Abakada Guro Party List vs. Ermita

Republic of the Philippines
SUPREME COURT
EN BANC
G.R. No. 168056 September 1, 2005
ABAKADA GURO PARTY LIST (Formerly AASJAS) OFFICERS SAMSON S.
ALCANTARA and ED VINCENT S. ALBANO, Petitioners,
vs.
THE HONORABLE EXECUTIVE SECRETARY EDUARDO ERMITA;
HONORABLE SECRETARY OF THE DEPARTMENT OF FINANCE CESAR
PURISIMA; and HONORABLE COMMISSIONER OF INTERNAL REVENUE
GUILLERMO PARAYNO, JR., Respondent.
x-------------------------x
G.R. No. 168207
AQUILINO Q. PIMENTEL, JR., LUISA P. EJERCITO-ESTRADA, JINGGOY E.
ESTRADA, PANFILO M. LACSON, ALFREDO S. LIM, JAMBY A.S. MADRIGAL,
AND SERGIO R. OSMEA III, Petitioners,
vs.
EXECUTIVE SECRETARY EDUARDO R. ERMITA, CESAR V. PURISIMA,
SECRETARY OF FINANCE, GUILLERMO L. PARAYNO, JR.,
COMMISSIONER OF THE BUREAU OF INTERNAL REVENUE, Respondent.
x-------------------------x
G.R. No. 168461
ASSOCIATION OF PILIPINAS SHELL DEALERS, INC. represented by its President,
ROSARIO ANTONIO; PETRON DEALERS ASSOCIATION represented by its
President, RUTH E. BARBIBI; ASSOCIATION OF CALTEX DEALERS OF THE
PHILIPPINES represented by its President, MERCEDITAS A. GARCIA; ROSARIO
ANTONIO doing business under the name and style of "ANB NORTH SHELL
SERVICE STATION"; LOURDES MARTINEZ doing business under the name and style
of "SHELL GATE N. DOMINGO"; BETHZAIDA TAN doing business under the name
and style of "ADVANCE SHELL STATION"; REYNALDO P. MONTOYA doing
business under the name and style of "NEW LAMUAN SHELL SERVICE STATION";
EFREN SOTTO doing business under the name and style of "RED FIELD SHELL
SERVICE STATION"; DONICA CORPORATION represented by its President, DESI
TOMACRUZ; RUTH E. MARBIBI doing business under the name and style of "R&R
PETRON STATION"; PETER M. UNGSON doing business under the name and style of
"CLASSIC STAR GASOLINE SERVICE STATION"; MARIAN SHEILA A. LEE doing
business under the name and style of "NTE GASOLINE & SERVICE STATION";
JULIAN CESAR P. POSADAS doing business under the name and style of
"STARCARGA ENTERPRISES"; ADORACION MAEBO doing business under the
name and style of "CMA MOTORISTS CENTER"; SUSAN M. ENTRATA doing
business under the name and style of "LEONAS GASOLINE STATION and SERVICE
CENTER"; CARMELITA BALDONADO doing business under the name and style of
"FIRST CHOICE SERVICE CENTER"; MERCEDITAS A. GARCIA doing business
under the name and style of "LORPED SERVICE CENTER"; RHEAMAR A. RAMOS
doing business under the name and style of "RJRAM PTT GAS STATION"; MA.
ISABEL VIOLAGO doing business under the name and style of "VIOLAGO-PTT
SERVICE CENTER"; MOTORISTS HEART CORPORATION represented by its VicePresident for Operations, JOSELITO F. FLORDELIZA; MOTORISTS HARVARD
CORPORATION represented by its Vice-President for Operations, JOSELITO F.
FLORDELIZA; MOTORISTS HERITAGE CORPORATION represented by its VicePresident for Operations, JOSELITO F. FLORDELIZA; PHILIPPINE STANDARD OIL
FLORDELIZA; ROMEO MANUEL doing business under the name and style of
"ROMMAN GASOLINE STATION"; ANTHONY ALBERT CRUZ III doing business
under the name and style of "TRUE SERVICE STATION", Petitioners,
vs.
CESAR V. PURISIMA, in his capacity as Secretary of the Department of Finance
and GUILLERMO L. PARAYNO, JR., in his capacity as Commissioner of Internal
Revenue, Respondent.
x-------------------------x
G.R. No. 168463
FRANCIS JOSEPH G. ESCUDERO, VINCENT CRISOLOGO, EMMANUEL JOEL J.
VILLANUEVA, RODOLFO G. PLAZA, DARLENE ANTONINO-CUSTODIO,
OSCAR G. MALAPITAN, BENJAMIN C. AGARAO, JR. JUAN EDGARDO M.
ANGARA, JUSTIN MARC SB. CHIPECO, FLORENCIO G. NOEL, MUJIV S.
HATAMAN, RENATO B. MAGTUBO, JOSEPH A. SANTIAGO, TEOFISTO DL.
GUINGONA III, RUY ELIAS C. LOPEZ, RODOLFO Q. AGBAYANI and TEODORO
A. CASIO, Petitioners,
vs.
CESAR V. PURISIMA, in his capacity as Secretary of Finance, GUILLERMO L.
PARAYNO, JR., in his capacity as Commissioner of Internal Revenue, and
EDUARDO R. ERMITA, in his capacity as Executive Secretary, Respondent.
x-------------------------x
G.R. No. 168730
BATAAN GOVERNOR ENRIQUE T. GARCIA, JR. Petitioner,
vs.
HON. EDUARDO R. ERMITA, in his capacity as the Executive Secretary; HON.
MARGARITO TEVES, in his capacity as Secretary of Finance; HON. JOSE MARIO

BUNAG, in his capacity as the OIC Commissioner of the Bureau of Internal Revenue;
and HON. ALEXANDER AREVALO, in his capacity as the OIC Commissioner of the
Bureau of Customs, Respondent.
DECISION
AUSTRIA-MARTINEZ, J.:
The expenses of government, having for their object the interest of all, should be borne
by everyone, and the more man enjoys the advantages of society, the more he ought to
hold himself honored in contributing to those expenses.
-Anne Robert Jacques Turgot (1727-1781)
French statesman and economist
Mounting budget deficit, revenue generation, inadequate fiscal allocation for education,
increased emoluments for health workers, and wider coverage for full value-added tax
benefits these are the reasons why Republic Act No. 9337 (R.A. No. 9337)1 was
enacted. Reasons, the wisdom of which, the Court even with its extensive constitutional
power of review, cannot probe. The petitioners in these cases, however, question not only
the wisdom of the law, but also perceived constitutional infirmities in its passage.
Every law enjoys in its favor the presumption of constitutionality. Their arguments
notwithstanding, petitioners failed to justify their call for the invalidity of the law. Hence,
R.A. No. 9337 is not unconstitutional.
LEGISLATIVE HISTORY
R.A. No. 9337 is a consolidation of three legislative bills namely, House Bill Nos. 3555
and 3705, and Senate Bill No. 1950.
House Bill No. 35552 was introduced on first reading on January 7, 2005. The House
Committee on Ways and Means approved the bill, in substitution of House Bill No. 1468,
which Representative (Rep.) Eric D. Singson introduced on August 8, 2004. The
President certified the bill on January 7, 2005 for immediate enactment. On January 27,
2005, the House of Representatives approved the bill on second and third reading.
House Bill No. 37053 on the other hand, substituted House Bill No. 3105 introduced by
Rep. Salacnib F. Baterina, and House Bill No. 3381 introduced by Rep. Jacinto V. Paras.
Its "mother bill" is House Bill No. 3555. The House Committee on Ways and Means
approved the bill on February 2, 2005. The President also certified it as urgent on
February 8, 2005. The House of Representatives approved the bill on second and third
reading on February 28, 2005.
Meanwhile, the Senate Committee on Ways and Means approved Senate Bill No. 19504
on March 7, 2005, "in substitution of Senate Bill Nos. 1337, 1838 and 1873, taking into
consideration House Bill Nos. 3555 and 3705." Senator Ralph G. Recto sponsored Senate
Bill No. 1337, while Senate Bill Nos. 1838 and 1873 were both sponsored by Sens.
Franklin M. Drilon, Juan M. Flavier and Francis N. Pangilinan. The President certified
the bill on March 11, 2005, and was approved by the Senate on second and third reading
on April 13, 2005.
On the same date, April 13, 2005, the Senate agreed to the request of the House of
Representatives for a committee conference on the disagreeing provisions of the
proposed bills.
Before long, the Conference Committee on the Disagreeing Provisions of House Bill No.
3555, House Bill No. 3705, and Senate Bill No. 1950, "after having met and discussed in
full free and conference," recommended the approval of its report, which the Senate did
on May 10, 2005, and with the House of Representatives agreeing thereto the next day,
May 11, 2005.
On May 23, 2005, the enrolled copy of the consolidated House and Senate version was
transmitted to the President, who signed the same into law on May 24, 2005. Thus, came
R.A. No. 9337.
July 1, 2005 is the effectivity date of R.A. No. 9337.5 When said date came, the Court
issued a temporary restraining order, effective immediately and continuing until further
orders, enjoining respondents from enforcing and implementing the law.
Oral arguments were held on July 14, 2005. Significantly, during the hearing, the Court
speaking through Mr. Justice Artemio V. Panganiban, voiced the rationale for its issuance
of the temporary restraining order on July 1, 2005, to wit:
J. PANGANIBAN : . . . But before I go into the details of your presentation, let me just
tell you a little background. You know when the law took effect on July 1, 2005, the
Court issued a TRO at about 5 oclock in the afternoon. But before that, there was a lot of
complaints aired on television and on radio. Some people in a gas station were
complaining that the gas prices went up by 10%. Some people were complaining that
their electric bill will go up by 10%. Other times people riding in domestic air carrier
were complaining that the prices that theyll have to pay would have to go up by 10%.
While all that was being aired, per your presentation and per our own understanding of
the law, thats not true. Its not true that the e-vat law necessarily increased prices by 10%
uniformly isnt it?
ATTY. BANIQUED : No, Your Honor.
J. PANGANIBAN : It is not?
ATTY. BANIQUED : Its not, because, Your Honor, there is an Executive Order that
granted the Petroleum companies some subsidy . . . interrupted
J. PANGANIBAN : Thats correct . . .
ATTY. BANIQUED : . . . and therefore that was meant to temper the impact . . .
interrupted
J. PANGANIBAN : . . . mitigating measures . . .
ATTY. BANIQUED : Yes, Your Honor.
J. PANGANIBAN : As a matter of fact a part of the mitigating measures would be the
elimination of the Excise Tax and the import duties. That is why, it is not correct to say
that the VAT as to petroleum dealers increased prices by 10%.
J. PANGANIBAN : And therefore, there is no justification for increasing the retail price
by 10% to cover the E-Vat tax. If you consider the excise tax and the import duties, the
Net Tax would probably be in the neighborhood of 7%? We are not going into exact
figures I am just trying to deliver a point that different industries, different products,
different services are hit differently. So its not correct to say that all prices must go up by
10%.
ATTY. BANIQUED : Youre right, Your Honor.
J. PANGANIBAN : Now. For instance, Domestic Airline companies, Mr. Counsel, are at
present imposed a Sales Tax of 3%. When this E-Vat law took effect the Sales Tax was
also removed as a mitigating measure. So, therefore, there is no justification to increase
the fares by 10% at best 7%, correct?
ATTY. BANIQUED : I guess so, Your Honor, yes.
J. PANGANIBAN : There are other products that the people were complaining on that
first day, were being increased arbitrarily by 10%. And thats one reason among many
others this Court had to issue TRO because of the confusion in the implementation.
Thats why we added as an issue in this case, even if its tangentially taken up by the
pleadings of the parties, the confusion in the implementation of the E-vat. Our people
were subjected to the mercy of that confusion of an across the board increase of 10%,
which you yourself now admit and I think even the Government will admit is incorrect.
In some cases, it should be 3% only, in some cases it should be 6% depending on these
mitigating measures and the location and situation of each product, of each service, of
each company, isnt it?
J. PANGANIBAN : Alright. So thats one reason why we had to issue a TRO pending the
clarification of all these and we wish the government will take time to clarify all these by
means of a more detailed implementing rules, in case the law is upheld by this Court. . . .6
The Court also directed the parties to file their respective Memoranda.
G.R. No. 168056
Before R.A. No. 9337 took effect, petitioners ABAKADA GURO Party List, et al., filed a
petition for prohibition on May 27, 2005. They question the constitutionality of Sections
4, 5 and 6 of R.A. No. 9337, amending Sections 106, 107 and 108, respectively, of the
National Internal Revenue Code (NIRC). Section 4 imposes a 10% VAT on sale of goods
and properties, Section 5 imposes a 10% VAT on importation of goods, and Section 6
imposes a 10% VAT on sale of services and use or lease of properties. These questioned
provisions contain a uniform proviso authorizing the President, upon recommendation of
the Secretary of Finance, to raise the VAT rate to 12%, effective January 1, 2006, after
any of the following conditions have been satisfied, to wit:
. . . That the President, upon the recommendation of the Secretary of Finance, shall,
effective January 1, 2006, raise the rate of value-added tax to twelve percent (12%), after
any of the following conditions has been satisfied:
(i) Value-added tax collection as a percentage of Gross Domestic Product (GDP) of the
previous year exceeds two and four-fifth percent (2 4/5%); or
(ii) National government deficit as a percentage of GDP of the previous year exceeds one
and one-half percent (1 %).
Petitioners argue that the law is unconstitutional, as it constitutes abandonment by
Congress of its exclusive authority to fix the rate of taxes under Article VI, Section 28(2)
of the 1987 Philippine Constitution.
G.R. No. 168207
On June 9, 2005, Sen. Aquilino Q. Pimentel, Jr., et al., filed a petition for certiorari
likewise assailing the constitutionality of Sections 4, 5 and 6 of R.A. No. 9337.
Aside from questioning the so-called stand-by authority of the President to increase the
VAT rate to 12%, on the ground that it amounts to an undue delegation of legislative
power, petitioners also contend that the increase in the VAT rate to 12% contingent on
any of the two conditions being satisfied violates the due process clause embodied in
Article III, Section 1 of the Constitution, as it imposes an unfair and additional tax burden
on the people, in that: (1) the 12% increase is ambiguous because it does not state if the
rate would be returned to the original 10% if the conditions are no longer satisfied; (2) the
rate is unfair and unreasonable, as the people are unsure of the applicable VAT rate from
year to year; and (3) the increase in the VAT rate, which is supposed to be an incentive to
the President to raise the VAT collection to at least 2 4/5 of the GDP of the previous year,
should only be based on fiscal adequacy.
Petitioners further claim that the inclusion of a stand-by authority granted to the President
by the Bicameral Conference Committee is a violation of the "no-amendment rule" upon
last reading of a bill laid down in Article VI, Section 26(2) of the Constitution.
G.R. No. 168461
Thereafter, a petition for prohibition was filed on June 29, 2005, by the Association of
Pilipinas Shell Dealers, Inc., et al., assailing the following provisions of R.A. No. 9337:
1) Section 8, amending Section 110 (A)(2) of the NIRC, requiring that the input tax on
depreciable goods shall be amortized over a 60-month period, if the acquisition,
excluding the VAT components, exceeds One Million Pesos (P1, 000,000.00);
2) Section 8, amending Section 110 (B) of the NIRC, imposing a 70% limit on the
amount of input tax to be credited against the output tax; and
3) Section 12, amending Section 114 (c) of the NIRC, authorizing the Government or any
of its political subdivisions, instrumentalities or agencies, including GOCCs, to deduct a
5% final withholding tax on gross payments of goods and services, which are subject to
10% VAT under Sections 106 (sale of goods and properties) and 108 (sale of services and
use or lease of properties) of the NIRC.
Petitioners contend that these provisions are unconstitutional for being arbitrary,
oppressive, excessive, and confiscatory.
Petitioners argument is premised on the constitutional right of non-deprivation of life,
liberty or property without due process of law under Article III, Section 1 of the
Constitution. According to petitioners, the contested sections impose limitations on the
amount of input tax that may be claimed. Petitioners also argue that the input tax partakes
the nature of a property that may not be confiscated, appropriated, or limited without due
process of law. Petitioners further contend that like any other property or property right,
the input tax credit may be transferred or disposed of, and that by limiting the same, the
government gets to tax a profit or value-added even if there is no profit or value-added.
Petitioners also believe that these provisions violate the constitutional guarantee of equal
protection of the law under Article III, Section 1 of the Constitution, as the limitation on
the creditable input tax if: (1) the entity has a high ratio of input tax; or (2) invests in
capital equipment; or (3) has several transactions with the government, is not based on
real and substantial differences to meet a valid classification.
Lastly, petitioners contend that the 70% limit is anything but progressive, violative of
Article VI, Section 28(1) of the Constitution, and that it is the smaller businesses with
higher input tax to output tax ratio that will suffer the consequences thereof for it wipes
out whatever meager margins the petitioners make.
G.R. No. 168463
Several members of the House of Representatives led by Rep. Francis Joseph G.
Escudero filed this petition for certiorari on June 30, 2005. They question the
constitutionality of R.A. No. 9337 on the following grounds:
1) Sections 4, 5, and 6 of R.A. No. 9337 constitute an undue delegation of legislative
power, in violation of Article VI, Section 28(2) of the Constitution;
2) The Bicameral Conference Committee acted without jurisdiction in deleting the no
pass on provisions present in Senate Bill No. 1950 and House Bill No. 3705; and
3) Insertion by the Bicameral Conference Committee of Sections 27, 28, 34, 116, 117,
119, 121, 125,7 148, 151, 236, 237 and 288, which were present in Senate Bill No. 1950,
violates Article VI, Section 24(1) of the Constitution, which provides that all
appropriation, revenue or tariff bills shall originate exclusively in the House of
Representatives
G.R. No. 168730
On the eleventh hour, Governor Enrique T. Garcia filed a petition for certiorari and
prohibition on July 20, 2005, alleging unconstitutionality of the law on the ground that
the limitation on the creditable input tax in effect allows VAT-registered establishments to
retain a portion of the taxes they collect, thus violating the principle that tax collection
and revenue should be solely allocated for public purposes and expenditures. Petitioner
Garcia further claims that allowing these establishments to pass on the tax to the
consumers is inequitable, in violation of Article VI, Section 28(1) of the Constitution.
RESPONDENTS COMMENT
The Office of the Solicitor General (OSG) filed a Comment in behalf of respondents.
Preliminarily, respondents contend that R.A. No. 9337 enjoys the presumption of
constitutionality and petitioners failed to cast doubt on its validity.
Relying on the case of Tolentino vs. Secretary of Finance, 235 SCRA
630 (1994), respondents argue that the procedural issues raised by petitioners, i.e.,
legality of the bicameral proceedings, exclusive origination of revenue measures and the
power of the Senate concomitant thereto, have already been settled. With regard to the
issue of undue delegation of legislative power to the President, respondents contend that
the law is complete and leaves no discretion to the President but to increase the rate to
12% once any of the two conditions provided therein arise.
Respondents also refute petitioners argument that the increase to 12%, as well as the
70% limitation on the creditable input tax, the 60-month amortization on the purchase or
importation of capital goods exceeding P1,000,000.00, and the 5% final withholding tax
by government agencies, is arbitrary, oppressive, and confiscatory, and that it violates the
constitutional principle on progressive taxation, among others.
Finally, respondents manifest that R.A. No. 9337 is the anchor of the governments fiscal
reform agenda. A reform in the value-added system of taxation is the core revenue
measure that will tilt the balance towards a sustainable macroeconomic environment
necessary for economic growth.
ISSUES
The Court defined the issues, as follows:
PROCEDURAL ISSUE
Whether R.A. No. 9337 violates the following provisions of the Constitution:
a. Article VI, Section 24, and
b. Article VI, Section 26(2)
SUBSTANTIVE ISSUES
1. Whether Sections 4, 5 and 6 of R.A. No. 9337, amending Sections 106, 107 and 108 of
the NIRC, violate the following provisions of the Constitution:
a. Article VI, Section 28(1), and
2. Whether Section 8 of R.A. No. 9337, amending Sections 110(A)(2) and 110(B) of the
NIRC; and Section 12 of R.A. No. 9337, amending Section 114(C) of the NIRC, violate
the following provisions of the Constitution:
b. Article III, Section 1
RULING OF THE COURT
As a prelude, the Court deems it apt to restate the general principles and concepts of
value-added tax (VAT), as the confusion and inevitably, litigation, breeds from a
fallacious notion of its nature.
The VAT is a tax on spending or consumption. It is levied on the sale, barter, exchange or
lease of goods or properties and services.8 Being an indirect tax on expenditure, the seller
of goods or services may pass on the amount of tax paid to the buyer,9 with the seller
acting merely as a tax collector.10 The burden of VAT is intended to fall on the immediate
buyers and ultimately, the end-consumers.
In contrast, a direct tax is a tax for which a taxpayer is directly liable on the transaction or
business it engages in, without transferring the burden to someone else.11 Examples are
individual and corporate income taxes, transfer taxes, and residence taxes.12
In the Philippines, the value-added system of sales taxation has long been in existence,
albeit in a different mode. Prior to 1978, the system was a single-stage tax computed
under the "cost deduction method" and was payable only by the original sellers. The
single-stage system was subsequently modified, and a mixture of the "cost deduction
method" and "tax credit method" was used to determine the value-added tax payable.13
Under the "tax credit method," an entity can credit against or subtract from the VAT
charged on its sales or outputs the VAT paid on its purchases, inputs and imports.14
It was only in 1987, when President Corazon C. Aquino issued Executive Order No. 273,
that the VAT system was rationalized by imposing a multi-stage tax rate of 0% or 10% on
all sales using the "tax credit method."15
E.O. No. 273 was followed by R.A. No. 7716 or the Expanded VAT Law,16 R.A. No.
8241 or the Improved VAT Law,17 R.A. No. 8424 or the Tax Reform Act of 1997,18 and
finally, the presently beleaguered R.A. No. 9337, also referred to by respondents as the
VAT Reform Act.
The Court will now discuss the issues in logical sequence.
PROCEDURAL ISSUE
I.
Whether R.A. No. 9337 violates the following provisions of the Constitution:
a. Article VI, Section 24, and
A. The Bicameral Conference Committee
Petitioners Escudero, et al., and Pimentel, et al., allege that the Bicameral Conference
Committee exceeded its authority by:
1) Inserting the stand-by authority in favor of the President in Sections 4, 5, and 6 of R.A.
No. 9337;
2) Deleting entirely the no pass-on provisions found in both the House and Senate bills;
3) Inserting the provision imposing a 70% limit on the amount of input tax to be credited
against the output tax; and
4) Including the amendments introduced only by Senate Bill No. 1950 regarding other
kinds of taxes in addition to the value-added tax.
Petitioners now beseech the Court to define the powers of the Bicameral Conference
Committee.
It should be borne in mind that the power of internal regulation and discipline are
intrinsic in any legislative body for, as unerringly elucidated by Justice Story, "[i]f the
power did not exist, it would be utterly impracticable to transact the business of the
nation, either at all, or at least with decency, deliberation, and order."19 Thus, Article
VI, Section 16 (3) of the Constitution provides that "each House may determine the rules
of its proceedings." Pursuant to this inherent constitutional power to promulgate and
implement its own rules of procedure, the respective rules of each house of Congress
provided for the creation of a Bicameral Conference Committee.
Thus, Rule XIV, Sections 88 and 89 of the Rules of House of Representatives provides as
follows:
Sec. 88. Conference Committee. In the event that the House does not agree with the
Senate on the amendment to any bill or joint resolution, the differences may be settled by
the conference committees of both chambers.
In resolving the differences with the Senate, the House panel shall, as much as possible,
adhere to and support the House Bill. If the differences with the Senate are so substantial
that they materially impair the House Bill, the panel shall report such fact to the House
for the latters appropriate action.
Sec. 89. Conference Committee Reports. . . . Each report shall contain a detailed,
sufficiently explicit statement of the changes in or amendments to the subject measure.
...
The Chairman of the House panel may be interpellated on the Conference Committee
Report prior to the voting thereon. The House shall vote on the Conference Committee
Report in the same manner and procedure as it votes on a bill on third and final reading.
Rule XII, Section 35 of the Rules of the Senate states:
Sec. 35. In the event that the Senate does not agree with the House of Representatives on
the provision of any bill or joint resolution, the differences shall be settled by a
conference committee of both Houses which shall meet within ten (10) days after their
composition. The President shall designate the members of the Senate Panel in the
conference committee with the approval of the Senate.
Each Conference Committee Report shall contain a detailed and sufficiently explicit
statement of the changes in, or amendments to the subject measure, and shall be signed
by a majority of the members of each House panel, voting separately.
A comparative presentation of the conflicting House and Senate provisions and a
reconciled version thereof with the explanatory statement of the conference committee
shall be attached to the report.
...
The creation of such conference committee was apparently in response to a problem, not
addressed by any constitutional provision, where the two houses of Congress find
themselves in disagreement over changes or amendments introduced by the other house
in a legislative bill. Given that one of the most basic powers of the legislative branch is to
formulate and implement its own rules of proceedings and to discipline its members, may
the Court then delve into the details of how Congress complies with its internal rules or
how it conducts its business of passing legislation? Note that in the present petitions, the
issue is not whether provisions of the rules of both houses creating the bicameral
conference committee are unconstitutional, but whether the bicameral conference
committee has strictly complied with the rules of both houses, thereby remaining
within the jurisdiction conferred upon it by Congress.
In the recent case of Farias vs. The Executive Secretary,20 the Court En Banc,
unanimously reiterated and emphasized its adherence to the "enrolled bill doctrine,"
thus, declining therein petitioners plea for the Court to go behind the enrolled copy of the
bill. Assailed in said case was Congresss creation of two sets of bicameral conference
committees, the lack of records of said committees proceedings, the alleged violation of
said committees of the rules of both houses, and the disappearance or deletion of one of
the provisions in the compromise bill submitted by the bicameral conference committee.
It was argued that such irregularities in the passage of the law nullified R.A. No. 9006, or
the Fair Election Act.
Striking down such argument, the Court held thus:
Under the "enrolled bill doctrine," the signing of a bill by the Speaker of the House and
the Senate President and the certification of the Secretaries of both Houses of Congress
that it was passed are conclusive of its due enactment. A review of cases reveals the
Courts consistent adherence to the rule. The Court finds no reason to deviate from the
salutary rule in this case where the irregularities alleged by the petitioners mostly
involved the internal rules of Congress, e.g., creation of the 2nd or 3rd Bicameral
Conference Committee by the House. This Court is not the proper forum for the
enforcement of these internal rules of Congress, whether House or Senate.
Parliamentary rules are merely procedural and with their observance the courts
have no concern. Whatever doubts there may be as to the formal validity of Rep. Act
No. 9006 must be resolved in its favor. The Court reiterates its ruling in Arroyo vs. De
Venecia, viz.:
But the cases, both here and abroad, in varying forms of expression, all deny to the
courts the power to inquire into allegations that, in enacting a law, a House of
Congress failed to comply with its own rules, in the absence of showing that there
was a violation of a constitutional provision or the rights of private individuals. In
Osmea v. Pendatun, it was held: "At any rate, courts have declared that the rules
adopted by deliberative bodies are subject to revocation, modification or waiver at the
pleasure of the body adopting them. And it has been said that "Parliamentary rules
are merely procedural, and with their observance, the courts have no concern. They
may be waived or disregarded by the legislative body." Consequently, "mere failure
to conform to parliamentary usage will not invalidate the action (taken by a
deliberative body) when the requisite number of members have agreed to a
particular measure."21 (Emphasis supplied)
The foregoing declaration is exactly in point with the present cases, where petitioners
allege irregularities committed by the conference committee in introducing changes or
deleting provisions in the House and Senate bills. Akin to the Farias case,22 the present
petitions also raise an issue regarding the actions taken by the conference committee on
matters regarding Congress compliance with its own internal rules. As stated earlier, one
of the most basic and inherent power of the legislature is the power to formulate rules for
its proceedings and the discipline of its members. Congress is the best judge of how it
should conduct its own business expeditiously and in the most orderly manner. It is also
the sole
concern of Congress to instill discipline among the members of its conference committee
if it believes that said members violated any of its rules of proceedings. Even the
expanded jurisdiction of this Court cannot apply to questions regarding only the internal
operation of Congress, thus, the Court is wont to deny a review of the internal
proceedings of a co-equal branch of government.
Moreover, as far back as 1994 or more than ten years ago, in the case of Tolentino vs.
Secretary of Finance,23 the Court already made the pronouncement that "[i]f a change is
desired in the practice [of the Bicameral Conference Committee] it must be sought
in Congress since this question is not covered by any constitutional provision but is
only an internal rule of each house." 24 To date, Congress has not seen it fit to make
such changes adverted to by the Court. It seems, therefore, that Congress finds the
practices of the bicameral conference committee to be very useful for purposes of prompt
and efficient legislative action.
Nevertheless, just to put minds at ease that no blatant irregularities tainted the
proceedings of the bicameral conference committees, the Court deems it necessary to
dwell on the issue. The Court observes that there was a necessity for a conference
committee because a comparison of the provisions of House Bill Nos. 3555 and 3705 on
one hand, and Senate Bill No. 1950 on the other, reveals that there were indeed
disagreements. As pointed out in the petitions, said disagreements were as follows:
House Bill No. 3555
House Bill No.3705
Senate Bill No. 1950
With regard to "Stand-By Authority" in favor of President

Provides for 12% VAT on
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
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
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

Provides that the VAT
imposed on sales of
No similar provision
Provides that the VAT
electricity by generation
imposed on power
companies and services of
generation and on the sale of
transmission companies
petroleum products shall be
and distribution
absorbed by generation
companies, as well as
companies or sellers,
those of franchise grantees
respectively, and shall not be
of electric utilities shall
passed on to consumers
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 1%, when the President, upon
recommendation of the Secretary of Finance shall raise the rate of VAT to 12% effective
January 1, 2006.
2. With regard to the disagreement on whether only the VAT imposed on electricity
generation, transmission and distribution companies should not be passed on to
consumers or whether both the VAT imposed on electricity generation, transmission and
distribution companies and the VAT imposed on sale of petroleum products may be
passed on to consumers, the Bicameral Conference Committee chose to settle such
disagreement by altogether deleting from its Report any no pass-on provision.
3. With regard to the disagreement on whether input tax credits should be limited or not,
the Bicameral Conference Committee decided to adopt the position of the House by
putting a limitation on the amount of input tax that may be credited against the output tax,
although it crafted its own language as to the amount of the limitation on input tax credits
and the manner of computing the same by providing thus:
(A) Creditable Input Tax. . . .
...
Provided, The input tax on goods purchased or imported in a calendar month for use in
trade or business for which deduction for depreciation is allowed under this Code, shall
be spread evenly over the month of acquisition and the fifty-nine (59) succeeding months
if the aggregate acquisition cost for such goods, excluding the VAT component thereof,
exceeds one million Pesos (P1,000,000.00): PROVIDED, however, that if the estimated
useful life of the capital good is less than five (5) years, as used for depreciation
purposes, then the input VAT shall be spread over such shorter period: . . .
(B) Excess Output or Input Tax. If at the end of any taxable quarter the output tax
exceeds the input tax, the excess shall be paid by the VAT-registered person. If the input
tax exceeds the output tax, the excess shall be carried over to the succeeding quarter or
quarters: PROVIDED that the input tax inclusive of input VAT carried over from the
previous quarter that may be credited in every quarter shall not exceed seventy percent
(70%) of the output VAT: PROVIDED, HOWEVER, THAT any input tax attributable to
zero-rated sales by a VAT-registered person may at his option be refunded or credited

against other internal revenue taxes, . . .
4. With regard to the amendments to other provisions of the NIRC on corporate income
tax, franchise, percentage and excise taxes, the conference committee decided to include
such amendments and basically adopted the provisions found in Senate Bill No. 1950,
with some changes as to the rate of the tax to be imposed.
Under the provisions of both the Rules of the House of Representatives and Senate Rules,
the Bicameral Conference Committee is mandated to settle the differences between the
disagreeing provisions in the House bill and the Senate bill. The term "settle" is
synonymous to "reconcile" and "harmonize."25 To reconcile or harmonize disagreeing
provisions, the Bicameral Conference Committee may then (a) adopt the specific
provisions of either the House bill or Senate bill, (b) decide that neither provisions in the
House bill or the provisions in the Senate bill would
be carried into the final form of the bill, and/or (c) try to arrive at a compromise between
the disagreeing provisions.
In the present case, the changes introduced by the Bicameral Conference Committee on
disagreeing provisions were meant only to reconcile and harmonize the disagreeing
provisions for it did not inject any idea or intent that is wholly foreign to the subject
embraced by the original provisions.
The so-called stand-by authority in favor of the President, whereby the rate of 10% VAT
wanted by the Senate is retained until such time that certain conditions arise when the
12% VAT wanted by the House shall be imposed, appears to be a compromise to try to
bridge the difference in the rate of VAT proposed by the two houses of Congress.
Nevertheless, such compromise is still totally within the subject of what rate of VAT
should be imposed on taxpayers.
The no pass-on provision was deleted altogether. In the transcripts of the proceedings of
the Bicameral Conference Committee held on May 10, 2005, Sen. Ralph Recto,
Chairman of the Senate Panel, explained the reason for deleting the no pass-on provision
in this wise:
. . . the thinking was just to keep the VAT law or the VAT bill simple. And we were
thinking that no sector should be a beneficiary of legislative grace, neither should any
sector be discriminated on. The VAT is an indirect tax. It is a pass on-tax. And lets keep
it plain and simple. Lets not confuse the bill and put a no pass-on provision. Two-thirds
of the world have a VAT system and in this two-thirds of the globe, I have yet to see a
VAT with a no pass-though provision. So, the thinking of the Senate is basically simple,
lets keep the VAT simple.26 (Emphasis supplied)
Rep. Teodoro Locsin further made the manifestation that the no pass-on provision "never
really enjoyed the support of either House."27
With regard to the amount of input tax to be credited against output tax, the Bicameral
Conference Committee came to a compromise on the percentage rate of the limitation or
cap on such input tax credit, but again, the change introduced by the Bicameral
Conference Committee was totally within the intent of both houses to put a cap on input
tax that may be
credited against the output tax. From the inception of the subject revenue bill in the
House of Representatives, one of the major objectives was to "plug a glaring loophole in
the tax policy and administration by creating vital restrictions on the claiming of input
VAT tax credits . . ." and "[b]y introducing limitations on the claiming of tax credit, we
are capping a major leakage that has placed our collection efforts at an apparent
disadvantage."28
As to the amendments to NIRC provisions on taxes other than the value-added tax
proposed in Senate Bill No. 1950, since said provisions were among those referred to it,
the conference committee had to act on the same and it basically adopted the version of
the Senate.
Thus, all the changes or modifications made by the Bicameral Conference Committee
were germane to subjects of the provisions referred
to it for reconciliation. Such being the case, the Court does not see any grave abuse of
discretion amounting to lack or excess of jurisdiction committed by the Bicameral
Conference Committee. In the earlier cases of Philippine Judges Association vs. Prado29
and Tolentino vs. Secretary of Finance,30 the Court recognized the long-standing
legislative practice of giving said conference committee ample latitude for compromising
differences between the Senate and the House. Thus, in the Tolentino case, it was held
that:
. . . it is within the power of a conference committee to include in its report an entirely
new provision that is not found either in the House bill or in the Senate bill. If the
committee can propose an amendment consisting of one or two provisions, there is no
reason why it cannot propose several provisions, collectively considered as an
"amendment in the nature of a substitute," so long as such amendment is germane to the
subject of the bills before the committee. After all, its report was not final but needed the
approval of both houses of Congress to become valid as an act of the legislative
department. The charge that in this case the Conference Committee acted as a third
legislative chamber is thus without any basis.31 (Emphasis supplied)
B. R.A. No. 9337 Does Not Violate Article VI, Section 26(2) of the Constitution on the
"No-Amendment Rule"
Article VI, Sec. 26 (2) of the Constitution, states:
No bill passed by either House shall become a law unless it has passed three readings on
separate days, and printed copies thereof in its final form have been distributed to its
Members three days before its passage, except when the President certifies to the
necessity of its immediate enactment to meet a public calamity or emergency. Upon the
last reading of a bill, no amendment thereto shall be allowed, and the vote thereon shall
be taken immediately thereafter, and the yeas and nays entered in the Journal.
Petitioners argument that the practice where a bicameral conference committee is
allowed to add or delete provisions in the House bill and the Senate bill after these had
passed three readings is in effect a circumvention of the "no amendment rule" (Sec. 26
(2), Art. VI of the 1987 Constitution), fails to convince the Court to deviate from its
ruling in the Tolentino case that:
Nor is there any reason for requiring that the Committees Report in these cases must
have undergone three readings in each of the two houses. If that be the case, there would
be no end to negotiation since each house may seek modification of the compromise
bill. . . .
Art. VI. 26 (2) must, therefore, be construed as referring only to bills introduced
for the first time in either house of Congress, not to the conference committee
report.32 (Emphasis supplied)
The Court reiterates here that the "no-amendment rule" refers only to the procedure
to be followed by each house of Congress with regard to bills initiated in each of said
respective houses, before said bill is transmitted to the other house for its
concurrence or amendment. Verily, to construe said provision in a way as to proscribe
any further changes to a bill after one house has voted on it would lead to absurdity as
this would mean that the other house of Congress would be deprived of its constitutional
power to amend or introduce changes to said bill. Thus, Art. VI, Sec. 26 (2) of the
Constitution cannot be taken to mean that the introduction by the Bicameral Conference
Committee of amendments and modifications to disagreeing provisions in bills that have
been acted upon by both houses of Congress is prohibited.
C. R.A. No. 9337 Does Not Violate Article VI, Section 24 of the Constitution on Exclusive
Origination of Revenue Bills
Coming to the issue of the validity of the amendments made regarding the NIRC
provisions on corporate income taxes and percentage, excise taxes. Petitioners refer to the
following provisions, to wit:
Section 27
Rates of Income Tax on Domestic Corporation
28(A)(1)
Tax on Resident Foreign Corporation
28(B)(1)
Inter-corporate Dividends
34(B)(1)
Inter-corporate Dividends
116
Tax on Persons Exempt from VAT
117
Percentage Tax on domestic carriers and keepers of Garage
119
Tax on franchises
121
Tax on banks and Non-Bank Financial Intermediaries
148
Excise Tax on manufactured oils and other fuels
151
Excise Tax on mineral products
236
Registration requirements
237
Issuance of receipts or sales or commercial invoices
288
Disposition of Incremental Revenue
Petitioners claim that the amendments to these provisions of the NIRC did not at all
originate from the House. They aver that House Bill No. 3555 proposed amendments
only regarding Sections 106, 107, 108, 110 and 114 of the NIRC, while House Bill No.
3705 proposed amendments only to Sections 106, 107,108, 109, 110 and 111 of the
NIRC; thus, the other sections of the NIRC which the Senate amended but which
amendments were not found in the House bills are not intended to be amended by the
House of Representatives. Hence, they argue that since the proposed amendments did not
originate from the House, such amendments are a violation of Article VI, Section 24 of
the Constitution.
The argument does not hold water.
Article VI, Section 24 of the Constitution reads:
Sec. 24. All appropriation, revenue or tariff bills, bills authorizing increase of the public
debt, bills of local application, and private bills shall originate exclusively in the House of
Representatives but the Senate may propose or concur with amendments.
In the present cases, petitioners admit that it was indeed House Bill Nos. 3555 and 3705
that initiated the move for amending provisions of the NIRC dealing mainly with the
value-added tax. Upon transmittal of said House bills to the Senate, the Senate came out
with Senate Bill No. 1950 proposing amendments not only to NIRC provisions on the
value-added tax but also amendments to NIRC provisions on other kinds of taxes. Is the
introduction by the Senate of provisions not dealing directly with the value- added tax,
which is the only kind of tax being amended in the House bills, still within the purview of
the constitutional provision authorizing the Senate to propose or concur with amendments
to a revenue bill that originated from the House?
The foregoing question had been squarely answered in the Tolentino case, wherein the
Court held, thus:
. . . To begin with, it is not the law but the revenue bill which is required by the
Constitution to "originate exclusively" in the House of Representatives. It is important to
emphasize this, because a bill originating in the House may undergo such extensive
changes in the Senate that the result may be a rewriting of the whole. . . . At this point,
what is important to note is that, as a result of the Senate action, a distinct bill may be
produced. To insist that a revenue statute and not only the bill which initiated the
legislative process culminating in the enactment of the law must substantially be
the same as the House bill would be to deny the Senates power not only to "concur
with amendments" but also to "propose amendments." It would be to violate the
coequality of legislative power of the two houses of Congress and in fact make the House
superior to the Senate.
Given, then, the power of the Senate to propose amendments, the Senate can
propose its own version even with respect to bills which are required by the
Constitution to originate in the House.
...
Indeed, what the Constitution simply means is that the initiative for filing revenue, tariff
or tax bills, bills authorizing an increase of the public debt, private bills and bills of local
application must come from the House of Representatives on the theory that, elected as
they are from the districts, the members of the House can be expected to be more
sensitive to the local needs and problems. On the other hand, the senators, who are
elected at large, are expected to approach the same problems from the national
perspective. Both views are thereby made to bear on the enactment of such laws.33
(Emphasis supplied)
Since there is no question that the revenue bill exclusively originated in the House of
Representatives, the Senate was acting within its
constitutional power to introduce amendments to the House bill when it included
provisions in Senate Bill No. 1950 amending corporate income taxes, percentage, excise
and franchise taxes. Verily, Article VI, Section 24 of the Constitution does not contain
any prohibition or limitation on the extent of the amendments that may be introduced by
the Senate to the House revenue bill.
Furthermore, the amendments introduced by the Senate to the NIRC provisions that had
not been touched in the House bills are still in furtherance of the intent of the House in
initiating the subject revenue bills. The Explanatory Note of House Bill No. 1468, the
very first House bill introduced on the floor, which was later substituted by House Bill
No. 3555, stated:
One of the challenges faced by the present administration is the urgent and daunting task
of solving the countrys serious financial problems. To do this, government expenditures
must be strictly monitored and controlled and revenues must be significantly increased.
This may be easier said than done, but our fiscal authorities are still optimistic the
government will be operating on a balanced budget by the year 2009. In fact, several
measures that will result to significant expenditure savings have been identified by the
administration. It is supported with a credible package of revenue measures that
include measures to improve tax administration and control the leakages in
revenues from income taxes and the value-added tax (VAT). (Emphasis supplied)
Rep. Eric D. Singson, in his sponsorship speech for House Bill No. 3555, declared that:
In the budget message of our President in the year 2005, she reiterated that we all
acknowledged that on top of our agenda must be the restoration of the health of our fiscal
system.
In order to considerably lower the consolidated public sector deficit and eventually
achieve a balanced budget by the year 2009, we need to seize windows of opportunities
which might seem poignant in the beginning, but in the long run prove effective and
beneficial to the overall status of our economy. One such opportunity is a review of
existing tax rates, evaluating the relevance given our present conditions.34 (Emphasis
supplied)
Notably therefore, the main purpose of the bills emanating from the House of
Representatives is to bring in sizeable revenues for the government
to supplement our countrys serious financial problems, and improve tax administration
and control of the leakages in revenues from income taxes and value-added taxes. As
these house bills were transmitted to the Senate, the latter, approaching the measures
from the point of national perspective, can introduce amendments within the purposes of
those bills. It can provide for ways that would soften the impact of the VAT measure on
the consumer, i.e., by distributing the burden across all sectors instead of putting it
entirely on the shoulders of the consumers. The sponsorship speech of Sen. Ralph Recto
on why the provisions on income tax on corporation were included is worth quoting:
All in all, the proposal of the Senate Committee on Ways and Means will raise P64.3
billion in additional revenues annually even while by mitigating prices of power, services
and petroleum products.
However, not all of this will be wrung out of VAT. In fact, only P48.7 billion amount is
from the VAT on twelve goods and services. The rest of the tab P10.5 billion- will be
picked by corporations.
What we therefore prescribe is a burden sharing between corporate Philippines and the
consumer. Why should the latter bear all the pain? Why should the fiscal salvation be
only on the burden of the consumer?
The corporate worlds equity is in form of the increase in the corporate income tax from
32 to 35 percent, but up to 2008 only. This will raise P10.5 billion a year. After that, the
rate will slide back, not to its old rate of 32 percent, but two notches lower, to 30 percent.
Clearly, we are telling those with the capacity to pay, corporations, to bear with this
emergency provision that will be in effect for 1,200 days, while we put our fiscal house in
order. This fiscal medicine will have an expiry date.
For their assistance, a reward of tax reduction awaits them. We intend to keep the length
of their sacrifice brief. We would like to assure them that not because there is a light at
the end of the tunnel, this government will keep on making the tunnel long.
The responsibility will not rest solely on the weary shoulders of the small man. Big
business will be there to share the burden.35
As the Court has said, the Senate can propose amendments and in fact, the amendments
made on provisions in the tax on income of corporations are germane to the purpose of
the house bills which is to raise revenues for the government.
Likewise, the Court finds the sections referring to other percentage and excise taxes
germane to the reforms to the VAT system, as these sections would cushion the effects of
VAT on consumers. Considering that certain goods and services which were subject to
percentage tax and excise tax would no longer be VAT-exempt, the consumer would be
burdened more as they would be paying the VAT in addition to these taxes. Thus, there is
a need to amend these sections to soften the impact of VAT. Again, in his sponsorship
speech, Sen. Recto said:
However, for power plants that run on oil, we will reduce to zero the present excise tax
on bunker fuel, to lessen the effect of a VAT on this product.
For electric utilities like Meralco, we will wipe out the franchise tax in exchange for a
VAT.
And in the case of petroleum, while we will levy the VAT on oil products, so as not to
destroy the VAT chain, we will however bring down the excise tax on socially sensitive
products such as diesel, bunker, fuel and kerosene.
...
What do all these exercises point to? These are not contortions of giving to the left hand
what was taken from the right. Rather, these sprang from our concern of softening the
impact of VAT, so that the people can cushion the blow of higher prices they will have to
pay as a result of VAT.36
The other sections amended by the Senate pertained to matters of tax administration
which are necessary for the implementation of the changes in the VAT system.
To reiterate, the sections introduced by the Senate are germane to the subject matter and
purposes of the house bills, which is to supplement our countrys fiscal deficit, among
others. Thus, the Senate acted within its power to propose those amendments.
SUBSTANTIVE ISSUES
I.
Whether Sections 4, 5 and 6 of R.A. No. 9337, amending Sections 106, 107 and 108 of
the NIRC, violate the following provisions of the Constitution:
A. No Undue Delegation of Legislative Power
Petitioners ABAKADA GURO Party List, et al., Pimentel, Jr., et al., and Escudero, et al.
contend in common that Sections 4, 5 and 6 of R.A. No. 9337, amending Sections 106,
107 and 108, respectively, of the NIRC giving the President the stand-by authority to
raise the VAT rate from 10% to 12% when a certain condition is met, constitutes undue
delegation of the legislative power to tax.
The assailed provisions read as follows:
SEC. 4. Sec. 106 of the same Code, as amended, is hereby further amended to read as
follows:
SEC. 106. Value-Added Tax on Sale of Goods or Properties.
(A) Rate and Base of Tax. There shall be levied, assessed and collected on every sale,
barter or exchange of goods or properties, a value-added tax equivalent to ten percent
(10%) of the gross selling price or gross value in money of the goods or properties sold,
bartered or exchanged, such tax to be paid by the seller or transferor: provided, that the
President, upon the recommendation of the Secretary of Finance, shall, effective
January 1, 2006, raise the rate of value-added tax to twelve percent (12%), after any
of the following conditions has been satisfied.
(i) value-added tax collection as a percentage of Gross Domestic Product (GDP) of
the previous year exceeds two and four-fifth percent (2 4/5%) or
(ii) national government deficit as a percentage of GDP of the previous year exceeds
one and one-half percent (1 %).
SEC. 5. Section 107 of the same Code, as amended, is hereby further amended to read as
follows:
SEC. 107. Value-Added Tax on Importation of Goods.
(A) In General. There shall be levied, assessed and collected on every importation of
goods a value-added tax equivalent to ten percent (10%) based on the total value used by
the Bureau of Customs in determining tariff and customs duties, plus customs duties,
excise taxes, if any, and other charges, such tax to be paid by the importer prior to the
release of such goods from customs custody: Provided, That where the customs duties are
determined on the basis of the quantity or volume of the goods, the value-added tax shall
be based on the landed cost plus excise taxes, if any: provided, further, that the
January 1, 2006, raise the rate of value-added tax to twelve percent (12%) after any
follows:
SEC. 108. Value-added Tax on Sale of Services and Use or Lease of Properties
(A) Rate and Base of Tax. There shall be levied, assessed and collected, a value-added
tax equivalent to ten percent (10%) of gross receipts derived from the sale or exchange of
services: provided, that the President, upon the recommendation of the Secretary of
Finance, shall, effective January 1, 2006, raise the rate of value-added tax to twelve
percent (12%), after any of the following conditions has been satisfied.
one and one-half percent (1 %). (Emphasis supplied)
Petitioners allege that the grant of the stand-by authority to the President to increase the
VAT rate is a virtual abdication by Congress of its exclusive power to tax because such
delegation is not within the purview of Section 28 (2), Article VI of the Constitution,
which provides:
The Congress may, by law, authorize the President to fix within specified limits, and may
impose, tariff rates, import and export quotas, tonnage and wharfage dues, and other
duties or imposts within the framework of the national development program of the
government.
They argue that the VAT is a tax levied on the sale, barter or exchange of goods and
properties as well as on the sale or exchange of services, which cannot be included within
the purview of tariffs under the exempted delegation as the latter refers to customs duties,
tolls or tribute payable upon merchandise to the government and usually imposed on
goods or merchandise imported or exported.
Petitioners ABAKADA GURO Party List, et al., further contend that delegating to the
President the legislative power to tax is contrary to republicanism. They insist that
accountability, responsibility and transparency should dictate the actions of Congress and
they should not pass to the President the decision to impose taxes. They also argue that
the law also effectively nullified the Presidents power of control, which includes the
authority to set aside and nullify the acts of her subordinates like the Secretary of
Finance, by mandating the fixing of the tax rate by the President upon the
recommendation of the Secretary of Finance.
Petitioners Pimentel, et al. aver that the President has ample powers to cause, influence or
create the conditions provided by the law to bring about either or both the conditions
precedent.
On the other hand, petitioners Escudero, et al. find bizarre and revolting the situation that
the imposition of the 12% rate would be subject to the whim of the Secretary of Finance,
an unelected bureaucrat, contrary to the principle of no taxation without representation.
They submit that the Secretary of Finance is not mandated to give a favorable
recommendation and he may not even give his recommendation. Moreover, they allege
that no guiding standards are provided in the law on what basis and as to how he will
make his recommendation. They claim, nonetheless, that any recommendation of the
Secretary of Finance can easily be brushed aside by the President since the former is a
mere alter ego of the latter, such that, ultimately, it is the President who decides whether
to impose the increased tax rate or not.
A brief discourse on the principle of non-delegation of powers is instructive.
The principle of separation of powers ordains that each of the three great branches of
government has exclusive cognizance of and is supreme in matters falling within its own
constitutionally allocated sphere.37 A logical
corollary to the doctrine of separation of powers is the principle of non-delegation of
powers, as expressed in the Latin maxim: potestas delegata non delegari potest which
means "what has been delegated, cannot be delegated."38 This doctrine is based on the
ethical principle that such as delegated power constitutes not only a right but a duty to be
performed by the delegate through the instrumentality of his own judgment and not
through the intervening mind of another.39
With respect to the Legislature, Section 1 of Article VI of the Constitution provides that
"the Legislative power shall be vested in the Congress of the Philippines which shall
consist of a Senate and a House of Representatives." The powers which Congress is
prohibited from delegating are those which are strictly, or inherently and exclusively,
legislative. Purely legislative power, which can never be delegated, has been described as
the authority to make a complete law complete as to the time when it shall take
effect and as to whom it shall be applicable and to determine the expediency of its
enactment.40 Thus, the rule is that in order that a court may be justified in holding a
statute unconstitutional as a delegation of legislative power, it must appear that the power
involved is purely legislative in nature that is, one appertaining exclusively to the
legislative department. It is the nature of the power, and not the liability of its use or the
manner of its exercise, which determines the validity of its delegation.
Nonetheless, the general rule barring delegation of legislative powers is subject to the
following recognized limitations or exceptions:
(1) Delegation of tariff powers to the President under Section 28 (2) of Article VI of the
Constitution;
(2) Delegation of emergency powers to the President under Section 23 (2) of Article VI of
the Constitution;
(3) Delegation to the people at large;
(4) Delegation to local governments; and
(5) Delegation to administrative bodies.
In every case of permissible delegation, there must be a showing that the delegation itself
is valid. It is valid only if the law (a) is complete in itself, setting forth therein the policy
to be executed, carried out, or implemented by the delegate;41 and (b) fixes a standard
the limits of which are sufficiently determinate and determinable to which the delegate
must conform in the performance of his functions.42 A sufficient standard is one which
defines legislative policy, marks its limits, maps out its boundaries and specifies the
public agency to apply it. It indicates the circumstances under which the legislative
command is to be effected.43 Both tests are intended to prevent a total transference of
legislative authority to the delegate, who is not allowed to step into the shoes of the
legislature and exercise a power essentially legislative.44
In People vs. Vera,45 the Court, through eminent Justice Jose P. Laurel, expounded on the
concept and extent of delegation of power in this wise:
In testing whether a statute constitutes an undue delegation of legislative power or not, it

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

What cannot be delegated is the authority under the Constitution to make laws and to
alter and repeal them; the test is the completeness of the statute in all its terms and
provisions when it leaves the hands of the legislature. To determine whether or not there
is an undue delegation of legislative power, the inquiry must be directed to the scope and
definiteness of the measure enacted. The legislative does not abdicate its functions
when it describes what job must be done, who is to do it, and what is the scope of his
authority. For a complex economy, that may be the only way in which the legislative
process can go forward. A distinction has rightfully been made between delegation of
power to make the laws which necessarily involves a discretion as to what it shall be,
which constitutionally may not be done, and delegation of authority or discretion as
to its execution to be exercised under and in pursuance of the law, to which no valid
objection can be made. The Constitution is thus not to be regarded as denying the
legislature the necessary resources of flexibility and practicability. (Emphasis supplied).48
Clearly, the legislature may delegate to executive officers or bodies the power to
determine certain facts or conditions, or the happening of contingencies, on which the
operation of a statute is, by its terms, made to depend, but the legislature must prescribe
sufficient standards, policies or limitations on their authority.49 While the power to tax
cannot be delegated to executive agencies, details as to the enforcement and
administration of an exercise of such power may be left to them, including the power to
determine the existence of facts on which its operation depends.50
The rationale for this is that the preliminary ascertainment of facts as basis for the
enactment of legislation is not of itself a legislative function, but is simply ancillary to
legislation. Thus, the duty of correlating information and making recommendations is the
kind of subsidiary activity which the legislature may perform through its members, or
which it may delegate to others to perform. Intelligent legislation on the complicated
problems of modern society is impossible in the absence of accurate information on the
part of the legislators, and any reasonable method of securing such information is
proper.51 The Constitution as a continuously operative charter of government does not
require that Congress find for itself
every fact upon which it desires to base legislative action or that it make for itself detailed
determinations which it has declared to be prerequisite to application of legislative policy
to particular facts and circumstances impossible for Congress itself properly to
investigate.52
In the present case, the challenged section of R.A. No. 9337 is the common proviso in
Sections 4, 5 and 6 which reads as follows:
That the President, upon the recommendation of the Secretary of Finance, shall, effective
January 1, 2006, raise the rate of value-added tax to twelve percent (12%), after any of
the following conditions has been satisfied:
The case before the Court is not a delegation of legislative power. It is simply a
delegation of ascertainment of facts upon which enforcement and administration of the
increase rate under the law is contingent. The legislature has made the operation of the
12% rate effective January 1, 2006, contingent upon a specified fact or condition. It
leaves the entire operation or non-operation of the 12% rate upon factual matters outside
of the control of the executive.
No discretion would be exercised by the President. Highlighting the absence of discretion
is the fact that the word shall is used in the common proviso. The use of the word shall
connotes a mandatory order. Its use in a statute denotes an imperative obligation and is
inconsistent with the idea of discretion.53 Where the law is clear and unambiguous, it
must be taken to mean exactly what it says, and courts have no choice but to see to it that
the mandate is obeyed.54
Thus, it is the ministerial duty of the President to immediately impose the 12% rate upon
the existence of any of the conditions specified by Congress. This is a duty which cannot
be evaded by the President. Inasmuch as the law specifically uses the word shall, the
exercise of discretion by the President does not come into play. It is a clear directive to
impose the 12% VAT rate when the specified conditions are present. The time of taking
into effect of the 12% VAT rate is based on the happening of a certain specified
contingency, or upon the ascertainment of certain facts or conditions by a person or body
other than the legislature itself.
The Court finds no merit to the contention of petitioners ABAKADA GURO Party List, et
al. that the law effectively nullified the Presidents power of control over the Secretary of
Finance by mandating the fixing of the tax rate by the President upon the
recommendation of the Secretary of Finance. The Court cannot also subscribe to the
position of petitioners
Pimentel, et al. that the word shall should be interpreted to mean may in view of the
phrase "upon the recommendation of the Secretary of Finance." Neither does the Court
find persuasive the submission of petitioners Escudero, et al. that any recommendation by
the Secretary of Finance can easily be brushed aside by the President since the former is a
mere alter ego of the latter.
When one speaks of the Secretary of Finance as the alter ego of the President, it simply
means that as head of the Department of Finance he is the assistant and agent of the Chief
Executive. The multifarious executive and administrative functions of the Chief
Executive are performed by and through the executive departments, and the acts of the
secretaries of such departments, such as the Department of Finance, performed and
promulgated in the regular course of business, are, unless disapproved or reprobated by

the Chief Executive, presumptively the acts of the Chief Executive. The Secretary of
Finance, as such, occupies a political position and holds office in an advisory capacity,
and, in the language of Thomas Jefferson, "should be of the President's bosom
confidence" and, in the language of Attorney-General Cushing, is "subject to the direction
of the President."55
In the present case, in making his recommendation to the President on the existence of
either of the two conditions, the Secretary of Finance is not acting as the alter ego of the
President or even her subordinate. In such instance, he is not subject to the power of
control and direction of the President. He is acting as the agent of the legislative
department, to determine and declare the event upon which its expressed will is to take
effect.56 The Secretary of Finance becomes the means or tool by which legislative policy
is determined and implemented, considering that he possesses all the facilities to gather
data and information and has a much broader perspective to properly evaluate them. His
function is to gather and collate statistical data and other pertinent information and verify
if any of the two conditions laid out by Congress is present. His personality in such
instance is in reality but a projection of that of Congress. Thus, being the agent of
Congress and not of the President, the President cannot alter or modify or nullify, or set
aside the findings of the Secretary of Finance and to substitute the judgment of the former
for that of the latter.
Congress simply granted the Secretary of Finance the authority to ascertain the existence
of a fact, namely, whether by December 31, 2005, the value-added tax collection as a
percentage of Gross Domestic Product (GDP) of the previous year exceeds two and fourfifth percent (24/5%) or the national government deficit as a percentage of GDP of the
previous year exceeds one and one-half percent (1%). If either of these two instances
has occurred, the Secretary of Finance, by legislative mandate, must submit such
information to the President. Then the 12% VAT rate must be imposed by the President
effective January 1, 2006. There is no undue delegation of legislative power but only
of the discretion as to the execution of a law. This is constitutionally permissible.57
Congress does not abdicate its functions or unduly delegate power when it describes what
job must be done, who must do it, and what is the scope of his authority; in our complex
economy that is frequently the only way in which the legislative process can go
forward.58
As to the argument of petitioners ABAKADA GURO Party List, et al. that delegating to
the President the legislative power to tax is contrary to the principle of republicanism, the
same deserves scant consideration. Congress did not delegate the power to tax but the
mere implementation of the law. The intent and will to increase the VAT rate to 12%
came from Congress and the task of the President is to simply execute the legislative
policy. That Congress chose to do so in such a manner is not within the province of the
Court to inquire into, its task being to interpret the law.59
The insinuation by petitioners Pimentel, et al. that the President has ample powers to
cause, influence or create the conditions to bring about either or both the conditions
precedent does not deserve any merit as this argument is highly speculative. The Court
does not rule on allegations which are manifestly conjectural, as these may not exist at
all. The Court deals with facts, not fancies; on realities, not appearances. When the Court
acts on appearances instead of realities, justice and law will be short-lived.
B. The 12% Increase VAT Rate Does Not Impose an Unfair and Unnecessary Additional
Tax Burden
Petitioners Pimentel, et al. argue that the 12% increase in the VAT rate imposes an unfair
and additional tax burden on the people. Petitioners also argue that the 12% increase,
dependent on any of the 2 conditions set forth in the contested provisions, is ambiguous
because it does not state if the VAT rate would be returned to the original 10% if the rates
are no longer satisfied. Petitioners also argue that such rate is unfair and unreasonable, as
the people are unsure of the applicable VAT rate from year to year.
Under the common provisos of Sections 4, 5 and 6 of R.A. No. 9337, if any of the two
conditions set forth therein are satisfied, the President shall increase the VAT rate to 12%.
The provisions of the law are clear. It does not provide for a return to the 10% rate nor
does it empower the President to so revert if, after the rate is increased to 12%, the VAT
collection goes below the 24/5 of the GDP of the previous year or that the national
government deficit as a percentage of GDP of the previous year does not exceed 1%.
Therefore, no statutory construction or interpretation is needed. Neither can conditions or
limitations be introduced where none is provided for. Rewriting the law is a forbidden
ground that only Congress may tread upon.60
Thus, in the absence of any provision providing for a return to the 10% rate, which in this
case the Court finds none, petitioners argument is, at best, purely speculative. There is no
basis for petitioners fear of a fluctuating VAT rate because the law itself does not provide
that the rate should go back to 10% if the conditions provided in Sections 4, 5 and 6 are
no longer present. The rule is that where the provision of the law is clear and
unambiguous, so that there is no occasion for the court's seeking the legislative intent, the
law must be taken as it is, devoid of judicial addition or subtraction.61
Petitioners also contend that the increase in the VAT rate, which was allegedly an
incentive to the President to raise the VAT collection to at least 2 4/5 of the GDP of the
previous year, should be based on fiscal adequacy.
Petitioners obviously overlooked that increase in VAT collection is not the only condition.
There is another condition, i.e., the national government deficit as a percentage of GDP
of the previous year exceeds one and one-half percent (1 %).
Respondents explained the philosophy behind these alternative conditions:
1. VAT/GDP Ratio > 2.8%
The condition set for increasing VAT rate to 12% have economic or fiscal meaning. If
VAT/GDP is less than 2.8%, it means that government has weak or no capability of
implementing the VAT or that VAT is not effective in the function of the tax collection.
Therefore, there is no value to increase it to 12% because such action will also be
ineffectual.
2. Natl Govt Deficit/GDP >1.5%
The condition set for increasing VAT when deficit/GDP is 1.5% or less means the fiscal
condition of government has reached a relatively sound position or is towards the
direction of a balanced budget position. Therefore, there is no need to increase the VAT
rate since the fiscal house is in a relatively healthy position. Otherwise stated, if the ratio
is more than 1.5%, there is indeed a need to increase the VAT rate.62
That the first condition amounts to an incentive to the President to increase the VAT
collection does not render it unconstitutional so long as there is a public purpose for
which the law was passed, which in this case, is mainly to raise revenue. In fact, fiscal
adequacy dictated the need for a raise in revenue.
The principle of fiscal adequacy as a characteristic of a sound tax system was originally
stated by Adam Smith in his Canons of Taxation (1776), as:
IV. Every tax ought to be so contrived as both to take out and to keep out of the pockets
of the people as little as possible over and above what it brings into the public treasury of
the state.63
It simply means that sources of revenues must be adequate to meet government
expenditures and their variations.64
The dire need for revenue cannot be ignored. Our country is in a quagmire of financial
woe. During the Bicameral Conference Committee hearing, then Finance Secretary
Purisima bluntly depicted the countrys gloomy state of economic affairs, thus:
First, let me explain the position that the Philippines finds itself in right now. We are in a
position where 90 percent of our revenue is used for debt service. So, for every peso of
revenue that we currently raise, 90 goes to debt service. Thats interest plus amortization
of our debt. So clearly, this is not a sustainable situation. Thats the first fact.
The second fact is that our debt to GDP level is way out of line compared to other peer
countries that borrow money from that international financial markets. Our debt to GDP
is approximately equal to our GDP. Again, that shows you that this is not a sustainable
situation.
The third thing that Id like to point out is the environment that we are presently
operating in is not as benign as what it used to be the past five years.
What do I mean by that?

In the past five years, weve been lucky because we were operating in a period of
basically global growth and low interest rates. The past few months, we have seen an
inching up, in fact, a rapid increase in the interest rates in the leading economies of the
world. And, therefore, our ability to borrow at reasonable prices is going to be
challenged. In fact, ultimately, the question is our ability to access the financial markets.
When the President made her speech in July last year, the environment was not as bad as
it is now, at least based on the forecast of most financial institutions. So, we were
assuming that raising 80 billion would put us in a position where we can then convince
them to improve our ability to borrow at lower rates. But conditions have changed on us
because the interest rates have gone up. In fact, just within this room, we tried to access
the market for a billion dollars because for this year alone, the Philippines will have to
borrow 4 billion dollars. Of that amount, we have borrowed 1.5 billion. We issued last
January a 25-year bond at 9.7 percent cost. We were trying to access last week and the
market was not as favorable and up to now we have not accessed and we might pull back
because the conditions are not very good.
So given this situation, we at the Department of Finance believe that we really need to
front-end our deficit reduction. Because it is deficit that is causing the increase of the debt
and we are in what we call a debt spiral. The more debt you have, the more deficit you
have because interest and debt service eats and eats more of your revenue. We need to get
out of this debt spiral. And the only way, I think, we can get out of this debt spiral is
really have a front-end adjustment in our revenue base.65
The image portrayed is chilling. Congress passed the law hoping for rescue from an
inevitable catastrophe. Whether the law is indeed sufficient to answer the states
economic dilemma is not for the Court to judge. In the Farias case, the Court refused to
consider the various arguments raised therein that dwelt on the wisdom of Section 14 of
R.A. No. 9006 (The Fair Election Act), pronouncing that:
. . . policy matters are not the concern of the Court. Government policy is within the
exclusive dominion of the political branches of the government. It is not for this Court to
look into the wisdom or propriety of legislative determination. Indeed, whether an
enactment is wise or unwise, whether it is based on sound economic theory, whether it is
the best means to achieve the desired results, whether, in short, the legislative discretion
within its prescribed limits should be exercised in a particular manner are matters for the
judgment of the legislature, and the serious conflict of opinions does not suffice to bring
them within the range of judicial cognizance.66
In the same vein, the Court in this case will not dawdle on the purpose of Congress or the
executive policy, given that it is not for the judiciary to "pass upon questions of wisdom,
justice or expediency of legislation."67
II.
Whether Section 8 of R.A. No. 9337, amending Sections 110(A)(2) and 110(B) of the
NIRC; and Section 12 of R.A. No. 9337, amending Section 114(C) of the NIRC, violate
the following provisions of the Constitution:
b. Article III, Section 1
A. Due Process and Equal Protection Clauses
Petitioners Association of Pilipinas Shell Dealers, Inc., et al. argue that Section 8 of R.A.
No. 9337, amending Sections 110 (A)(2), 110 (B), and Section 12 of R.A. No. 9337,
amending Section 114 (C) of the NIRC are arbitrary, oppressive, excessive and
confiscatory. Their argument is premised on the constitutional right against deprivation of
life, liberty of property without due process of law, as embodied in Article III, Section 1
of the Constitution.
Petitioners also contend that these provisions violate the constitutional guarantee of equal
protection of the law.
The doctrine is that where the due process and equal protection clauses are invoked,
considering that they are not fixed rules but rather broad standards, there is a need for
proof of such persuasive character as would lead to such a conclusion. Absent such a
showing, the presumption of validity must prevail.68
Section 8 of R.A. No. 9337, amending Section 110(B) of the NIRC imposes a limitation
on the amount of input tax that may be credited against the output tax. It states, in part:
"[P]rovided, that the input tax inclusive of the input VAT carried over from the previous
quarter that may be credited in every quarter shall not exceed seventy percent (70%) of
the output VAT: "
Input Tax is defined under Section 110(A) of the NIRC, as amended, as the value-added
tax due from or paid by a VAT-registered person on the importation of goods or local
purchase of good and services, including lease or use of property, in the course of trade or
business, from a VAT-registered person, and Output Tax is the value-added tax due on the
sale or lease of taxable goods or properties or services by any person registered or
required to register under the law.
Petitioners claim that the contested sections impose limitations on the amount of input tax
that may be claimed. In effect, a portion of the input tax that has already been paid cannot
now be credited against the output tax.
Petitioners argument is not absolute. It assumes that the input tax exceeds 70% of the
output tax, and therefore, the input tax in excess of 70% remains uncredited. However, to
the extent that the input tax is less than 70% of the output tax, then 100% of such input
tax is still creditable.
More importantly, the excess input tax, if any, is retained in a businesss books of
accounts and remains creditable in the succeeding quarter/s. This is explicitly allowed by
Section 110(B), which provides that "if the input tax exceeds the output tax, the excess
shall be carried over to the succeeding quarter or quarters." In addition, Section 112(B)
allows a VAT-registered person to apply for the issuance of a tax credit certificate or
refund for any unused input taxes, to the extent that such input taxes have not been
applied against the output taxes. Such unused input tax may be used in payment of his
other internal revenue taxes.
The non-application of the unutilized input tax in a given quarter is not ad infinitum, as
petitioners exaggeratedly contend. Their analysis of the effect of the 70% limitation is
incomplete and one-sided. It ends at the net effect that there will be unapplied/unutilized
inputs VAT for a given quarter. It does not proceed further to the fact that such
unapplied/unutilized input tax may be credited in the subsequent periods as allowed by
the carry-over provision of Section 110(B) or that it may later on be refunded through a
tax credit certificate under Section 112(B).
Therefore, petitioners argument must be rejected.
On the other hand, it appears that petitioner Garcia failed to comprehend the operation of
the 70% limitation on the input tax. According to petitioner, the limitation on the
creditable input tax in effect allows VAT-registered establishments to retain a portion of
the taxes they collect, which violates the principle that tax collection and revenue should
be for public purposes and expenditures
As earlier stated, the input tax is the tax paid by a person, passed on to him by the seller,
when he buys goods. Output tax meanwhile is the tax due to the person when he sells
goods. In computing the VAT payable, three possible scenarios may arise:
First, if at the end of a taxable quarter the output taxes charged by the seller are equal to
the input taxes that he paid and passed on by the suppliers, then no payment is required;
Second, when the output taxes exceed the input taxes, the person shall be liable for the
excess, which has to be paid to the Bureau of Internal Revenue (BIR);69 and
Third, if the input taxes exceed the output taxes, the excess shall be carried over to the
succeeding quarter or quarters. Should the input taxes result from zero-rated or
effectively zero-rated transactions, any excess over the output taxes shall instead be
refunded to the taxpayer or credited against other internal revenue taxes, at the taxpayers
option.70
Section 8 of R.A. No. 9337 however, imposed a 70% limitation on the input tax. Thus, a
person can credit his input tax only up to the extent of 70% of the output tax. In laymans
term, the value-added taxes that a person/taxpayer paid and passed on to him by a seller
can only be credited up to 70% of the value-added taxes that is due to him on a taxable
transaction. There is no retention of any tax collection because the person/taxpayer has
already previously paid the input tax to a seller, and the seller will subsequently remit
such input tax to the BIR. The party directly liable for the payment of the tax is the
seller.71 What only needs to be done is for the person/taxpayer to apply or credit these
input taxes, as evidenced by receipts, against his output taxes.
Petitioners Association of Pilipinas Shell Dealers, Inc., et al. also argue that the input tax
partakes the nature of a property that may not be confiscated, appropriated, or limited
without due process of law.
The input tax is not a property or a property right within the constitutional purview of the
due process clause. A VAT-registered persons entitlement to the creditable input tax is a
mere statutory privilege.
The distinction between statutory privileges and vested rights must be borne in mind for
persons have no vested rights in statutory privileges. The state may change or take away
rights, which were created by the law of the state, although it may not take away
property, which was vested by virtue of such rights.72
Under the previous system of single-stage taxation, taxes paid at every level of
distribution are not recoverable from the taxes payable, although it becomes part of the
cost, which is deductible from the gross revenue. When Pres. Aquino issued E.O. No. 273
imposing a 10% multi-stage tax on all sales, it was then that the crediting of the input tax
paid on purchase or importation of goods and services by VAT-registered persons against
the output tax was introduced.73 This was adopted by the Expanded VAT Law (R.A. No.
7716),74 and The Tax Reform Act of 1997 (R.A. No. 8424).75 The right to credit input tax
as against the output tax is clearly a privilege created by law, a privilege that also the law
can remove, or in this case, limit.
Petitioners also contest as arbitrary, oppressive, excessive and confiscatory, Section 8 of
R.A. No. 9337, amending Section 110(A) of the NIRC, which provides:
SEC. 110. Tax Credits.
(A) Creditable Input Tax.
Provided, That the input tax on goods purchased or imported in a calendar month for use
in trade or business for which deduction for depreciation is allowed under this Code, shall
be spread evenly over the month of acquisition and the fifty-nine (59) succeeding months
if the aggregate acquisition cost for such goods, excluding the VAT component thereof,
exceeds One million pesos (P1,000,000.00): Provided, however, That if the estimated
useful life of the capital goods is less than five (5) years, as used for depreciation
purposes, then the input VAT shall be spread over such a shorter period: Provided, finally,
That in the case of purchase of services, lease or use of properties, the input tax shall be
creditable to the purchaser, lessee or license upon payment of the compensation, rental,
royalty or fee.
The foregoing section imposes a 60-month period within which to amortize the creditable
input tax on purchase or importation of capital goods with acquisition cost of P1 Million
pesos, exclusive of the VAT component. Such spread out only poses a delay in the
crediting of the input tax. Petitioners argument is without basis because the taxpayer is
not permanently deprived of his privilege to credit the input tax.
It is worth mentioning that Congress admitted that the spread-out of the creditable input
tax in this case amounts to a 4-year interest-free loan to the government.76 In the same
breath, Congress also justified its move by saying that the provision was designed to raise
an annual revenue of 22.6 billion.77 The legislature also dispelled the fear that the
provision will fend off foreign investments, saying that foreign investors have other tax
incentives provided by law, and citing the case of China, where despite a 17.5% noncreditable 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 valueadded tax at the rate of five percent (5%)."
In Revenue Regulations No. 02-98, implementing R.A. No. 8424 (The Tax Reform Act of
1997), the concept of final withholding tax on income was explained, to wit:
SECTION 2.57. Withholding of Tax at Source
(A) Final Withholding Tax. Under the final withholding tax system the amount of
income tax withheld by the withholding agent is constituted as full and final payment of
the income tax due from the payee on the said income. The liability for payment of the
tax rests primarily on the payor as a withholding agent. Thus, in case of his failure to
withhold the tax or in case of underwithholding, the deficiency tax shall be collected
from the payor/withholding agent.
(B) Creditable Withholding Tax. Under the creditable withholding tax system, taxes
withheld on certain income payments are intended to equal or at least approximate the tax
due of the payee on said income. Taxes withheld on income payments covered by the
expanded withholding tax (referred to in Sec. 2.57.2 of these regulations) and
compensation income (referred to in Sec. 2.78 also of these regulations) are creditable in
nature.
As applied to value-added tax, this means that taxable transactions with the government
are subject to a 5% rate, which constitutes as full payment of the tax payable on the
transaction. This represents the net VAT payable of the seller. The other 5% effectively
accounts for the standard input VAT (deemed input VAT), in lieu of the actual input VAT
directly or attributable to the taxable transaction.79
The Court need not explore the rationale behind the provision. It is clear that Congress
intended to treat differently taxable transactions with the government.80 This is supported
by the fact that under the old provision, the 5% tax withheld by the government remains
creditable against the tax liability of the seller or contractor, to wit:
SEC. 114. Return and Payment of Value-added Tax.
(C) Withholding of Creditable Value-added Tax. The Government or any of its
political subdivisions, instrumentalities or agencies, including government-owned or
controlled corporations (GOCCs) shall, before making payment on account of each
purchase of goods from sellers and services rendered by contractors which are subject to
the value-added tax imposed in Sections 106 and 108 of this Code, deduct and withhold
the value-added tax due at the rate of three percent (3%) of the gross payment for the
purchase of goods and six percent (6%) on gross receipts for services rendered by
contractors on every sale or installment payment which shall be creditable against the
value-added tax liability of the seller or contractor: Provided, however, That in the
case of government public works contractors, the withholding rate shall be eight and one-
half percent (8.5%): Provided, further, That the payment for lease or use of properties or
property rights to nonresident owners shall be subject to ten percent (10%) withholding
tax at the time of payment. For this purpose, the payor or person in control of the
payment shall be considered as the withholding agent.
The valued-added tax withheld under this Section shall be remitted within ten (10) days
following the end of the month the withholding was made. (Emphasis supplied)
As amended, the use of the word final and the deletion of the word creditable exhibits
Congresss intention to treat transactions with the government differently. Since it has not
been shown that the class subject to the 5% final withholding tax has been unreasonably
narrowed, there is no reason to invalidate the provision. Petitioners, as petroleum dealers,
are not the only ones subjected to the 5% final withholding tax. It applies to all those who
deal with the government.
Moreover, the actual input tax is not totally lost or uncreditable, as petitioners believe.
Revenue Regulations No. 14-2005 or the Consolidated Value-Added Tax Regulations
2005 issued by the BIR, provides that should the actual input tax exceed 5% of gross
payments, the excess may form part of the cost. Equally, should the actual input tax be
less than 5%, the difference is treated as income.81
Petitioners also argue that by imposing a limitation on the creditable input tax, the
government gets to tax a profit or value-added even if there is no profit or value-added.
Petitioners stance is purely hypothetical, argumentative, and again, one-sided. The Court
will not engage in a legal joust where premises are what ifs, arguments, theoretical and
facts, uncertain. Any disquisition by the Court on this point will only be, as Shakespeare
describes life in Macbeth,82 "full of sound and fury, signifying nothing."
Whats more, petitioners contention assumes the proposition that there is no profit or
value-added. It need not take an astute businessman to know that it is a matter of
exception that a business will sell goods or services without profit or value-added. It
cannot be overstressed that a business is created precisely for profit.
The equal protection clause under the Constitution means that "no person or class of
persons shall be deprived of the same protection of laws which is enjoyed by other
persons or other classes in the same place and in like circumstances."83
The power of the State to make reasonable and natural classifications for the purposes of
taxation has long been established. Whether it relates to the subject of taxation, the kind
of property, the rates to be levied, or the amounts to be raised, the methods of assessment,
valuation and collection, the States power is entitled to presumption of validity. As a
rule, the judiciary will not interfere with such power absent a clear showing of
unreasonableness, discrimination, or arbitrariness.84
Petitioners point out that the limitation on the creditable input tax if the entity has a high
ratio of input tax, or invests in capital equipment, or has several transactions with the
government, is not based on real and substantial differences to meet a valid classification.
The argument is pedantic, if not outright baseless. The law does not make any
classification in the subject of taxation, the kind of property, the rates to be levied or the
amounts to be raised, the methods of assessment, valuation and collection. Petitioners
alleged distinctions are based on variables that bear different consequences. While the
implementation of the law may yield varying end results depending on ones profit
margin and value-added, the Court cannot go beyond what the legislature has laid down
and interfere with the affairs of business.
The equal protection clause does not require the universal application of the laws on all
persons or things without distinction. This might in fact sometimes result in unequal
protection. What the clause requires is equality among equals as determined according to
a valid classification. By classification is meant the grouping of persons or things similar
to each other in certain particulars and different from all others in these same
particulars.85
Petitioners brought to the Courts attention the introduction of Senate Bill No. 2038 by
Sens. S.R. Osmea III and Ma. Ana Consuelo A.S. Madrigal on June 6, 2005, and
House Bill No. 4493 by Rep. Eric D. Singson. The proposed legislation seeks to amend
the 70% limitation by increasing the same to 90%. This, according to petitioners,
supports their stance that the 70% limitation is arbitrary and confiscatory. On this score,
suffice it to say that these are still proposed legislations. Until Congress amends the law,
and absent any unequivocal basis for its unconstitutionality, the 70% limitation stays.
B. Uniformity and Equitability of Taxation
Article VI, Section 28(1) of the Constitution reads:
The rule of taxation shall be uniform and equitable. The Congress shall evolve a
progressive system of taxation.
Uniformity in taxation means that all taxable articles or kinds of property of the same
class shall be taxed at the same rate. Different articles may be taxed at different amounts
provided that the rate is uniform on the same class everywhere with all people at all
times.86
In this case, the tax law is uniform as it provides a standard rate of 0% or 10% (or 12%)
on all goods and services. Sections 4, 5 and 6 of R.A. No. 9337, amending Sections 106,
107 and 108, respectively, of the NIRC, provide for a rate of 10% (or 12%) on sale of
goods and properties, importation of goods, and sale of services and use or lease of
properties. These same sections also provide for a 0% rate on certain sales and
transaction.
Neither does the law make any distinction as to the type of industry or trade that will bear
the 70% limitation on the creditable input tax, 5-year amortization of input tax paid on
purchase of capital goods or the 5% final withholding tax by the government. It must be
stressed that the rule of uniform taxation does not deprive Congress of the power to
classify subjects of taxation, and only demands uniformity within the particular class.87
R.A. No. 9337 is also equitable. The law is equipped with a threshold margin. The VAT
rate of 0% or 10% (or 12%) does not apply to sales of goods or services with gross
annual sales or receipts not exceeding P1,500,000.00.88 Also, basic marine and
agricultural food products in their original state are still not subject to the tax,89 thus
ensuring that prices at the grassroots level will remain accessible. As was stated in
Kapatiran ng mga Naglilingkod sa Pamahalaan ng Pilipinas, Inc. vs. Tan:90
The disputed sales tax is also equitable. It is imposed only on sales of goods or services
by persons engaged in business with an aggregate gross annual sales exceeding
P200,000.00. Small corner sari-sari stores are consequently exempt from its application.
Likewise exempt from the tax are sales of farm and marine products, so that the costs of
basic food and other necessities, spared as they are from the incidence of the VAT, are
expected to be relatively lower and within the reach of the general public.
It is admitted that R.A. No. 9337 puts a premium on businesses with low profit margins,
and unduly favors those with high profit margins. Congress was not oblivious to this.
Thus, to equalize the weighty burden the law entails, the law, under Section 116, imposed
a 3% percentage tax on VAT-exempt persons under Section 109(v), i.e., transactions with
gross annual sales and/or receipts not exceeding P1.5 Million. This acts as a equalizer
because in effect, bigger businesses that qualify for VAT coverage and VAT-exempt
taxpayers stand on equal-footing.
Moreover, Congress provided mitigating measures to cushion the impact of the
imposition of the tax on those previously exempt. Excise taxes on petroleum 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 corporations domicile was increased to 20%.96 The Philippine
Amusement and Gaming Corporation (PAGCOR) is not exempt from income taxes
anymore.97 Even the sale by an artist of his works or services performed for the
production of such works was not spared.
All these were designed to ease, as well as spread out, the burden of taxation, which
would otherwise rest largely on the consumers. It cannot therefore be gainsaid that R.A.
No. 9337 is equitable.
C. Progressivity of Taxation
Lastly, petitioners contend that the limitation on the creditable input tax is anything but
regressive. It is the smaller business with higher input tax-output tax ratio that will suffer
the consequences.
Progressive taxation is built on the principle of the taxpayers ability to pay. This
principle was also lifted from Adam Smiths Canons of Taxation, and it states:
I. The subjects of every state ought to contribute towards the support of the government,
as nearly as possible, in proportion to their respective abilities; that is, in proportion to the
revenue which they respectively enjoy under the protection of the state.
Taxation is progressive when its rate goes up depending on the resources of the person
affected.98
The VAT is an antithesis of progressive taxation. By its very nature, it is regressive. The
principle of progressive taxation has no relation with the VAT system inasmuch as the
VAT paid by the consumer or business for every goods bought or services enjoyed is the
same regardless of income. In
other words, the VAT paid eats the same portion of an income, whether big or small. The
disparity lies in the income earned by a person or profit margin marked by a business,
such that the higher the income or profit margin, the smaller the portion of the income or
profit that is eaten by VAT. A converso, the lower the income or profit margin, the bigger
the part that the VAT eats away. At the end of the day, it is really the lower income group
or businesses with low-profit margins that is always hardest hit.
Nevertheless, the Constitution does not really prohibit the imposition of indirect taxes,
like the VAT. What it simply provides is that Congress shall "evolve a progressive system
of taxation." The Court stated in the Tolentino case, thus:
The Constitution does not really prohibit the imposition of indirect taxes which, like the
VAT, are regressive. What it simply provides is that Congress shall evolve a progressive
system of taxation. The constitutional provision has been interpreted to mean simply that
direct taxes are . . . to be preferred [and] as much as possible, indirect taxes should be
minimized. (E. FERNANDO, THE CONSTITUTION OF THE PHILIPPINES 221
(Second ed. 1977)) Indeed, the mandate to Congress is not to prescribe, but to evolve, a
progressive tax system. Otherwise, sales taxes, which perhaps are the oldest form of
indirect taxes, would have been prohibited with the proclamation of Art. VIII, 17 (1) of
the 1973 Constitution from which the present Art. VI, 28 (1) was taken. Sales taxes are
also regressive.
Resort to indirect taxes should be minimized but not avoided entirely because it is
difficult, if not impossible, to avoid them by imposing such taxes according to the
taxpayers' ability to pay. In the case of the VAT, the law minimizes the regressive effects
of this imposition by providing for zero rating of certain transactions (R.A. No. 7716, 3,
amending 102 (b) of the NIRC), while granting exemptions to other transactions. (R.A.
No. 7716, 4 amending 103 of the NIRC)99
CONCLUSION
It has been said that taxes are the lifeblood of the government. In this case, it is just an
enema, a first-aid measure to resuscitate an economy in distress. The Court is neither
blind nor is it turning a deaf ear on the plight of the masses. But it does not have the
panacea for the malady that the law seeks to remedy. As in other cases, the Court cannot
strike down a law as unconstitutional simply because of its yokes.
Let us not be overly influenced by the plea that for every wrong there is a remedy, and
that the judiciary should stand ready to afford relief. There are undoubtedly many wrongs
the judicature may not correct, for instance, those involving political questions. . . .
Let us likewise disabuse our minds from the notion that the judiciary is the repository of
remedies for all political or social ills; We should not forget that the Constitution has
judiciously allocated the powers of government to three distinct and separate
compartments; and that judicial interpretation has tended to the preservation of the
independence of the three, and a zealous regard of the prerogatives of each, knowing full
well that one is not the guardian of the others and that, for official wrong-doing, each
may be brought to account, either by impeachment, trial or by the ballot box.100
The words of the Court in Vera vs. Avelino101 holds true then, as it still holds true now. All
things considered, there is no raison d'tre for the unconstitutionality of R.A. No. 9337.
WHEREFORE, Republic Act No. 9337 not being unconstitutional, the petitions in G.R.
Nos. 168056, 168207, 168461, 168463, and 168730, are hereby DISMISSED.
There being no constitutional impediment to the full enforcement and implementation of
R.A. No. 9337, the temporary restraining order issued by the Court on July 1, 2005 is
LIFTED upon finality of herein decision.
SO ORDERED.
MA. ALICIA AUSTRIA-MARTINEZ
Associate Justice
WE CONCUR:
HILARIO G. DAVIDE, JR.
Chief Justice
REYNATO S. PUNO
ARTEMIO V. PANGANIBAN
Associate Justice
LEONARDO A. QUISUMBING
Associate Justice
CONSUELO YNARES-SANTIAGO
Associate Justice
ANGELINA SANDOVAL-GUTIERREZ
Associate Justice
Associate Justice
RENATO C. CORONA
Associate Justice
ROMEO J. CALLEJO, SR.
Associate Justice
DANTE O. TINGA
Associate Justice
ANTONIO T. CARPIO
Associate Justice
CONCHITA CARPIO-MORALES
Associate Justice
ADOLFO S. AZCUNA
Associate Justice
MINITA V. CHICO-NAZARIO
Associate Justice
CANCIO C. GARCIA
Associate Justice
C E R T I F I C AT I O N
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."
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.
TSN, July 14, 2005.
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.
Ibid.
10
Deoferio, Jr., V.A. and Mamalateo, V.C., The Value Added Tax in the
Philippines (First Edition 2000).
11
Maceda vs. Macaraig, Jr., G.R. No. 88291, May 31, 1991, 197 SCRA 771.
12
Maceda vs. Macaraig, Jr., G.R. No. 88291, June 8, 1993, 223 SCRA, 217.
13
Id., Deoferio, Jr., V.A. and Mamalateo, V.C., The Value Added Tax in the
Philippines (First Edition 2000).
14
Commissioner of Internal Revenue vs. Seagate, G.R. No. 153866, February 11,
2005.
15
Kapatiran ng mga Naglilingkod sa Pamahalaan ng Pilipinas, Inc. vs. Tan, G.R.

Nos. L-81311, L-81820, L-81921, L-82152, June 30, 1988, 163 SCRA 371.
16
Entitled, "An Act Restructuring the Value-Added Tax (VAT) System, Widening
its Tax Base and Enhancing its Administration, And for these Purposes Amending
and Repealing the Relevant Provisions of the National Internal Revenue Code, as
amended, and for other Purposes."
17
Entitled, "An Act Amending Republic Act No. 7716, otherwise known as the
Value-Added Tax Law and Other Pertinent Provisions of the National Internal
Revenue Code, as Amended."
18
Entitled, "An Act Amending the National Internal Revenue Code, as Amended,
and for other Purposes."
19
Story, Commentaries 835 (1833).
20
G.R. No. 147387, December 10, 2003, 417 SCRA 503.
21
Id., pp. 529-530.
22
Supra., Note 20.
23
G.R. No. 115455, August 25, 1994, 235 SCRA 630.
24
Id., p. 670.
25
Westers Third New International Dictionary, p. 1897.
26
TSN, Bicameral Conference Committee on the Disagreeing Provisions of

Senate Bill No. 1950 and House Bill Nos. 3705 and 3555, May 10, 2005, p. 4.
27
Id., p. 3.
28
Sponsorship Speech of Representative Teves, in behalf of Representative Jesli

Lapus, TSN, January 7, 2005, pp. 34-35.
29
G.R. No. 105371, November 11, 1993, 227 SCRA 703.
30
Supra, Note 23.
31
Id., p. 668.
32
Id., p. 671.
33
Id., pp. 661-663.
34
Transcript of Session Proceedings, January 7, 2005, pp. 19-20.
35
Journal of the Senate, Session No. 67, March 7, 2005, pp. 727-728.
36
Id., p. 726.
37
See Angara vs. Electoral Commission, No. 45081, July 15, 1936, 63 Phil. 139,
156.
38
Defensor-Santiago vs. Commission on Elections, G.R. No. 127325, March 19,

1997, 270 SCRA 106, 153; People vs. Rosenthal, Nos. 46076 & 46077, June 12,
1939, 68 Phil. 328; ISAGANI A. CRUZ, Philippine Political Law 86 (1996).
Judge Cooley enunciates the doctrine in the following oft-quoted language: "One
of the settled maxims in constitutional law is, that the power conferred upon the
legislature to make laws cannot be delegated by that department to any other body
or authority. Where the sovereign power of the state has located the authority,
there it must remain; and by the constitutional agency alone the laws must be
made until the Constitution itself is changed. The power to whose judgment,
wisdom, and patriotism this high prerogative has been intrusted cannot
relieve itself of the responsibility by choosing other agencies upon which the
power shall be devolved, nor can it substitute the judgment, wisdom, and
patriotism of any other body for those to which alone the people have seen fit
to confide this sovereign trust." (Cooley on Constitutional Limitations, 8th ed.,
Vol. I, p. 224)
39
United States vs. Barrias, No. 4349, September 24, 1908, 11 Phil. 327, 330.
40
16 Am Jur 2d, Constitutional Law, 337.
41
Pelaez vs. Auditor General, No. L-23825, December 24, 1965, 122 Phil. 965,
974 citing Calalang vs. Williams, No. 47800, December 2, 1940, 70 Phil. 726;
Pangasinan Transp. Co. vs. Public Service Commission, No. 47065, June 26,
1940, 70 Phil. 221; Cruz vs. Youngberg, No. 34674, October 26, 1931, 56 Phil.
234; Alegre vs. Collector of Customs, No. 30783, August 27, 1929, 53 Phil. 394
et seq.
42
Pelaez vs. Auditor General, supra, citing People vs. Lim Ho, No. L-12091-2,
January 28, 1960, 106 Phil. 887; People vs. Jolliffee, No. L-9553, May 13, 1959,
105 Phil 677; People vs. Vera, No. 45685, November 16, 1937, 65 Phil. 56; U.S.
vs. Nag Tang Ho, No. L-17122, February 27, 1922, 43 Phil. 1; Compaia General
de Tabacos vs. Board of Public Utility, No. 11216, March 6, 1916, 34 Phil. 136 et
seq.
43
Edu vs. Ericta, No. L-32096, October 24, 1970, 35 SCRA 481, 497.
44
Eastern Shipping Lines, Inc. vs. POEA, No. L-76633, October 18, 1988, 166
SCRA 533, 543-544.
45
No. 45685, November 16, 1937, 65 Phil. 56.
46
Id., pp. 115-120.
47
Supra, note 43.
48
Id., pp. 496-497.
49
16 C.J.S., Constitutional Law, 138.
50
Ibid.
51
16 Am Jur 2d, Constitutional Law 340.
52
Yajus vs. United States, 321 US 414, 88 L Ed 834, 64 S Ct. 660, 28 Ohio Ops
220.
53
Province of Batangas vs. Romulo, G.R. No. 152774, May 27, 2004; Enriquez
vs. Court of Appeals, G.R. No. 140473, January 28, 2003, 396 SCRA 377; Codoy
vs. Calugay, G.R. No. 123486, August 12, 1999, 312 SCRA 333.
54
Province of Batangas vs. Romulo, supra; Quisumbing vs. Meralco, G.R. No.
142943, April 3, 2002, 380 SCRA 195; Agpalo, Statutory Construction, 1990 ed.,
p. 45.
55
Villena vs. Secretary of Interior, No. 46570, April 21, 1939, 67 Phil 451, 463464.
56
Alunan vs. Mirasol, G.R. No. 108399, July 31, 1997, 276 SCRA 501, 513-514,
citing Panama Refining Co. vs. Ryan, 293 U.S. 388, 79 L.Ed. 469 (1935).
57
Compaia General de Tabacos de Filipinas vs. The Board of Public Utility

Commissioners, No. 11216, 34 Phil. 136; Cruz vs. Youngberg, No. 34674,
October 26, 1931, 56 Phil. 234; People vs. Vera, No. 45685, November 16, 1937,
65 Phil. 56, 113; Edu vs. Ericta, No. L-32096, October 24, 1970, 35 SCRA 481;
Tatad vs. Secretary of the Department of Energy, G.R. No. 124360, November 5,
1997, 281 SCRA 330; Alunan vs. Mirasol, supra.
58
Bowles vs. Willinghan, 321 US 503, 88 l Ed 892, 64 S Ct 641, 28 Ohio Ops

180.
59
United Residents of Dominican Hill, Inc. vs. Commission on the Settlement of

Land Problems, G.R. No. 135945, March 7, 2001, 353 SCRA 782; Commissioner
of Internal Revenue vs. Santos, G.R. No. 119252, August 18, 1997, 277 SCRA
617, 630.
60
Commission on Internal Revenue vs. American Express International, Inc.

(Philippine Branch), G.R. No. 152609, June 29, 2005.
61
Acting Commissioner of Customs vs. MERALCO, No. L-23623, June 30, 1977,
77 SCRA 469, 473.
62
Respondents Memorandum, pp. 168-169.
63
The Wealth of Nations, Book V, Chapter II.
64
Chavez vs. Ongpin, G.R. No. 76778, June 6, 1990, 186 SCRA 331, 338.
65
TSN, Bicameral Conference Committee on the Disagreeing Provisions of

Senate Bill No. 1950 and House Bill Nos. 3705 and 3555, April 25, 2005, pp. 5-6.
66
G.R. No. 147387, December 10, 2003, 417 SCRA 503, 524.
67
National Housing Authority vs. Reyes, G.R. No. L-49439, June 29, 1983, 123
SCRA 245, 249.
68
Sison vs. Ancheta, G.R. No. L-59431, July 25, 1984, 130 SCRA 654, 661.
69
Section 8, R.A. No. 9337, amending Section 110(A)(B),NIRC.
70
Ibid.
71
Commissioner of Internal Revenue vs. Benguet Corp., G.R. Nos. 134587 &
134588, July 8, 2005.
72
United Paracale Mining Co. vs. Dela Rosa, G.R. Nos. 63786-87, April 7, 1993,
221 SCRA 108, 115.
73
E.O. No. 273, Section 1.
74
Section 5.
75
Section 110(B).
76
Journal of the Senate, Session No. 71, March 15, 2005, p. 803.
77
Id., Session No. 67, March 7, 2005, p. 726.
78
Id., Session No. 71, March 15, 2005, p. 803.
79
Revenue Regulations No. 14-2005, 4.114-2(a).
80
Commissioner of Internal Revenue vs. Philam, G.R. No. 141658, March 18,
2005.
81
Revenue Regulations No. 14-2005, Sec. 4. 114-2.
82
Act V, Scene V.
83
Philippine Rural Electric Cooperatives Association, Inc. vs. DILG, G.R. No.
143076, June 10, 2003, 403 SCRA 558, 565.
84
Aban, Benjamin, Law of Basic Taxation in the Philippines (First Edition 1994).
85
Philippine Judges Association case, supra., note 29.
86
Commissioner of Internal Revenue vs. Court of Appeals, G.R. No. 119761,

August 29, 1996, 261 SCRA 236, 249.
87
Kee vs. Court of Tax Appeals, No. L-18080, April 22, 1963, 117 Phil 682, 688.
88
Section 7, R.A. No. 9337.
89
Ibid.
90
No. L-81311, June 30, 1988, 163 SCRA 371, 383.
91
Section 17, R.A. No. 9337, amending Section 148, NIRC.
92
Section 18, amending Section 151, NIRC.
93
94
95
Sections 1 and 2, amending Sections 27 and 28, NIRC.
96
97
Section 1, amending Section 27(C), NIRC.
98
Reyes vs. Almanzor, G.R. Nos. 49839-46, April 26, 1991, 196 SCRA 322, 327.
99
Tolentino vs. Secretary of Finance, G.R. No. 115455, October 30, 1995, 249
SCRA 628, 659.
100
Vera vs. Avelino, G.R. No. L-543, August 31, 1946, 77 Phil. 365.
101
Ibid.
The Lawphil Project - Arellano Law Foundation
EN BANC
G.R. No. 168056 - ABAKADA GURO PARTY LIST, ET AL. V. EXECUTIVE
SECRETARY EDUARDO R. ERMITA, ET AL.
G.R. No. 168207 - AQUILINO PIMENTEL, JR., ET AL. V. EXECUTIVE

SECRETARY EDUARDO ERMITA, ET AL.
G.R. No. 168461 - ASSOCIATION OF PILIPINAS SHELL DEALERS, INC, ET AL.
V. CESAR V. PURISIMA, ET AL.
G.R. No. 168463 - FRANCIS JOSEPH G. ESCUDERO, ET AL. V. CESAR V.
PURISIMA, ET AL.
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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 nonresident 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
countrys financial problems by bringing more revenues for the government. However,
these commendable intentions do not justify a deviation from the Constitution, which
mandates that the initiative for filing revenue bills should come from the House of
Representatives, not from the Senate. After all, these aims may still be realized by means
of another bill that may later be initiated by the House of Representatives.
Therefore, I vote to declare R.A. No. 9337 as constitutional insofar as it amends
provisions pertaining to VAT. However, I vote to declare as unconstitutional Sections 1,
2, 3, 14, 15, 16, 17, and 18 thereof which, respectively, amend Sections 27, 28, 34, 117,
119, 121, 148, and 151 of the NIRC, as amended because these amendments deal with
subject matters which were not touched or covered by the bills emanating from the House
of Representatives, thereby violating Section 24 of Article VI of the Constitution.
Footnotes
1
Tolentino v. Secretary of Finance, G.R. No. 115455, 25 August 1994, 235 SCRA
630, and companion cases.
2
ISAGANI A. CRUZ, POLITICAL LAW 154 (2002 ed.) citing U.S. v. Nortorn,
91 U.S. 566.
3
G.R. No. 105371, 11 November 1993, 27 SCRA 703, 708, citing Davies,
Legislative Law and Process: In a Nutshell 81 (1986 ed.)
4
Supra note 1.
G.R. No. 168056 ABAKADA GURO PARTY LIST, ET AL. VS. EXECUTIVE
G.R. No. 168207 AQUILINO PIMENTEL, JR., ET AL. VS. EXECUTIVE
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
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CONCURRING AND
DISSENTING OPINION
PUNO, J.:
The main opinion of Madam Justice Martinez exhaustively discusses the numerous
constitutional and legal issues raised by the petitioners. Be that as it may, I wish to raise
the following points, viz:
First. Petitioners assail sections 4 to 6 of Republic Act No. 9337 as violative of the
principle of non-delegation of legislative power. These sections authorize the President,
upon recommendation of the Secretary of Finance, to raise the value-added tax (VAT)
rate to 12% effective January 1, 2006, upon satisfaction of the following conditions: viz:
The power of judicial review under Article VIII, section 5(2) of the 1987 Constitution is
limited to the review of "actual cases and controversies."1 As rightly stressed by retired
Justice Vicente V. Mendoza, this requirement gives the judiciary "the opportunity, denied
to the legislature, of seeing the actual operation of the statute as it is applied to actual
facts and thus enables it to reach sounder judgment" and "enhances public acceptance of
its role in our system of government."2 It also assures that the judiciary does not intrude
on areas committed to the other branches of government and is confined to its role as
defined by the Constitution.3 Apposite thereto is the doctrine of ripeness whose basic
rationale is "to prevent the courts, through premature adjudication, from entangling
themselves in abstract disagreements."4 Central to the doctrine is the determination of
"whether the case involves uncertain or contingent future events that may not occur as
anticipated, or indeed may not occur at all."5 The ripeness requirement must be satisfied
for each challenged legal provision and parts of a statute so that those which are "not
immediately involved are not thereby thrown open for a judicial determination of
constitutionality."6
It is manifest that the constitutional challenge to sections 4 to 6 of R.A. No. 9337 cannot
hurdle the requirement of ripeness. These sections give the President the power to
raise the VAT rate to 12% on January 1, 2006 upon satisfaction of certain fact-based
conditions. We are not endowed with the infallible gift of prophesy to know whether
these conditions are certain to happen. The power to adjust the tax rate given to the
President is futuristic and may or may not be exercised. The Court is therefore beseeched
to render a conjectural judgment based on hypothetical facts. Such a supplication has to

be rejected.
Second. With due respect, I submit that the most important constitutional issue posed by
the petitions at bar relates to the parameters of power of a Bicameral Conference
Committee. Most of the issues in the petitions at bar arose because the Bicameral
Conference Committee concerned exercised powers that went beyond reconciling the
differences between Senate Bill No. 1950 and House Bill Nos. 3705 and 3555. In
Tolentino v. Secretary of Finance,7 I ventured the view that a Bicameral Conference
Committee has limited powers and cannot be allowed to act as if it were a "third house"
of Congress. I further warned that unless its roving powers are reigned in, a Bicameral
Conference Committee can wreck the lawmaking process which is a cornerstone of the
democratic, republican regime established in our Constitution. The passage of time
fortifies my faith that there ought to be no legal u-turn on this preeminent principle. I
wish, therefore, to reiterate my reasons for this unbending view, viz:8
Section 209, Rule XII of the Rules of the Senate provides:
In the event that the Senate does not agree with the House of Representatives on the
provision of any bill or joint resolution, the differences shall be settled by a conference
committee of both Houses which shall meet within ten days after their composition.
statement of the changes in or amendments to the subject measure, and shall be signed by
the conferees. (Emphasis supplied)
The counterpart rule of the House of Representatives is cast in near identical language.
Section 85 of the Rules of the House of Representatives pertinently provides:
In the event that the House does not agree with the Senate on the amendments to any bill
or joint resolution, the differences may be settled by a conference committee of both
chambers.
x x x. Each report shall contain a detailed, sufficiently explicit statement of the changes in
or amendments to the subject measure. (Emphasis supplied)
The Jeffersons Manual has been adopted as a supplement to our parliamentary rules and
practice. Section 456 of Jeffersons Manual similarly confines the powers of a conference
committee, viz:
The managers of a conference must confine themselves to the differences committed to
them and may not include subjects not within the disagreements, even though germane
to a question in issue.
This rule of antiquity has been honed and honored in practice by the Congress of the
United States. Thus, it is chronicled by Floyd Biddick, Parliamentarian Emeritus of the
United States Senate, viz:
Committees of conference are appointed for the sole purpose of compromising and
adjusting the differing and conflicting opinions of the two Houses and the committees of
conference alone can grant compromises and modify propositions of either Houses within
the limits of the disagreement. Conferees are limited to the consideration of differences
between the two Houses.
Congress shall not insert in their report matters not committed to them by either House,
nor shall they strike from the bill matters agreed to by both Houses. No matter on which
there is nothing in either the Senate or House passed versions of a bill may be included in
the conference report and actions to the contrary would subject the report to a point of
order. (Emphasis ours)
In fine, there is neither a sound nor a syllable in the Rules of the Senate and the House of
Representatives to support the thesis of the respondents that a bicameral conference
committee is clothed with an ex post veto power.
But the thesis that a Bicameral Conference Committee can wield ex post veto power does
not only contravene the rules of both the Senate and the House. It wages war against our
settled ideals of representative democracy. For the inevitable, catastrophic effect of the
thesis is to install a Bicameral Conference Committee as the Third Chamber of our
Congress, similarly vested with the power to make laws but with the dissimilarity that its
laws are not the subject of a free and full discussion of both Houses of Congress. With
such a vagrant power, a Bicameral Conference Committee acting as a Third Chamber will
be a constitutional monstrosity.
It needs no omniscience to perceive that our Constitution did not provide for a Congress
composed of three chambers. On the contrary, section 1, Article VI of the Constitution
provides in clear and certain language: "The legislative power shall be vested in the
Congress of the Philippines which shall consist of a Senate and a House of
Representatives " Note that in vesting legislative power exclusively to the Senate and
the House, the Constitution used the word "shall." Its command for a Congress of two
houses is mandatory. It is not mandatory sometimes.
In vesting legislative power to the Senate, the Constitution means the Senate "
composed of twenty-four Senators xxx elected at large by the qualified voters of the
Philippines " Similarly, when the Constitution vested the legislative power to the
House, it means the House " composed of not more than two hundred and fifty
members xxx who shall be elected from legislative districts xxx and those who xxx shall
be elected through a party-list system of registered national, regional, and sectoral parties
or organizations." The Constitution thus, did not vest on a Bicameral Conference
Committee with an ad hoc membership the power to legislate for it exclusively vested
legislative power to the Senate and the House as co-equal bodies. To be sure, the
Constitution does not mention the Bicameral Conference Committees of Congress. No

constitutional status is accorded to them. They are not even statutory creations. They owe
their existence from the internal rules of the two Houses of Congress. Yet, respondents
peddle the disconcerting idea that they should be recognized as a Third Chamber of
Congress and with ex post veto power at that.
The thesis that a Bicameral Conference Committee can exercise law making power with
ex post veto power is freighted with mischief. Law making is a power that can be used for
good or for ill, hence, our Constitution carefully laid out a plan and a procedure for its
exercise. Firstly, it vouchsafed that the power to make laws should be exercised by no
other body except the Senate and the House. It ought to be indubitable that what is
contemplated is the Senate acting as a full Senate and the House acting as a full House. It
is only when the Senate and the House act as whole bodies that they truly represent the
people. And it is only when they represent the people that they can legitimately pass laws.
Laws that are not enacted by the peoples rightful representatives subvert the peoples
sovereignty. Bicameral Conference Committees, with their ad hoc character and limited
membership, cannot pass laws for they do not represent the people. The Constitution does
not allow the tyranny of the majority. Yet, the respondents will impose the worst kind of
tyranny the tyranny of the minority over the majority. Secondly, the Constitution
delineated in deft strokes the steps to be followed in making laws. The overriding purpose
of these procedural rules is to assure that only bills that successfully survive the searching
scrutiny of the proper committees of Congress and the full and unfettered deliberations of
both Houses can become laws. For this reason, a bill has to undergo three (3) mandatory
separate readings in each House. In the case at bench, the additions and deletions made
by the Bicameral Conference Committee did not enjoy the enlightened studies of
appropriate committees. It is meet to note that the complexities of modern day
legislations have made our committee system a significant part of the legislative process.
Thomas Reed called the committee system as "the eye, the ear, the hand, and very often
the brain of the house." President Woodrow Wilson of the United States once referred to
the government of the United States as "a government by the Chairmen of the Standing
Committees of Congress " Neither did these additions and deletions of the Bicameral
Conference Committee pass through the coils of collective deliberation of the members
of the two Houses acting separately. Due to this shortcircuiting of the constitutional
procedure of making laws, confusion shrouds the enactment of R.A. No. 7716. Who
inserted the additions and deletions remains a mystery. Why they were inserted is a
riddle. To use a Churchillian phrase, lawmaking should not be a riddle wrapped in an
enigma. It cannot be, for Article II, section 28 of the Constitution mandates the State to
adopt and implement a "policy of full public disclosure of all its transactions involving
public interest." The Constitution could not have contemplated a Congress of invisible
and unaccountable John and Mary Does. A law whose rationale is a riddle and whose
authorship is obscure cannot bind the people.
All these notwithstanding, respondents resort to the legal cosmetology that these
additions and deletions should govern the people as laws because the Bicameral
Conference Committee Report was anyway submitted to and approved by the Senate and
the House of Representatives. The submission may have some merit with respect to
provisions agreed upon by the Committee in the process of reconciling conflicts between
S.B. No. 1630 and H.B. No. 11197. In these instances, the conflicting provisions had
been previously screened by the proper committees, deliberated upon by both Houses and
approved by them. It is, however, a different matter with respect to additions and
deletions which were entirely new and which were made not to reconcile inconsistencies
between S.B. No. 1630 and H.B. No. 11197. The members of the Bicameral Conference
Committee did not have any authority to add new provisions or delete provisions already
approved by both Houses as it was not necessary to discharge their limited task of
reconciling differences in bills. At that late stage of law making, the Conference
Committee cannot add/delete provisions which can become laws without undergoing the
study and deliberation of both chambers given to bills on 1st, 2nd, and 3rd readings. Even
the Senate and the House cannot enact a law which will not undergo these mandatory
three (3) readings required by the Constitution. If the Senate and the House cannot enact
such a law, neither can the lesser Bicameral Conference Committee.
Moreover, the so-called choice given to the members of both Houses to either approve or
disapprove the said additions and deletions is more of an optical illusion. These additions
and deletions are not submitted separately for approval. They are tucked to the entire bill.
The vote is on the bill as a package, i.e., together with the insertions and deletions. And
the vote is either "aye" or "nay," without any further debate and deliberation. Quite often,
legislators vote "yes" because they approve of the bill as a whole although they may
object to its amendments by the Conference Committee. This lack of real choice is well
observed by Robert Luce:
Their power lies chiefly in the fact that reports of conference committees must be
accepted without amendment or else rejected in toto. The impulse is to get done with the
matter and so the motion to accept has undue advantage, for some members are sure to
prefer swallowing unpalatable provisions rather than prolong controversy. This is the
more likely if the report comes in the rush of business toward the end of a session, when
to seek further conference might result in the loss of the measure altogether. At any time
in the session there is some risk of such a result following the rejection of a conference
report, for it may not be possible to secure a second conference, or delay may give
opposition to the main proposal chance to develop more strength.
In a similar vein, Prof. Jack Davies commented that "conference reports are returned to
assembly and Senate on a take-it or leave-it-basis, and the bodies are generally placed in
the position that to leave-it is a practical impossibility." Thus, he concludes that
"conference committee action is the most undemocratic procedure in the legislative
process."
The respondents also contend that the additions and deletions made by the Bicameral
Conference Committee were in accord with legislative customs and usages. The
argument does not persuade for it misappreciates the value of customs and usages in the
hierarchy of sources of legislative rules of procedure. To be sure, every legislative
assembly has the inherent right to promulgate its own internal rules. In our jurisdiction,
Article VI, section 16(3) of the Constitution provides that "Each House may determine
the rules of its proceedings x x x." But it is hornbook law that the sources of Rules of
Procedure are many and hierarchical in character. Mason laid them down as follows:
xxx
1. Rules of Procedure are derived from several sources. The principal sources are as
follows:
a. Constitutional rules.
b. Statutory rules or charter provisions.
c. Adopted rules.
d. Judicial decisions.
e. Adopted parliamentary authority.
f. Parliamentary law.
g. Customs and usages.
2. The rules from the different sources take precedence in the order listed above except
that judicial decisions, since they are interpretations of rules from one of the other
sources, take the same precedence as the source interpreted. Thus, for example, an
interpretation of a constitutional provision takes precedence over a statute.
3. Whenever there is conflict between rules from these sources the rule from the source
listed earlier prevails over the rule from the source listed later. Thus, where the
Constitution requires three readings of bills, this provision controls over any provision of
statute, adopted rules, adopted manual, or of parliamentary law, and a rule of
parliamentary law controls over a local usage but must give way to any rule from a higher
source of authority. (Emphasis ours)
As discussed above, the unauthorized additions and deletions made by the Bicameral
Conference Committee violated the procedure fixed by the Constitution in the making of
laws. It is reasonless for respondents therefore to justify these insertions as sanctioned by
customs and usages.
Finally, respondents seek sanctuary in the conclusiveness of an enrolled bill to bar any
judicial inquiry on whether Congress observed our constitutional procedure in the
passage of R.A. No. 7716. The enrolled bill theory is a historical relic that should not
continuously rule us from the fossilized past. It should be immediately emphasized that
the enrolled bill theory originated in England where there is no written constitution and
where Parliament is supreme. In this jurisdiction, we have a written constitution and the
legislature is a body of limited powers. Likewise, it must be pointed out that starting from
the decade of the 40s, even American courts have veered away from the rigidity and
unrealism of the conclusiveness of an enrolled bill. Prof. Sutherland observed:
xxx
Where the failure of constitutional compliance in the enactment of statutes is not
discoverable from the face of the act itself but may be demonstrated by recourse to the
legislative journals, debates, committee reports or papers of the governor, courts have
used several conflicting theories with which to dispose of the issue. They have held: (1)
that the enrolled bill is conclusive and like the sheriffs return cannot be attacked; (2) that
the enrolled bill is prima facie correct and only in case the legislative journal shows
affirmative contradiction of the constitutional requirement will the bill be held invalid;
(3) that although the enrolled bill is prima facie correct, evidence from the journals, or
other extrinsic sources is admissible to strike the bill down; (4) that the legislative journal
is conclusive and the enrolled bills is valid only if it accords with the recital in the journal
and the constitutional procedure.
Various jurisdictions have adopted these alternative approaches in view of strong dissent
and dissatisfaction against the philosophical underpinnings of the conclusiveness of an
enrolled bill. Prof. Sutherland further observed:
x x x. Numerous reasons have been given for this rule. Traditionally, an enrolled bill was
"a record" and as such was not subject to attack at common law. Likewise, the rule of
conclusiveness was similar to the common law rule of the inviolability of the sheriffs
return. Indeed, they had the same origin, that is, the sheriff was an officer of the king and
likewise the parliamentary act was a regal act and no official might dispute the kings
word. Transposed to our democratic system of government, courts held that as the
legislature was an official branch of government the court must indulge every
presumption that the legislative act was valid. The doctrine of separation of powers was
advanced as a strong reason why the court should treat the acts of a co-ordinate branch of
government with the same respect as it treats the action of its own officers; indeed, it was
thought that it was entitled to even greater respect, else the court might be in the position
of reviewing the work of a supposedly equal branch of government. When these
arguments failed, as they frequently did, the doctrine of convenience was advanced, that
is, that it was not only an undue burden upon the legislature to preserve its records to
meet the attack of persons not affected by the procedure of enactment, but also that it
unnecessarily complicated litigation and confused the trial of substantive issues.
Although many of these arguments are persuasive and are indeed the basis for the rule in
many states today, they are not invulnerable to attack. The rule most relied on the
sheriffs return or sworn official rule did not in civil litigation deprive the injured party
of an action, for always he could sue the sheriff upon his official bond. Likewise,
although collateral attack was not permitted, direct attack permitted raising the issue of
fraud, and at a later date attack in equity was also available; and that the evidence of the
sheriff was not of unusual weight was demonstrated by the fact that in an action against
the sheriff no presumption of its authenticity prevailed.
The argument that the enrolled bill is a "record" and therefore unimpeachable is likewise
misleading, for the correction of records is a matter of established judicial procedure.
Apparently, the justification is either the historical one that the kings word could not be
questioned or the separation of powers principle that one branch of the government must
treat as valid the acts of another.
Persuasive as these arguments are, the tendency today is to avoid reaching results by
artificial presumptions and thus it would seem desirable to insist that the enrolled bill
stand or fall on the basis of the relevant evidence which may be submitted for or against
it. (Emphasis ours)
Thus, as far back as the 1940s, Prof. Sutherland confirmed that "x x x the tendency seems
to be toward the abandonment of the conclusive presumption rule and the adoption of the
third rule leaving only a prima facie presumption of validity which may be attacked by
any authoritative source of information.
Third. I respectfully submit that it is only by strictly following the contours of powers of
a Bicameral Conference Committee, as delineated by the rules of the House and the
Senate, that we can prevent said Committee from acting as a "third" chamber of
Congress. Under the clear rules of both the Senate and House, its power can go no
further than settling differences in their bills or joint resolutions. Sections 88 and 89,
Rule XIV of the Rules of the House of Representatives provide as follows:
Senate on the 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,
...
Report in the same manner and procedure as it votes a bill on third and final reading.
Section 35, Rule XII of the Rules of the Senate states:
The House rule brightlines the following: (1) the power of the Conference Committee is
limited . . . it is only to settle differences with the Senate; (2) if the differences are
substantial, the Committee must report to the House for the latters appropriate action;
and (3) the Committee report has to be voted upon in the same manner and procedure as a
bill on third and final reading. Similarly, the Senate rule underscores in crimson that (1)
the power of the Committee is limited - - - to settle differences with the House; (2) it can
make changes or amendments only in the discharge of this limited power to settle
differences with the House; and (3) the changes or amendments are merely
recommendatory for they still have to be approved by the Senate.
Under both rules, it is obvious that a Bicameral Conference Committee is a mere agent
of the House or the Senate with limited powers. The House contingent in the
Committee cannot, on its own, settle differences which are substantial in character.
If it is confronted with substantial differences, it has to go back to the chamber that
created it "for the latters appropriate action." In other words, it must take the proper
instructions from the chambers that created it. It cannot exercise its unbridled
discretion. Where there is no difference between the bills, it cannot make any change.
Where the difference is substantial, it has to return to the chamber of its origin and ask
for appropriate instructions. It ought to be indubitable that it cannot create a new law,
i.e., that which has never been discussed in either chamber of Congress. Its parameters
of power are not porous, for they are hedged by the clear limitation that its only power
is to settle differences in bills and joint resolutions of the two chambers of Congress.
Fourth. Prescinding from these premises, I respectfully submit that the following acts of
the Bicameral Conference Committee constitute grave abuse of discretion amounting to
lack or excess of jurisdiction and should be struck down as unconstitutional nullities, viz:
a. Its deletion of the pro poor "no pass on provision" which is common in both Senate
Bill No. 1950 and House Bill No. 3705.
Sec. 1 of House Bill No. 37059 provides:
Section 106 of the National Internal Revenue Code of 1997, as amended, is hereby
further amended to read as follows:
SEC. 106. Value-added Tax on Sale of Goods or Properties.
xxx
Provided, further, that notwithstanding the provision of the second paragraph of Section
105 of this Code, the Value-added Tax herein levied on the sale of petroleum products
under Subparagraph (1) hereof shall be paid and absorbed by the sellers of petroleum
products who shall be prohibited from passing on the cost of such tax payments,
either directly or indirectly[,] to any consumer in whatever form or manner, it being
the express intent of this act that the Value-added Tax shall be borne and absorbed
exclusively by the sellers of petroleum products x x x.
Sec. 3 of the same House bill provides:
Section 108 of the National Internal Revenue Code of 1997, as amended, is hereby
further 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
governments use of incremental revenue from the VAT in Section 21 of R.A. No.
9337 which were not present in the Senate or House Bills. Section 21 of R.A. No.
9337 provides:
Fifty percent of the local government units share from VAT shall be allocated and used
exclusively for the following purposes:
1. Fifteen percent (15%) for public elementary and secondary education to finance the
construction of buildings, purchases of school furniture and in-service teacher trainings;
2. Ten percent (10%) for health insurance premiums of enrolled indigents as a counterpart
contribution of the local government to sustain the universal coverage of the national
health insurance program;
3. Fifteen percent (15%) for environmental conservation to fully implement a
comprehensive national reforestation program; and
4. Ten percent (10%) for agricultural modernization to finance the construction of farmto-market roads and irrigation facilities.
Such allocations shall be segregated as separate trust funds by the national treasury and
shall be over and above the annual appropriation for similar purposes.
These amendments did not harmonize conflicting provisions between the constituent
bills of R.A. No. 9337 but are entirely new and extraneous concepts which fall beyond
the median thereof. They transgress the limits of the Bicameral Conference Committees
authority and must be struck down.
I cannot therefore subscribe to the thesis of the majority that "the changes introduced by
the Bicameral Conference Committee on disagreeing provisions were meant only to
reconcile and harmonize the disagreeing provisions for it did not inject any idea or
intent that is wholly foreign to the subject embraced by the original provisions."
Fifth. The majority further defends the constitutionality of the above provisions by
holding that "all the changes or modifications were germane to subjects of the provisions
referred to it for reconciliation."
With due respect, it is high time to re-examine the test of germaneness proffered in
Tolentino.
The test of germaneness is overly broad and is the fountainhead of mischief for it
allows the Bicameral Conference Committee to change provisions in the bills of the
House and the Senate when they are not even in disagreement. Worse still, it enables the
Committee to introduce amendments which are entirely new and have not previously
passed through the coils of scrutiny of the members of both houses. The Constitution did
not establish a Bicameral Conference Committee that can act as a "third house" of
Congress with super veto power over bills passed by the Senate and the House. We
cannot concede that super veto power without wrecking the delicate architecture of
legislative power so carefully laid down in our Constitution. The clear intent of our
fundamental law is to install a lawmaking structure composed only of two houses whose
members would thoroughly debate proposed legislations in representation of the will of
their respective constituents. The institution of this lawmaking structure is unmistakable
from the following provisions: (1) requiring that legislative power shall be vested in a
bicameral legislature;10 (2) providing for quorum requirements;11 (3) requiring that
appropriation, revenue or tariff bills, bills authorizing increase of public debt, bills of
local application, and private bills originate exclusively in the House of
Representatives;12 (4) requiring
that bills embrace one subject expressed in the title thereof;13 and (5) mandating that bills
undergo three readings on separate days in each House prior to passage into law and
prohibiting amendments on the last reading thereof.14 A Bicameral Conference
Committee with untrammeled powers will destroy this lawmaking structure. At the very
least, it will diminish the free and open debate of proposed legislations and facilitate the
smuggling of what purports to be laws.
On this point, Mr. Robert Luces disconcerting observations are apropos:
"Their power lies chiefly in the fact that reports of conference committees must be
accepted without amendment or else rejected in toto. The impulse is to get done with
the matters and so the motion to accept has undue advantage, for some members are
sure to prefer swallowing unpalatable provisions rather than prolong controversy.

This is more likely if the report comes in the rush of business toward the end of the
session, when to seek further conference might result in the loss of the measure
altogether. At any time in the session there is some risk of such a result following the
rejection of a conference report, for it may not be possible to secure a second conference,
or delay may give opposition to the main proposal chance to develop more strength.
xxx xxx xxx
Entangled in a network of rule and custom, the Representative who resents and would
resist this theft of his rights, finds himself helpless. Rarely can be vote, rarely can he
voice his mind, in the matter of any fraction of the bill. Usually he cannot even record
himself as protesting against some one feature while accepting the measure as whole.
Worst of all, he cannot by argument or suggested change, try to improve what the other
branch has done.
This means more than the subversion of individual rights. It means to a degree the
abandonment of whatever advantage the bicameral system may have. By so much it
in effect transfers the lawmaking power to small group of members who work out in
private a decision that almost always prevails. What is worse, these men are not
chosen in a way to ensure the wisest choice. It has become the practice to name as
conferees the ranking members of the committee, so that the accident of seniority
determines. Exceptions are made, but in general it is not a question of who are most
competent to serve. Chance governs, sometimes giving way to favor, rarely to merit.
xxx xxx xxx
Speaking broadly, the system of legislating by conference committee is unscientific and
therefore defective. Usually it forfeits the benefit of scrutiny and judgment by all the
wisdom available. Uncontrolled, it is inferior to that process by which every
amendment is secured independent discussion and vote. . . ."15
It cannot be overemphasized that in a republican form of government, laws can only be
enacted by all the duly elected representatives of the people. It cuts against
conventional wisdom in democracy to lodge this power in the hands of a few or in
the claws of a committee. It is for these reasons that the argument that we should
overlook the excesses of the Bicameral Conference Committee because its report is
anyway approved by both houses is a futile attempt to square the circle for an
unconstitutional act is void and cannot be redeemed by any subsequent ratification.
Neither can we shut our eyes to the unconstitutional acts of the Bicameral Conference
Committee by holding that the Court cannot interpose its checking powers over mere
violations of the internal rules of Congress. In Arroyo, et al. v. de Venecia, et al.,16 we
ruled that when the violations affect private rights or impair the Constitution, the Court
has all the power, nay, the duty to strike them down.
In conclusion, I wish to stress that this is not the first time nor will it be last that
arguments will be foisted for the Court to merely wink at assaults
on the Constitution on the ground of some national interest, sometimes clear and at other
times inchoate. To be sure, it cannot be gainsaid that the country is in the vortex of a
financial crisis. The broadsheets scream the disconcerting news that our debt payments
for the year 2006 will exceed Pph1 billion daily for interest alone. Experts underscore
some factors that will further drive up the debt service expenses such as the devaluation
of the peso, credit downgrades and a spike in interest rates.17 But no doomsday scenario
will ever justify the thrashing of the Constitution. The Constitution is meant to be our rule
both in good times as in bad times. It is the Courts uncompromising obligation to defend
the Constitution at all times lest it be condemned as an irrelevant relic.
WHEREFORE, I concur with the majority but dissent on the following points:
a) I vote to withhold judgment on the constitutionality of the "standby authority" in
Sections 4 to 6 of Republic Act No. 9337 as this issue is not ripe for adjudication.;
b) I vote to declare unconstitutional the deletion by the Bicameral Conference Committee
of the pro poor "no pass on provision" on electricity to residential consumers as it
contravened the unequivocal intent of both Houses of Congress; and
c) I vote to declare Section 21 of Republic Act No. 9337 as unconstitutional as it contains
extraneous provisions not found in its constituent bills.
REYNATO S. PUNO
Associate Justice
Footnotes
1
Angara v. Electoral Commission, 63 Phil. 139 (1936); See also Tribe, American
Constitutional Law, pp. 311-314 (3rd ed.).
2
Mendoza, Judicial Review of Constitutional Questions: Cases and Materials, p.

86 (2004).
3
Id. at 87.
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.).
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).
See Opinion in 235 SCRA 630, 805-825.
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-itbasis, and the bodies are generally placed in the position that to leave-it is a
practical impossibility." Thus, he concludes that "conference committee action is
the most undemocratic procedure in the legislative process."
16
268 SCRA 269, 289 (1997).
17
The Manila Standard Today, August 26, 2005, p. 1.
EN BANC
GR No. 168056 -- ABAKADA GURO PARTY LIST, etc. et al. v. HON.
EXECUTIVE SECRETARY EDUARDO R. ERMITA et al.
GR No. 168207 -- AQUILINO Q. PIMENTEL JR. et al. v. EXECUTIVE
SECRETARY EDUARDO R. ERMITA et al.
GR No. 168461 -- ASSOCIATION OF PILIPINAS SHELL DEALERS, INC., etc. et
al. v. CESAR V. PURISIMA, etc. et al.
GR No. 168463 -- FRANCIS JOSEPH G. ESCUDERO et al. v. CESAR V.

PURISIMA etc., et al.
GR No. 168730 -- BATAAN GOVERNOR ENRIQUE T. GARCIA JR. v. HON.
EDUARDO R. ERMITA, etc. et al.
Promulgated: September 1, 2005
x -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- x
SEPARATE OPINION
PANGANIBAN, J.:
The ponencia written by the esteemed Madame Justice Ma. Alicia Austria-Martinez
declares that the enrolled bill doctrine has been historically and uniformly upheld in our
country. Cited as recent reiterations of this doctrine are the two Tolentino v. Secretary of
Finance judgments1 and Farias v. Executive Secretary.2
Precedence of Mandatory
Constitutional Provisions
Over the Enrolled Bill Doctrine
I believe, however, that the enrolled bill doctrine3 is not absolute. It may be allencompassing 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," "noamendment" 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, its just estimate to get the figures in
January.
"Usec. Bonoan: Yes, Your Honor (pp. 661-662); and
xxx
"Justice Panganiban: My only point is, I raised this earlier and I promised counsel for the
petitioner whom I was questionin[g] that I will raise it with you, whether the date
January 1, 2006 would present an impossibility of a condition happening.
"Usec. Bonoan: It will not, Your Honor.
"Justice Panganiban: So, your position [is] it will not present an impossibility. Elaborate
on it in your memorandum.
"Usec. Bonoan: Yes, Your Honor.
"Justice Panganiban: Because it is important. The administrative regulations are
important[,] because they clarify the law and it will guide taxpayers. So[,] by January
1[,] [taxpayers] would not be wondering. Do we charge the end consumers 10 [percent]
or 12 [percent]? The regulations should be able to spell that out [i]n the same manner that
even now the various consumers of various products and services must be able to get
from your
there was merely a declaration of an administrative, not a legislative, function.38
I concur with the ponencia in that there was no undue delegation of legislative power in
the increase from 10 percent to 12 percent of the VAT rate. I respectfully disagree,
however, with the statements therein that, first, the secretary of finance is "acting as the
agent of the legislative department" or an "agent of Congress" in determining and
declaring the event upon which its expressed will is to take effect; and, second, that the
secretarys personality "is in reality but a projection of that of Congress."
The secretary of finance is not an alter ego of Congress, but of the President. The
mandate given by RA 9337 to the secretary is not equipollent to an authority to make
laws. In passing this law, Congress did not restrict or curtail the constitutional power of
the President to retain control and supervision over the entire Executive Department. The
law should be construed to be merely asking the President, with a recommendation from
the Presidents alter ego in finance matters, to determine the factual bases for making the
increase in VAT rate operative.39 Indeed, as I have mentioned earlier, the fact-finding
condition is a mere administrative, not legislative, function.
The ponencia states that Congress merely delegates the implementation of the law to the
secretary of finance. How then can the latter be its agent? Making a law is different from
implementing it. While the first (the making of laws) may be delegated under certain
conditions and only in specific instances provided under the Constitution, the second (the
implementation of laws) may not be done by Congress. After all, the legislature does not
have the power to implement laws. Therefore, congressional agency arises only in the
first, not in the second. The first is a legislative function; the second, an executive one.
Petitioners argument is that because the GDP does not account for the economic effects
of so-called underground businesses, it is an inaccurate indicator of either economic
growth or slowdown in transitional economies.40 Clearly, this matter is within the
confines of lawmaking. This Court is neither a substitute for the wisdom, or lack of it, in
Congress,41 nor an arbiter of flaws within the latters internal rules.42 Policy matters lie
within the domain of the political branches of government,43 outside the range of judicial
cognizance.44 "[T]he right to select the measure and objects of taxation devolves upon the
Congress, and not upon the courts, and such selections are valid unless constitutional
limitations are overstepped."45 Moreover, each house of Congress has the power and
authority to determine the rules of its proceedings.46 The contention that this case is not
ripe for determination because there is no violation yet of the Constitution regarding the
exercise of the Presidents standby authority has no basis. The question raised is whether
the BCC, in passing the law, committed grave abuse of discretion, not whether the
provision in question had been violated. Hence, this case is not premature and is, in fact,
subject to judicial determination.
Amendments on Income Taxes. I respectfully submit that the amendments made by the
BCC (that were culled from the Senate version) regarding income taxes47 are not legally
germane to the subject matter of the House bills. Revising the income tax rates on
domestic, resident foreign and nonresident foreign corporations; increasing the tax credit
against taxes due from nonresident foreign corporations on intercorporate dividends; and
reducing the allowable deduction for interest expense are legally unrelated and not
germane to the subject matter contained in the House bills; they violate the origination
principle.48 The reasons are as follows:
One, an income tax is a direct tax imposed on actual or presumed income -- gross or net
-- realized by a taxpayer during a given taxable year,49 while a VAT is an indirect tax not
in the context of who is directly and legally liable for its payment, but in terms of its
nature as "a tax on consumption."50 The former cannot be passed on to the consumer, but
the latter can.51 It is too wide a stretch of the imagination to even relate one concept with
the other. In like manner, it is inconceivable how the provisions that increase corporate
income taxes can be considered as mitigating measures for increasing the VAT and, as I
will explain later, for effectively imposing a maximum of 3 percent tax on gross sales or
revenues because of the 70 percent cap. Even the argument that the corporate income tax
rates will be reduced to 30 percent does not hold water. This reduction will take effect
only in 2009, not 2006 when the 12 percent VAT rate will have been implemented.
Two, taxes on intercorporate dividends are final, but the input VAT is generally creditable.
Under a final withholding tax system, the amount of income tax that is withheld by a
withholding agent is constituted as a full and final payment of the income tax due from
the payee on said income.52 The liability for the tax primarily rests upon the payor as a
withholding agent.53 Under a creditable withholding tax system, taxes withheld on certain
payments are meant to approximate the tax that is due of the payee on said payments. 54
The liability for the tax rests upon the payee who is mandated by law to still file a tax
return, report the tax base, and pay the difference between the tax withheld and the tax
due.55
From this observation alone, it can already be seen that not only are dividends alien to the
tax base upon which the VAT is imposed, but their respective methods of withholding are
totally different. VAT-registered persons may not always be nonresident foreign
corporations that declare and pay dividends, while intercorporate dividends are certainly
not goods or properties for sale, barter, exchange, lease or importation. Certainly, input
VAT credits are different from tax credits on dividends received by nonresident foreign
corporations.
Three, itemized deductions from gross income partake of the nature of a tax exemption.56
Interest -- which is among such deductions -- refers to the amount paid by a debtor to a
creditor for the use or forbearance of money.57 It is an expense item that is paid or
incurred within a given taxable year on indebtedness in connection with a taxpayers
trade, business or exercise of profession.58 In order to reduce revenue losses, Congress
enacted RA 842459 which reduces the amount of interest expense deductible by a taxpayer
from gross income, equal to the applicable percentage of interest income subject to final
tax.60 To assert that reducing the allowable deduction in interest expense is a matter that is
legally related to the proposed VAT amendments is too far-fetched. Interest expenses are
not allowed as credits against output VAT. Neither are VAT-registered persons always
liable for interest.
Having argued on the unconstitutionality (non-germaneness) of the BCC insertions on
income taxes, let me now proceed to the other provisions that were attacked by
petitioners.
No Pass-on Provisions. I agree with the ponencia that the BCC did not exceed its
authority when it deleted the no pass-on provisions found in the congressional bills. Its
authority to make amendments not only implies the power to make insertions, but also
deletions, in order to resolve conflicting provisions.
The no pass-on provision in House Bill (HB) No. 3705 referred to the petroleum products
subject to excise tax (and the raw materials used in the manufacture of such products), the
sellers of petroleum products, and the generation companies.61 The analogous provision
in Senate Bill (SB) No. 1950 dealt with electricity, businesses other than generation
companies, and services of franchise grantees of electric utilities.62 In contrast, there was
a marked absence of the no pass-on provision in HB 3555. Faced with such variances, the
BCC had the option of retaining or modifying the no pass-on provisions and determining
their extent, or of deleting them altogether. In opting for deletion to resolve the variances,
it was merely acting within its discretion. No grave abuse may be imputed to the BCC.
The 70 Percent Cap on Input Tax and the 5 Percent Final Withholding VAT. Deciding
on the 70 percent cap and the 5 percent final withholding VAT in the consolidated bill is
also within the power of the BCC. While HB 3555 included limits of 5 percent and 11
percent on input tax,63 SB 1950 proposed an even spread over 60 months.64 The decision
to put a cap and fix its rate, so as to harmonize or to find a compromise in settling the
apparent differences in these versions,65 was within the sound discretion of the BCC.
In like manner, HB 3555 contained provisions on the withholding of creditable VAT at
the rates of 5 percent, 8 percent, 10.5 percent, and 12 percent.66 HB 3705 had no such
equivalent amendment, and SB 1950 pegged the rates at only 5 percent and 10 percent.67 I
believe that the decision to impose a final (not creditable) VAT and to fix the rates at 5
percent and 10 percent, so as to harmonize the apparent differences in all three versions,
was also within the sound discretion of the BCC.
Indeed, the tax credit method under our VAT system is not only practical, but also
principally used in almost all taxing jurisdictions. This does not mean, however, that in
the eyes of Congress through the BCC, our country can neither deviate from this method
nor modify its application to suit our fiscal requirements. The VAT is usually collected
through the tax credit method (and in the past, even through the cost deduction method or
a mixture of these two methods),68 but there is no hard and fast rule that 100 percent of
the input taxes will always be allowed as a tax credit.
In fact, it was Maurice Laur, a French engineer,69 who invented the VAT. In 1954, he had
the idea of imposing an indirect tax on consumption, called taxe sur la valeur ajoute,70
which was quickly adopted by the Direction Gnrale des Impost, the new French tax
authority of which he became joint director. Consequently, taxpayers at all levels in the
production process, rather than retailers or tax authorities, were forced to administer and
account for the tax themselves.71
Since the unutilized input VAT can be carried over to succeeding quarters, there is no
undue deprivation of property. Alternatively, it can be passed on to the consumers;72 there
is no law prohibiting that. Merely speculative and unproven, therefore, is the contention
that the law is arbitrary and oppressive.73 Laws that impose taxes are necessarily
burdensome, compulsory, and involuntary.
The deferred input tax account -- which accumulates the unutilized input VAT -- remains
an asset in the accounting records of a business. It is not at all confiscated by the
government. By deleting Section 112(B) of the Tax Code,74 Congress no longer made
available tax credit certificates for such asset account until retirement from or cessation
of business, or changes in or cessation of VAT-registered status.75 This is a matter of
policy, not legality. The Court cannot step beyond the confines of its constitutional power,
if there is absolutely no clear showing of grave abuse of discretion in the enactment of the
law.
That the unutilized input VAT would be rendered useless is merely speculative.76
Although it is recorded as a deferred asset in the books of a company, it remains to be a
mere privilege. It may be written off or expensed outright; it may also be denied as a tax
credit.
There is no vested right in a deferred input tax account; it is a mere statutory privilege.77
The State may modify or withdraw such privilege, which is merely an asset granted by
operation of law.78 Moreover, there is no vested right in generally accepted accounting
principles.79 These refer to accounting concepts, measurement techniques, and standards
of presentation in a companys financial statements, and are not rooted in laws of nature,
as are the laws of physical science, for these are merely developed and continually
modified by local and international regulatory accounting bodies.80 To state otherwise and
recognize such asset account as a vested right is to limit the taxing power of the State.
Unlimited, plenary, comprehensive and supreme, this power cannot be unduly restricted
by mere creations of the State.
That the unutilized input VAT would also have an unequal effect on businesses -- some
with low, others with high, input-output ratio -- is not a legal ground for invalidating the
law. Profit margins are a variable of sound business judgment, not of legal doctrine. The
law applies equally to all businesses; it is up to each of them to determine the best
formula for selling their goods or services in the face of stiffer competition. There is,
thus, no violation of the equal protection clause. If the implementation of the 70 percent
cap would cause an ad infinitum deferment of input taxes or an unequal effect upon
different types of businesses with varying profit margins and capital requirements, then
the remedy would be an amendment of the law -- not an unwarranted and outright
declaration of unconstitutionality.
The matter of business establishments shouldering 30 percent of output tax and remitting
the amount, as computed, to the government is in effect imposing a tax that is equivalent
to a maximum of 3 percent of gross sales or revenues.81 This imposition is arguably
another tax on gross -- not net -- income and thus a deviation from the concept of VAT as
a tax on consumption; it also assumes that sales or revenues are on cash basis or, if on
credit, given credit terms shorter than a quarter of a year. However, such additional
imposition and assumption are also arguably within the power of Congress to make. The
State may in fact choose to impose an additional 3 percent tax on gross income, in lieu of
the 70 percent cap, and thus subject the income of businesses to two types of taxes -- one
on gross, the other on net. These impositions may constitute double taxation,82 which is
not constitutionally proscribed.83
Besides, prior to the amendments introduced by the BCC, already extant in the Tax Code
was a 3 percent percentage tax on the gross quarterly sales or receipts of persons who
were not VAT-registered, and whose sales or receipts were exempt from VAT.84 This is
another type of tax imposed by the Tax Code, in addition to the tax on their respective
incomes. No question as to its validity was raised before; none is being brought now.
More important, there is a presumption in favor of constitutionality,85 "rooted in the
doctrine of separation of powers which enjoins upon the three coordinate departments of
the Government a becoming courtesy for each others acts."86
As to the argument that Section 8 of RA 9337 contravenes Section 1 of Article III and
Section 20 of Article II of the 1987 Constitution, I respectfully disagree.
One, petitioners have not been denied due process or, as I have illustrated earlier, equal
protection. In the exercise of its inherent power to tax, the State validly interferes with the
right to property of persons, natural or artificial. Those similarly situated are affected in
the same way and treated alike, "both as to privileges conferred and liabilities
enforced."87
RA 9337 was enacted precisely to achieve the objective of raising revenues to defray the
necessary expenses of government.88 The means that this law employs are reasonably
related to the accomplishment of such objective, and not unduly oppressive. The
reduction of tax credits is a question of economic policy, not of legal perlustration. Its
determination is vested in Congress, not in this Court. Since the purpose of the law is to
raise revenues, it cannot be denied that the means employed is reasonably related to the
achievement of that purpose. Moreover, the proper congressional procedure for its
enactment was followed;89 neither public notice nor public hearings were denied.
Two, private enterprises are not discouraged. Tax burdens are never delightful, but with
the imposition of the 70 percent cap, there will be an assurance of a steady cash flow to
the government, which can be translated to the production of improved goods, rendition
of better services, and construction of better facilities for the people, including all private
enterprises. Perhaps, Congress deems it best to make our economy depend more on
businesses that are easier to monitor, so there will be a more efficient collection of taxes.
Whatever is expected of the outcome of the law, or its wisdom, should be the sole
responsibility of the representatives chosen by the electorate.
The profit margin rates of various industries generally do not change. However, the profit
margin figures do, because these are obviously monetary variables that affect business,
along with the level of competition, the quality of goods and services offered, and the
cost of their production. And there will inevitably be a conscious desire on the part of
those who engage in business and those who consume their output to adapt or adjust
accordingly to any congressional modification of the VAT system.
In addition, it is contended that the VAT should be proportional in nature. I submit that
this proportionality pertains to the rate imposable, not the credit allowable. Private
enterprises are subjected to a proportional VAT rate, but VAT credits need not be. The
VAT is, after all, a human concept that is neither immutable nor invariable. In fact, it has
changed after it was adopted as a system of indirect taxation by other countries. Again
unlike the laws of physical science, the VAT system can always be modified to suit
modern fiscal demands. The State, through the Legislative Department, may even choose
to do away with it and revert to our previous system of turnover taxes, sales taxes and
compensating taxes, in which credits may be disallowed altogether.
Not expensed, but amortized over its useful life, is capital equipment, which is purchased
or treated as capital leases by private enterprises. Aimed at achieving the twin objectives
of profitability and solvency, such purchase or lease is a matter of prudence in business
decision-making.
Hence, business judgments, sales volume, and their effect on competition are for
businesses to determine and for Congress to regulate -- not for this Court to interfere
with, absent a clear showing that constitutional provisions have been violated. Tax
collection and administrative feasibility are for the executive branch to focus on, again
not for this Court to dwell upon.
The Transcript of the Oral Arguments on July 14, 2005 clearly point out in a long line of
relevant questioning that, absent a violation of constitutional provisions, the Court cannot
interfere with the 70 percent cap, the 5 percent final withholding tax, and the 60-month
amortization, there being other extra-judicial remedies available to petitioners, thus:
"Atty. Baniqued: But if your profit margin is low as i[n] the case of the petroleum dealers,
x x x then we would have a serious problem, Your Honor.
"Justice Panganiban: Isnt the solution to increase the price then?
"Atty. Baniqued: If you increase the price which you can very well do, Your Honor, then
that [will] be deflationary and it [will] have a cascading effect on all other basic
commodities[, especially] because what is involved here is petroleum, Your Honor.
"Justice Panganiban: That may be true[,] but its not unconstitutional?
"Atty. Baniqued: That may be true, Your Honor, but the very limitation of the [seventy
percent] input [VAT], when applied to the case of the petroleum dealers[,] is oppressive[.]
[I]ts unjust and its unreasonable, Your Honor.
"Justice Panganiban: But it can be passed as a part of sales, sales costs rather.
"Atty. Baniqued: But the petroleum dealers here themselves interrupted
"Justice Panganiban: In your [b]alance [s]heet, it could be reflected as Cost of Sales and
therefore the price will go up?
"Atty. Baniqued: Even if it were to be reflected as part of the Cost of Sales, Your Honor,
the [input VAT] that you cannot claim, the benefit to you is only to the extent of the
corporate tax rate which is 32 now 35 [percent].
"Justice Panganiban: Yes.
"Atty. Baniqued: Its not 100 [percent] credi[ta]bility[,] unlike if it were applied against
your [output VAT], you get to claim 100 [percent] of it, Your Honor.
"Justice Panganiban: That might be true, but we are talking about whether that particular
provision would be unconstitutional. You say its oppressive, but you have a remedy,
you just pass it on to the customer. I am not sayin[g] its good[.] [N]either am I saying
its wise[.] [A]ll Im talking about is, whether its constitutional or not.
"Atty. Baniqued: Yes, in fact we acknowledge, Your Honor, that that is a remedy
available to the petroleum dealers, but considering the impact of that limitation[,] and
were just talking of the 70 [percent cap] on [input VAT] in the level of the petroleum
dealers. Were not even talking yet of the limitation on the [input VAT] available to the
manufacturers, so, what if they pass that on as well?
"Justice Panganiban: Yes.
"Atty. Baniqued: Then, it would complicate interrupted
"Justice Panganiban: What I am saying is, there is a remedy, which is business in
character. The mere fact that the government is imposing that [seventy percent] cap does
not make the law unconstitutional, isnt it?
"Atty. Baniqued: It does, Your Honor, if it can be shown. And as we have shown, it is
oppressive and unreasonable, it is excessive, Your Honor interrupted
"Justice Panganiban: If you have no way of recouping it. If you have no way of recouping
that amount, then it will be oppressive, but you have a business way of recouping it[.] I
am saying that, not advising that its good. All I am saying is, is it constitutional or not[?]
Were not here to determine the wisdom of the law, thats up for Congress. As pointed out
earlier, if the law is not wise, the law makers will be changed by the people[.] [T]hat is
their solution t[o] the lack of wisdom of a law. If the law is unconstitutional[,] then the
Supreme Court will declare it unconstitutional and void it, but[,] in this case[,] there
seems to be a business remedy in the same manner that Congress may just impose that
tax straight without saying its [VAT]. If Congress will just say all petroleum will pay 3
[percent] of their Gross Sales, but you dont bear that, you pass that on, isnt it?
"Atty. Baniqued: We acknowledge your concern, Your Honor, but we should not forget
that when the petroleum dealers pass these financial burden or this tax differential to the
consumers, they themselves are consumers in their own right. As a matter of fact, they
filed this case both as petroleum dealer[s] and as taxpayers. If they pass if on, they
themselves would ultimately bear the burden[, especially] in increase[d] cost of
electricity, land transport, food, everything, Your Honor.
"Justice Panganiban: Yes, but the issue here in this Court, is whether that act of Congress
is unconstitutional.
"Atty. Baniqued: Yes, we believe it is unconstitutional, Your Honor.
"Justice Panganiban: You have a right to complain that it is oppressive, it is excessive, it

burdens the people too much, but is it unconstitutional?
"Atty. Baniqued: Besides, passing it on, Your Honor, may not be as simple as it may
seem. As a matter of fact, at the strike of midnight on June 30, when petroleum prices
were being changed upward, the [s]ecretary of [the] Department of Energy was going
around[.] [H]e was seen on TV going around just to check that prices dont go up. And as
a matter of fact, he had pronouncements that, the increase in petroleum price should only
be limited to the effect of 10 [percent] E-VAT.
"Justice Panganiban: Its becaus[e] the implementing rules were not clear and were not
extensive enough to cover how much really should be the increase for various oil
products, refined oil products. Its up for the dealers to guess, and the dealers were
guessing to their advantage by saying plus 10 [percent] anyway, right?
"Atty. Baniqued: In fact, the petroleum dealers, Your Honors, are not only faced with
constitutional issues before this Court. They are also faced with a possibility of the
Department of Energy not allowing them to pass it on[,] because this would be an
unreasonable price increase. And so, they are being hit from both sidesinterrupted
"Justice Panganiban: Thats why I say, that there is need to refine the implementing rules
so that everyone will know, the customers will know how much to pay for gasoline, not
only gasoline, gasoline, and so on, diesel and all kinds of products, so therell be no
confusion and therell be no undue taking advantage. There will be a smooth
implementation[,] if the law were to be upheld by the Court. In your case, as I said, it
may be unwise to pass that on to the customers, but definitely, the dealers will not bear
that [--] to suffer the loss that you mentioned in your consolidated balance sheets.
Certainly, the dealers will not bear that [cost], isnt it?
"Atty. Baniqued: It will be a very hard decision to make, Your Honor.
"Justice Panganiban: Why, you will not pass it on?
"Atty. Baniqued: I cannot speak for the dealers. interrupted.
"Justice Panganiban: As a consumer, I will thank you if you dont pass it on[;] but you or
your clients as businessm[e]n, I know, will pass it on.
"Atty. Baniqued: As I have said, Your Honor, there are many constraints on their ability to
do that[,] and that is why the first step that we are seeking is to seek redress from this
Honorable Court[,] because we feel that the imposition is excessive and oppressive..
interrupted
"Justice Panganiban: You can find redress here, only if you can show that the law is
unconstitutional.
"Atty. Baniqued: We realized that, Your Honor.

"Justice Panganiban: Alright. Lets talk about the 5 [percent] [d]epreciation rate, but
that applies only to the capital equipment worth over a million?
"Atty. Baniqued: Yes, Your Honor.
"Justice Panganiban: And that doesnt apply at all times, isnt it?
"Atty. Baniqued: Well
"Justice Panganiban: That doesnt at all times?
"Atty. Baniqued: For capital goods costing less than 1 million, Your Honor, then.
"Justice Panganiban: That will not apply?
"Atty. Baniqued: That will not apply, but you will have the 70 [percent] cap on input
[VAT], Your Honor.
"Justice Panganiban: Yes, but we talked already about the 70 [percent].
"Justice Panganiban: When you made your presentation on the balance sheet, it is as if
every capital expenditure you made is subject to the 5 [percent,] rather the [five year]
depreciation schedule[.] [T]hats not so. So, the presentation you made is a little
inaccurate and misleading.
"Atty. Baniqued: At the start of our presentation, Your Honor[,] we stated clearly that this
applies only to capital goods costing more than one [million].
"Justice Panganiban: Yes, but you combined it later on with the 70 [percent] cap to show
that the dealers are so disadvantaged. But you didnt tell us that that will apply only when
capital equipment or goods is one million or more. And in your case, what kind of capital
goods will be worth one million or more in your existing gas stations?
"Atty. Baniqued: Well, you would have petroleum dealers, Your Honor, who would
have[,] aside from sale of petroleum[,] they would have their service centers[,] like[] to
service cars and they would have those equipments, they are, Your Honor.
"Justice Panganiban: But thats a different profit center, thats not from the sale of
"Atty. Baniqued: No, they would form part of their [VATable] sale, Your Honor.
Justice Panganiban: Its a different profit center[;] its not in the sale of petroleum
products. In fact the mode now is to put up super stores in huge gas stations. I do not
begrudge the gas station[.] [A]ll I am saying is it should be presented to us in perspective.
Neither am I siding with the government. All I am saying is, when I saw your
complicated balance sheet and mathematics, I saw that you were to put in all the time the
depreciation that should be spread over [five] years. But we have agreed that that applies
only to capital equipment [-- ]not to any kind of goods [--] but to capital equipment
costing over 1 million pesos.
"Atty. Baniqued: Yes, Your Honor, we apologize if it has caused a little confusion.
"Justice Panganiban: Again the solution could b[e] to pass that on, because thats an
added cost, isnt it?
"Atty. Baniqued: Well, yes, you can pass it on.
"Justice Panganiban: I am not teaching you, I am just saying that you have a remedy I
am not saying either that the remedy is wise or should be done, because[,] as a
consumer[,] I wouldnt want that to be done to me.
"Atty. Baniqued: We realiz[e] that, Your Honor, but the fact remain[s] that whether it is in
the hands of the petroleum dealers or in the hands of the consumers[,] if this imposition is
unreasonable and oppressive, it will remain so, even after it is passed on, Your Honor.
"Justice Panganiban: Alright. Lets go to the third. The 5 [percent] withholding tax, [f]inal
[w]ithholding [t]ax, but this applies to sales to government?
"Justice Panganiban: So, you can pass on this 5 [percent] to the [g]overnment. After
all, that 5 [percent] will still go back to the government.
"Atty. Baniqued: Then it will come back to haunt us, Your Honor..
"Justice Panganiban: Why?
"Atty. Baniqued: By way of, for example sales to NAPOCOR or NTC. interrupted
"Justice Panganiban: Sales of petroleum products.
"Atty. Baniqued: in the case of NTC, Your Honor, it would come back to us by
way of increase[d] cost, Your Honor.
"Justice Panganiban: Okay, lets see. You sell, lets say[,] your petroleum products to the
Supreme Court, as a gas station that sells gasoline to us here. Under this law, the 5
[percent] withholding tax will have to be charged, right?

"Justice Panganiban: You will charge that[.] [T]herefore[,] the sales to the Supreme Court
by that gas station will effectively be higher?
"Justice Panganiban: So, the Supreme Court will pay more, you will not [be] going to
[absorb] that 5 [percent], will you?
"Atty. Baniqued; If it is passed on, Your Honor, thats of course we agree. Interrupted.
"Justice Panganiban: Not if, you can pass it on.
"Atty. Baniqued: Yes, we can. interrupted
"Justice Panganiban: There is no prohibition to passing it on[.] [P]robably the gas station
will simply pass it on to the Supreme Court and say[,] well[,] there is this 5 [percent]
final VAT on you so[,] therefore, for every tank full you buy[,] well just have to [charge]
you 5 [percent] more. Well, the Supreme Court will probably say, well, anyway, that 5
[percent] that we will pay the gas dealer, will be paid back to the government, isnt it[?]
So, how [will] you be affected?
"Atty. Baniqued: I hope the passing on of the burden, Your Honor, doesnt come back to
party litigants by way of increase in docket fees, Your Honor.
"Justice Panganiban: But thats quite another m[a]tter, though(laughs) [W]hat I am
saying, Mr. [C]ounsel is, you still have to show to us that your remedy is to declare the
law unconstitutional[,] and its not business in character.
"Atty. Baniqued: Yes, Your Honor, it is our submission that this limitation in the input
[VAT] credit as well as the amortization.
"Justice Panganiban: All you talk about is equal protection clause, about due process,
depreciation of property without observance of due process[,] could really be a remedy
than a business way.
"Atty. Baniqued: Business in the level of the petroleum dealers, Your Honor, or in the
level of Congress, Your Honor.
"Justice Panganiban: Yes, you can pass them on to customers[,] in other words. Its the
customers who should [complain].
"Atty. Baniqued: Yes, Your Honor interrupted
"Justice Panganiban: And perhaps will not elect their representatives anymore[.]
"Atty. Baniqued: Yes, Your Honor..

"Justice Panganiban: For agreeing to it, because the wisdom of a law is not for the
Supreme Court to pass upon.
"Atty. Baniqued: It just so happens, Your Honor, that what is [involved] here is a
commodity that when it goes up, it affects everybody.
"Justice Panganiban: Yes, inflationary and inflammatory.
"Atty. Baniqued: just like what Justice Puno says it shakes the entire economic
foundation, Your Honor.
"Justice Panganiban: Yes, its inflationary[,] brings up the prices of everything
"Atty. Baniqued: And it is our submission that[,] if the petroleum dealers cannot absorb it
and they pass it on to the customers, a lot of consumers would neither be in a position to
absorb it too and that[s] why we patronize, Your Honor.
"Justice Panganiban: There might be wisdom in what youre saying, but is that
unconstitutional?
"Atty. Baniqued: Yes, because as I said, Your Honor, there are even constraints in the
petroleum dealers to pass it on, and we[]re not even sure whether.interrupted
"Justice Panganiban: Are these constraints [--] legal constraints?
"Atty. Baniqued: Well, it would be a different story, Your Honor[.] [T]hats something
we probably have to take up with the Department of Energy, lest [we may] be
accused of ..
"Justice Panganiban: In other words, thats your remedy
[--] to take it up with the Department of Energy
"Atty. Baniqued: ..unreasonable price increases, Your Honor.
"Justice Panganiban: Not for us to declare those provisions unconstitutional.
"Atty. Baniqued: We, again, wish to stress that the petroleum dealers went to this Court[,]
both as businessmen and as consumers. And as consumers, [were] also going to bear the
burden of whatever they themselves pass on.
"Justice Panganiban: You know[,] as a consumer, I wish you can really show that the laws
are unconstitutional, so I dont have to pay it. But as a magistrate of this Court, I will
have to pass upon judgment on the basis of [--] whether the law is unconstitutional or not.
And I hope you can in your memorandum show that.
"Atty. Baniqued: We recognized that, Your Honor." (boldface supplied, pp. 386-410).
Amendments on Other Taxes and Administrative Matters. Finally, the BCCs
amendments regarding other taxes90 are both germane in a legal sense and reasonably
necessary in an economic sense. This fact is evident, considering that the proposed
changes in the VAT law will have inevitable implications and repercussions on such
taxes, as well as on the procedural requirements and the disposition of incremental
revenues, in the Tax Code. Either mitigating measures91 have to be put in place or
increased rates imposed, in order to achieve the purpose of the law, cushion the impact of
increased taxation, and still maintain the equitability desired of any other revenue law.92
Directly related to the proposed VAT changes, these amendments are expected also to
have a salutary effect on the national economy.
The no-amendment rule93 in the Constitution was not violated by the BCC, because no
completely new provision was inserted in the approved bill. The amendments may be
unpopular or even work hardship upon everyone (this writer included). If so, the remedy
cannot be prescribed by this Court, but by Congress.
Rejecting Non-Conflicting
Provisions
Fourth, the BCC may choose neither to adopt nor to consolidate the versions presented to
it by both houses of Congress, but instead to reject non-conflicting provisions in those
versions. In other words, despite the lack of conflict in them, such provisions are still
eliminated entirely from the consolidated bill. There may be a constitutional problem
here.
The no pass-on provisions in the congressional bills are the only item raised by
petitioners concerning deletion.94 As I have already mentioned earlier, these provisions
were in conflict. Thus, the BCC exercised its prerogative to remove them. In fact,
congressional rules give the BCC the power to reconcile disagreeing provisions, and in
the process of reconciliation, to delete them. No other non-conflicting provision was
deleted.
At this point, and after the extensive discussion above, it can readily be seen no nonconflicting provisions of the E-VAT bills were rejected indiscriminately by the BCC.
Approving and Inserting
Completely New Provisions
Fifth, the BCC had the option of inserting completely new provisions not found in any of
the provisions of the bills of either house of Congress, or make and endorse an entirely
new bill as a substitute. Taking this option may be a blatant violation of the Constitution,
for not only will the surreptitious insertion or unwarranted creation contravene the
"origination" principle; it may likewise desecrate the three-reading requirement and the
no-amendment rule.95
Fortunately, however, the BCC did not approve or insert completely new provisions.
Thus, no violation of the Constitution was committed in this regard.
Summary
The enrolled bill doctrine is said to be conclusive not only as to the provisions of a law,
but also to its due enactment. It is not absolute, however, and must yield to mandatory
provisions of the 1987 Constitution. Specifically, this Court has the duty of striking down
provisions of a law that in their enactment violate conditions, restrictions or limitations
imposed by the Constitution.96 The Bicameral Conference Committee (BCC) is a mere
creation of Congress. Hence, the BCC may resolve differences only in conflicting
provisions of congressional bills that are referred to it; and it may do so only on the
condition that such resolution does not violate the origination, the three-reading, and the
no-amendment rules of the Constitution.
In crafting RA 9337, the BCC opted to reconcile the conflicting provisions of the Senate
and House bills, particularly those on the 70 percent cap on input tax; the 5 percent final
withholding tax; percentage taxes on domestic carriers, keepers of garages and
international carriers; franchise taxes; amusement taxes; excise taxes on manufactured
oils and other fuels; registration requirements; issuance of receipts or sales or commercial
invoices; and disposition of incremental revenues. To my mind, these changes do not
violate the origination or the germaneness principles.
Neither is there undue delegation of legislative power in the standby authority given by
Congress to the President. The law is complete, and the standards are fixed. While I
concur with the ponencias view that the President was given merely the power to
ascertain the facts to bring the law into operation -- clearly an administrative, not a
legislative, function -- I stress that the finance secretary remains the Chief Executives
alter ego, not an agent of Congress.
The BCC exercised its prerogative to delete the no pass-on provisions, because these
were in conflict. I believe, however, that it blatantly violated the origination and the
germaneness principles when it inserted provisions not found in the House versions of the
E-VAT Law: (1) increasing the tax rates on domestic, resident foreign and nonresident
foreign corporations; (2) increasing the tax credit against taxes due from nonresident
foreign corporations on intercorporate dividends; and (3) reducing the allowable
deduction for interest expense. Hence, I find these insertions unconstitutional.
Some have criticized the E-VAT Law as oppressive to our already suffering people. On
the other hand, respondents have justified it by comparing it to bitter medicine that
patients must endure to be healed eventually of their maladies. The advantages and
disadvantages of the E-VAT Law, as well as its long-term effects on the economy, are
beyond the reach of judicial review. The economic repercussions of the statute are policy
in nature and are beyond the power of the courts to pass upon.
I have combed through the specific points raised in the Petitions. Other than the three
items on income taxes that I respectfully submit are unconstitutional, I cannot otherwise
attribute grave abuse of discretion to the BCC, or Congress for that matter, for passing the
law.
"[T]he Court -- as a rule -- is deferential to the actions taken by the other branches of
government that have primary responsibility for the economic development of our
country."97 Thus, in upholding the Philippine ratification of the treaty establishing the
World Trade Organization (WTO), Taada v. Angara held that "this Court never forgets
that the Senate, whose act is under review, is one of two sovereign houses of Congress
and is thus entitled to great respect in its actions. It is itself a constitutional body,
independent and coordinate, and thus its actions are presumed regular and done in good
faith. Unless convincing proof and persuasive arguments are presented to overthrow such
presumption, this Court will resolve every doubt in its favor."98 As pointed our in
Cawaling Jr. v. Comelec, the grounds for nullity of the law "must be beyond reasonable
doubt, for to doubt is to sustain."99 Indeed, "there must be clear and unequivocal showing
that what the Constitutions prohibits, the statute permits."100
WHEREFORE, I vote to GRANT the Petitions in part and to declare Sections 1, 2, and 3
of Republic Act No. 9337 unconstitutional, insofar as these sections (a) amend the rates
of income tax on domestic, resident foreign, and nonresident foreign corporations; (b)
amend the tax credit against taxes due from nonresident foreign corporations on
intercorporate dividends; and (c) reduce the allowable deduction for interest expense. The
other provisions are constitutional, and as to these I vote to DISMISS the Petitions.
ARTEMIO V. PANGANIBAN
Associate Justice
Footnotes
1
235 SCRA 630, August 25, 1994; and 249 SCRA 628, October 30, 1995. The
second case is an en banc Resolution on the Motions for Reconsideration of the
first case.
2
417 SCRA 503, December 10, 2003.
"[I]t is well settled that the enrolled bill doctrine is conclusive upon the courts as
regards the tenor of the measure passed by Congress and approved by the
President." Resins Inc. v. Auditor General, 134 Phil. 697, 700, October 29, 1968,
per Fernando, J., later CJ.; (citing Casco Philippine Chemical Co., Inc. v.
Gimenez, 117 Phil. 363, 366, February 28, 1963, per Concepcin, J., later CJ.). It
is a doctrine that flows as a corollary to the separation of powers, and by which
due respect is given by one branch of government to the actions of the others. See
Morales v. Subido, 136 Phil. 405, 412, February 27, 1969.
Following Field v. Clark (143 US 649, 12 S.Ct. 495, February 29, 1892), such
conclusiveness refers not only to the provisions of the law, but also to its due
enactment. Mabanag v. Lopez Vito, 78 Phil. 1, 13-18, March 5, 1947.
"[T]he signing of a bill by the Speaker of the House and the Senate President and
the certification of the Secretaries of both [h]ouses of Congress that it was passed
are conclusive of its due enactment." Farias v. Executive Secretary, supra, p.
529, per Callejo Sr., J.
4
Mabanag v. Lopez Vito, supra, p. 12.
1 of Rule 129 of the Rules of Court.
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.
Cf. Francisco Jr. v. House of Representatives, 415 SCRA 44, November 10,
2003.
9
Tolentino v. Secretary of Finance, supra.
10
2nd paragraph, 1 of Article VIII of the 1987 Constitution.
11
Tolentino v. Secretary of Finance, supra.
12
Arroyo v. De Venecia, 343 Phil. 42, 61-62, August 14, 1997, per Mendoza, J.
13
These refer to House Bill Nos. 3555 & 3705; and Senate Bill No. 1950.
14
26(2) of Article VI of the 1987 Constitution.
15
"The purpose for which three readings on separate days is required is said to be
two-fold: (1) to inform the members of Congress of what they must vote on and
(2) to give them notice that a measure is progressing through the enacting process,
thus enabling them and others interested in the measure to prepare their positions
with reference to it." Tolentino v. Secretary of Finance, supra, p. 647, October 30,
1995, per Mendoza, J.
16
24 of Article VI of the 1987 Constitution.
17
The power of the Senate to propose or concur with amendments is, apparently,
without restriction. By virtue of this power, the Senate can practically rewrite a
bill that is required to come from the House and leave only a trace of the original
bill. See Flint v. Stone Tracy Co., 220 US 107, 31 S.Ct. 342, March 13, 1911.
18
19
Tolentino v. Secretary of Finance, supra, p. 661, August 25, 1994.
20
Garner (ed. in chief), Blacks Law Dictionary (8th ed., 2004), p. 708.
21
Statsky, Wests Legal Thesaurus/Dictionary (1986), p. 348.
22
To argue that the raising of revenues makes the non-VAT provisions of a VAT
bill automatically germane is to bring legal analysis within the penumbra of
economic scrutiny. The burden or impact of any tax depends on the relative
elasticities of supply and demand and is chiefly a matter of policy confined within
the august halls of Congress. See Pindyck and Rubinfeld, Microeconomics (5th
ed., 2003), pp. 314-317.
23
Exxon Mobil Corp. v. Allapattah Services, Inc., 125 S.Ct. 2611, 2622, June 23,
2005, per Kennedy, J.
24
Tolentino v. Secretary of Finance, supra, p. 663, August 25, 1994. See Cruz,
Philippine Political Law (2002), p. 154.
25
Tolentino v. Secretary of Finance, supra, August 25, 1994, per Mendoza, J.
26
Cruz, Philippine Political Law (2002), p. 155.
27
Tolentino v. Secretary of Finance, supra, August 25, 1994.
28
Cruz, Philippine Political Law (2002), p. 111.
29
Tolentino v. Secretary of Finance, supra, p. 668, August 25, 1994.
There is no allegation in any of the memoranda submitted to this Court that the
consolidated bill was not approved. In fact, both houses of Congress voted
separately and majority of each house approved it.
30
On the one hand, 1-3 of House Bill (HB) No. 3555 seek to amend 106, 107
& 108 the Tax Code by increasing the VAT rate to 12% on every sale, barter or
exchange of goods or properties; importation of goods; and sale or exchange of
services, including the use or lease of properties.
1-3 of HB 3705, on the other, seek to amend 106, 107 & 108 the Tax Code
by also increasing the VAT rate to 12% on every sale, barter or exchange of goods
or properties; importation of goods; and sale or exchange of services, including
the use or lease of properties, but decreasing such rate to 8% on every importation
of certain goods; 6% on the sale, barter or exchange of certain locally
manufactured goods; and 4% on the sale, barter or exchange, as well as
importation, of petroleum products subject to excise tax and raw materials to be
used in their manufacture (subject to subsequent increases of such reduced rates),
and on the gross receipts derived from services rendered on the sale of generated
power.
The Tax Code referred to in this case is RA 8424, otherwise known as the "Tax
Reform Act of 1997."
31
4-5 of Senate Bill (SB) No. 1950 seek to amend 106 & 108 of the Tax
Code by retaining the VAT rate of 10% on every sale, barter or exchange of goods
or properties; and on the sale or exchange of services, including the use or lease of
properties, and the sale of electricity by generation, transmission, and distribution
companies.
32
4-6 of the consolidated bill amending 106-108 of the Tax Code,

respectively. Conference Committee Report on HBs 3555 & 3705, and SB 1950,
pp. 4-7.
The predetermined factual scenario in the above-cited sections of the consolidated
bill also appears in 4-6 of Republic Act (RA) No. 9337, amending the same
provisions of the Tax Code. Mathematically, it is expressed as follows:
VAT Collection > 2.8%
GDP
or
National Government Deficit > 1.5%
GDP
33
A negative budget surplus, or an excess of expenditure over revenues, is a

budget deficit. Dornbusch, Fischer, and Startz, Macroeconomics (9th ed., 2005),
p. 231.
34
GDP refers to the value of all goods and services produced domestically; the
sum of gross value added of all resident institutional units engaged in production
(plus any taxes, and minus any subsidies, on products not included in the values
of their outputs). www.nscb.gov.ph/sna/default.asp (Last visited July 14, 2005
10am PST).
35
See Pelaez v. Auditor General, 122 Phil. 965, 974, December 24, 1965.
36
The acts of retroactively implementing the 12 percent VAT rate, should the
finance secretary be able to make recommendation only weeks or months after the
end of fiscal year 2005, or reverting to 10 percent if both conditions are not met,
are best addressed to the political branches of government.
The following excerpts from the Transcript of the Oral Arguments in GR Nos.
168461, 168463, 168056, and 168207, held on July 14, 2005 at the Supreme
Court Session Hall, are instructive on the position of petitioners:
"Atty. Gorospe: [Its] supposed to be 2005, Your Honor, but apparently, it [will]
be impossible to determine GDP the first day of 2006, Your Honor." (p. 57);
xxx
"Justice Panganiban: Now [lets see] when it is possible then to determine this
formula. It cannot be on the first day of January 2006, because the year [2005]
ended just the midnight before, isnt it?
"Atty. Gorospe: Yes, Your Honor.
"Justice Panganiban: x x x if its only determined on March 1[,] then how can the
law become effective January 1[.] In other words, how will the [people be] able to
pay the tax if ever that formula is exceeded x x x?" (pp. 59-60);
xxx
"Atty. Gana: Well, x x x it would take a grace period of 6 to 8 months[,]
because obviously, determination could not be made on January 1, 2006. Yes,
they were under the impression that at the earliest it would take 30 days.
"Justice Panganiban: Historically, when [will] these figures [be] available[:] the
GDP, [VAT] collection?" (p. 192);
xxx
"Justice Panganiban: But certainly not on January 1. Therefore, by January 1,
people would not know whether the rate would be increased or not, even if
there is no discretion?
"Atty. Gana: Thats true, Your Honor, even if there is no discretion.
"Justice Panganiban: It will take weeks, or months to be able to determine that?
"Atty. Gana: Well, they anticipated it, would take at most by March." (p. 193);
and
xxx
"Justice Panganiban: March, I will ask the government later on when they argue.
"Atty. Gana: As early as January but not later than 60 to 90 days." (boldface
supplied; p. 194).
37
38
regulations how much they [would] be charged, how much should gasoline
stations charge in addition to their correct prices, how much carriers should
charge[,] so there [would] be no confusion.
"Usec. Bonoan: Yes, Your Honor." (boldface supplied; pp. 665-666).
37 Using available statistics, it is approximated that the 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. 3536.
41
Farias v. Executive Secretary, 417 SCRA, 503, 530, December 10, 2003.
42
"Any meaningful change in the method and procedures of Congress or its

committees must x x x be sought in that body itself." Tolentino v. Secretary of
Finance, supra, p. 650, October 30, 1995, per Mendoza, J.
43
The necessity, desirability or expediency of a law must be addressed to

Congress as the body that is responsible to the electorate, for "legislators are the
ultimate guardians of the liberties and welfare of the people in quite as great a
degree [as the] courts." Tolentino v. Secretary of Finance, supra, p. 650, October
30, 1995, per Mendoza, J.; (citing Missouri, K. & T. Ry. Co. v. May, 194 US 267,
270, 24 S.Ct. 638, 639, May 2, 1904, per Holmes, J.)
44
45
Farias v. Executive Secretary, 417 SCRA, 503, 524, December 10, 2003.
Flint v. Stone Tracy Co., 220 US 107, 167, 31 S.Ct. 342, 355, March 13, 1911,
per Day, J.
46
"Parliamentary rules are merely procedural, and with their observance, the courts
have no concern. They may be waived or disregarded by the legislative body."
Arroyo v. De Venecia, supra, p. 61, August 14, 1997, per Mendoza, J.; (citing
Osmea Jr. v. Pendatun, 109 Phil 863, 870-871, October 28, 1960, per Bengzon,
J.).
47
HBs 3555 & 3705 do not contain any provision that seeks to revise non-VAT
provisions of the Tax Code, but SB 1950 has 1-3 that seek to amend the rates of
income tax on domestic, resident foreign and nonresident foreign corporations at
35% (30% in 2009), with a tax credit on intercorporate dividends at 20% (15% in
2009); and to reduce the allowable deductions for interest expense by 42% (33%
in 2009) of the interest income subject to final tax.
48
The amendments to income taxes also partake of the nature of taxation without
representation. As I will discuss in the succeeding paragraphs of this Opinion,
they did not emanate from the House of Representatives that, under 24 of Article
VI of the 1987 Constitution, is the only body from which revenue bills should
exclusively originate.
49
Mamalateo, Philippine Income Tax (2004), p. 1.
50
Commissioner of Internal Revenue v. American Express International, Inc.

(Philippine Branch), GR No. 152609, p. 20, June 29, 2005, per Panganiban, J.
See Deoferio Jr. & Mamalateo, The Value Added Tax in the Philippines (2000), p.
36.
51
De Leon, The Fundamentals of Taxation (12th ed., 1998), pp. 92 & 132.
52
53
Vitug, Tax Law and Jurisprudence (2nd ed., 2000), p. 188.
54
55
De Leon, The Law on Transfer and Business Taxation with Illustrations,

Problems, and Solutions (1998), pp. 195-196 & 222-224.
56
57
See 78 of Revenue Regulations No. 2-1940, recommended by Bibiano L. Meer,

then Collector of Internal Revenue, and promulgated by Manuel Roxas, then
Secretary of Finance, later President of the Republic of the Philippines, on
February 11, 1941, XXXIX OG 18, 325.
58
59
RA 8424 refers to the Tax Reform Act of 1997.
60
The 42 percent reduction rate under 3 of RA 9337, amending 34(B)(1) of the

Tax Code, is derived by first subtracting the 20 percent tax on interest income
from the increased tax rate of 35 percent imposed on domestic, resident foreign,
and nonresident foreign corporations, and then dividing the difference obtained by
the increased rate. Hence, it is computed as follows:
35% - 20% = 15%
15% : 35% = 42%, the amount of reduction.
61
1-3 of HB 3705.
62
5 of SB 1950. There seems to be a discrepancy between the Conference

Committee Report and the various pleadings before this Court. While such report,
attaching a copy of the bill as reconciled and approved by its conferees, as well as
the report submitted by the Senates Committee on Ways & Means to the Senate
President on March 7, 2005, show that SB 1950 does not contain a no-pass on
provision, the petitioners and respondents show that it does (Pimentel
Memorandum, Annex A showing a "Matrix on the Disagreeing Provisions of the
[VAT] Bills," pp. 9-11; Escudero Memorandum, p. 42; and Respondents
Memorandum, pp. 109-110). Notably, the qualified dissent of Senator Joker
Arroyo to the Bicameral Conference Report states that the Senate version
prohibits the power companies from passing on the VAT that they will pay.
63
4 of HB 3555 seeks to amend 110(A) of the Tax Code by limiting to 5% and

11% of their respective total amounts the claim for input tax credit of capital
goods, through equal distribution of the amount of such claim over their
depreciable lives; and of goods and services other than capital goods, and goods
purchased by persons engaged in retail trade.
64
7 of SB 1950 seeks to amend 110 of the Tax Code by also limiting the claim
for input tax credit of goods purchased or imported for use in trade or business,
through an even depreciation or amortization over the month of acquisition and
the 59 succeeding months, if the aggregate acquisition cost of such goods exceeds
P 660,000.
The depreciation or amortization in the amendments is referred to as a "spreadout" 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-andcontrolled corporations (GOCCs) -- before making any payment on account of
each purchase of goods from sellers and services rendered by contractors. The
VAT deducted and withheld shall be at the rates of 5% of the gross payment for
the purchase of goods and 8% of the gross receipts for services rendered by
contractors on every sale or installment payment. The VAT that is deducted and
withheld shall be creditable against their respective VAT liabilities -- 10.5%, in
case of government public works contractors; and 12% of the payments for the
lease or use of properties or property rights to nonresident owners.
67
11 of SB 1950 seeks to amend 114 of the Tax Code by requiring that the VAT
be deducted and withheld by the government or by any of its political
subdivisions, instrumentalities or agencies -- including government-owned or
-controlled corporations (GOCCs) -- before making any payment on account of
each purchase of goods from sellers and services rendered by contractors. The
VAT deducted and withheld shall be at the rates of 5% of the gross payment for
the purchase of goods and on the gross receipts for services rendered by
contractors, including public works contractors. The VAT that is deducted and
withheld shall be creditable against the VAT liability of the seller; and 10% of the
gross payment for the lease or use of properties or property rights to nonresident
owners.
68
Deoferio Jr. & Mamalateo, The Value Added Tax in the Philippines (2000), pp.
34-35 & 44.
69
http://explanation-guide.info/meaning/Maurice-Laur.html (Last visited

August 23, 2005, 3:25pm PST).
70
This refers to a "tax on value added" -- TVA in French and VAT in English.
71
http://en.wikipedia.org/wiki/ Maurice-Laur (Last visited August 23, 2005,

3:20pm PST).
72
The Transcript of the Oral Arguments in GR Nos. 168461, 168463, 168056, and
168207, held on July 14, 2005 at the Supreme Court Session Hall, show that the
act of passing on to consumers is a mere cash flow problem, as agreed to by
counsel for petitioners in GR No. 168461:
"Justice Panganiban: So, the final consumer pays the tax?
"Justice Panganiban: The trade people in between the middlemen just take it as an
input and then [collect] it as output, isnt it?
Atty. Baniqued: Yes, Your Honor.
"Justice Panganiban: Its just a cash flow problem for them, essentially?
"Atty. Baniqued: Yes x x x." (p. 375).
73
The 5 percent final withholding tax may also be charged as part of a suppliers
Cost of Sales.
74
This refers to RA 8424, as amended.
75
In fact, 112(B) of the Tax Code, prior to and after its amendment by 10 of RA
9337, does not at all prohibit the application of unused input taxes against other
internal revenue taxes. The manner of application is determined though by the
BIR through 4.112-1(b) of Revenue Regulations No. 14-2005, otherwise known
as the "Consolidated VAT Regulations of 2005," dated June 22, 2005.
76
That the unutilized input VAT can be considered an ordinary and necessary
expense for which a corresponding deduction will be allowed against gross
income under 34(A)(1) of the Tax Code -- instead of a deferred asset -- is
another matter to be adjudicated upon in proper cases.
77
See United Paracale Mining Co. v. De la Rosa, 221 SCRA 108, 115, April 7,
1993.
78
The law referred to is not only the Tax Code, but also RA 9298, otherwise
known as the "Philippine Accountancy Act of 2004."
79
These are based on pronouncements of recognized bodies involved in setting

accounting principles. Greatest weight shall be given to their pronouncements in
the order listed below:
1. Securities and Exchange Commission (SEC);
2. Accounting Standards Council;
3. Standards issued by the International Accounting Standards Board (now
Committee); and
4. Accounting principles and practices for which there has been a long history of
acceptance and usage.
If there appears to be a conflict between any of the bodies listed above, the
pronouncements of the first listed body shall be applied. SEC Securities
Regulation Code Rule 68(1)(b)(iv) as amended, cited in Appendix C of Morales,
The Philippine Securities Regulation Code (Annotated), [2005], p. 578.
Recommended by the World Bank and the Asian Development Bank, and
increasingly recognized worldwide, international accounting standards (IAS) have
been merely adopted by Philippine regulatory bodies and accredited professional
organizations. The SEC, for instance, complies with the agreement among comembers 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. 3334. With the 70 percent cap on output tax that is allowable as an input tax credit,
the remaining 30 percent becomes an outright expense that is, however,
immediately payable and remitted by the business establishment to the
government. This amount can never be recovered or passed on to the consumer,
but it can be an allowable deduction from gross income under 34(A)(1) of the
Tax Code. In effect, it is a tax computed by multiplying 30 percent to the 10
percent VAT that is imposed on gross sales, receipts or revenues. It is not a tax on
tax and, mathematically, it is derived as follows:
30% x 10% = 3% of gross sales, receipts or revenues.

82
"Double taxation means taxing the same property [or subject matter] twice
when it should be taxed only once; that is, taxing the same person twice by the
same jurisdiction for the same thing." Commissioner of Internal Revenue v.
Solidbank Corp., 416 SCRA 436, November 25, 2003, per Panganiban, J.; (citing
Afisco Insurance Corp. v. CA, 361 Phil. 671, 687, January 25, 1999, per
Panganiban, J.). See Commissioner of Internal Revenue v. Bank of Commerce, GR
No. 149636, pp. 17-18, June 8, 2005.
83
"The rule x x x is well settled that there is no constitutional prohibition against

double taxation." China Banking Corp. v. CA, 403 SCRA 634, 664, June 10, 2003,
per Carpio, J. Cruz, Constitutional Law (1998), p. 89.
84
116 of the Tax Code as amended.
85
"[C]ourts accord the presumption of constitutionality to legislative enactments,

not only because the legislature is presumed to abide by the Constitution[,] but
also because the judiciary[,] in the determination of actual cases and
controversies[,] must reflect the wisdom and justice of the people as expressed
through their representatives in the executive and legislative departments of the
government." Angara v. Electoral Commission, 63 Phil. 139, 158-159, July 15,
1936, per Laurel, J.; (cited in Francisco Jr. v. House of Representatives, supra, pp.
121-122.)
86
Cawaling Jr. v. COMELEC, 420 Phil. 524, 530, October 26, 2001, per
Sandoval-Gutierrez, J.
87
Ichong v. Hernandez, 101 Phil. 1155, 1164, May 31, 1957, per Labrador, J.
88
De Leon, The Fundamentals of Taxation (12th ed., 1998), p. 1.
89
Except, as earlier discussed, for Sections 1, 2 and 3 of the law.
90
13-20 of SB 1950 seek to amend Tax Code provisions on percentage taxes on

domestic carriers and keepers of garages in 117, and on international carriers in
118; franchise taxes in 119; amusement taxes in 125; excise taxes on
manufactured oils and other fuels in 148; registration requirements in 236;
issuance of receipts or sales or commercial invoices in 237; and disposition of
incremental revenues in 288.
91
"[T]he removal of the excise tax on diesel x x x and other socially sensitive
products such as kerosene and fuel oil substantially lessened the impact of VAT.
The reduction in import duty x x x also eased the impact of VAT." Manila
Bulletin, "Impact of VAT on prices of oil products should be less than 10%, says
DoE," by James A. Loyola, Business Bulletin B-3, Friday, July 1, 2005, attached
as Annex A to the Memorandum filed by the Association of Pilipinas Shell

Dealers, Inc.
The Transcript of the Oral Arguments in GR Nos. 168461, 168463, 168056, and
168207 on July 14, 2005 also reveals the effect of mitigating measures upon
petitioners in GR No. 168461:
"Justice Panganiban: As a matter of fact[,] a part of the mitigating measures
would be the elimination of the [e]xcise [t]ax and the import duties. That is [why]
it is not correct to say that the [VAT] as to petroleum dealers increase to 10
[percent].
"Justice Panganiban: And[,] therefore, there is no justification for increasing the
retail price by 10 [percent] to cover the E-[VAT.] [I]f you consider the excise tax
and the import duties, the [n]et [t]ax would probably be in the neighborhood of 7
[percent]? We are not going into exact figures[.] I am just trying to deliver a point
that different industries, different products, different services are hit differently.
So its not correct to say that all prices must go up by 10 [percent].
"Atty. Baniqued: Youre right, Your Honor.
"Justice Panganiban: Now. For instance, [d]omestic [a]irline companies, Mr.
Counsel, are at present imposed a [s]ales [t]ax of 3 [percent]. When this E-[VAT]
law took effect[,] the [s]ales [t]ax was also removed as a mitigating measure. So,
therefore, there is no justification to increase the fares by 10 [percent;] at best 7
[percent], correct?
"Atty. Baniqued: I guess so, Your Honor, yes." (pp. 367-368).
92
93
94
These bills refer to HB 3705 and SB 1950.
95
26(2), supra.
96
"Each house may not by its rules ignore constitutional restraints or violate
fundamental rights, and there should be a reasonable relation between the mode or
method of proceeding established by the rule and the result which is sought to be
attained." US v. Ballin, 144 US 1, 5, 12 S.Ct. 507, 509, February 29, 1892, per
Brewer, J.
97
Panganiban, Leveling the Playing Field (2004), PRINTTOWN Group of

Companies, pp. 46-47.
98
338 Phil. 546, 604-605, May 2, 1997, per Panganiban, J.
99
420 Phil. 525, 531, October 26, 2001, per Sandoval-Gutierrez, J.; (citing The
Philippine Judges Association v. Prado, 227 SCRA 703, 706, November 11, 1993,
per Cruz, J.).
100
Veterans Federation Party v. COMELEC, 396 Phil. 419, 452-453, October 6,

2000, per Panganiban, J.; (citing Garcia v. COMELEC, 227 SCRA 100, 107-108,
October 5, 1993).
EN BANC
G.R. No. 168056 --- ABAKADA Guro Party List (Formerly AASJAS) Officers
Samson S. Alcantara and Ed Vincent S. Albano, Petitioners, versus The Honorable
Executive Secretary Eduardo Ermita, et al., Respondents.
G.R. No. 168207 --- Aquilino Q. Pimentel, Jr., et al., Petitioners, versus Executive
Secretary Eduardo R. Ermita, et al., Respondents.
G.R. No. 168461 --- Association of Pilipinas Shell Dealers, Inc., et al., Petitioners,
versus Cesar V. Purisima, et al., Respondents.
G.R. No. 168463 --- Francis Joseph G. Escudero, et al., Petitioners, versus Cesar V.
Purisima, et al., Respondents.
G.R. No. 168730 --- Bataan Governor Enrique T. Garcia, Jr., et al., Petitioners, versus
Hon. Eduardo R. Ermita, et al., Respondents.
Promulgated:
September 1, 2005
x ---------------------------------------------------------------------------------------- x
CONCURRING AND DISSENTING OPINION
YNARES-SANTIAGO, J.:
The ponencia states that under the provisions of the Rules of the House of
Representatives and the Senate Rules, the Bicameral Conference Committee is mandated
to settle differences between the disagreeing provisions in the House bill and Senate bill.
However, the ponencia construed the term "settle" as synonymous to "reconcile" and
"harmonize," and as such, the Bicameral Conference Committee may either (a) adopt the
specific provisions of either the House bill or Senate bill, (b) decide that neither
provisions in the House bill or the provisions in the Senate bill would be carried into the
final form of the bill, and/or (c) try to arrive at a compromise between the disagreeing
provisions.
I beg to differ on the third proposition.
Indeed, Section 16(3), Article VI of the 1987 Constitution explicitly allows each House to
determine the rules of its proceedings. However, the rules must not contravene
constitutional provisions. The rule-making power of Congress should take its bearings
from the Constitution. If in the exercise of this rule-making power, Congress failed to set
parameters in the functions of the committee and allowed the latter unbridled authority to
perform acts which Congress itself is prohibited, like the passage of a law without
undergoing the requisite three-reading and the so-called no-amendment rule, then the
same amount to grave abuse of discretion which this Court is empowered to correct under
its expanded certiorari jurisdiction. Notwithstanding the doctrine of separation of powers,
therefore, it is the duty of the Court to declare as void a legislative enactment, either
from want of constitutional power to enact or because the constitutional forms or
conditions have not been observed.1 When the Court declares as unconstitutional a law
or a specific provision thereof because procedural requirements for its passage were not
complied, the Court is by no means asserting its ascendancy over the Legislature, but
simply affirming the supremacy of the Constitution as repository of the sovereign will.2
The judicial branch must ensure that constitutional norms for the exercise of powers
vested upon the two other branches are properly observed. This is the very essence of
judicial authority conferred upon the Court under Section 1, Article VII of the 1987
Constitution.
The Rules of the House of Representatives and the Rules of the Senate provide that in the
event there is disagreement between the provisions of the House and Senate bills, the
differences shall be settled by a bicameral conference committee.
By this, I fully subscribe to the theory advanced in the Dissenting Opinion of Chief
Justice Hilario G. Davide, Jr. in Tolentino v. Secretary of Finance3 that the authority of the
bicameral conference committee was limited to the reconciliation of disagreeing
provisions or the resolution of differences or inconsistencies. Thus, it could only either
(a) restore, wholly or partly, the specific provisions of the House bill amended by the
Senate bill, (b) sustain, wholly or partly, the Senates amendments, or (c) by way of a
compromise, to agree that neither provisions in the House bill amended by the
Senate nor the latters amendments thereto be carried into the final form of the
former.
Otherwise stated, the Bicameral Conference Committee is authorized only to adopt either
the version of the House bill or the Senate bill, or adopt neither. It cannot, as the
ponencia proposed, "try to arrive at a compromise", such as introducing provisions not
included in either the House or Senate bill, as it would allow a mere ad hoc committee to
substitute the will of the entire Congress and without undergoing the requisite threereading, 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 ponencias
submission that despite its limited authority, the Bicameral Conference Committee could
"compromise the disagreeing provisions" by substituting it with its own version clearly
violate the three-reading requirement, as the committees version would no longer
undergo the same since it would be immediately put into vote by the respective houses. In
effect, it is not a bill that was passed by the entire Congress but by the members of the ad
hoc committee only, which of course is constitutionally infirm.
I disagree that the no-amendment rule referred only to "the procedure to be followed by
each house of Congress with regard to bills initiated in each of said respective houses"
because it would relegate the no-amendment rule to a mere rule of procedure. To my
mind, the no-amendment rule should be construed as prohibiting the Bicameral
Conference Committee from introducing amendments and modifications to nondisagreeing 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.
Angara v. Electoral Commission, 63 Phil. 139, 158 [1936].
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:
(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
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.
I
Undue Delegation of Legislative Power
Taxation is an inherent attribute of sovereignty.5 It is a power that is purely legislative and
which the central legislative body cannot delegate either to the executive or judicial
department of government without infringing upon the theory of separation of powers.6
The rationale of this doctrine may be traced from the democratic principle of "no taxation
without representation." The power of taxation being so pervasive, it is in the best interest
of the people that such power be lodged only in the Legislature. Composed of the
peoples representatives, it is "closer to the pulse of the people and are therefore in a
better position to determine both the extent of the legal burden the people are capable of
bearing and the benefits they need."7 Also, this set-up provides security against the abuse
of power. As Chief Justice Marshall said: "In imposing a tax, the legislature acts upon its
constituents. The power may be abused; but the interest, wisdom, and justice of the
representative body, and its relations with its constituents, furnish a sufficient security."
Consequently, Section 24, Article VI of our Constitution enshrined the principle of "no
taxation without representation" by providing that "all revenue bills shall originate
exclusively in the House of Representatives, but the Senate may propose or concur with
amendments." This provision generally confines the power of taxation to the Legislature.
R.A. No. 9337, in granting to the President the stand-by authority to increase the VAT
rate from 10% to 12%, the Legislature abdicated its power by delegating it to the
President. This is constitutionally impermissible. The Legislature may not escape its
duties and responsibilities by delegating its power to any other body or authority. Any
attempt to abdicate the power is unconstitutional and void, on the principle that potestas
delegata non delegare potest.8 As Judge Cooley enunciated:
"One of the settled maxims in constitutional law is, that the power conferred upon the
legislature to make laws cannot be delegated by that department to any other body or
authority. Where the sovereign power of the state has located the authority, there it
must remain; and by the constitutional agency alone the laws must be made until
the Constitution itself is changed. The power to whose judgment, wisdom, and
patriotism this high prerogative has been entrusted cannot relieve itself of the
responsibility by choosing other agencies upon which the power shall be devolved, nor
can it substitute the judgment, wisdom, and patriotism of any other body for those to
which alone the people have seen fit to confide this sovereign trust."9
Of course, the rule which forbids the delegation of the power of taxation is not absolute
and inflexible. It admits of exceptions. Retired Justice Jose C. Vitug enumerated such
exceptions, to wit: (1) delegations to local governments (to be exercised by the local
legislative bodies thereof) or political subdivisions; (2) delegations allowed by the
Constitution; and (3) delegations relating merely to administrative implementation that
may call for some degree of discretionary powers under a set of sufficient standards
expressed by law.10
Patently, the act of the Legislature in delegating its power to tax does not fall under any
of the exceptions.
First, it does not involve a delegation of taxing power to the local government. It is a
delegation to the President.
Second, it is not allowed by the Constitution. Section 28 (2), Article VI of the
Constitution enumerates the charges or duties, the rates of which may be fixed by the
President pursuant to a law passed by Congress, thus:
The Congress may, by law, authorize the President to fix within specified limits, and
subject to such limitations and restrictions as it may impose, tariff rates, import and
export quotas, tonnage and wharfage dues, and other duties or imposts within the
framework of the national development program of the Government.
Noteworthy is the absence of tax rates or VAT rates in the enumeration. If the intention
of the Framers of the Constitution is to permit the delegation of the power to fix tax rates
or VAT rates to the President, such could have been easily achieved by the mere
inclusion of the term "tax rates" or "VAT rates" in the enumeration. It is a dictum in
statutory construction that what is expressed puts an end to what is implied.
Expressium facit cessare tacitum.11 This is a derivative of the more familiar maxim
express mention is implied exclusion or expressio unius est exclusio alterius.
Considering that Section 28 (2), Article VI expressly speaks only of "tariff rates,12
import13 and export

quotas,14 tonnage15 and wharfage dues16 and other duties and imposts,17" by no stretch of
imagination can this enumeration be extended to include the VAT.
And third, it does not relate merely to the administrative implementation of R.A. No.
9337.
In testing whether a statute constitutes an undue delegation of legislative power or not, it
is usual to inquire whether the statute was complete in all its terms and provisions when it
left the hands of the Legislature so that nothing was left to the judgment of any other
appointee or delegate of the legislature.18
In the present case, the President is the delegate of the Legislature, endowed with the
power to raise the VAT rate from 10 % to 12% if any of the following conditions, to
reiterate, has been satisfied: (i) value-added tax collection as a percentage of gross
domestic product (GDP) of the previous year exceeds two and four-fifths percent (2
4/5%) or (ii) National Government deficit as a percentage of GDP of the previous year
exceeds one and one-half percent (1 %).
At first glance, the two conditions may appear to be definite standards sufficient to guide
the President. However, to my mind, they are ineffectual and malleable as they give the
President ample opportunity to exercise her authority in arbitrary and discretionary
fashion.
The two conditions set forth by law would have been sufficient had it not been for the
fact that the President, being at the helm of the entire officialdom, has more than enough
power of control to bring about the existence of such conditions. Obviously, R.A. No.
9337 allows the President to determine for herself whether the VAT rate shall be
increased or not at all. The fulfillment of the conditions is entirely placed in her hands. If
she wishes to increase the VAT rate, all she has to do is to strictly enforce the VAT
collection so as to exceed the 2 4/5% ceiling. The same holds true with the national
government deficit. She will just limit government expenses so as not to exceed the 1 %
ceiling. On the other hand, if she does not wish to increase the VAT rate, she may
discourage the Secretary of Finance from making the recommendation.
That the Presidents exercise of an authority is practically within her control is
tantamount to giving no conditions at all. I believe this amounts to a virtual surrender of
legislative power to her. It must be stressed that the validity of a law is not tested by what
has been done but by what may be done under its provisions.19
II
Violation of Due Process
The constitutional safeguard of due process is briefly worded in Section 1, Article III of
the Constitution which states that, "no person shall be deprived of life, liberty or property
without due process of law."20
Substantive due process requires the intrinsic validity of the law in interfering with the
rights of the person to his property. The inquiry in this regard is not whether or not the
law is being enforced in accordance with the prescribed manner but whether or not, to
begin with, it is a proper exercise of legislative power.
To be so, the law must have a valid governmental objective, i.e., the interest of the
public as distinguished from those of a particular class, requires the intervention of the
State. This objective must be pursued in a lawful manner, or in other words, the means
employed must be reasonably related to the accomplishment of the purpose and not
unduly oppressive.
There is no doubt that R.A. No. 9337 was enacted pursuant to a valid governmental
objective, i.e. to raise revenues for the government. However, with respect to the means
employed to accomplish such objective, I am convinced that R.A. No. 9337, particularly
Sections 4, 5 and 6 thereof, are arbitrary and unduly oppressive.
A reading of the Senate deliberation reveals that the first condition constitutes a reward to
the President for her effective collection of VAT. Thus, the President may increase the
VAT rate from 10% to 12% if her VAT collection during the previous year exceeds 2
4/5% of the Gross Domestic Product. I quote the deliberation:
Senator Lacson. Thank you, Mr. President. Now, I will go back to my original question,
my first question. Who are we threatening to punish on the imposed condition No. 1 the
public or the President?
Senator Recto. That is not a punishment, that is supposed to be a reward system.
Senator Lacson. Yes, an incentive. So we are offering an incentive to the Chief
Executive.
Senator Recto. That is right.
Senator Lacson. in order for her to be able to raise the VAT to 12 %.
Senator Recto. That is right. That is the intention, yes.
xxxxxx
Senator Osmena. All right. Therefore, with the lifting of exemptions it stands to
reason that Value-added tax collections as a percentage of GDP will be much higher
than Now, if it is higher than 2.5%, in other words, because they collected more,
we will allow them to even tax more. Is that the meaning of this particular phrase?
Senator Recto. Yes, Mr. President, that is why it is as low as 2.8%. It is like if a
person has a son and his son asks him for an allowance, I do not think that he would
immediately give his son an increase in allowance unless he tells his son, You better
improve your grades and I will give you an allowance. That is the analogy of this.
xxxxxx
Senator Osmena. So the gentleman is telling the President, If you collect more than
138 billion, I will give you additional powers to tax the people.
Senator Recto. x x x We are saying, kung mataas and grade mo, dadagdagan ko an
allowance mo. Katulad ng sinabi natin ditto. What we are saying here is you prove
to me that you can collect it, then we will increase your rate, you can raise your rate.
It is an incentive.21
Why authorize the President to increase the VAT rate on the premise alone that she
deserves an "incentive" or "reward"? Indeed, why should she be rewarded for performing
a duty reposed upon her by law?
The rationale stated by Senator Recto is flawed. One of the principles of sound taxation is
fiscal adequacy. The proceeds of tax revenue should coincide with, and approximate the
needs of, government expenditures. Neither an excess nor a deficiency of revenue vis-vis the needs of government would be in keeping with the principle.22
Equating the grant of authority to the President to increase the VAT rate with the grant of
additional allowance to a studious son is highly inappropriate. Our Senators must have
forgotten that for every increase of taxes, the burden always redounds to the people.
Unlike the additional allowance given to a studious son that comes from the pocket of the
granting parent alone, the increase in the VAT rate would be shouldered by the masses.
Indeed, mandating them to pay the increased rate as an award to the President is arbitrary
and unduly oppressive. Taxation is not a power to be exercised at ones whim.
III
Exclusive Origination from the
House of Representatives
Section 24, Article VI of the Constitution provides:
SEC. 24. All appropriations, revenue or tariff bills, bills authorizing increase of the
public debt, 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 Senates power not only to concur with
amendments: but also to propose amendments. It would be to violate the co-equality of
the legislative power of the two houses of Congress and in fact, make the House superior
to the Senate."
The case at bar gives us an opportunity to take a second hard look at the efficacy of the
foregoing jurisprudence.
Section 25, Article VI is a verbatim re-enactment of Section 18, Article VI of the 1935
Constitution. The latter provision was modeled from Section 7 (1), Article I of the United
States Constitution, which states:
"All bills for raising revenue shall originate in the House of Representatives, but the
Senate may propose or concur with amendments, as on other bills."
The American people, in entrusting what James Madison termed "the power of the purse"
to their elected representatives, drew inspiration from the British practice and experience
with the House of Commons. As one commentator puts it:
"They knew the inestimable value of the House of Commons, as a component branch of
the British parliament; and they believed that it had at all times furnished the best security
against the oppression of the crown and the aristocracy. While the power of taxation, of
revenue, and of supplies remained in the hands of a popular branch, it was difficult
for usurpation to exist for any length of time without check, and prerogative must
yield of that necessity which controlled at once the sword and the purse."
But while the fundamental principle underlying the vesting of the power to propose
revenue bills solely in the House of Representatives is present in both the Philippines and
US Constitutions, stress must be laid on the differences between the two quoted
provisions. For one, the word "exclusively" appearing in Section 24, Article VI of our
Constitution is nowhere to be found in Section 7 (1), Article I of the US Constitution. For
another, the phrase "as on other bills," present in the same provision of the US
Constitution, is not written in our Constitution.
The adverb "exclusively" means "in an exclusive manner."24 The term "exclusive" is
defined as "excluding or having power to exclude; limiting to or limited to; single, sole,
undivided, whole."25 In one case, this Court define the term "exclusive" as "possessed to
the exclusion of others; appertaining to the subject alone, not including, admitting, or
pertaining to another or others."26
As for the term "originate," its meaning are "to cause the beginning of; to give rise to;
to initiate; to start on a course or journey; to take or have origin; to be deprived;
arise; begin or start."27
With the foregoing definitions in mind, it can be reasonably concluded that when Section
24, Article VI provides that revenue bills shall originate exclusively from the House of
Representatives, what the Constitution mandates is that any revenue statute must begin
or start solely and only in the House. Not the Senate. Not both Chambers of Congress.
But there is more to it than that. It also means that "an act for taxation must pass the
House first." It is no consequence what amendments the Senate adds.28
A perusal of the legislative history of R.A. No. 9337 shows that it did not "exclusively
originate" from the House of Representatives.
The House of Representatives approved House Bill Nos. 355529 and 370530. These Bills
intended to amend Sections 106, 107, 108, 109, 110, 111 and 114 of the NIRC. For its
part, the Senate approved Senate Bill No. 1950,31 taking into consideration House Bill
Nos. 3555 and 3705. It intended to amend Sections 27, 28, 34, 106, 108, 109, 110, 112,
113, 114, 116, 117, 119, 121, 125, 148, 151, 236, 237 and 288 of the NIRC.
Thereafter, on April 13, 2005, a Committee Conference was created to thresh out the
disagreeing provisions of the three proposed bills.
In less than a month, the Conference Committee "after having met and discussed in full
free and conference," came up with a report and recommended the approval of the
consolidated version of the bills. The Senate and the House of Representatives approved
it.
On May 23, 2005, the enrolled copy of the consolidated version of the bills was
transmitted to President Arroyo, who signed it into law. Thus, the enactment of R.A. No.
9337, entitled "An Act Amending Sections 27, 28, 34, 106, 107, 108, 109, 110, 111, 112,
113, 114, 116, 117, 119, 121, 148, 151, 236, 237 and 288 of the National Internal
Revenue Code of 1997, As Amended and For Other Purposes."
Clearly, Senate Bill No. 1950 is not based on any bill passed by the House of
Representatives. It has a legislative identity and existence separate and apart from House
Bills No. 3555 and 3705. Instead of concurring or proposing amendments, Senate Bill
No. 1950 merely "takes into consideration" the two House Bills. To take into
consideration means "to take into account." Consideration, in this sense, means
"deliberation, attention, observation or contemplation.32 Simply put, the Senate in passing
Senate Bill No. 1950, a tax measure, merely took into account House Bills No. 3555 and
3705, but did not concur with or amend either or both bills. As a matter of fact, it did not
even take these two House Bills as a frame of reference.
In Tolentino, the majority subscribed to the view that Senate may amend the House
revenue bill by substitution or by presenting its own version of the bill. In either case, the
result is "two bills on the same subject."33 This is the source of the "germaneness" rule
which states that the Senate bill must be germane to the bill originally passed by the
House of Representatives. In Tolentino, this was not really an issue as both the House and
Senate Bills in question had one subject the VAT.
The facts obtaining here is very much different from Tolentino. It is very apparent that
House Bills No. 3555 and 3705 merely intended to amend Sections 106, 107, 108, 109,
110, 111 and 114 of the NIRC of 1997, pertaining to the VAT provisions. On the other
hand, Senate Bill No. 1950 intended to amend Sections 27, 28, 34, 106, 108, 109, 110,
112, 113, 114, 116, 117, 119, 121, 125, 148, 151, 236, 237 and 288 of the NIRC,
pertaining to matters outside of VAT, such as income tax, percentage tax, franchise tax,
taxes on banks and other financial intermediaries, excise taxes, etc.
Thus, I am of the position that the Senate could not, without violating the germaneness
rule and the principle of "exclusive origination," propose tax matters not included in the
House Bills.
WHEREFORE, I vote to CONCUR with the majority opinion except with respect to the
points above-mentioned.
ANGELINA SANDOVAL-GUTIERREZ
Associate Justice
Footnotes
1
Book V of The Wealth of Nations.
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.
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).
Cooley on Constitutional Limitations, 8th ed., Vol. I, p. 224.
10
Vitug, Acosta, Tax Law and Jurisprudence, Second Edition, at 8-9.
11
Espiritu vs. Cipriano, G.R. No. 32743, February 15, 1974, 55 SCRA 533, 538,
citing Sutherlands Statutory Construction, Vol. 2, Section 4945, p. 412.
12
A tariff is a list or schedule of articles on which a duty is imposed upon their

importation, with the rates at which they are severally taxed, it is also the custom
or duty payable on such articles. (Blacks Law Dictionary [6th Edition], 1990, at
1456).
13
An import quota is a quantitative restriction on the importation of an article into

a country, and is a remedy available to the executive department upon its
determination that an imported article threatens serious injury to a domestic
industry. (Id. at 755).
14
An export quota is an amount of specific goods which may be exported and are
set by the government for purposes of national defense, economic stability and
price support. (Id. at 579).
15
Tonnage dues are duties laid upon vessels according to their tonnage or cubical
capacity. (Id. at 1488).
16
Wharfage dues are generally understood to be the fees paid for landing goods
upon or loading them from a wharf. It is a charge for the use of the wharf and may
be treated either as rent or compensation. (Marine Lighterage Corp. vs.
Luckenbach S.S. Co., 119 Misc. 612, 248 NYS 71).
17
A duty is generally understood to be a tax on the importation or exportation of

goods, merchandise and other commodities, while imposts are duties or
impositions levied for various reasons. (Crew Levick Co. vs. Commonwealth of
Pennsylvania, 245 US 292, 62 L. Ed. 295, 38 S. Ct. 126).
18
People vs. Vera, supra.
19
Walter E. Olsen & Co. vs. Aldanese and Trinidad (1922), 43 Phil., 259; 12 C. J.,
p. 786.
20
Cruz, Constitutional Law, 1987 Edition, at 101.
21
TSN, May 10, 2005, Annex E" of the Petition in G.R. No. 168056.
22
Vitug, Acosta, Tax Law and Jurisprudence, Second Edition, at 3.
23
G.R. No. 115455, August 25, 1994, 235 SCRA 630.
24
Merriam-Websters Third New International Dictionary (1993 Ed.), at 793.
25
Id.
26
City Mayor vs. The Chief of Philippine Constabulary, G.R. No. 20346, October
31, 1967, 21 SCRA 665, 673.
27
28
Davies, Legislative Law and Process, (2d. Ed. 1986), at 89.
29
Entitled "An Act Restructuring the Value-Added Tax, Amending for the Purpose
Sections 106, 107, 108, 110 and 114 of the National Internal Revenue Code of
1997, As amended, and For Other Purposes." Approved on January 27, 2005.
30
Entitled "An Act Amending Sections 106, 107, 108, 109, 110 and 111 of the
National Internal Revenue Code of 1997, As Amended, and For Other Purposes."
Approved on February 28, 2005.
31
Entitled "An Act Amending Sections 27, 28, 34, 106,108, 109,110, 112, 113, 114,
116, 117, 119, 121, 125, 148, 151, 236, 237 and 288 of the National Internal
Revenue Code of 1997, As Amended, and For Other Purposes." Approved on
April1 3, 2005.
32
33
Supra.
G.R. No. 168056 (Abakada Guro Party List [Formerly AASJAS] Officers Samson S.
Alcantara and Ed Vincent S. Albano v. The Hon. Executive Secretary Eduardo Ermita,
et al.)
G.R. No. 168207 (Aquilino Q. Pimentel, Jr., et al. v. Executive Secretary Eduardo R.
Ermita, et al.)
G.R. No. 168461 (Association of Filipinas Shell Dealers, Inc., et al. v. Cesar V.
Purisima, et al.)
G.R. No. 168463 (Francis Joseph G. Escudero, et al. v. Cesar V. Purisima, et al.)
G.R. No. 168730 (Bataan Governor Enrique T. Garcia, Jr. v. Hon. Eduardo R.
Ermita, et al.)
Promulgated:
September 1, 2005
X--------------------------------------------------X
CALLEJO, SR., J.:
I join the concurring and dissenting opinion of Mr. Justice Reynato S. Puno as I concur
with the majority opinion but vote to declare as unconstitutional the deletion of the "nopass on provision" contained in Senate Bill No. 1950 and House Bill No. 3705 (the
constituent bills of Republic Act No. 9337).
The present petitions provide an opportune
occasion for the Court to re-examine
Tolentino v. Secretary of Finance
In ruling that Congress, in enacting R.A. No. 9337, complied with the formal
requirements of the Constitution, the ponencia relies mainly on the Courts rulings in
Tolentino v. Secretary of Finance.1 To recall, Tolentino involved Republic Act No. 7716,
which similarly amended the NIRC by widening the tax base of the VAT system. The
procedural attacks against R.A. No. 9337 are substantially the same as those leveled
against R.A. No. 7716, e.g., violation of the "Origination Clause" (Article VI, Section 24)
and the "Three-Reading Rule" and the "No-Amendment Rule" (Article VI, Section 26[2])
of the Constitution.
The present petitions provide an opportune occasion for the Court to re-examine its
rulings in Tolentino particularly with respect to the scope of the powers of the Bicameral
Conference Committee vis--vis Article VI, Section 26(2) of the Constitution.
The crucial issue posed by the present petitions is whether the Bicameral Conference
Committee may validly introduce amendments that were not contained in the respective
bills of the Senate and the House of Representatives. As a corollary, whether it may
validly delete provisions uniformly contained in the respective bills of the Senate and the
House of Representatives.
In Tolentino, the Court declared as valid amendments introduced by the Bicameral
Conference Committee even if these were not contained in the Senate and House bills.
The majority opinion therein held:
As to the possibility of an entirely new bill emerging out of a Conference Committee, it
has been explained:
Under congressional rules of procedures, conference committees are not expected to
make any material change in the measure at issue, either by deleting provisions to which
both houses have already agreed or by inserting new provisions. But this is a difficult
provision to enforce. Note the problem when one house amends a proposal originating in
either house by striking out everything following the enacting clause and substituting
provisions which make it an entirely new bill. The versions are now altogether different,
permitting a conference committee to draft essentially a new bill
The result is a third version, which is considered an "amendment in the nature of a
substitute," the only requirement for which being that the third version be germane to the
subject of the House and Senate bills.
Indeed, this Court recently held that it is within the power of a conference committee to
include in its report an entirely new provision that is not found either in the House bill or
in the Senate Bill. If the committee can propose an amendment consisting of one or two
provisions, collectively considered as an "amendment in the nature of a substitute," so
long as such an amendment is germane to the subject of the bills before the committee.
After all, its report was not final but needed the approval of both houses of Congress to
become valid as an act of the legislative department. The charge that in this case the
Conference Committee acted a third legislative chamber is thus without any basis.2
The majority opinion in Tolentino relied mainly on the practice of the United States
legislature in making the foregoing disquisition. It was held, in effect, that following the
US Congress practice where a conference committee is permitted to draft a bill that is
entirely different from the bills of either the House of Representatives or Senate, the
Bicameral Conference Committee is similarly empowered to make amendments not
found in either the House or Senate bills.
The ponencia upholds the acts of the Bicameral Conference Committee with respect to
R.A. No. 9337, following the said ruling in Tolentino.
To my mind, this unqualified adherence by the majority opinion in Tolentino, and now by
the ponencia, to the practice of the US Congress and its conference committee system
ought to be re-examined. There are significant textual differences between the US Federal
Constitutions and our Constitutions prescribed congressional procedure for enacting
laws. Accordingly, the degree of freedom accorded by the US Federal Constitution to the
US Congress markedly differ from that accorded by our Constitution to the Philippine
Congress.
Section 7, Article I of the US Federal Constitution reads:
[1] All Bills for raising Revenue shall originate in the House of Representatives; but the
Senate may propose or concur with Amendments as on other Bills.
[2] Every Bill which shall have passed the House of Representatives and the Senate,
shall, before it become a Law, be presented to the President of the United States; If he
approve he shall it, but if not he shall return it, with his Objections to the House in which
it shall have originated, who shall enter the Objections at large on their Journal, and
proceed to reconsider it. If after such Reconsideration two thirds of that House shall agree
to pass the Bill, it shall be sent together with the Objections, to the other House, by which
it shall, likewise, be reconsidered, and if approved by two thirds of that House, it shall
become a Law. But in all such Cases the Votes of both Houses shall be determined by
yeas and Nays, and the Names of the Persons voting for and against the Bill shall be
entered on the Journal of each House respectively. If any Bill shall not be returned by the
President within ten Days (Sundays excepted) after it shall have been presented to him,
the Same shall be a Law, in like Manner as if he had signed it, unless the Congress by
their Adjournment prevent its return in which Case it shall not be a Law.
[3] Every Order, Resolution, or Vote to Which the Concurrence of the Senate and House
of Representatives may be necessary (except on a question of Adjournment) shall be
presented to the President of the United States; and before the Same shall take Effect,
shall be approved by him, or being disapproved by him, shall be repassed by two thirds of
the Senate and House of Representatives, according to the Rules and Limitations
prescribed in the Case of a Bill.
On the other hand, Article VI of our Constitution prescribes for the following procedure
for enacting a law:
Sec. 26. (1) Every bill passed by Congress shall embrace only one subject which shall be
expressed in the title thereof.
(2) No bill passed by either House shall become a law unless it has passed three readings
on separate days, and printed copies thereof in its final form have been distributed to its
Members three days before its passage, except when the President certifies to the
necessity of its 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 ponencias refusal to apply Article VI, Section 26(2) of the Constitution on the
Bicameral Conference Committee and the amendments it introduced to R.A. No. 9337
has "effectively dismantled" the "three-reading rule" and "no-amendment rule." As
posited by Fr. Joaquin Bernas, a member of the Constitutional Commission:
In a bicameral system, bills are independently processed by both House of Congress. It is
not unusual that the final version approved by one House differs from what has been
approved by the other. The "conference committee," consisting of members nominated
from both Houses, is an extra-constitutional creation of Congress whose function is to
propose to Congress ways of reconciling conflicting provisions found in the Senate
version and in the House version of a bill. It performs a necessary function in a bicameral
system. However, since conference committees have merely delegated authority from
Congress, they should not perform functions that Congress itself may not do. Moreover,
their proposals need confirmation by both Houses of Congress.
In Tolentino v. Secretary of Finance, the Court had the opportunity to delve into the limits
of what conference committees may do. The petitioners contended that the consolidation
of the House and Senate bills made by the conference committee contained provisions
which neither the Senate bill nor the House bill had. In her dissenting opinion, Justice
Romero laid out in great detail the provisions that had been inserted by the conference
committee. These provisions, according to the petitioners had been introduced
"surreptitiously" during a closed door meeting of the committee.
The Courts answer to this was that in United States practice conference committees
could be held in executive sessions and amendments germane to the purpose of the bill
could be introduced even if these were not in either original bill. But the Court did not
bother to check whether perhaps the American practice was based on a constitutional text
different from that of the Philippine Constitution.
There are as a matter of fact significant differences in the degree of freedom American
and Philippine legislators have. The only rule that binds the Federal Congress is that it
may formulate its own rules of procedure. For this reason, the Federal Congress is master
of its own procedures. It is different with the Philippine Congress. Our Congress indeed
is also authorized to formulate its own rules of procedure but within limits not found in
American law. For instance, there is the "three readings on separate days" rule. Another
important rule is that no amendments may be introduced by either house during third
reading. These limitations were introduced by the 1935 and 1973 Constitutions and
confirmed by the 1987 Constitution as a defense against the inventiveness of the stealthy
and surreptitious. These, however, were disregarded by the Court in Tolentino in favor of
contrary American practice.
This is not to say that conference committees should not be allowed. But an effort should
be made to lay out the scope of what conference committees may do according to the
requirements and the reasons of the Philippine Constitution and not according to the
practice of the American Congress. For instance, if the two Houses are not allowed to
introduce and debate amendments on third reading, can they circumvent this rule by
coursing new provisions through the instrumentality of a conference committee created
by Congress and meeting in secret? The effect of the Courts uncritical embrace of the
practice of the American Congress and its conference committees is to dismantle the noamendment 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 "noamendment" 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:
Senate on the 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,
report in the same manner and procedure as it votes on a bill on third and final reading.
and Rule XII, Section 35 of the Rules of the Senate:
Justice Davide further explained that under its limited authority, the Bicameral
Conference Committee could only (a) restore, wholly or partly, the specific provisions of
the House Bill amended by the Senate Bill; (b) sustain, wholly or partly, the Senates
amendments, or (c) by way of compromise, to agree that neither provisions in the House
Bill amended by the Senate nor the latters amendments thereto be carried into the final
form of the former. Justice Romero, who also dissented in Tolentino, added that the
conference committee is not authorized to initiate or propose completely new matters
although under certain legislative rules like the Jeffersons Manual, a conference
committee may introduce germane matters in a particular bill. However, such matters
should be circumscribed by the committees sole authority and function to reconcile
differences.
In the case of R.A. No. 9337, the Bicameral Conference Committee made an
"amendment by deletion" with respect to the "no pass on provision" contained in both
House Bill (HB) No. 3705 and Senate Bill (SB) No. 1950. HB 3705 proposed to amend
Sections 106 and 108 of the NIRC by expressly stating therein that sellers of petroleum
products and power generation companies selling electricity are prohibited from passing
on the VAT to the consumers. SB 1950 proposed to amend Section 108 by likewise
prohibiting power generation companies from passing on the VAT to the consumers.
However, these "no pass on provisions" were altogether deleted by the Bicameral
Conference Committee. At the least, since there was no disagreement between HB 3705
and SB 1950 with respect to the "no pass on provision" on the sale of electricity, the
Bicameral Conference Committee acted beyond the scope of its authority in deleting the
pertinent proviso.
At this point, it is well to recall the rationale for the "no-amendment rule" and the "threereading rule" in Article VI, Section 26(2) of the Constitution. The proscription on
amendments upon the last reading is intended to subject all bills and their amendments to
intensive deliberation by the legislators and the ample ventilation of issues to afford the
public an opportunity to express their opinions or objections thereon.6 Analogously, it is
said that the "three-reading rule" operates "as a self-binding mechanism that allows the
legislature to guard against the consequences of its own future passions, myopia, or herd
behavior. By requiring that bills be read and debated on successive days, legislature may
anticipate and forestall future occasions on which it will be seized by deliberative
pathologies."7 As Jeremy Bentham, a noted political analyst, put it: "[t]he more
susceptible a people are of excitement and being led astray, so much the more ought they
to place themselves under the protection of forms which impose the necessity of
reflection, and prevent surprises."8
Reports of the Bicameral Conference Committee, especially in cases where substantial
amendments, or in this case deletions, have been made to the respective bills of either
house of Congress, ought to undergo the "three-reading" requirement in order to give
effect to the letter and spirit of Article VI, Section 26(2) of the Constitution.
The Bicameral Conference Committee Report that eventually became R.A. No. 9337, in
fact, bolsters the argument for the strict compliance by Congress of the legislative
procedure prescribed by the Constitution. As can be gleaned from the said Report, of the
9 Senators-Conferees,9 only 5 Senators10 unqualifiedly approved it. Senator Joker P.
Arroyo expressed his qualified dissent while Senators Sergio R. Osmea III and Juan
Ponce Enrile approved it with reservations. On the other hand, of the twenty-eight (28)
Members of the House of Representatives-Conferees,11 fourteen (14)12 approved the same
with reservations while three13 voted no. All the reservations expressed by the conferees
relate to the deletion of the "no pass on provision." Only eleven (11) unqualifiedly
approved it. In other words, even among themselves, the conferees were not unanimous
on their Report. Nonetheless, Congress approved it without even thoroughly discussing

the reservations or qualifications expressed by the conferees therein.
This "take it or leave it" stance vis--vis conference committee reports opens the
possibility of amendments, which are substantial and not even germane to the original
bills of either house, being introduced by the conference committees and voted upon by
the legislators without knowledge of their contents. This practice cannot be countenanced
as it patently runs afoul of the essence of Article VI, Section 26(2) of the Constitution.
Worse, it is tantamount to Congress surrendering its legislative functions to the
conference committees.
Ratification by Congress did not cure the
unconstitutional act of the Bicameral Conference
Committee of deleting the "no pass on provision"
That both the Senate and the House of Representatives approved the Bicameral
Conference Committee Report which deleted the "no pass on provision" did not cure the
unconstitutional act of the said committee. As succinctly put by Chief Justice Davide in
his dissent in Tolentino, "[t]his doctrine of ratification may apply to minor procedural
flaws or tolerable breaches of the parameters of the bicameral conference committees
limited powers but never to violations of the Constitution. Congress is not above the
Constitution."14
Enrolled Bill Doctrine is not applicable where, as in
this case, there is grave violation of the Constitution
As expected, the ponencia invokes the enrolled bill doctrine to buttress its refusal to pass
upon the validity of the assailed acts of the Bicameral Conference Committee. Under the
"enrolled bill doctrine," the signing of a bill by the Speaker of the House and the Senate
President and the certification of the Secretaries of both houses of Congress that it was
passed are conclusive of its due enactment. In addition to Tolentino, the ponencia cites
Farias v. Executive Secretary15 where the Court declined to go behind the enrolled bill
vis--vis the allegations of the petitioners therein that irregularities attended the passage
of Republic Act No. 9006, otherwise known as the Fair Election Act.
Reliance by the ponencia on Farias is quite misplaced. The Courts adherence to the
enrolled bill doctrine in the said case was justified for the following reasons:
The Court finds no reason to deviate from the salutary in this case where the irregularities
alleged by the petitioners mostly involved the internal rules of Congress, whether House
or Senate. Parliamentary rules are merely procedural and with their observance the courts
have no concern. Whatever doubts there may be as to the formal validity of Rep. Act No.
9006 must be resolved in its favor. The Court reiterates its ruling in Arroyo v. De Venecia,
viz.:
But the cases, both here and abroad, in varying forms of expression, all deny to the courts
the power to inquire into the allegations that, in enacting a law, a House of Congress
failed to comply with its own rules, in the absence of showing that there was a violation
of a constitutional provision or the rights of private individuals. In Osmea v. Pendatun,
it was held: "At any rate, courts have declared that the rules adopted by deliberative
bodies are subject to revocation, modification or waiver at the pleasure of the body
adopting them. And it has been said that Parliamentary rules are merely procedural, and
with their observance, the courts have no concern. They may be waived or disregarded by
the legislative body. Consequently, mere failure to conform to parliamentary usage will
not invalidate the action (taken by a deliberative body) when the requisite number of
members have agreed to a particular measure.16
Thus, in Farias, the Courts refusal to go behind the enrolled bill was based on the fact
that the alleged irregularities that attended the passage of R.A. No. 9006 merely involved
the internal rules of both houses of Congress. The procedural irregularities allegedly
committed by the conference committee therein did not amount to a violation of a
provision of the Constitution.17
In contrast, the act of the Bicameral Conference Committee of deleting the "no pass on
provision" of SB 1950 and HB 3705 infringe Article VI, Section 26(2) of the
Constitution. The violation of this constitutional provision warrants the exercise by the
Court of its constitutionally-ordained power to strike down any act of a branch or
instrumentality of government or any of its officials done with grave abuse of discretion
amounting to lack or excess of jurisdiction.18
ACCORDINGLY, I join the concurring and dissenting opinion of Mr. Justice Reynato S.
Puno and vote to dismiss the petitions with respect to Sections 4, 5 and 6 of Republic Act
No. 9337 for being premature. Further, I vote to declare as unconstitutional Section 21
thereof and the deletion of the "no pass on provision" contained in the constituent bills of
Republic Act No. 9337.
ROMEO J. CALLEJO, SR.
Associate Justice
Footnotes
1
G.R. No. 115455, 25 August 1994, 235 SCRA 630.
Tolentino v. Secretary of Finance, supra, at 667-668.
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.
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.
Vermuele, supra.
Id. citing Bentham, J., Political Tactics.
Senators Ralph G. Recto, Joker P. Arroyo, Manuel B. Villar, Richard J. Gordon,

Rodolfo G. Biazon, Edgardo G. Angara, M.A. Madrigal, Sergio R. Osmena III,
Juan Ponce Enrile.
10
Senators Recto, Villar, Gordon, Biazon.
11
Representatives Jesli A. Lapus, Danilo E. Suarez, Arnulfo P. Fuentebella, Eric

D. Singson, Junie E. Cua, Teodoro L. Locsin, Jr., Salacnib Baterina, Edcel C.
Lagman, Luis R. Villafuerte, Herminio G. Teves, Eduardo G. Gullas, Joey Sarte
Salceda, Prospero C. Nograles, Exequiel B. Javier, Rolando G. Andaya, Jr.,
Guillermo P. Cua, Arthur D. Defensor, Raul V. Del Mar, Ronaldo B. Zamora,
Rolex P. Suplico, Jacinto V. Paras, Vincent P. Crisologo, Alan Peter S. Cayetano,
Joseph Santiago, Oscar G. Malapitan, Catalino Figueroa, Antonino P. Roman and
Imee R. Marcos.
12
Representatives Suarez, Fuentebella, Cua, Locsin, Jr., Teves, Gullas, Javier,

Cua, Defensor, Crisologo, Cayetano, Santiago, Malapitan and Marcos.
13
Representatives Del Mar, Suplico and Paras.
14
Dissenting Opinion in Tolentino, supra.
15
G.R. No. 147387, 10 December 2003, 417 SCRA 503.
16
Id., pp. 529-530. (Emphases mine.)
17
By way of explanation, the constitutional issues raised in Farias were (1)

whether Section 14 of R.A. No. 9006 was a rider or that it violated Article VI,
Section 26(1) of the Constitution requiring that "[e]very bill passed by Congress
shall embrace only one subject which shall be expressed in the title thereof;" and
(2) whether Section 14 of R.A. No. 9006 violated the equal protection clause of
the Constitution. On both issues the Court ruled in the negative. To reiterate,
unlike in the present cases, the acts of the conference committee with respect to
R.A. No. 9006 in Farias allegedly violated the internal rules of either house of
Congress, but it was not alleged therein that they amounted to a violation of any
constitutional provision on legislative procedure.
18
Article VIII, Section 1, CONSTITUTION.
EN BANC
G.R. No. 168056 (ABAKADA Guro Party List [formerly ASSJS] Officers Samson S.
Alcantara, et al. v. Hon. Executive Secretary Eduardo Ermita, et al.);
G.R. No. 168207 (Aquilino Q. Pimentel, Jr., et al. v. Executive Secretary Eduardo R.
Ermita, et al.);
G.R. No. 168461 (Association of Pilipinas Shell Dealers, Inc., etc., et al. v. Cesar V.
Purisima, etc., et al.);
G.R. No. 168463 (Francis Joseph G. Escudero, et al. v. Cesar V. Purisima, etc., et
al.); and
G.R. No. 168730 (Bataan Governor Enrique T. Garcia, Jr. v. Hon. Eduardo R.
Ermita, etc., et al.)
Promulgated:
September 1, 2005
X----------------------------------------------------------------------------------------X
AZCUNA, J.:
Republic Act No. 9337, the E-VAT law, is assailed as an unconstitutional abdication of
Congress of its power to tax through its delegation to the President of the decision to
increase the rate of the tax from 10% to 12%, effective January 1, 2006, after any of two
conditions has been satisfied.1
The two conditions are:
and one-half percent (1 %).2
A scrutiny of these "conditions" shows that one of them is certain to happen on January 1,
2006.
The first condition is that the collection from the E-VAT exceeds 2 4/5% of the Gross
Domestic Product (GDP) of the previous year, a ratio that is known as the tax effort.
The second condition is that the national government deficit exceeds 1 % of the GDP of
the previous year.
Note that the law says that the rate shall be increased if any of the two conditions
happens, i.e., if condition (i) or condition (ii) occurs.
Now, in realistic terms, considering the short time-frame given, the only practicable way
that the present deficit of the national government can be reduced to 1 % or lower, thus
preventing condition (ii) from happening, is to increase the tax effort, which mainly has
to come from the E-VAT. But increasing the tax effort through the E-VAT, to the extent
needed to reduce the national deficit to 1 % or less, will trigger the happening of
condition (i) under the law. Thus, the happening of condition (i) or condition (ii) is in
reality certain and unavoidable, as of January 1, 2006.
This becomes all the more clear when we consider the figures provided during the oral
arguments.
The Gross Domestic Product for 2005 is estimated at P5.3 Trillion pesos.
The tax effort of the present VAT is now at 1.5%.
The national budgetary deficit against the GDP is now at 3%.
So to reduce the deficit to 1.5% from 3%, one has to increase the tax effort from VAT,
now at 1.5%, to at least 3%, thereby exceeding the 2 4/5 percent ceiling in condition (i),
making condition (i) happen.
If, on the other hand, this is not done, then condition (ii) happens the budget deficit
remains over 1.5%.
What is the result of this? The result is that in reality, the law does not impose any
condition, or the rate increase thereunder, from 10% to 12%, effective January 1, 2006, is
unconditional. For a condition is an event that may or may not happen, or one whose
occurrence is uncertain.3 Now while condition (i) is indeed uncertain and condition (ii) is
likewise uncertain, the combination of both makes the occurrence of one of them certain.
Accordingly, there is here no abdication by Congress of its power to fix the rate of the tax
since the rate increase provided under the law, from 10% to 12%, is definite and certain
to occur, effective January 1, 2006. All that the President will do is state which of the two
conditions occurred and thereupon implement the rate increase.
At first glance, therefore, it would appear that the decision to increase the rate is to be
made by the President, or that the increase is still uncertain, as it is subject to the
happening of any of two conditions.
Nevertheless, the contrary is true and thus it would be best in these difficult and critical
times to let our people know precisely what burdens they are being asked to bear as the
necessary means to recover from a crisis that calls for a heroic sacrifice by all.
It is for this reason that the Court required respondents to submit a copy of the rules to
implement the E-VAT, particularly as to the impact of the tax on prices of affected
commodities, specially oil and electricity. For the onset of the law last July 1, 2005 was
confusing, resulting in across-the-board increases of 10% in the prices of commodities.
This is not supposed to be the effect of the law, as was made clear during the oral
arguments, because the law also contains provisions that mitigate the impact of the EVAT 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 nonresident 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. 4. Section 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 valueadded 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 %)."
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. EJERCITOESTRADA, JINGGOY E. ESTRADA, PANFILO M. LACSON, ALFREDO S. LIM,
JAMBY A.S. MADRIGAL, and SERGIO R. OSMEA III v. EXECUTIVE
SECRETARY EDUARDO R. ERMITA, CESAR V. PURISIMA, SECRETARY OF
FINANCE, GUILLERMO L. PARAYNO, JR., COMMISSIONER OF THE BUREAU
OF INTERNAL REVENUE)
GR No. 168461 ASSOCIATION OF PILIPINAS SHELL DEALERS, INC.
represented by its President, ROSARIO ANTONIO; PETRON DEALERS
ASSOCIATION represented by its President, RUTH E. BARBIBI; ASSOCIATION OF
CALTEX DEALERS OF THE PHILIPPINES represented by its President,
MERCEDITAS A. GARCIA; ROSARIO ANTONIO doing business under the name
and style of "ANB NORTH SHELL SERVICE STATION"; LOURDES MARTINEZ
doing business under the name and style of "SHELL GATE N. DOMINGO";
BETHZAIDA TAN doing business under the name and style of "ADVANCED SHELL
STATION"; REYNALDO P. MONTOYA doing business under the name and style of
"NEW LAMUAN SHELL SERVICE STATION"; EFREN SOTTO doing business
under the name and style of "REDFIELD SHELL SERVICE STATION"; DONICA
CORPORATION represented by its President, DESI TOMACRUZ; RUTH E.
MARBIBI doing business under the name and style of "R&R PETRO STATION";
PETER M. UNGSON doing business under the name and style of "CLASSIC STAR
GASOLINE SERVICE STATION"; MARIAN SHEILA A. LEE doing business under
the name and style "NTE GASOLINE & SERVICE STATION"; JULIAN CESAR P.
POSADAS doing business under the name and style of "STARCARGA
ENTERPRISES"; ADORACION MAEBO doing business under the name and style
of "CMA MOTORISTS CENTER"; SUSAN M. ENTRATA doing business under the
name and style of "LEONAS GASOLINE STATION and SERVICE CENTER";
CARMELITA BALDONADO doing business under the name and style of "FIRST
CHOICE SERVICE CENTER: RHEAMAR A. RAMOS doing business under the
name and style of "RJAM PTT GAS STATION"; MA. ISABEL VIOLAGO doing
business under the name and style of "VIOLAGO-PTT SERVICE CENTER";
MOTORISTS HEART CORPORATON represented by its Vice-President for
Operations, JOSELITO F. FLORDELIZA; MOTORISTS HARVARD

FLORDELIZA; MOTORISTS HERITAGE CORPORATION represented by its VicePresident 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. CASIO, v. CESAR V. PURISIMA, in his capacity as Secretary of
Finance, GUILLERMO L. PARAYNO, JR., in his capacity as Commissioner of
Internal Revenue, and EDUARDO R. ERMITA, in his capacity as Executive Secretary.
GR. No. 168730 BATAAN GOVERNOR ENRIQUE T. GARCIA, JR. v. HON.
EDUARDO R. ERMITA, in his capacity as the Executive Secretary; HON.
MARGARITO TEVES, in his capacity as Secretary of Finance; HON. JOSE MARIO
BUNAG, in his capacity as the OIC Commissioner of the Bureau of Customs.
x-------------------------------------------------------------------x
DISSENTING OPINION
Tinga, J.:
The E-VAT Law,1 as it stands, will exterminate our countrys small to medium
enterprises. This will be the net effect of affirming Section 8 of the law, which amends
Sections 110 of the National Internal Revenue Code (NIRC) by imposing a seventy
percent (70%) cap on the creditable input tax a VAT-registered person may apply every
quarter and a mandatory sixty (60) -month amortization period on the input tax on goods
purchased or imported in a calendar month if the acquisition cost of such goods exceeds
One Million Pesos (P1,000,000.00).
Taxes may be inherently punitive, but when the fine line between damage and
destruction is crossed, the courts must step forth and cut the hangmans noose.
Justice Holmes once confidently asserted that "the power to tax is not the power to
destroy while this Court sits", and we should very well live up to this expectation not
only of the revered Holmes, but of the Filipino people who rely on this Court as the
guardian of their rights. At stake is the right to exist and subsist despite taxes, which is
encompassed in the due process clause.
I respectfully submit these views while maintaining the deepest respect for the
prerogative of the legislature to impose taxes, and of the national government to chart
economic policy. Such respect impels me to vote to deny the petitions in G.R. Nos.
168056, 168207, 168463,2 and 168730, even as I acknowledge certain merit in the
challenges against the E-VAT law that are asserted in those petitions. In the final analysis,
petitioners therein are unable to convincingly demonstrate the constitutional infirmity of
the provisions they seek to assail. The only exception is Section 21 of the law, which I
consider unconstitutional, for reasons I shall later elaborate.
However, I see the petition in G.R. No. 168461 as meritorious and would vote to grant it.
Accordingly, I dissent and hold as unconstitutional Section 8 of Republic Act No. 9337,
insofar as it amends Section 110(A) and (B) of the National Internal Revenue Code
(NIRC) as well as Section 12 of the same law, with respect to its amendment of Section
114(C) of the NIRC.
The first part of my discussion pertains to the petitions in G.R. Nos. 168056, 168207,
168463, and 168730, while the second part is devoted to what I deem the most crucial
issue before the Court, the petition in G.R. No. 168461.
I.
Undue Delegation and the Increase
Of the VAT Rate
My first point pertains to whether or not Sections 4, 5 and 6 of the E-VAT Law
constitutes an undue delegation of legislative power. In appreciating the aspect of undue
delegation as regards taxation statutes, the fundamental point remains that the power of
taxation is inherently legislative,3 and may be imposed or revoked only by the
legislature.4 In tandem with Section 1, Article VI of the Constitution which
institutionalizes the law-making power of Congress, Section 24 under the same Article
crystallizes this principle, as it provides that "[a]ll appropriation, revenue or tariff bills
shall originate exclusively in the House of Representatives."5
Consequently, neither the executive nor judicial branches of government may originate
tax measures. Even if the President desires to levy new taxes, the imposition cannot be
done by mere executive fiat. In such an instance, the President would have to rely on
Congress to enact tax laws.
Moreover, this plenary power of taxation cannot be delegated by Congress to any other
branch of government or private persons, unless its delegation is authorized by the
Constitution itself.6 In this regard, the situation stands different from that in the recent
case Southern Cross v. PHILCEMCOR,7 wherein I noted in my ponencia that the Tariff
Commission and the DTI Secretary may be regarded as agents of Congress for the
purpose of imposing safeguard measures. That pronouncement was made in light of
Section 28(2) Article VI, which allows Congress to delegate to the President through law
the power to impose tariffs and imposts, subject to limitations and restrictions as may be
ordained by Congress. In the case of taxes, no such constitutional authorization exists,
and the discretion to ascertain the rates, subjects, and conditions of taxation may not be
delegated away by Congress.
However, as the majority correctly points out, the power to ascertain the facts or
conditions as the basis of the taking into effect of a law may be delegated by Congress,8
and that the details as to the enforcement and administration of an exercise of taxing
power may be delegated to executive agencies, including the power to determine the
existence of facts on which its operation depends.9
Proceeding from these principles, Sections 4, 5, and 6 of the E-VAT Law warrant
examination. The provisions read:
SEC. 4. Sec. 106 of the same Code, as amended, is hereby further amended to read as
follows:
SEC. 106. Value-Added Tax on Sale of Goods or Properties.
(A) Rate and Base of Tax. There shall be levied, assessed and collected on every sale,
barter or exchange of goods or properties, a value-added tax equivalent to ten percent
(10%) of the gross selling price or gross value in money of the goods or properties sold,
bartered or exchanged, such tax to be paid by the seller or transferor; provided, that the
January 1, 2006, raise the rate of value-added tax to twelve percent (12%), after any
one and one-half percent 1 %).
Sec. 5. Section 107 of the same Code, as amended, is hereby further amended to read as
follows:
SEC. 107. Value-Added Tax on Importation of Goods.
(a) In General. There shall be levied, assessed and collected on every importation of
goods a value-added tax equivalent to ten percent (10%) based on the total value used by
the Bureau of Customs in determining tariff and customs duties, plus customs duties,
excise taxes, if any, and other charges, such tax to be paid by the importer prior to the
release of such goods from customs custody: Provided, That where the customs duties are
determined on the basis of the quantity or volume of the goods, the value-added tax shall
be based on the landed cost plus excise taxes, if any: provided, further, that the
January 1, 2006, raise the rate of value-added tax to twelve percent (12%) after any
(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 %).
SEC. 6. Section 108 of the same Code, as amended, is hereby further amended to
read as follows:
SEC. 108. Value-added Tax on Sale of Services and Use of Lease of Properties(A) Rate and Base of Tax. There shall be levied, assessed and collected, a valueadded tax equivalent to ten percent (10%) of gross receipts derived from the sale or
exchange of services; provided, that the President, upon the recommendation of the
Secretary of Finance, shall, effective January 1, 2006, raise the rate of value-added tax to
twelve percent (12%), after any of the following conditions has been satisfied.
(i) value-added tax collection as a percentage of Gross Domestic Product (GDP) of the
previous year exceeds two and four-fifth percent (2 4/5%) or
(ii) national government deficit as a percentage of GDP of the previous year exceed same
and on-half percent (1 %).
The petitioners deem as noxious the proviso common to these provisions that "the
President, upon the recommendation of the Secretary of Finance, shall, effective January
1, 2006, raise the rate of value-added tax to twelve percent (12%)," after the satisfaction
of the twin conditions that value-added tax collection as a percentage of Gross Domestic
Product (GDP) of the previous year exceeds two and four-fifth percent (2 4/5%); or that
the national government deficit as a percentage of GDP of the previous year exceed same
and on-half percent (1 %).
At first blush, it does seem that the assailed provisions are constitutionally deficient. It is
Congress, and not the President, which is authorized to raise the rate of VAT from 10% to
12%, no matter the circumstance. Yet a closer analysis of the proviso reveals that this is
not exactly the operative effect of the law. The qualifier "shall" denotes a mandatory,
rather than discretionary function on the part of the President to raise the rate of VAT to
12% upon the existence of any of the two listed conditions.
Since the President is not given any discretion in refusing to raise the VAT rate to 12%,
there is clearly no delegation of the legislative power to tax by Congress to the executive
branch. The use of the word "shall" obviates any logical construction that would allow
the President leeway in not raising the tax rate. More so, it is accepted that the principle
of constitutional construction that every presumption should be indulged in favor of
constitutionality and the court in considering the validity of the 'statute in question should
give it such reasonable construction as can be reached to bring it within the fundamental
law.10 While all reasonable doubts should be resolved in favor, of the constitutionality of a
statute,11 it should necessarily follow that the construction upheld should be one that is
not itself noxious to the Constitution.
Congress should be taken to task for imperfect draftsmanship at least. Much trouble
would have been avoided had the provisos instead read: "that effective January 1, 2006,
the rate of value-added tax shall be raised to twelve percent (12%), after any of the
following conditions has been satisfied xxx." This, after all is the operative effect of the
provision as it stands. In relation to the operation of the tax increase, the denominated
role of the President and the Secretary of Finance may be regarded as a superfluity, as
their imprimatur as a precondition to the increase of the VAT rate must have no bearing.
Nonetheless, I cannot ignore the fact that both the President and the Secretary of Finance
have designated roles in the implementation of the tax increase. Considering that it is
Congress, and not these officials, which properly have imposed the increase in the VAT
rate, how should these roles be construed?
The enactment of a law should be distinguished from its implementation. Even if it is
Congress which exercises the plenary power of taxation, it is not the body that
administers the implementation of the tax. Under Section 2 of the National Internal
Revenue Code (NIRC), the assessment and collection of all national internal revenue
taxes, and the enforcement of all forefeitures, penalties and fines connected therewith had
been previously delegated to the Bureau of Internal Revenue, under the supervision and
control of the Department of Finance.12
Moreover, as intimated earlier, Congress may delegate to other components of the
government the power to ascertain the facts or conditions as the basis of the taking into
effect of a law. It follows that ascertainment of the existence of the two conditions
precedent for the increase as stated in the law could very well be delegated to the
President or the Secretary of Finance.13
Nonetheless, the apprehensions arise that the process of ascertainment of the listed
conditions delegated to the Secretary of Finance and the President effectively vest
discretionary authority to raise the VAT rate on the President, through the subterfuges that
may be employed to delay the determination, or even to manipulate the factual premises.
Assuming arguendo that these feared abuses may arise, I think it possible to seek judicial
enforcement of the increased VAT rate, even without the participation or consent of the
President or Secretary of Finance, upon indubitable showing that any of the two listed
conditions do exist. After all, the Court is ruling that the increase in the VAT rate is
mandatory and beyond the discretion of the President to impose or delay.
The majority states that in making the recommendation to the President on the existence
of either of the two conditions, the Secretary of Finance is acting as the agent of the
legislative branch, to determine and declare the event upon which its expressed will is to
take effect.14 This recognition of agency must be qualified. I do not doubt the ability of
Congress to delegate to the Secretary of Finance administrative functions in the
implementation of tax laws, as it does under Section 2 of the NIRC. Yet it would be
impermissible for Congress to delegate to the Secretary of Finance the plenary function
of enacting a tax law. As stated earlier, the situation stands different from that in Southern
Cross wherein the Constitution itself authorizes the delegation by Congress through a law
to the President of the discretion to impose tariff measures, subject to restrictions and
limitations provided in the law.15 Herein, Congress cannot delegate to either the President
or the Secretary of Finance the discretion to raise the tax, as such power belongs
exclusively to the legislative branch.
Perhaps the term "agency" is not most suitable in describing the delegation exercised by
Congress in this case, for agency implies that the agent takes on attributes of the principal
by reason of representative capacity. In this case, whatever "agency" that can be
appreciated would be of severely limited capacity, encompassing as it only could the
administration, not enactment, of the tax measure.
I do not doubt the impression left by the provisions that it is the President, and not
Congress, which is authorized to raise the VAT rate. On paper at least, these imperfect
provisions could be multiple sources of mischief. On the political front, whatever blame
or scorn that may be attended with the increase of the VAT rate would fall on the
President, and not on Congress which actually increased the tax rate. On the legal front, a
President averse to increasing the VAT rate despite the existence of the two listed
conditions may take refuge in the infelicities of the provision, and refuse to do so on the
ground that the law, as written, implies some form of discretion on the part of the
President who was, after all, "authorized" to increase the tax rate. It is critical for the
Court to disabuse this notion right now.
The Continued Viability of
Tolentino v. Secretary of Finance
One of the more crucial issues now before us, one that has seriously divided the Court,
pertains to the ability of the Bicameral Conference Committee to introduce amendments
to the final bill which were not contained in the House bill from which the E-VAT Law
originated. Most of the points addressed by the petitioners have been settled in our ruling
in Tolentino v. Secretary of Finance,16 yet a revisit of that precedent is urged upon this
Court. On this score, I offer my qualified concurrence with the ponencia.
Two key provisions of the Constitution come into play: Sections 24 and 26(2), Article VI
of the Constitution. They read:
Section 24: All appropriation, revenue or tariff bills, bills authorizing increase of the
public debt, 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 countrys dire fiscal situation.
The mere fact that the law is popularly known as the E-VAT Law, or that most of its
provisions pertain to the VAT, or indirect taxes, does not mean that any and all
amendments which are introduced by the Bicameral Conference Committee must pertain
to the VAT system. As the Court noted in Tatad v. Secretary of Energy:22
[I]t is contended that section 5(b) of R.A. No. 8180 on tariff differential violates the
provision 17 of the Constitution requiring every law to have only one subject which
should be expressed in its title. We do not concur with this contention. As a policy, this
Court has adopted a liberal construction of the one title - one subject rule. We have
consistently ruled that the title need not mirror, fully index or catalogue all contents
and minute details of a law. A law having a single general subject indicated in the
title may contain any number of provisions, no matter how diverse they may be, so
long as they are not inconsistent with or foreign to the general subject, and may be
considered in furtherance of such subject by providing for the method and means of
carrying out the general subject. We hold that section 5(b) providing for tariff
differential is germane to the subject of R.A. No. 8180 which is the deregulation of the
downstream oil industry. The section is supposed to sway prospective investors to put up
refineries in our country and make them rely less on imported petroleum.23
I submit that if the amendments are attuned to the goal of revenue generation, the stated
purpose of the original House Bills, then the test of germaneness is satisfied. It might
seem that the goal of revenue generation, which is stated in virtually all tax or tariff bills,
is so encompassing in scope as to justify the inclusion by the Bicameral Conference
Committee of just about any revenue generation measure. This may be so, but it does not
mean that the test of germaneness would be rendered inutile when it comes to revenue
laws.
I do believe that the test of germaneness was violated by the E-VAT Law in one regard.
Section 21 of the law, which was not contained in either the House or Senate Bills,
imposes restrictions on the use by local government units of their incremental revenue
from the VAT. These restrictions are alien to the principal purposes of revenue generation,
or the purposes of restructuring the VAT system. I could not see how the provision, which
relates to budgetary allocations, is germane to the E-VAT Law. Since it was introduced
only in the Bicameral Conference Committee, the test of germaneness is essential, and
the provision does not pass muster. I join Justice Puno and the Chief Justice in voting to
declare Section 21 as unconstitutional.
I also offer this brief comment regarding the deletion of the so-called "no pass on"
provisions, which several of my colleagues deem unconstitutional. Both the House and
Senate Bills contained these provisions that would prohibit the seller/producer from
passing on the cost of the VAT payments to the consumers. However, an examination of
the said bills reveal that the "no pass on" provisions in the House Bill affects a different
subject of taxation from that of the Senate Bill. In the House Bill No. 3705, the taxpayers
who are prohibited from passing on the VAT payments are the sellers of petroleum
products and electricity/power generation companies. In Senate Bill No. 1950, no
prohibition was adopted as to sellers of petroleum products, but enjoined therein are
electricity/power generation companies but also transmission and distribution companies.
I consider such deletions as valid, for the same reason that I deem the amendments valid.
The deletion of the two disparate "no pass on" provisions which were approved by the
House in one instance, and only by the Senate in the other, remains in the sphere of
compromise that ultimately guides the approval of the final version. Again, I point out
that even while the two provisions may have been originally approved by the House and
Senate respectively, their subsequent deletion by the Bicameral Conference Committee is
still subject to approval by both chambers of Congress when the final version is
submitted for deliberation and voting.
Moreover, the fact that the nature of the "no pass on" provisions adopted by the House
essentially differs from that of the Senate necessarily required the corrective relief from
the Bicameral Conference Committee. The Committee could have either insisted on the
House version, the Senate version, or both versions, and it is not difficult to divine that
any of these steps would have obtained easy approval. Hence, the deletion altogether of
the "no pass on" provisions existed as a tangible solution to the possible impasse, and the
Committee should be accorded leeway to implement such a compromise, especially
considering that the deletion would have remained germane to the law, and would not be
constitutionally prohibited since the prohibition on amendments under Section 26(2),
Article VI does not apply to the Committee.
An outright declaration that the deletion of the two elementally different "no-pass on"
provisions is unconstitutional, is of dubious efficacy in this case. Had such
pronouncement gained endorsement of a majority of the Court, it could not result in the
ipso facto restoration of the provision, the omission of which was ultimately approved in
both the House and Senate. Moreover, since the House version of the "no pass on" is
quite different from that of the Senate, there would be a question as to whether the House
version, the Senate version, or both versions would be reinstated. And of course, if it
were the Court which would be called upon to choose, such would be way beyond the
bounds of judicial power.
Indeed, to intimate that the Court may require Congress to reinstate a provision that failed
to meet legislative approval would result in a blatant violation of the principle of
separation of powers, with the Court effectively dictating to Congress the content of its
legislation. The Court cannot simply decree to Congress what laws or provisions to enact,
but is limited to reviewing those enactments which are actually ratified by the legislature.
II.
My earlier views, as are the submissions I am about to offer, are rooted in nothing more
than constitutional interpretation. Perhaps my preceding discussion may lead to an
impression that I whole-heartedly welcome the passage of the E-VAT Law. Yet whatever
relief I may have over the enactment of a law designed to relieve our countrys financial
woes are sadly obviated with the realization that a key amendment introduced in the law
is not only unconstitutional, but of fatal consequences. The clarion call of judicial review
is most critical when it stands as the sole barrier against the deprivation of life, liberty
and property without due process of law. It becomes even more impelling now as we are
faced with provisions of the E-VAT Law which, though in bland disguise, would operate
as the most destructive of tax measures enacted in generations.
Tax Statutes and the Due Process Clause
It is the duty of the courts to nullify laws that contravene the due process clause of the
Bill of Rights. This task is at the heart not only of judicial review, but of the democratic
system, for the fundamental guarantees in the Bill of Rights become merely hortatory if
their judicial enforcement is unavailing. Even if the void law in question is a tax statute,
or one that encompasses national economic policy, the courts should not shirk from
striking it down notwithstanding any notion of deference to the executive or legislative
branch on questions of policy. Neither Congress nor the President has the right to enact or
enforce unconstitutional laws.
The Bill of Rights is by no means the only constitutional yardstick by which the validity
of a tax law can be measured. Nonetheless, it stands as the most unyielding of
constitutional standards, given its position of primacy in the fundamental law way above
the articles on governmental power.24 If the question lodged, for example, hinges on the
proper exercise of legislative powers in the enactment of the tax law, leeway can be
appreciated in favor of affirming the legislatures inherent power to levy taxes. On the
other hand, no quarter can be ceded, no concession yielded, on the peoples fundamental
rights as enshrined in the Bill of Rights, even if the sacrifice is ostensibly made "in the
national interest." It is my understanding that "the national interests," however
comported, always subsumes in the first place recognition and enforcement of the Bill of
Rights, which manifests where we stand as a democratic society.
The constitutional safeguard of due process is embodied in the fiat "No person shall be
deprived of life, liberty or property without due process of law".25 The purpose of the
guaranty is to prevent governmental encroachment against the life, liberty and property of
individuals; to secure the individual from the arbitrary exercise of the powers of the
government, unrestrained by the established principles of private rights and distributive
justice; to protect property from confiscation by legislative enactments, from seizure,
forfeiture, and destruction without a trial and conviction by the ordinary mode of judicial
procedure; and to secure to all persons equal and impartial justice and the benefit of the
general law.26
In Magnano Co. v. Hamilton,27 the U.S. Supreme Court recognized that the due process
clause may be utilized to strike down a taxation statute, "if the act be so arbitrary as to
compel the conclusion that it does not involve an exertion of the taxing power, but
constitutes, in substance and effect, the direct exertion of a different and forbidden power,
as, for example, the confiscation of property."28 Locally, Sison v. Ancheta29 has long
provided sanctuary for persons assailing the constitutionality of taxing statutes. The oftquoted pronouncement of Justice Fernando follows:
2. The power to tax moreover, to borrow from Justice Malcolm, "is an attribute of
sovereignty. It is the strongest of all the powers of government." It is, of course, to be
admitted that for all its plenitude, the power to tax is not unconfined. There are
restrictions. The Constitution sets forth such limits. Adversely affecting as it does
property rights, both the due process and equal protection clauses may properly be
invoked, as petitioner does, to invalidate in appropriate cases a revenue measure. If
it were otherwise, there would be truth to the 1803 dictum of Chief Justice Marshall that
"the power to tax involves the power to destroy." In a separate opinion in Graves v. New
York, Justice Frankfurter, after referring to it as an "unfortunate remark," characterized it
as "a flourish of rhetoric [attributable to] the intellectual fashion of the times [allowing] a
free use of absolutes." This is merely to emphasize that it is not and there cannot be such
a constitutional mandate. Justice Frankfurter could rightfully conclude: "The web of
unreality spun from Marshall's famous dictum was brushed away by one stroke of Mr.
Justice Holmes's pen: 'The power to tax is not the power to destroy while this Court sits.'"
So it is in the Philippines.
3. This Court then is left with no choice. The Constitution as the fundamental law
overrides any legislative or executive act that runs counter to it. In any case
therefore where it can be demonstrated that the challenged statutory provision as
petitioner here alleges fails to abide by its command, then this Court must so
declared and adjudge it null. The inquiry thus is centered on the question of whether
the imposition of a higher tax rate on taxable net income derived from business or
profession than on compensation is constitutionally infirm.
4. The difficulty confronting petitioner is thus apparent. He alleges arbitrariness. A mere
allegation, as here, does not suffice. There must be a factual foundation of such
unconstitutional taint. Considering that petitioner here would condemn such a provision
as void on its face, he has not made out a case. This is merely to adhere to the
authoritative doctrine that where the due process and equal protection clauses are
invoked, considering that they are not fixed rules but rather broad standards, there is a
need for proof of such persuasive character as would lead to such a conclusion. Absent
such a showing, the presumption of validity must prevail.
5. It is undoubted that the due process clause may be invoked where a taxing statute
is so arbitrary that it finds no support in the Constitution. An obvious example is
where it can be shown to amount to the confiscation of property. That would be a
clear abuse of power. It then becomes the duty of this Court to say that such an
arbitrary act amounted to the exercise of an authority not conferred. That properly
calls for the application of the Holmes dictum. It has also been held that where the
assailed tax measure is beyond the jurisdiction of the state, or is not for a public
purpose, or, in case of a retroactive statute is so harsh and unreasonable, it is subject

to attack on due process grounds.30
Sison pronounces more concretely how a tax statute may contravene the due process
clause. Arbitrariness, confiscation, overstepping the states jurisdiction, and lack of a
public purpose are all grounds for nullity encompassed under the due process invocation.
Yet even these more particular standards as enunciated in Sison are quite exacting, and
difficult to reach. Even the constitutional challenge posed in Sison failed to pass muster.
The majority cites Sison in asserting that due process and equal protection are broad
standards which need proof of such persuasive character to lead to such a conclusion.
It is difficult though to put into quantifiable terms how onerous a taxation statute must be
before it contravenes the due process clause.31 After all, the inherent nature of taxation is
to cause pain and injury to the taxpayer, albeit for the greater good of society. Perhaps
whatever collective notion there may be of what constitutes an arbitrary, confiscatory, and
unreasonable tax might draw more from the fairy tale/legend traditions of absolute
monarchs and the oppressed peasants they tax. Indeed, it is easier to jump to the
conclusion that a tax is oppressive and unfair if it is imposed by a tyrant or an
authoritarian state.
But could an arbitrary, confiscatory or unreasonable tax actually be enacted by a
democratic state such as ours? Of course it could, but these would exist in more palatable
guises. In a democratic society wherein statutes are enacted by a representative
legislature only after debate and deliberation, tax statutes will most likely, on their face,
seem fair and even-handed. After all, if Congress passes a tax law that on facial
examination is obviously harsh and unfair, it faces the wrath of the voting public, to say
nothing of the media.
In testing the validity of a tax statute as against the due process clause, I think that the
Court should go beyond a facial examination of the statute, and seek to understand how
exactly it would operate. The express terms of a statute, especially tax laws, are usually
inadequate in spelling out the practical effects of its implementation. The devil is usually
in the details.
Admittedly, the degree of difficulty involved of judicial review of tax laws has increased
with the growing complexities of business, economic and accounting practices. These are
sciences which laymen are not normally equipped by their general education to fully
grasp, hence the possible insecurity on their part when confronted with such questions on
these fields.
However, we should not cede ground to those transgressions of the peoples fundamental
rights simply because the mechanism employed to violate constitutional guarantees is
steeped in disciplines not normally associated with the legal profession. Venality cannot
be allowed to triumph simply due to its sophistication. This petition imputes in the E-VAT
Law unconstitutional oppression of the fatal variety, but in order to comprehend exactly
how and why that is so, one has to delve into the complex milieu of the VAT system. The
party alleging the laws unconstitutionality of course has the burden to demonstrate the
violations in understandable terms, but if such proof is presented, the Courts duty is to
engage accordingly.
The Viability of the Clear and Present
Danger Doctrine as Counterweight
To the Shibboleths of Speculation
and Wisdom
I do not see as an impediment to the annulment of a tax law the fact that it has yet to be
implemented, or the fear that doing so constitutes an undue attack on the wisdom, rather
than the legality of a statute. However, my position in this petition has been challenged
on those grounds, and I see it fit to refute these preemptive allegations before delving into
the operative aspect of the E-VAT Law.
If there is cause to characterize my arguments as speculative, it is only because the
E-VAT Law has yet to be implemented. No person as of yet can claim to have sustained
actual injury by reason of the implementation of the assailed provisions in G.R. No.
168461. Yet this should not mean that the Court is impotent from declaring a provision of
law as violative of the due process clause if it is clear that its implementation will cause
the illegal deprivation of life, liberty or property without due process of
law. This is especially so if, as in this case, the injury is of mathematical certainty, and the
extent of the loss quantifiable through easy reference to the most basic of business
practices.
These arguments are conjectural for the same reason that the bare statement "firing
a gunshot into the head will cause a fatal wound" would be conjectural. Some people
are lucky enough to survive gunshot wounds to the head, while many others are not. Yet
just because the fear of mortality would be merely speculative, it does not mean that there
should be less compulsion to avoid a situation of getting shot in the head.
Indeed, the Court has long responded to strike down prospective actions, even if the
injury has not yet even occurred. One of the most significant legal principles of the last
century, the "clear and present danger" doctrine in free speech cases, in fact
emanates from the prospectivity, and not the actuality of danger. The Court has not
been hesitant to nullify acts which might cause injury, owing to the presence of a clear
and present danger of a substantive evil which the State has the right to prevent. It has
even extended the "clear and present danger rule" beyond the confines of freedom of
expression to the
realm of freedom of religion, as noted by Justice Puno in his ponencia in Estrada v.

Escritor.32
Justice Teodoro Padilla goes further in his concurring opinion in Basco v. PAGCOR, and
asserts that the clear and present danger test squarely applies to the due process clause:
"The courts, as the decision states, cannot inquire into the wisdom, morality or
expediency of policies adopted by the political departments of government in areas
which fall within their authority, except only when such policies pose a clear and
present danger to the life, liberty or property of the individual."
I see no reason why the clear and present danger test cannot apply in this case, or
any case wherein a taxing statute poses a clear and present danger to the life, liberty
or property of the individual. The application of this standard frees the Court from
inutility in the face of patently unconstitutional tax laws that have been enacted but
are yet to be fully operational.
If for example, Congress deems it wise to impose the most draconian of tax measures
such as trebling the income taxes of all persons over 40, raising the gross sales tax rate to
50%, or penalizing delinquent taxpayers with 50 lashes of the whip there certainly
would be a massive public outcry, and an expectation that the Court would immediately
nullify the offensive measures even before they are actually imposed. Applying the clear
and present danger test, the Court is empowered to strike down the noxious measures
even before they are implemented. Yet with this "bar on speculativeness" as argued by the
majority, the Court could easily refuse to pay heed to the prayers for injunctive relief, and
instead demand that the taxing subjects must first suffer before the Court can act.
In the same vein, the claim that my arguments strike at the wisdom, rather than the
constitutionality of the law are misplaced. Concededly, the assailed provisions of the EVAT 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 VATregistered person.
The output VAT collected by the business from the consumers accumulates, until the end
of every quarter, when the enterprise is obliged to remit the collected output VAT to the
government. This is where the crediting mechanism comes into play. Since the business is
entitled to recover the prepaid input VAT, it does so in every quarter by applying the
amount of prepaid input VAT against the collected output VAT which is to be remitted. If
the output VAT collected exceeds the prepaid input VAT, then the amount of input VAT is
deducted from the output VAT, and it is entitled to remit only the remainder as output
VAT to the government. To illustrate, if Business X collects P1,000,000.00 as output VAT
and incurs P500,000.00 as input VAT, the P500,000.00 is deducted from the
P1,000,000.00 output VAT, and X is required to remit only P500,000.00 of the output
VAT it collected from customers.
On the other hand, if the input VAT prepaid exceeds the output VAT collected, then the
business need not remit any amount as output VAT for the quarter. Moreover, the
difference between the input VAT and the output VAT may be credited as input VAT by
the business in the succeeding quarter. Thus, if in the First Quarter of a year, Business X
prepays P1,000,000.00 as input VAT, and collects only P500,000.00 as output VAT, it
need not remit any amount of output VAT to the government. Moreover, in the Second
Quarter, Business X can credit the remaining P500,000.00 as part of its input VAT for that
quarter. Hence, if in the Second Quarter, X actually prepays P400,000.00 as input VAT,
and collects P500,000.00 as output VAT, it may add the P500,000.00 input VAT from the
previous quarter to the P400,000.00 prepaid in the current quarter, bringing the total input
VAT it could claim to P900,000.00. Since the input VAT of P900,000.00 now exceeds the
output VAT collected of P500,000, then X need not remit any output VAT as well to the
government for the Second Quarter.
However, reality is far bleaker than that befaced by Business X. The VAT collected and
remitted is not the most relevant statistic evaluated by the business. The figure of primary
concern of the enterprise would be the profit margin, which is simply the excess of
revenue less expenditures. Revenue is derived from the gross sales of the business.
Expenditures encompass all expenses incurred by the business including overhead
expenses, wages and purchases of capital goods. Crucially, expenditures would include
the input VAT prepaid by the business on its capital expenditures.
Since a significant amount of the capital outlay incurred by a business is subjected to the
prepayment of input taxes, the necessity of recovering these losses through the output
VAT collected becomes more impelling. These output taxes are obviously proportional to
the volume of gross sales the higher the gross sales, the higher the output VAT
collected. The output taxes collected on sales answer for not only those input taxes
paid on the purchase of the raw materials, but also for the input taxes paid on the
multifarious overhead expenses covered by VAT. The burden carried by the sales
volume on the stability, if not survival of the business thus just became more crucial. The
maintenance of the proper equilibrium is not an easy matter. Increasing the selling price
of the goods sold does not necessarily increase the gross sales, as it could have the
counter-effect of repelling the consumer and diminishing the number of goods sold. At
the same time, keeping the selling price low may increase the volume of goods sold, but
not necessarily the amount of gross sales.
Profit is a chancy matter, and in cases of small to medium enterprises, usually small if
any. It is quite common for retail and distribution enterprises to incur profits of less than
1% of their gross revenues. Low profitability is not an automatic badge of poor business
skills, but a reality dictated by the laws of the marketplace. The probability of profit is
lower than that of capital expenditures, and ultimately, many business establishments end
up with a higher input tax than output tax in a given quarter. This would be especially
true for small to medium enterprises who do not reap sufficient profits from its business
in the first place, and for those firms that opt to also invest in capital expenses in addition
to the overhead. Whatever miniscule profit margins that can be obtained usually spell the
difference between life and death of the business.
The possibility of profit is further diminished by the fact that businesses have to shoulder
the input VAT in the purchase of their capital expenses. Yet the erstwhile VAT system
was not tainted by the label of oppressiveness and neither did it bear the
confiscatory mode. This was because of the immediate relief afforded from the input
taxes paid by the crediting system. In theory, VAT is not supposed to affect the profit
margin. If such margin is affected, it is only because of the prepayment of the input
taxes, and this should be remedied by the immediate recovery through the crediting
system of the settled input taxes.
The new E-VAT law changes all that, and puts in jeopardy the survival of small to
medium enterprises.
The Effects of the 70% Cap on Creditable Input VAT
The first radical shift introduced by the E-VAT law to the creditable input system the
70% cap on the creditable input tax that may be carried over into the next quarter is
provided in Section 8 of the law, which amends Section 110(A) of the NIRC, among
others. Section 110(A) as amended would now read:
Sec. 110. Tax Credits.
(B) Excess Output or Input Tax. If at the end of any taxable quarter the output tax
exceeds the input tax, the excess shall be paid by the VAT-registered person. If the input
tax exceeds the output tax, the excess shall be carried over to the succeeding quarter or
quarters. Provided, That the input tax inclusive of input VAT carried over from the
previous quarter that may be credited in every quarter shall not exceed seventy
percent (70%) of the output VAT: Provided, however, That any input tax attributable to
zero rated sales by a VAT-registered person may at his option be refunded or credited
against other internal revenue taxes, subject to the provisions of Section 112. (emphasis
supplied)
All hope for entrepreneurial stability is dashed with the imposition of the 70% cap. Under
the E-VAT Law, the business, regardless of stability or financial capability, is obliged to
remit to the government every quarter at least 30% of the output VAT collected from
customers, or roughly 3% of the amount of gross sales. Thus, if a quarterly gross sales of
Y Business totaled P1,000,000, and Y is prudent enough to keep its capital expenses
down to P980,000, it would then appear on paper that Y incurred a profit of P20,000.
However, with the 70% cap, Y would be obliged to remit to the government P30,000,
thus wiping out the profit margin for the quarter. Y would be entitled to credit the excess
input VAT it prepaid for the next quarter, but the continuous operation of the 70% cap
obviates whatever benefits this may give, and cause the accumulation of the unutilized
creditable input VAT which should be returned to the business.
The difference is even more dramatic if seen how the unutilized creditable input VAT
accumulates over a one year period. To illustrate, Business Y prepays the following
amounts of input VAT over a one-year period: P100,000.00 - First Quarter; P100,000.00
2nd Quarter; P34,000.00 3rd Quarter; and P50,000.00 4th Quarter. On the other hand,
Y collects the following amounts of output VAT from consumers: P60,000.00 - First
Quarter; P60,000.00 2nd Quarter; P100,000.00 3rd Quarter; and P50,000.00 4th
Quarter. Applying the 70% cap, which would limit the amount of the declarable input
VAT to 70% in a quarter, the following results obtain, as presented in tabular form:
Particulars
1st Quarter
2nd Quarter
3rd Quarter
4th Quarter
Output VAT
60,000
100,000
34,000
50,000
50,000
Input VAT
(Actual) +
Carry Over
100,000
60,000
100,000 [input]
+58,000
[input]
[input]
[excess creditable]
+116,000
+80,000
158,000
[excess
creditable]
[excess
creditable]
(60,000x70%)
Declarable
Input VAT
42,000
(70% of output
VAT)
Lower of
(60,000 -42,000)
actual and
70% cap
18,000
allowable
150,000
130,000
(60,000x70%) (100,000x70%) (50,000x70%)
42,000
70,000
35,000
(60,000 -42,000)
(100,00070,000)
(50,00035,000)
30,000
15,000
(150,000-
(130,00035,000)
18,000
VAT
Payable
Creditable
Input VAT
(100,000 (158,000 42,000)

42,000)
116,000
58,000
70,000)
95,000
80,000
This stands in contrast to same business VAT accountability under the present system,
using the same variables of output VAT and input VAT. The need to distinguish a
declarable input VAT is obviated with the elimination of the 70% cap.
Particulars 1st Quarter
2nd Quarter
Output VAT
60,000
Input VAT
(Actual) +
Carry Over
100,000
3rd Quarter
4th Quarter
60,000
100,000 [input]
100,000
34,000
50,000
50,000
+40,000
[input]
[input]
[excess
creditable]
+80,000
+ 14,000
[excess
creditable]
(excess
140,000
creditable)
114,000
50,000
VAT Payable
Creditable
40,000
80,000
14,000
14,000
Input VAT
The difference is dramatic, as is the impact on the businesss profit margin and available
cash on hand. Under normal conditions, small to medium enterprises are already
encumbered with the likelihood of obtaining only a minimal profit margin. Without the
70% cap, those businesses would nonetheless be able to expect an immediate return on its
input taxes earlier advanced, taxes which under the VAT system it is not supposed to
shoulder in the first place. However, with the 70% cap in place, the unutilized input taxes
would continue to accumulate, and the enterprise precluded from immediate recovery
thereof. The inability to utilize these input taxes, which could spell the difference
between profit and loss, solvency and insolvency, will eventually impair, if not kill
off the enterprise.
The majority fails to consider one of the most important concepts in finance, time value
for money.37 Simply put, the value of one peso is worth more today than in 2006. Money
that you hold today is worth more because you can invest it and earn interest.38 By reason
of the 70% cap, the amount of input VAT credit that remains unutilized would continue
accumulate for months and years. The longer the amount remains unutilized, the higher
the degree of its depreciation in value, in accordance with the concept of time value of
money. Even assuming that the business eventually recovers the input VAT credit, the
sum recovered would have decreased in practical value.
It would be sad, but fair, if a business ceases because of its inability to compete with
other businesses. It would be utter malevolence to condemn an enterprise to death
solely through the employment of a deceptive accounting wizardry. For the raison
detre of this 70% cap is to make it appear on paper that the government is more
solvent than it actually is. Conceding for the nonce, there is a temporary advantage
gained by the government by this 70% cap, as the steady remittance by businesses of the
30% output VAT would assure a cash flow. Such collection may only momentarily
resolve an endemic problem in our local tax system, the problem of collection itself.
If the 70% cap was designed in order to enhance revenue collection, then I submit that
the means employed stand beyond reason. If sheer will proves insufficient in assuring
that the State all taxes due it, there should be allowable discretion for the government to
formulate creative means to enhance collection. But to do so by depriving low profit
enterprises of whatever meager income earned and consequently assuring the death of
these industries goes beyond any valid State purpose.
Only stable businesses with substantial cash flows, or extraordinarily successful
enterprises will be able to remain in operation should the 70% cap be retained. The effect
of the 70% cap is to effectively impose a tax amounting to 3% of gross revenue. The
amount may seem insignificant to those without working knowledge of the ways of
business, but anybody who is actually familiar with business would be well aware the
profit margins of the retailing and distribution sectors typically amount to less than 1% of
the gross revenues. A taxpayer has to earn a margin of at least 3% on gross revenue in
order to recoup the losses sustained due to the 70% cap. But as stated earlier, profits are
chancy, and the entrepreneur does not have full control of the conditions that lead to
profit.
Even more galling is the fact that the 70% cap, oppressive as it already is to the business
establishment, even limits the options of the business to recover the unutilized input VAT
credit. During the deliberations, the argument was raised that the problem presented by
the 70% cap was a business problem, which can only be solved by business. Yet there is
only one viable option for the enterprise to resolve the problem, and that is to increase the
selling price of goods.39 It would be incorrect to assume that increase the volume of the
goods sold could solve the problem, since for items with the same purchasing cost, the
effect of the 70% cap remains constant regardless of an increase in volume.
But the additional burden is not limited to the increase of prices by the retailer to the end
consumer. Since VAT is a transaction tax, every level of distribution becomes subject not
only to the VAT, but also to the 70% cap. The problem increases due to a cascading effect
as the number of distribution levels increases since it will result in the collection of an
effective 3% percentage tax at every distribution level.
In analyzing the effects of the 70% cap, and appreciating how it violates the due process
clause, we should not focus solely on the end consumers. Undoubtedly, consumers will
face hardships due to the increased prices, but their threshold of physical survival, as
individual people, is significantly less than that of enterprises. Somehow, I do not think
the new E-VAT would generally deprive consumers of the bare necessities such as food,
water, shelter and clothing. There may be significant deprivation of comfort as a result,
but not of life.
The same does not hold true for businesses. The standard of "deprivation of life" of
juridical persons employs different variables than that of natural persons. What food and
water may be for persons, profit is for an enterprise the bare necessity for survival.
For businesses, the implementation of the same law, with the 70% cap and 60-month
amortization period, would mean the deprivation of profit, which is the determinative
necessity for the survival of a business.
It is easy to admonish both the consumer and the enterprise to cut back on expenditures to
survive the new E-VAT Law. However, this can be realistically expected only of the
consumer. The small/medium enterprise cannot just cut back easily on expenditures in
order to survive the implementation of the E-VAT Law. For such businesses, expenditures
do not normally contemplate unnecessary expenses such as executive perks which can be
dispensed with without injury to the enterprises. These expenditures pertain to expenses
necessary for the survival of the enterprise, such as wages, overhead and purchase of raw
materials. Those three basic items of expenditure cannot simply be reduced, as to do so
with impair the ability of the business to operate on a daily basis.
And reduction of expenditures is not the exclusive antidote to these impositions under the
E-VAT Law, as there must also be a corresponding increase in the amount of gross sales.
To do so though, would require an increase in the selling price, dampening consumer
enthusiasm, and further impairing the ability of the enterprise to recover from the E-VAT
Law. This is your basic Catch-2240 situation no matter which means the enterprise
employs to recover from the E-VAT Law, it will still go down in flames.
Section 8 of the E-VAT law, while ostensibly even-handed in application, fails to
appreciate valid substantial distinctions between large scale enterprises and small and
medium enterprises. The latter group, owing to the limited capability for capital
investment, subsists on modest profit margins, whereas the former expects, by reason of
its substantial capital investments, a high margin. In essentially prohibiting the
recovery of small profit margins, the E-VAT law effectively sends the message that
only high margin businesses are welcome to do business in the Philippines. It stifles
any entrepreneurial ambitions of Filipinos unfortunate enough to have been born
poor yet seek a better life by sacrificing all to start a small business.
Among the enunciated State policies in the Constitution, as stated in Section 20, Article
II, is that "the State recognizes the indispensable role of the private sector,
encourages private enterprise, and provides incentives to needed investments."41 The
provision, as with other declared State policies in the Constitution, have sufficient import
and consequence such that in assessing the constitutionality of the governmental action,
these provisions should be considered and weighed as against the rationale for the
assailed State action.42 The incompatibility of the 70% cap with this provision is patent.
Pilipinas Shell Dealers, on whom the burden to establish the violation of due process and
equal protection lies, offers the following chart of the income statement of a typical
petroleum dealer:
QUARTERLY PROFIT AND LOSS STATEMENT
DEALER "A"
Price
VAT (without 70% cap) VAT (with 70%

cap)
Sales/Output
32,748,534
3,274,853.40
Cost of Sales
31,834,717
3,183,471.70
Gross Margin
913,817
Operating Expenses Non536,249
vatable items
317,584
Vatable Items
31,758.40
3,274,853.40
Total Cost
853,833
Net Profit
59,984
Total Input Tax

VAT Payable
3,215,230.10
2,292,397.38
59,623.30
982,456.02
Unutilized Input VAT 922,832.72

*computed by multiplying output VAT by 70% [3,274,853.40 x 70% = 2,292.397.38]
The presentation of the Pilipinas Shell Dealers more or less jibes with my own
observations on the impact of the 70% cap. The dealer whose income is illustrated above
has to outlay a cash amount of P922,832.72 more than what would have been shelled out
if the 70% cap were not in place. Considering that the net profit of the dealer is only
P59,984.00, the consequences could very well be fatal, especially if these state of events
persist in succeeding quarters.
The burden of proof was on the Pilipinas Shell Dealers to prove their allegations, and
accordingly, these figures have been duly presented to the Court for appreciation and
evaluation. Instead, the majority has shunted aside these presentations as being merely
theoretical, despite the fact that they present a clear and present danger to the very life of
our nations enterprises. The majoritys position would have been more credible had it
faced the issue squarely, and endeavored to demonstrate in like numerical fashion why
the 70% cap is not oppressive, confiscatory, or otherwise violative of the due process
clause.
Sadly, the majority refuses to confront the figures or engage in a meaningful
demonstration of how these assailed provisions truly operate. Instead, it counters with
platitudes and bromides that do not intellectually satisfy. Considering that the very
vitality, if not life of our domestic economy is at stake, I think it derelict to our duty to
block out these urgent concerns presented to the Court with blind faith tinged with
irrational Panglossian43 optimism.
The obligation of the majority to refute on the merits the arguments of the Petroleum
Dealers becomes even more grave considering that the respondents have abjectly failed to
convincingly dispute the claims. During oral arguments, respondents attempted to counter
the arguments that the 70% cap was oppressive and confiscatory by presenting the
following illustration, which I fear is severely misleading:
Slide 1
Item Cost VAT
Sales 1,000,000.00 100,000.00

Purchases 800,000.00 80,000.00
Due BIR without cap Due BIR with 70% cap

Output VAT 100,000.00 Output VAT 100,000.00
Actual Input VAT 80,000.00 Allowable Input VAT 70,000.00
Net VAT Payable 20,000.00 Net VAT Payable 30,000.00
Excess Input VAT 10,000.00
Carry-over to next quarter
Slide 2
___________________________________________
Item Cost VAT
Sales 1,000,000.00 100,000.00
Purchases 600,000.00 60,000.00
Due BIR without cap Due BIR with
70% cap
Output VAT 100,000.00 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 governments revenue since the unutilized creditable input
VAT should be entered in the government books as a debt payable as it is supposed
to be eventually repaid to the taxpayer, and so on the contrary it increases the
governments debts. I do see that the 70% cap temporarily allows the government to
brag to the world of an increased cash flow. But this situation would be akin to the
provincial man who borrows from everybody in the barrio in order to show off
money and maintain the pretense of prosperity to visiting city relatives. The illusion
of wealth is hardly a legitimate state purpose, especially if projected at the expense
of the very business life of the country.
The majority, in an effort to belittle these concerns, points out that that the excess input
tax remains creditable in succeeding quarters. However, as seen in the above illustration,
the actual application of the excess input tax will always be limited by the amount of
output taxes collected in a quarter, as a result of the 70% cap. Thus, it is entirely possible
that a VAT-registered person, through the accumulation of unutilized input taxes, would
have in a quarter an express creditable input tax of P50,000,000, but would be allowed to
actually credit only P70,000 if the output tax collected for that quarter were only
P100,000.
The burden of the VAT may fall at first to the immediate buyers, but it is supposed to be
eventually shifted to the end-consumer. The 70% cap effectively prevents this from
happening, as it limits the ability of the business to recover the prepaid input taxes. This
is unconscionable, since in the first place, these intervening
players the manufacturers, producers, traders, retailers are not even supposed to
sustain the losses incurred by reason of the prepayment of the input taxes. Worse, they
would be obliged every quarter to pay to the government from out of their own pockets
the equivalent of 30% of the output taxes, no matter their own particular financial
condition. Worst, this twin yoke on the taxpayer of having to sustain a debit equivalent to
30% of output taxes, and having to await forever in order to recover the prepaid taxes
would impair the cash flow and prove fatal for a shocking number of businesses which,
as they now stand, have to make do with a minimum profit that stands to be wiped out
with the introduction of the 70% cap.
Nonetheless, the majority notes that the excess creditable input tax may be the subject of
a tax credit certificate, which then could be used in payment of internal revenue taxes, or
a refund to the extent that such input taxes have not been applied against output taxes.45
What the majority fails to mention is that under Section 10 of the E-VAT Law,
which amends Section 112 of the NIRC, such credit or refund may not be done while
the enterprise remains operational:
SEC. 10. Section 112 of the same Code, as amended, is hereby further amended to read
as follows:
SEC. 112. Refunds or Tax Credits of Input Tax.
xxx
"(B) Cancellation of VAT Registration. A person whose registration has been
cancelled due to retirement from or cessation of business or due to changes or
cessation of status under Section 106(C) of this Code may, within two (2) years from
the date of cancellation, apply for the issuance of a tax credit certificate for any
unused input tax which may be used in payment of his other internal revenue taxes.
xxx
This stands in marked contrast to Section 112(B) of the NIRC as it read prior to this
amendment. Under the previous rule, a VAT-registered person was entitled to apply for
the tax credit certificate or refund paid on capital goods even while it remained in
operation:
SEC. 112. Refunds or Tax Credits of Input Tax.
xxx
"(B) Capital Goods . A VAT-registered person may apply for the issuance of a tax
credit certificate or refund of input taxes paid on capital goods imported or locally
purchased, to the extent that such input taxes have not been applied against output taxes.
The application may be made only within two (2) years after the close of the taxable
quarter when the importation or purchase was made.
This provision, which could have provided foreseeable and useful relief to the VATregistered person, was deleted under the new E-VAT Law. At present, the refund or tax
credit certificate may only be issued upon two instances: on zero-rated or effectively
zero-rated sales, and upon cancellation of VAT registration due to retirement from or
cessation of business.46 This is the cruelest cut of all. Only after the business ceases to
be may the State be compelled to repay the entire amount of the unutilized input
tax. It is like a macabre form of sweepstakes wherein the winner is to be paid his
fortune only when he is already dead. Aanhin pa ang damo kung patay na ang
kabayo.
Moreover, the inability to immediately credit or otherwise recover the unutilized input
VAT could cause such prepaid amount to actually be recognized in the accounting books
as a loss. Under international accounting practices, the unutilized input VAT due to the
70% cap would not even be recognized as a deferred asset. The same would not hold true
if the 70% cap were eliminated. Under the International Accounting Standards47, the
unutilized input VAT credit is recognized as an asset "to the extent that it is probable that
future taxable profit will be available against which the unused tax losses and unused tax
credits can be utili[z]ed"48 Thus, if the immediate accreditation of the input VAT credit
can be obtained, as it would without the 70% cap, the asset could be recognized.
However, the same Standards hold that "[t]o the extent that it is not probable that taxable
profit will be available against which the unused tax losses or unused tax credits can be
utilised, the deferred tax asset is not recognised".49 As demonstrated, the continuous
operation of the 70% cap precludes the recovery of input VAT prepaid months or years
prior. Moreover, the inability to claim a refund or tax credit certificate until after the
business has already ceased virtually renders it improbable for the input VAT to be
recovered. As such, under the International Accounting Standards, it is with all likelihood
that the prepaid input VAT, ostensibly creditable, would actually be reflected as a loss.50
What heretofore was recognized as an asset would now, with the imposition of the 70%
cap, be now considered as a loss, enhancing the view that the 70% cap is ultimately
confiscatory in nature.
This leads to my next point. The majority asserts that the input tax is not a property or
property right within the purview of the due process clause.51 I respectfully but strongly
disagree.
Tellingly, the BIR itself has recognized that unutilized input VAT is one of those assets,
corporate attributes or property rights that, in the event of a merger, are transferred to the
surviving corporation by operation of law.52 Assets would fall under the purview of
property under the due process clause, and if the taxing arm of the State recognizes that
such property belongs to the taxpayer and not to the State, then due respect should be
given to such expert opinion.
Even under the International Accounting Standards I adverted to above, the unutilized
input VAT credit may be recognized as an asset "to the extent that it is probable that
future taxable profit will be available against which the unused tax losses and unused tax
credits can be utilised"53 If not probable, it would be recognized as a loss.54 Since these
international standards, duly recognized by the Securities and Exchange Commission as
controlling in this jurisdiction, attribute tangible gain or loss to the VAT credit, it
necessarily follows that there is proprietary value attached to such gain or loss.
Moreover, the prepaid input tax represents unutilized profit, which can only be utilized if
it is refunded or credited to output taxes. To assert that the input VAT is merely a
privilege is to correspondingly claim that the business profit is similarly a mere privilege.
The Constitution itself recognizes the right to profit by private enterprises. As I stated
earlier, one of the enunciated State policies under the Constitution is the recognition of
the indispensable role of the private sector, the encouragement of private enterprise, and
the provision of incentives to needed investments.55 Moreover, the Constitution also
requires the State to recognize the right of enterprises to reasonable returns on
investments, and to expansion and growth.56 This, I believe, encompasses profit.
60-Month Amortization Period
Another portion of Section 8 of the E-VAT Law is unconstitutional, essentially for the
same reasons as above. The relevant portion reads:
follows:
"SEC. 110. Tax Credits.
(A) Creditable Input Tax.
....
Provided, That the input tax on goods purchased or imported in a calendar month
for use in trade or business for which deduction for depreciation is allowed under
this Code, shall be spread evenly over the month of acquisition and the fifty-nine
(59) succeeding months if the aggregate acquisition cost for such goods, excluding
the VAT component thereof, exceeds One million pesos (P1,000,000): Provided,
however, That if the estimated useful life of the capital good is less than five (5) years, as
used for depreciation purposes, then the input VAT shall be spread over such a shorter
period: Provided, finally, that in the case of purchase of services, lease or use of
properties, the input tax shall be creditable to the purchaser, lessee or licensee upon
payment of the compensation, rental, royalty or fee.
Again, this provision unreasonably severely limits the ability of an enterprise to recover
its prepaid input VAT. On its face, it might appear injurious primarily to high margin
enterprises, whose purchase of capital goods in a given quarter would routinely exceed
P1,000,000.00. The amortization over a five-year period of the input VAT on these capital
goods would definitely eat up into their profit margin. But it is still possible for such big
businesses to survive despite this new restriction, and their financial pain alone may not
be sufficient to cause the invalidity of a taxing statute.
However, this amortization plan will prove especially fatal to start-ups and other
new businesses, which need to purchase capital goods in order to start up their new
businesses. It is a known fact in the financial community that a majority of businesses
start earning profit only after the second or third year, and many enterprises do not even
get to survive that long. The first few years of a business are the most crucial to its
survival, and any financial benefits it can obtain in those years, no matter how miniscule,
may spell the difference between life and death. For such emerging businesses, it is
already difficult under the present system to recover the prepaid input VAT from the
output VAT collected from customers because initial sales volumes are usually low. With
this further limitation, diminishing as it does any opportunity to have a sustainable cash
flow, the ability of new businesses to survive the first three years becomes even more
endangered.
Even existing small to medium enterprises are imperiled by this 60 month amortization
restriction, especially considering the application of the 70% cap. The additional purchase
of capital goods bears as a means of adding value to the consumer good, as a means to
justify the increased selling price. However, the purchase of capital goods in excess of
P1,000,000.00 would impose another burden on the small to medium enterprise by
further restricting their ability to immediately recover the entire prepaid input VAT
(which would exceed at least P100,000.00), as they would be compelled to wait for at
least five years before they can do so. Another hurdle is imposed for such small to
medium enterprise to obtain the profit margin critical to survival. For some lucky
enterprises who may be able to survive the injury brought about by the 70% cap,
this 60 month amortization period might instead provide the mortal head wound.
Moreover, the increased administrative burden on the taxpayer should not be discounted,
considering this Courts previous recognition of the aims of the VAT system to
"rationalize the system of taxes on goods and services, [and] simplify tax
administration".57 With the amortization requirement, the taxpayer would be forced to
segregate assets into several classes and strictly monitor the useful life of assets so that
proper classification can be made. The administrative requirements of the taxpayer in
order to monitor the input VAT from the purchase of capital assets thus has exponentially
increased.
5% Withholding VAT on Sales
Pilipinas Shell Dealers argue that Section 12 of the E-VAT law, which amends Section
114(C) of the NIRC, is also unconstitutional. The provision is supremely unwise,
oppressive and confiscatory in nature, and ruinous to private enterprise and even
State development. The provision reads:
SEC. 12. Section 114 of the same Code, as amended, is hereby further amended to read
as follows:
"SEC. 114. Return and Payment of Value-Added Tax.
xxx
"(C) Withholding of Value-added Tax. The Government or any of its political

subdivisions, instrumentalities or agencies, including government-owned or controlled
corporations (GOCCs) shall, before making payment on account of each purchase of
goods and services which are subject to the value-added tax imposed in Sections 106 and
108 of this Code, deduct and withhold a final value-added tax at the rate of five percent
(5%) of the gross payment thereof: Provided, That the payment for lease or use of
properties or property rights to nonresident owners shall be subject to ten percent (10%)
withholding tax at the time of payment. For purposes of this Section, the payor or person
in control of the payment shall be considered as the withholding payment. xxx
The principle that the Government and its subsidiaries may deduct and withhold a final
value-added tax on its purchase of goods and services is not new, as the NIRC had
allowed such deduction and withholding at the rate of 3% of the gross payment for the
purchase of goods, and 6% of the gross receipts for services. However, the NIRC had
also provided that this tax withheld would also be creditable against the VAT
liability of the seller or contractor, a mechanism that was deleted by the E-VAT law.
The deletion of this credit apparatus effectively compels the private enterprise
transacting with the government to shoulder the output VAT that should have been
paid by the government in excess of 5% of the gross selling price, and at the same
time unduly burdens the private enterprise by precluding it from applying any
creditable input VAT on the same transaction.
Notably, the removal of the credit mechanism runs contrary to the essence of the VAT
system, which characteristically allows the crediting of input taxes against output taxes.
Without such crediting mechanism, which allows the shifting of the VAT to only the
final end user, the tax becomes a straightforward tax on business or income. The
effect on the enterprise doing business with the government would be that two taxes
would be imposed on the income by the business derived on such transaction: the
regular personal or corporate income tax on such income, and this final withholding
tax of 5%.
Granted that Congress is not bound to adopt with strict conformity the VAT system, and
that it has to power to impose new taxes on business income, this amendment to Section
114(C) of the NIRC still remains unconstitutional. It unfairly discriminates against
entities which contract with the government by imposing an additional tax on the
income derived from such transactions. The end result of such discrimination is
double taxation on income that is both oppressive and confiscatory.
It is a legitimate purpose of a tax law to devise a manner by which the government
could save money on its own transactions, but it is another matter if a private
enterprise is punished for doing business with the government. The erstwhile NIRC
worked towards such advantage, by allowing the government to reduce its cash outlay on
purchases of goods and services by withholding the payment of a percentage thereof.
While the new E-VAT law retains this benefit to the government, at the same time it
burdens the private enterprise with an additional tax by refusing to allow the crediting of
this tax withheld to the businesss input VAT.
This imposition would be grossly unfair for private entities that transact with the
government, especially on a regular basis. It might be argued that the provision, even if
concededly unwise, nonetheless fails to meet the standard of unconstitutionality, as it
affects only those persons or establishments that choose to do business with the
government. However, it is an acknowledged fact that the government and its subsidiaries
rely on contracts with private enterprises in order to be able to carry out innumerable
functions of the State. This provision effectively discourages private enterprises to do
business with the State, as it would impose on the business a higher rate of tax if it
were to transact with the State, as compared to transactions with other private
entities.
Established industries with track records of quality performance could very well be
dissuaded from doing further business with government entities as the higher tax rate
would make no economic sense. Only those enterprises which really need the money,
such as those with substandard track records that have affected their viability in the
marketplace, would bother seeking out government contracts. The corresponding
sacrifice in quality would eventually prove detrimental to the State. Our society can ill
afford shoddy infrastructures such as roads, bridges and buildings that would
unnecessarily pose danger to the public at large simply because the government wanted to
skimp on expenses.
The provision squarely contradicts Section 20, Article II of the Constitution as it
vacuously discourages private enterprise, and provides disincentives to needed
investments such as those expected by the State from private businesses. Whatever
advantages may be gained by the temporary increase in the government coffers would be
overturned by the disadvantages of having a reduced pool of private enterprises willing to
do business with the government. Moreover, since government contracts with private
enterprises will still remain a necessary fact of life, the amendment to Section 114(C) of
the NIRC introduced by the E-VAT Law.
Double taxation means taxing for the same tax period the same thing or activity twice,
when it should be taxed but once, for the same purpose and with the same kind of
character of tax.58 Double taxation is not expressly forbidden in our constitution, but the
Court has recognized it as obnoxious "where the taxpayer is taxed twice for the benefit of
the same governmental entity or by the same jurisdiction for the same purpose."59
Certainly, both the 5% final tax withheld and the general corporate income tax are both
paid for the benefit of the national government, and for the same incidence of taxation,
the sale/lease of goods and services to the government.
The Court, in Re: Request of Atty. Bernardo Zialcita60 had cause to make the following
observation I submit apropos to the case at bar, on double taxation in a case involving the
attempt of the BIR to tax the commuted accumulated leave credits of a government
lawyer upon his retirement:
Section 284 of the Revised Administrative Code grants to a government employee 15
days vacation leave and 15 days sick leave for every year of service. Hence, even if the
government employee absents himself and exhausts his leave credits, he is still deemed to
have worked and to have rendered services. His leave benefits are already imputed in,
and form part of, his salary which in turn is subject to withholding tax on income.
He is taxed on the entirety of his salaries without any deductions for any leaves not
utilized. It follows then that the money values corresponding to these leave benefits
both the used and unused have already been taxed during the year that they were
earned. To tax them again when the retiring employee receives their money value as
a form of government concern and appreciation plainly constitutes an attempt to tax
the employee a second time. This is tantamount to double taxation.61
Conclusions
The VAT system, in itself, is intelligently designed, and stands as a fair means to raise
revenue. It has been adopted worldwide by countries hoping to employ an efficient means
of taxation. The concerns I have raised do not detract from my general approval of the
VAT system.
I do lament though that our governments wholehearted adoption of the VAT system is
endemic of what I deem a flaw in our national tax policy in the last few decades. The
power of taxation, inherent in the State and ever so powerful, has been generally
employed by our financial planners for a solitary purpose: the raising of revenue.
Revenue generation is a legitimate purpose of taxation, but standing alone, it is a
woefully unsophisticated design. Intelligent tax policy should extend beyond the singularminded goal of raising State funds the old-time philosophy behind the taxing schemes
of war-mongering monarchs and totalitarian states and should sincerely explore the
concept of taxation as a means of providing genuine incentives to private enterprise to
spur economic growth; of promoting egalitarian social justice that would allow everyone
to their fair share of the nations wealth.
Instead, we are condemned by a national policy driven by the monomania for State
revenue. It may be beyond my oath as a Justice to compel the government to adopt an
economic policy in consonance with my personal views, but I offer these observations
since they lie at the very heart of the noxiousness of the assailed provisions of the E-VAT
law. The 70% cap, the 60-month amortization period and the 5% withholding tax on
government transactions were selfishly designed to increase government revenue at the
expense of the survival of local industries.
I am not insensitive to the concerns raised by the respondents as to the dire consequences
to the economy should the E-VAT law be struck down. I am aware that the granting of the
petition in G.R. No. 168461 will negatively affect the cash flow of the government. If that
were the only relevant concern at stake, I would have no problems denying the petition.
Unfortunately, under the device employed in the E-VAT law, the price to be paid for
a more sustainable liquidity of the governments finances will be the death of local
business, and correspondingly, the demise of our society. It is a measure just as
draconian as the standard issue taxes of medieval tyrants.
I am not normally inclined towards the language of the overwrought, yet if the sky were
indeed truly falling, how else could that fact be communicated. The E-VAT Law is of
multiple fatal consequences. How are we to survive as a nation without the bulwark of
private industries? Perhaps the larger scale, established businesses may ultimately remain
standing, but they will be unable to sustain the void left by the demise of small to
medium enterprises. Or worse, domestic industry would be left in the absolute control of
monopolies, combines or cartels, whether dominated by foreigners or local oligarchs. The
destruction of subsisting industries would be bad enough, the destruction of opportunity
and the entrepreneurial spirit would be even more grievous and tragic, as it would mark
as well the end of hope. Taxes may be the lifeblood of the state, but never at the expense
of the life of its subjects.
Accordingly, I VOTE to:
1) DENY the Petitions in G.R. Nos. 168056, 168207, and 168730 for lack of merit;
2) PARTIALLY GRANT the Petition in G.R. Nos. 168463 and declare Section 21 of the
E-VAT Law as unconstitutional;
3) GRANT the Petition in G.R. No. 168461 and declare as unconstitutional Section 8 of
Republic Act No. 9337, insofar as it amends Section 110(A) and (B) of the National
Internal Revenue Code (NIRC) as well as Section 12 of the same law, with respect to its
amendment of Section 114(C) of the NIRC.
DANTE O. TINGA
Associate Justice
Footnotes
1
Republic Act No. 9337. Referred to intext as "E-VAT Law."
Except insofar as it prays that Section 21 of the E-VAT Law be declared

unconstitutional. Infra.
3
J. Vitug and E. Acosta, Tax Law and Jurisprudence (2nd ed., 2000), at 7-8.
See National Power Corporation v. Province of Albay, G.R. No. 87479, 4 June
1990, 186 SCRA 198, 203.
5
See Section 24, Article VI, Constitution.
The recognized exceptions, both expressly provided by the Constitution, being

the tariff clause under Section 28(2), Article VI, and the powers of taxation of
local government units under Section 5, Article X.
7
G.R. No. 158540, 8 July 2005, 434 SCRA 65.
See People v. Vera, 65 Phil. 56, 117 (1937).
Decision, infra.
10
Carpio v. Executive Secretary, GR No. 96409 February 14,1992, 206 SCRA 290,
298; citing In re Guarina, 24 Phil. 37.
11
People v. Vera, supra note 8.
12
See Section 2, National Internal Revenue Code.
13
There are two eminent tests for valid delegation, the "completeness test" and the
"sufficient standard test". The law must be complete in its essential terms and
conditions when it leaves the legislature so that there will be nothing left for the
delegate to do when it reaches him except enforce it. U.S. v. Ang Tang Ho, 43
Phil. 1, 6-7 (1922). On the other hand, a sufficient standard is intended to map out
the boundaries of the delegates authority by defining legislative policy and
indicating the circumstances under which it is to be pursued and effected;
intended to prevent a total transference of legislative power from the legislature to
the delegate.
14
Decision, infra, citing Alunan v. Mirasol, G.R. No. 108399, 31 July 1997, 276
SCRA 501, 513-514.
15
Notwithstanding, the Court in Southern Cross did rule that Section 5 of the
Safeguard Measures Act, which required a positive final determination by the
Tariff Commission before the DTI or Agriculture Secretaries could impose
general safeguard measures, operated as a valid restriction and limitation on the
exercise by the executive branch of government of its tariff powers.
16
G.R. No. 115455, 25 August 1994, 235 SCRA 630.
17
M. Evans, A Source of Frequent and Obstinate Altercations: The History and

Application of the Origination Clause.
18
The Federalist No. 58, at 394 (J. Madison) (J.Cooke ed. 1961), cited in J. M.
Medina, The Orignation Clause in the American Constitution: A Comparative
Survey, 23 Tulsa Law Journal 2, at 165.
19
Tolentino v. Secretary of Finance, supra note 16 at 661.
20
See Section 27(1), Article VI, Constitution.
21
Tolentino v. Secretary of Finance, supra note 16 at 668.
22
G.R. No. 124360, 5 November 1997, 281 SCRA 330.
23
Id. at 349-350.
24
People v. Tudtud, G.R. No. 144037, 26 September 2003, 412 SCRA 142, 168.
25
See Section 1, Article III, Constitution. Private corporations and partnerships are
persons within the scope of the guaranty insofar as their property is concerned.
Smith Bell & Co. v. Natividad, 40 Phil. 136, 145 (1919).
26
16 C.J.S., at 1150-1151.
27
292 U.S. 40 (1934).
28
Id. at 44.
29
G.R. No. L-59431, 25 July 1984, 130 SCRA 654.
30
Id. at 660-662.
31
Justice Isagani Cruz offers the following examples of taxes that contravene the
due process clause: "A tax, for example, that would claim 80 percent of a persons
net income would clearly be oppressive and could unquestionably struck down as
a deprivation of his property without due process of law. A property tax
retroacting to as long as fifty years back would by tyrannical and unrealistic, as
the property might not yet have been then in the possession of the taxpayer nor,
presumably, would he have acquired it had he known of the tax to be imposed on
it." I. Cruz, Constitutional Law, p. 85.
32
"After defining religion, the Court, citing Tanada and Fernando, made this
statement, viz:
The constitutional guaranty of the free exercise and enjoyment of religious
profession and worship carries with it the right to disseminate religious
information. Any restraint of such right can only be justified like other restraints
of freedom of expression on the grounds that there is a clear and present danger of
any substantive evil which the State has the right to prevent. (Tanada and
Fernando on the Constitution of the Philippines, vol. 1, 4th ed., p. 297) (emphasis
supplied)
This was the Court's maiden unequivocal affirmation of the "clear and present
danger" rule in the religious freedom area, and in Philippine jurisprudence, for
that matter." Estrada v. Escritor, A.M. No. P-02-1651, 4 August 2003, 408 SCRA
1.
33
Separate Opinion, infra.
34
Ibid.
35
Art. 2, European Commission First Council Directive 67/227 of 11 April 1967

on the Harmonization of Legislation of Member States Concerning Turnover
Taxes, 1971 O.J. (L 71) 1301.
36
Liam & Ebrill, The Modern VAT.
37
"The most basic law in finance!" Understand the Time Value of Money.
http://www.free-financial-advice.net/time-value-of-money.html. Last visited, 30
August 2005.
38
Time Value of Money. http://www.jetobjects.com/components/finance/

TVM/concepts.html. Last visited, 30 August 2005.
39
There is also the option for the business to go underground and avoid VAT
registration, and consequently avoid remitting VAT payments to the government.
It would be facetious though for a Justice of the Supreme Court to characterize
this illegal option as "viable."
40
In Joseph Hellers Catch-22, Yossarian, a World War II pilot reasoned that if he

feigned insanity, he would be necessarily exempt from assignment to dangerous
bombing runs in enemy territory. However, his superiors reasoned that if he were
truly insane, he then would be heedless enough to be sent on those dangerous
bombing runs he had sought to avoid in the first place.
41
Section 20, Article II, Constitution.
42
The due process clause alone is sufficient to invalidate any contravening taxing
statute. On the other hand, Section 20, Article II on its own might not be similarly
sufficient. However, if the taxing statute violates both the due process clause and
Section 20, Article II, then the impetus to strike down the offending law becomes
even more compelling, so as to defeat the generalist invocation of the States
inherent powers of taxation.
43
Pangloss was a famed character ridiculed in Voltaires Candide, renowned for

his absolute blind faith in optimism, no matter how dire the circumstances.
44
Id. at 29-30.
45
Decision, infra.
46
This is confirmed by the BIR in its draft Revenue Memorandum Circular dated
12 July 2005, submitted by respondents in its Compliance dated 16 August 2005:
"[Q]: Is there a way by which such unapplied excess input tax credits can be
claimed for refund or issuance of TCC?
[A]: The only time application for refund/issuance of TCC is allowed for
input taxes incurred on the purchase of domestic goods/services is when the
same are directly attributable to zero-rated or effectively zero-rated sales (of
goods/services). xxx
For those engaged purely in domestic transactions, the only time that
unapplied input taxes may be applied for the issuance of TCC is when the
VAT registration of the taxpayer is cancelled due to retirement or cessation of
business or change in the status of the taxpayer as a VAT registered taxpayer.
As provided for in Section 112(B0, in case of cancellation of VAT registration due
to cessation of business or change in status of taxpayer, the only recourse given to
such taxpayer is to apply for the issuance of TCC on his excess input tax credits
which may be used in payment of his other internal revenue taxes, application for
refund thereof is not an option."
See Annexes "18-N" and "18-O", Compliance dated 12 July 2005.
47
See SRC Rule 68(1)(b)(c), Implementing Rules and Regulations to the Securities
and Regulations Code.
48
Section 34, International Accounting Standards 12.
49
Section 36, id.
50
In his Separate Opinion, Justice Panganiban asserts that the deferred input tax
credit is not really confiscated by the government, as it remains an asset in the
accounting records of a business. See Separate Opinion, infra. By the same logic,
a law requiring all businesses to surrender to the government 100% of its gross
sales subject to reimbursement only after a five year period, would pass muster,
since the amount is "not really confiscated by the government as it remains an
asset in the accounting records of a business."
51
Justice Panganiban cites United Paracale Mining Co. v. De la Rosa (cited as 221
SCRA 108, 115, April 7, 1993) to bolster his stated position that ""[t]here is no
vested right in a deferred input tax account; it is a mere statutory privilege".
Separate Opinion, infra. United Paracale does not pertain to any deferred input
taxes, but instead to "mining claims which according to [petitioners] is private
property would constitute impairment of vested rights since by shifting the forum
of the petitioners case from the courts to the Bureau of Mines[the] substantive
rights to full protection of its property rights shall be greatly impaired." United
Paracale Mining Co. v. Hon. Dela Rosa, G.R. Nos. 63786-87, 7 April 1993, 221
SCRA 108, `115. Clearly, United Paracale is not even a tax case, involving as it
does, questions of the jurisdiction of the Bureau of Mines.
52
See Part III, Paragraph 3, Revenue Memorandum Ruling No. 1-2002.
53
Section 32, International Accounting Standards 12.
54
Supra note 47.
55
Supra note 9.
56
Section 3, Article XIII, Constitution.
57
Kapatiran ng Mga Naglilingkod sa Pamahalaan ng Pilipinas, Inc. et al. v. Tan,

G.R. No. L-81311, 30 June 1988.
58
J. Vitug and E. Acosta, supra note 3 at 41.
59
Pepsi-Cola Bottling Co. of the Philippines, Inc. v. Municipality of Tanauan, G.R.

No. L-31156, 27 February 1976, 69 SCRA 460, 466-67; citing CIR v. Lednicky,
L-18169, July 31, 1964, 11 SACRA 609 and SMB, Inc. v. City of Cebu, L-20312,
February 26, 1972, 43 SCRA 280.
60
A.M. No. 90-6-015-SC, 18 October 1990, 190 SCRA 851.
61
Id. at 856.
EN BANC
G.R. No. 168056 ABAKADA GURO PARTY LIST (Formerly AASJAS)
OFFICERS SAMSON S. ALCANTARA and ED VINCENT S. ALBANO v. THE
HONORABLE EXECUTIVE SECRETARY EDUARDO ERMITA, ET AL.
G.R. No. 168207 AQUILINO Q. PIMENTEL, JR., ET AL. v. EXECUTIVE
SECRETARY EDUARDO R. ERMITA
G.R. No. 168461 ASSOCIATION OF PILIPINAS SHELL DEALERS, INC., ET
AL. v. 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 Governments inability to sustain its precarious fiscal position,
resulting in severe erosion of investor confidence and economic stagnation."3
Finding Rep. Act No. 9337 as not unconstitutional, both in its procedural enactment and
in its substance, I hereby concur in full in the foregoing majority opinion, penned by my
esteemed colleague, Justice Ma. Alicia Austria-Martinez.
According to petitioners, the enactment of Rep. Act No. 9337 by Congress was riddled
with irregularities and violations of the Constitution. In particular, they alleged that: (1)
The Bicameral Conference Committee exceeded its authority to merely settle or reconcile
the differences among House Bills No. 3555 and 3705 and Senate Bill No. 1950, by
including in Rep. Act No. 9337 provisions not found in any of the said bills, or deleting
from Rep. Act No. 9337 or amending provisions therein even though they were not in
conflict with the provisions of the other bills; (2) The amendments introduced by the
Bicameral Conference Committee violated Article VI, Section 26(2), of the Constitution
which forbids the amendment of a bill after it had passed third reading; and (3) Rep. Act
No. 9337 contravened Article VI, Section 24, of the Constitution which prescribes that
revenue bills should originate exclusively from the House of Representatives.
Invoking the expanded power of judicial review granted to it by the Constitution of 1987,
petitioners are calling upon this Court to look into the enactment of Rep. Act No. 9337 by
Congress and, consequently, to review the applicability of the enrolled bill doctrine in
this jurisdiction. Under the said doctrine, the enrolled bill, as signed by the Speaker of the
House of Representatives and the Senate President, and certified by the Secretaries of
both Houses of Congress, shall be conclusive proof of its due enactment.4
Petitioners arguments failed to convince me of the wisdom of abandoning the enrolled
bill doctrine. I believe that it is more prudent for this Court to remain conservative and to
continue its adherence to the enrolled bill doctrine, for to abandon the said doctrine
would be to open a Pandoras Box, giving rise to a situation more fraught with evil and
mischief. Statutes enacted by Congress may not attain finality or conclusiveness unless
declared so by this Court. This would undermine the authority of our statutes because
despite having been signed and certified by the designated officers of Congress, their
validity would still be in doubt and their implementation would be greatly hampered by
allegations of irregularities in their passage by the Legislature. Such an uncertainty in the
statutes would indubitably result in confusion and disorder. In all probability, it is the
contemplation of such a scenario that led an American judge to proclaim, thus
. . . Better, far better, that a provision should occasionally find its way into the statute
through mistake, or even fraud, than, that every Act, state and national, should at any and
all times be liable to put in issue and impeached by the journals, loose papers of the
Legislature, and parol evidence. Such a state of uncertainty in the statute laws of the land
would lead to mischiefs absolutely intolerable. . . .5
Moreover, this Court must attribute good faith and accord utmost respect to the acts of a
co-equal branch of government. While it is true that its jurisdiction has been expanded by
the Constitution, the exercise thereof should not violate the basic principle of separation
of powers. The expanded jurisdiction does not contemplate judicial supremacy over the
other branches of government. Thus, in resolving the procedural issues raised by the
petitioners, this Court should limit itself to a determination of compliance with, or
conversely, the violation of a specified procedure in the Constitution for the passage of
laws by Congress, and not of a mere internal rule of proceedings of its Houses.
It bears emphasis that most of the irregularities in the enactment of Rep. Act No. 9337
concern the amendments introduced by the Bicameral Conference Committee. The
Constitution is silent on such a committee, it neither prescribes the creation thereof nor
does it prohibit it. The creation of the Bicameral Conference Committee is authorized by
the Rules of both Houses of Congress. That the Rules of both Houses of Congress
provide for the creation of a Bicameral Conference Committee is within the prerogative
of each House under the Constitution to determine its own rules of proceedings.
The Bicameral Conference Committee is a creation of necessity and practicality
considering that our Congress is composed of two Houses, and it is highly improbable
that their respective bills on the same subject matter shall always be in accord and
consistent with each other. Instead of all their members, only the appointed
representatives of both Houses shall meet to reconcile or settle the differences in their
bills. The resulting bill from their meetings, embodied in the Bicameral Conference
Report, shall be subject to approval and ratification by both Houses, voting separately.
It does perplex me that members of both Houses would again ask the Court to define and
limit the powers of the Bicameral Conference Committee when such committee is of
their own creation. In a number of cases,6 this Court already made a determination of the
extent of the powers of the Bicameral Conference Committee after taking into account
the existing Rules of both Houses of Congress. In gist, the power of the Bicameral
Conference Committee to reconcile or settle the differences in the two Houses respective
bills is not limited to the conflicting provisions of the bills; but may include matters not
found in the original bills but germane to the purpose thereof. If both Houses viewed the
pronouncement made by this Court in such cases as extreme or beyond what they
intended, they had the power to amend their respective Rules to clarify or limit even
further the scope of the authority which they grant to the Bicameral Conference
Committee. Petitioners grievance that, unfortunately, they cannot bring about such an
amendment of the Rules on the Bicameral Conference Committee because they are
members of the minority, deserves scant consideration. That the majority of the members
of both Houses refuses to amend the Rules on the Bicameral Conference Committee is an
indication that it is still satisfied therewith. At any rate, this is how democracy works
the will of the majority shall be controlling.
Worth reiterating herein is the concluding paragraph in Arroyo v. De Venecia,7 which
reads
It would be unwarranted invasion of the prerogative of a coequal department for this
Court either to set aside a legislative action as void because the Court thinks the house
has disregarded its own rules of procedure, or to allow those defeated in the political
arena to seek a rematch in the judicial forum when petitioners can find remedy in that
department. The Court has not been invested with a roving commission to inquire into
complaints, real or imagined, of legislative skullduggery. It would be acting in excess of
its power and would itself be guilty of grave abuse of its discretion were it to do so. . . .
Present jurisprudence allows the Bicameral Conference Committee to amend, add, and
delete provisions of the Bill under consideration, even in the absence of conflict thereon
between the Senate and House versions, but only so far as said provisions are germane to
the purpose of the Bill.8 Now, there is a question as to whether the Bicameral Conference
Committee, which produced Rep. Act No. 9337, exceeded its authority when it included
therein amendments of provisions of the National Internal Revenue Code of 1997 not
related to VAT.
Although House Bills No. 3555 and 3705 were limited to the amendments of the
provisions on VAT of the National Internal Revenue Code of 1997, Senate Bill No. 1950
had a much wider scope and included amendments of other provisions of the said Code,
such as those on income, percentage, and excise taxes. It should be borne in mind that the
very purpose of these three Bills and, subsequently, of Rep. Act No. 9337, was to raise
additional revenues for the government to address the dire economic situation of the
country. The National Internal Revenue Code of 1997, as its title suggests, is the single
Code that governs all our national internal revenue taxes. While it does cover different
taxes, all of them are imposed and collected by the national government to raise revenues.
If we have one Code for all our national internal revenue taxes, then there is no reason
why we cannot have a single statute amending provisions thereof even if they involve
different taxes under separate titles. I hereby submit that the amendments introduced by
the Bicameral Conference Committee to non-VAT provisions of the National Internal
Revenue Code of 1997 are not unconstitutional for they are germane to the purpose of
House Bills No. 3555 and 3705 and Senate Bill No. 1950, which is to raise national
revenues.
Furthermore, the procedural issues raised by the petitioners were already addressed and
resolved by this Court in Tolentino v. Executive Secretary.9 Since petitioners failed to
proffer novel factual or legal argument in support of their positions that were not
previously considered by this Court in the same case, then I am not compelled to depart
from the conclusions made therein.
The majority opinion has already thoroughly discussed each of the substantial issues
raised by the petitioners. I would just wish to discuss additional matters pertaining to the
petition of the petroleum dealers in G.R. No. 168461.
They claim that the provision of Rep. Act No. 9337 limiting their input VAT credit to only
70% of their output VAT deprives them of their property without due process of law.
They argue further that such 70% cap violates the equal protection and uniformity of
taxation clauses under Article III, Section 1, and Article VI, Section 28(1), respectively,
of the Constitution, because it will unduly prejudice taxpayers who have high input VAT
and who, because of the cap, cannot fully utilize their input VAT as credit.
I cannot sustain the petroleum dealers position for the following reasons
First, I adhere to the view that the input VAT is not a property to which the taxpayer has
vested rights. Input VAT consists of the VAT a VAT-registered person had paid on his
purchases or importation of goods, properties, and services from a VAT-registered
supplier; more simply, it is VAT paid. It is not, as averred by petitioner petroleum
dealers, a property that the taxpayer acquired for valuable consideration.10 A VATregistered 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 VATregistered person is allowed, subject to certain substantiation requirements, to credit his
input VAT against his output VAT.
Output VAT is the VAT imposed by the VAT-registered person on his own sales of goods,
properties, and services or the VAT he passes on to his buyers. Hence, the VAT-registered
person selling the goods, properties, and services does not pay for the output VAT; said
output VAT is paid for by his consumers and he only collects and remits the same to the
government.
The crediting of the input VAT against the output VAT is a statutory privilege, granted by
Section 110 of the National Internal Revenue Code of 1997. It gives the VAT-registered
person the opportunity to recover the input VAT he had paid, so that, in effect, the input
VAT does not constitute an additional cost for him. While it is true that input VAT credits
are reported as assets in a VAT-registered persons financial statements and books of
account, this accounting treatment is still based on the statutory provision recognizing the
input VAT as a credit. Without Section 110 of the National Internal Revenue Code of
1997, then the accounting treatment of any input VAT will also change and may no longer
be booked outright as an asset. Since the privilege of an input VAT credit is granted by
law, then an amendment of such law may limit the exercise of or may totally withdraw
the privilege.
The amendment of Section 110 of the National Internal Revenue Code of 1997 by Rep.
Act No. 9337, which imposed the 70% cap on input VAT credits, is a legitimate exercise
by Congress of its law-making power. To say that Congress may not trifle with Section
110 of the National Internal Revenue Code of 1997 would be to violate a basic precept of
constitutional law that no law is irrepealable.11 There can be no vested right to the
continued existence of a statute, which precludes its change or repeal.12
It bears to emphasize that Rep. Act No. 9337 does not totally remove the privilege of
crediting the input VAT against the output VAT. It merely limits the amount of input VAT
one may credit against his output VAT per quarter to an amount equivalent to 70% of the
output VAT. What is more, any input VAT in excess of the 70% cap may be carried-over
to the next quarter.13 It is certainly a departure from the VAT crediting system under
Section 110 of the National Internal Revenue Code of 1997, but it is an innovation that
Congress may very well introduce, because
VAT will continue to evolve from its pioneering original structure. Dynamically, it will be
subjected to reforms that will make it conform to many factors, among which are: the
changing requirements of government revenue; the social, economic and political
vicissitudes of the times; and the conflicting interests in our society. In the course of its
evolution, it will be injected with some oddities and inevitably transformed into a
structure which its revisionists believe will be an improvement overtime.14
Second, assuming for the sake of argument, that the input VAT credit is indeed a property,
the petroleum dealers right thereto has not vested. A right is deemed vested and subject
to constitutional protection when
". . . [T]he right to enjoyment, present or prospective, has become the property of some
particular person or persons as a present interest. The right must be absolute, complete,
and unconditional, independent of a contingency, and a mere expectancy of future

benefit, or a contingent interest in property founded on anticipated continuance of
existing laws, does not constitute a vested right. So, inchoate rights which have not been
acted on are not vested." (16 C. J. S. 214-215)15
Under the National Internal Revenue Code of 1997, before it was amended by Rep. Act
No. 9337, the sale or importation of petroleum products were exempt from VAT, and
instead, were subject to excise tax.16 Petroleum dealers did not impose any output VAT on
their sales to consumers. Since they had no output VAT against which they could credit
their input VAT, they shouldered the costs of the input VAT that they paid on their
purchases of goods, properties, and services. Their sales not being subject to VAT, the
petroleum dealers had no input VAT credits to speak of.
It is only under Rep. Act No. 9337 that the sales by the petroleum dealers have become
subject to VAT and only in its implementation may they use their input VAT as credit
against their output VAT. While eager to use their input VAT credit accorded to it by Rep.
Act No. 9337, the petroleum dealers reject the limitation imposed by the very same law
on such use.
It should be remembered that prior to Rep. Act No. 9337, the petroleum dealers input
VAT credits were inexistent they were unrecognized and disallowed by law. The
petroleum dealers had no such property called input VAT credits. It is only rational,
therefore, that they cannot acquire vested rights to the use of such input VAT credits when
they were never entitled to such credits in the first place, at least, not until Rep. Act No.
9337.
My view, at this point, when Rep. Act No. 9337 has not yet even been implemented, is
that petroleum dealers right to use their input VAT as credit against their output VAT
unlimitedly has not vested, being a mere expectancy of a future benefit and being
contingent on the continuance of Section 110 of the National Internal Revenue Code of
1997, prior to its amendment by Rep. Act No. 9337.
Third, although the petroleum dealers presented figures and computations to support their
contention that the cap shall lead to the demise of their businesses, I remain unconvinced.
Rep. Act No. 9337, while imposing the 70% cap on input VAT credits, allows the
taxpayer to carry-over to the succeeding quarters any excess input VAT. The petroleum
dealers presented a situation wherein their input VAT would always exceed 70% of their
output VAT, and thus, their excess input VAT will be perennially carried-over and would
remain unutilized. Even though they consistently questioned the 70% cap on their input
VAT credits, the petroleum dealers failed to establish what is the average ratio of their
input VAT vis--vis their output VAT per quarter. Without such fact, I consider their
objection to the 70% cap arbitrary because there is no basis therefor.
On the other, I find that the 70% cap on input VAT credits was not imposed by Congress
arbitrarily. Members of the Bicameral Conference Committee settled on the said
percentage so as to ensure that the government can collect a minimum of 30% output
VAT per taxpayer. This is to put a VAT-taxpayer, at least, on equal footing with a VATexempt taxpayer under Section 109(V) of the National Internal Revenue Code, as
amended by Rep. Act No. 9337.17 The latter taxpayer is exempt from VAT on the basis
that his sale or lease of goods or properties or services do not exceed P1,500,000; instead,
he is subject to pay a three percent (3%) tax on his gross receipts in lieu of the VAT.18 If a
taxpayer with presumably a smaller business is required to pay three percent (3%) gross
receipts tax, a type of tax which does not even allow for any crediting, a VAT-taxpayer
with a bigger business should be obligated, likewise, to pay a minimum of 30% output
VAT (which should be equivalent to 3% of the gross selling price per good or property or
service sold). The cap assures the government a collection of at least 30% output VAT,
contributing to an improved cash flow for the government.
Attention is further called to the fact that the output VAT is the VAT imposed on the sales
by a VAT-taxpayer; it is paid by the purchasers of the goods, properties, and services, and
merely collected through the VAT-registered seller. The latter, therefore, serves as a
collecting agent for the government. The VAT-registered seller is merely being required to
remit to the government a minimum of 30% of his output VAT collection.
Fourth, I give no weight to the figures and computations presented before this Court by
the petroleum dealers, particularly the supposed quarterly profit and loss statement of a
"typical dealer." How these data represent the financial status of a typical dealer, I would
not know when there was no effort to explain the manner by which they were surveyed,
collated, and averaged out. Without establishing their source therefor, the figures and
computations presented by the petroleum dealers are merely self-serving and
unsubstantiated, deserving scant consideration by this Court. Even assuming that these
figures truly represent the financial standing of petroleum dealers, the introduction and
application thereto of the VAT factor, which forebode the collapse of said petroleum
dealers businesses, would be nothing more than an anticipated damage an injury that
may or may not happen. To resolve their petition on this basis would be premature and
contrary to the established tenet of ripeness of a cause of action before this Court could
validly exercise its power of judicial review.
Fifth, in response to the contention of the petroleum dealers during oral arguments before
this Court that they cannot pass on to the consumers the VAT burden and increase the
prices of their goods, it is worthy to quote below this Courts ruling in Churchill v.
Concepcion,19 to wit
It will thus be seen that the contention that the rates charged for advertising cannot be
raised is purely hypothetical, based entirely upon the opinion of the plaintiffs,
unsupported by actual test, and that the plaintiffs themselves admit that a number of other
persons have voluntarily and without protest paid the tax herein complained of. Under
these circumstances, can it be held as a matter of fact that the tax is confiscatory or that,
as a matter of law, the tax is unconstitutional? Is the exercise of the taxing power of the
Legislature dependent upon and restricted by the opinion of two interested witnesses?
There can be but one answer to these questions, especially in view of the fact that others
are paying the tax and presumably making reasonable profit from their business.
As a final observation, I perceive that what truly underlies the opposition to Rep. Act No.
9337 is not the question of its constitutionality, but rather the wisdom of its enactment.
Would it truly raise national revenue and benefit the entire country, or would it only
increase the burden of the Filipino people? Would it contribute to a revival of our
economy or only contribute to the difficulties and eventual closure of businesses? These
are issues that we cannot resolve as the Supreme Court. As this Court explained in
Agustin v. Edu,20 to wit
It does appear clearly that petitioners objection to this Letter of Instruction is not
premised on lack of power, the justification for a finding of unconstitutionality, but on the
pessimistic, not to say negative, view he entertains as to its wisdom. That approach, it put
it at its mildest, is distinguished, if that is the appropriate word, by its unorthodoxy. It
bears repeating "that this Court, in the language of Justice Laurel, does not pass upon
questions of wisdom, justice or expediency of legislation. As expressed by Justice
Tuason: It is not the province of the courts to supervise legislation and keep it within the
bounds of propriety and common sense. That is primarily and exclusively a legislative
concern. There can be no possible objection then to the observation of Justice
Montemayor: As long as laws do not violate any Constitutional provision, the Courts
merely interpret and apply them regardless of whether or not they are wise or salutary.
For they, according to Justice Labrador, are not supposed to override legitimate policy
and * * * never inquire into the wisdom of the law. It is thus settled, to paraphrase Chief
Justice Concepcion in Gonzales v. Commission on Elections, that only congressional
power or competence, not the wisdom of the action taken, may be the basis for declaring
a statute invalid. This is as it ought to be. The principle of separation of powers has in the
main wisely allocated the respective authority of each department and confined its
jurisdiction to such sphere. There would then be intrusion not allowable under the
Constitution if on a matter left to the discretion of a coordinate branch, the judiciary
would substitute its own"21
To reiterate, we cannot substitute our discretion for Congress, and even though there are
provisions in Rep. Act No. 9337 which we may believe as unwise or iniquitous, but not
unconstitutional, we cannot strike them off by invoking our power of judicial review. In
such a situation, the recourse of the people is not judicial, but rather political. If they
severely doubt the wisdom of the present Congress for passing a statute such as Rep. Act
No. 9337, then they have the power to hold the members of said Congress accountable by
using their voting power in the next elections.
In view of the foregoing, I vote for the denial of the present petitions and the upholding
of the constitutionality of Rep. Act No. 9337 in its entirety.
MINITA V. CHICO-NAZARIO
Associate Justice
Footnotes
1
Presidential Decree No. 1158, as amended up to Rep. Act No. 8424.
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
Farias 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.
Supra, note 6.
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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Republic of the Philippines

MARGARITO TEVES, in his capacity as Secretary of Finance; HON. JOSE MARIO

House Bill No.3705

Senate Bill No. 1950

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

Provides for 12% VAT in

Provides for a single rate

With regard to the "no pass-on" provision

Provides that the input tax

Provided for amendments to

zero-rated sales by a VAT-registered person may at his option be refunded or credited

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

Excise Tax on mineral products

Issuance of receipts or sales or commercial invoices

Disposition of Incremental Revenue

In testing whether a statute constitutes an undue delegation of legislative power or not, it

In Edu vs. Ericta,47 the Court reiterated:

promulgated in the regular course of business, are, unless disapproved or reprobated by

What do I mean by that?

Section 26, R.A. No. 9337.

TSN, July 14, 2005.

Section 105, National Internal Revenue of the Philippines, as amended.

Kapatiran ng mga Naglilingkod sa Pamahalaan ng Pilipinas, Inc. vs. Tan, G.R.

Story, Commentaries 835 (1833).

G.R. No. 147387, December 10, 2003, 417 SCRA 503.

Id., pp. 529-530.

Supra., Note 20.

G.R. No. 115455, August 25, 1994, 235 SCRA 630.

Westers Third New International Dictionary, p. 1897.

TSN, Bicameral Conference Committee on the Disagreeing Provisions of

Sponsorship Speech of Representative Teves, in behalf of Representative Jesli

G.R. No. 105371, November 11, 1993, 227 SCRA 703.

Supra, Note 23.

Id., pp. 661-663.

Transcript of Session Proceedings, January 7, 2005, pp. 19-20.

Defensor-Santiago vs. Commission on Elections, G.R. No. 127325, March 19,

16 Am Jur 2d, Constitutional Law, 337.

No. 45685, November 16, 1937, 65 Phil. 56.

Id., pp. 115-120.

Supra, note 43.

Id., pp. 496-497.

16 C.J.S., Constitutional Law, 138.

16 Am Jur 2d, Constitutional Law 340.

Compaia General de Tabacos de Filipinas vs. The Board of Public Utility

Bowles vs. Willinghan, 321 US 503, 88 l Ed 892, 64 S Ct 641, 28 Ohio Ops

United Residents of Dominican Hill, Inc. vs. Commission on the Settlement of

Commission on Internal Revenue vs. American Express International, Inc.

Respondents Memorandum, pp. 168-169.

The Wealth of Nations, Book V, Chapter II.

TSN, Bicameral Conference Committee on the Disagreeing Provisions of

Section 8, R.A. No. 9337, amending Section 110(A)(B),NIRC.

E.O. No. 273, Section 1.

Id., Session No. 67, March 7, 2005, p. 726.

Id., Session No. 71, March 15, 2005, p. 803.

Revenue Regulations No. 14-2005, 4.114-2(a).

Revenue Regulations No. 14-2005, Sec. 4. 114-2.

Philippine Judges Association case, supra., note 29.

Commissioner of Internal Revenue vs. Court of Appeals, G.R. No. 119761,

Section 7, R.A. No. 9337.