ABAKADA GURO PARTY LIST versus THE HONORABLE EXECUTIVE SECRETARY EDUARDO ERMITA G.R. No.

168056 01 September 2005

FACTS: ABAKADA Guro Party List assail the constitutionality of R.A. No. 9337, a VAT reform Act enacted on May 24, 2005 which is a consolidation of three legislative bills namely, House Bill Nos. 3555 and 3705, and Senate Bill No. 1950. They question the constitutionality of Sections 4, 5 and 6 of said Act, 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. In collective, granted the Secretary of Finance the authority to ascertain: a. whether by 12/31/05, the VAT collection as a percentage of the 2004 GDP exceeds 2.8% or b. the national government deficit as a percentage of the 2004 GDP exceeds 1.5%. If either condition is met, the Secretary of Finance must inform the President who, in turn, must impose the 12% VAT rate (from 10%) effective January 1, 2006. Petitioners maintained that Congress abandoned its exclusive authority to fix taxes and that RA 9337 contained a uniform proviso authorizing the President upon recommendation by the DOF Secretary to raise VAT to 12%. Senator Pimentel maintained that RA 9337 constituted undue delegation of legislative powers and a violation of due process since the law was ambiguous and arbitrary. Same with Represenative Escudero. Thereafter, a petition for prohibition was filed on June 29, 2005, by the Association of Pilipinas Shell Dealers, Inc., et al., assailing the constitutionality of R.A. No. 9337, contending that some provisions of said VAT reform was arbitrary, oppressive and confiscatory. According to them, the contested sections impose limitations on the amount of input tax that may be claimed. They 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. Respondents countered that the law was complete, that it left no discretion to the President, and that it merely charged the President with carrying out the rate increase once any of the 2 conditions arise.

Respondents manifest that R.A. No. 9337 is the anchor of the governments fiscal reform agenda. A reform in the value-added system of taxation is the core revenue measure that will tilt the balance towards a sustainable macroeconomic environment necessary for economic growth. ISSUE: Is R.A. No. 9337 unconstitutional as there was undue delegation? RULING:

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.

Constitution allows as under exempted delegation the delegation of tariffs, customs duties, and other tolls, levies on goods imported and exported. VAT is tax levied on sales of goods and services which could not fall under this exemption. Hence, its delegation if unqualified is unconstitutional.

Legislative power is authority to make a complete law. Thus, to be valid, a law must be complete in itself, setting forth therein the policy and it must fix a standard, limits of which are sufficiently determinate and determinable. No undue delegation when congress describes what job must be done who must do it and the scope of the authority given. (Edu v Ericta) The Secretary of Finance was merely tasked to ascertain the existence of facts. All else was laid out. It was mainly ministerial for the secretary to ascertain the facts and for the president to carry out the implementation for the VAT. They were agents of the legislative department. Therefore, there was no delegation but mere implementation of the law. Justice Angelina Sandoval Gutierrez in her concurring and dissenting opinion:
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. In the present case, the President is the delegate of the Legislature, endowed with the power to raise the VAT rate from 10 % to 12% if any of the following conditions, to reiterate, has been satisfied: (i) value-

added tax collection as a percentage of gross domestic product (GDP) of the previous year exceeds two and four-fifths percent (2 4/5%) or (ii) National Government deficit as a percentage of GDP of the previous year exceeds one and one-half percent (1 '%). At first glance, the two conditions may appear to be definite standards sufficient to guide the President. However, to my mind, they are ineffectual and malleable as they give the President ample opportunity to exercise her authority in arbitrary and discretionary fashion. 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.