.
6The 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.
7G.R. No. 158540, 8 July 2005, 434 SCRA 65.
8See People v. Vera, 65 Phil. 56, 117 (1937).

9Decision, infra.
10Carpio v. Executive Secretary, GR No. 96409 February 14,1992, 206 SCRA 290, 298; citing In re
Guarina, 24 Phil. 37.
11People v. Vera, supra note 8.
12See Section 2, National Internal Revenue Code.
13There 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 delegate’s 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.
14Decision, infra, citing Alunan v. Mirasol, G.R. No. 108399, 31 July 1997, 276 SCRA 501, 513-514.
15Notwithstanding, 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.
16G.R. No. 115455, 25 August 1994, 235 SCRA 630.
17M. Evans, ‘A Source of Frequent and Obstinate Altercations’: The History and Application of the
Origination Clause.
18The 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.
19Tolentino v. Secretary of Finance, supra note 16 at 661.
20See Section 27(1), Article VI, Constitution.
21Tolentino v. Secretary of Finance, supra note 16 at 668.
22G.R. No. 124360, 5 November 1997, 281 SCRA 330.
23Id. at 349-350.
24People v. Tudtud, G.R. No. 144037, 26 September 2003, 412 SCRA 142, 168.
25See 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).
2616 C.J.S., at 1150-1151.
27292 U.S. 40 (1934).
28Id. at 44.
29G.R. No. L-59431, 25 July 1984, 130 SCRA 654.
30Id. at 660-662.
31Justice 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 person’s 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.
33Separate Opinion, infra.
34Ibid.
35Art. 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.
36Liam & 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.
38Time Value of Money. http://www.jetobjects.com/components/finance/ TVM/concepts.html. Last

visited, 30 August 2005.
39There 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."
40In Joseph Heller’s 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.
41Section 20, Article II, Constitution.
42The 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 State’s
inherent powers of taxation.
43Pangloss was a famed character ridiculed in Voltaire’s Candide, renowned for his absolute blind faith
in optimism, no matter how dire the circumstances.
44Id. at 29-30.
45Decision, infra.
46This 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.
47See SRC Rule 68(1)(b)(c), Implementing Rules and Regulations to the Securities and Regulations Code.
48Section 34, International Accounting Standards 12.
49Section 36, id.
50In 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."
51Justice 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 petitioner’s 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.
52See Part III, Paragraph 3, Revenue Memorandum Ruling No. 1-2002.
53Section 32, International Accounting Standards 12.
54Supra note 47.
55Supra note 9.
56Section 3, Article XIII, Constitution.
57Kapatiran ng Mga Naglilingkod sa Pamahalaan ng Pilipinas, Inc. et al. v. Tan, G.R. No. L-81311, 30 June
1988.
58J. Vitug and E. Acosta, supra note 3 at 41.

59Pepsi-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.
60A.M. No. 90-6-015-SC, 18 October 1990, 190 SCRA 851.
61Id. 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. 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., 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 Government’s
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 Pandora’s Box, giving rise
to a situation more fraught with evil and mischief. Statutes enacted by Congress may not attain finality
or conclusiveness unless declared so by this Court. This would undermine the authority of our statutes
because despite having been signed and certified by the designated officers of Congress, their validity
would still be in doubt and their implementation would be greatly hampered by allegations of
irregularities in their passage by the Legislature. Such an uncertainty in the statutes would indubitably
result in confusion and disorder. In all probability, it is the contemplation of such a scenario that led an
American judge to proclaim, thus –
. . . Better, far better, that a provision should occasionally find its way into the statute through mistake,
or even fraud, than, that every Act, state and national, should at any and all times be liable to put in
issue and impeached by the journals, loose papers of the Legislature, and parol evidence. Such a state of
uncertainty in the statute laws of the land would lead to mischiefs absolutely intolerable. . . .5
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 person’s
financial statements and books of account, this accounting treatment is still based on the statutory
provision recognizing the input VAT as a credit. Without Section 110 of the National Internal Revenue
Code of 1997, then the accounting treatment of any input VAT will also change and may no longer be
booked outright as an asset. Since the privilege of an input VAT credit is granted by law, then an
amendment of such law may limit the exercise of or may totally withdraw the privilege.
The amendment of Section 110 of the National Internal Revenue Code of 1997 by Rep. Act No. 9337,
which imposed the 70% cap on input VAT credits, is a legitimate exercise by Congress of its law-making
power. To say that Congress may not trifle with Section 110 of the National Internal Revenue Code of
1997 would be to violate a basic precept of constitutional law – that no law is irrepealable.11 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-à-vis their output VAT per quarter. Without such fact, I consider their objection to the
70% cap arbitrary because there is no basis therefor.
On the other, I find that the 70% cap on input VAT credits was not imposed by Congress arbitrarily.
Members of the Bicameral Conference Committee settled on the said percentage so as to ensure that
the government can collect a minimum of 30% output VAT per taxpayer. This is to put a VAT-taxpayer,
at least, on equal footing with a VAT-exempt taxpayer under Section 109(V) of the National Internal
Revenue Code, as amended by Rep. Act No. 9337.17 The latter taxpayer is exempt from VAT on the basis
that his sale or lease of goods or properties or services do not exceed ₱1,500,000; 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 Court’s 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 petitioner’s objection to this Letter of Instruction is not premised on lack of
power, the justification for a finding of unconstitutionality, but on the pessimistic, not to say negative,
view he entertains as to its wisdom. That approach, it put it at its mildest, is distinguished, if that is the
appropriate word, by its unorthodoxy. It bears repeating "that this Court, in the language of Justice
Laurel, ‘does not pass upon questions of wisdom, justice or expediency of legislation.’ As expressed by
Justice Tuason: ‘It is not the province of the courts to supervise legislation and keep it within the bounds
of propriety and common sense. That is primarily and exclusively a legislative concern.’ There can be no
possible objection then to the observation of Justice Montemayor: ‘As long as laws do not violate any
Constitutional provision, the Courts merely interpret and apply them regardless of whether or not they
are wise or salutary.’ For they, according to Justice Labrador, ‘are not supposed to override legitimate
policy and * * * never inquire into the wisdom of the law.’ It is thus settled, to paraphrase Chief Justice
Concepcion in Gonzales v. Commission on Elections, that only congressional power or competence, not
the wisdom of the action taken, may be the basis for declaring a statute invalid. This is as it ought to be.
The principle of separation of powers has in the main wisely allocated the respective authority of each
department and confined its jurisdiction to such sphere. There would then be intrusion not allowable
under the Constitution if on a matter left to the discretion of a coordinate branch, the judiciary would
substitute its own…"21
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
Footnotes
1 Presidential Decree No. 1158, as amended up to Rep. Act No. 8424.

2 Commissioner of Internal Revenue v. Algue, Inc., G.R. No. L-28896, 17 February 1988, 158 SCRA 9.
3 Paragraph 3.3 of the Verification and Affidavit of Merit, executed by the then Secretary of the
Department of Finance, Cesar V. Purisima, dated 04 July 2005, attached as Annex A of the Very Urgent
Motion to Lift Temporary Restraining Order, filed by the Office of the Solicitor General on 04 July 2005.
4 Fariñas v. Executive Secretary, G.R. No. 147387, 10 December 2003, 417 SCRA 503, 529.
5 Justice Sawyer, in Sherman v. Story, 30 Cal. 253, 256, as quoted in Marshall Field & Co. v. Clark, 143
U.S. 294, 304.
6 Tolentino v. Secretary of Finance, G.R. No. 115544, 25 August 1994, 235 SCRA 630; Philippine Judges
Association v. Prado, G.R. No. 105371, 11 November 1993, 227 SCRA 703.
7 G.R. No. 127255, 14 August 1997, 277 SCRA 268, 299.
8 Supra, note 6.
9 Supra, note 3.
10 Petition for Prohibition (Under Rule 65 with Prayer for the Issuance of a Temporary Restraining Order
and/or Writ of Preliminary Injunction) in G.R. No. 168461 entitled, Association of Pilipinas Shell Dealers,
Inc., et al. v. Purisima, et al., p. 17, paragraph 52.
11 Asociacion de Agricultores de Talisay-Silay, Inc. v. Talisay-Silay Milling Co., Inc., G.R. No. L-19937, 19
February 1979, 88 SCRA 294; Duarte v. Dade, 32 Phil. 36 (1915).
12 Traux v. Corrigan, 257 U.S. 312, 66 L. Ed. 254, as quoted in Asociacion de Agricultores de Talisay-Silay,
Inc. v. Talisay-Silay Milling Co., Inc., Id., p. 452.
13 Section 110(B) of the National Internal Revenue Code of 1997, as amended by Section 8 of Rep. Act
No. 9337.
14 Victorio A. Deoferio, Jr. and Victorino C. Mamalateo, The Value Added Tax in the Philippines 48
(2000).
15 Benguet Consolidated Mining Co. v. Pineda, 98 Phil 711, 722 (1956).
16 Section 109(e) of the National Internal Revenue Code of 1997.
17 TSN, 18 April 2005, IV-2, p. 5.
18 Section 116 of the National Internal Revenue Code, as amended by Rep. Act No. 9337.
19 34 Phil. 969, 973 (1916).
20 G.R. No. L-49112, 02 February 1979, 88 SCRA 195.
21 Id., pp. 210-211.
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G.R. No.

168056 September 1, 2005

-Anne Robert Jacques Turgot (1727-1781)

French statesman and economist

J. PANGANIBAN : That’s correct . . .

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

ATTY. BANIQUED : Yes, Your Honor.

ATTY. BANIQUED : Yes, Your Honor.

ATTY. BANIQUED : You’re right, Your Honor.

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

G.R. No. 168056

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:

House Bill No. 3555

House Bill No.3705

Senate Bill No. 1950

With regard to "Stand-By Authority" in favor of President

With regard to the "no pass-on" provision

end-users. VAT shall be absorbed by generation, transmission, and distribution companies.

With regard to 70% limit on input tax credit

(A) Creditable Input Tax. – . . .

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

Rates of Income Tax on Domestic Corporation

Tax on Resident Foreign Corporation

Tax on Persons Exempt from VAT

Percentage Tax on domestic carriers and keepers of Garage

Tax on banks and Non-Bank Financial Intermediaries

Excise Tax on manufactured oils and other fuels

Issuance of receipts or sales or commercial invoices

Disposition of Incremental Revenue

The argument does not hold water.

Article VI, Section 24 of the Constitution reads:

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

A. No Undue Delegation of Legislative Power

The assailed provisions read as follows:

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

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

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

corollary to the doctrine of separation of powers is the principle of non-delegation of powers, as

(4) Delegation to local governments; and

(5) Delegation to administrative bodies.

In Edu vs. Ericta,47 the Court reiterated:

Therefore, no statutory construction or interpretation is needed. Neither can conditions or limitations

1. VAT/GDP Ratio > 2.8%

2. Nat’l Gov’t Deficit/GDP >1.5%