G.R. No. 168056, September 01, 2005

EN BANC
[ G.R. No. 168056, September 01, 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., RESPONDENTS.
[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, RESPONDENTS.
[G.R. NO. 168461]
ASSOCIATION OF PILIPINAS SHELL DEALERS, INC.

REPRESENTED BY ITS PRESIDENT, ROSARIO ANTONIO;
PETRON DEALERS ASSOCIATION REPRESENTED BY ITS
PRESIDENT, RUTH E. BARBIBI; ASSOCIATION OF CALTEX
DEALERS OF THE PHILIPPINES REPRESENTED BY ITS
PRESIDENT, MERCEDITAS A. GARCIA; ROSARIO ANTONIO
DOING BUSINESS UNDER THE NAME AND STYLE OF ANB
NORTH SHELL SERVICE STATION; LOURDES MARTINEZ
DOING BUSINESS UNDER THE NAME AND STYLE OF SHELL
GATE N. DOMINGO; BETHZAIDA TAN DOING BUSINESS
UNDER THE NAME AND STYLE OF ADVANCE SHELL
STATION; REYNALDO P. MONTOYA DOING BUSINESS
UNDER THE NAME AND STYLE OF NEW LAMUAN SHELL
SERVICE STATION; EFREN SOTTO DOING BUSINESS UNDER
THE NAME AND STYLE OF RED FIELD SHELL SERVICE
STATION; DONICA CORPORATION REPRESENTED BY ITS
PRESIDENT, DESI TOMACRUZ; RUTH E. MARBIBI DOING
BUSINESS UNDER THE NAME AND STYLE OF R&R PETRON
STATION; PETER M. UNGSON DOING BUSINESS UNDER THE
NAME AND STYLE OF CLASSIC STAR GASOLINE SERVICE
STATION; MARIAN SHEILA A. LEE DOING BUSINESS UNDER
THE NAME AND STYLE OF NTE GASOLINE & SERVICE
STATION; JULIAN CESAR P. POSADAS DOING BUSINESS
UNDER THE NAME AND STYLE OF STARCARGA
ENTERPRISES; ADORACION MAEBO DOING BUSINESS
UNDER THE NAME AND STYLE OF CMA MOTORISTS
CENTER; SUSAN M. ENTRATA DOING BUSINESS UNDER THE
NAME AND STYLE OF LEONAS GASOLINE STATION AND
SERVICE CENTER; CARMELITA BALDONADO DOING
BUSINESS UNDER THE NAME AND STYLE OF FIRST CHOICE
SERVICE CENTER; MERCEDITAS A. GARCIA DOING
BUSINESS UNDER THE NAME AND STYLE OF LORPED
SERVICE CENTER; RHEAMAR A. RAMOS DOING BUSINESS
UNDER THE NAME AND STYLE OF RJRAM PTT GAS
STATION; MA. ISABEL VIOLAGO DOING BUSINESS UNDER
THE NAME AND STYLE OF VIOLAGO-PTT SERVICE CENTER;
MOTORISTS HEART CORPORATION REPRESENTED BY ITS
VICE-PRESIDENT FOR OPERATIONS, JOSELITO F.
FLORDELIZA; MOTORISTS HARVARD CORPORATION
REPRESENTED BY ITS VICE-PRESIDENT FOR OPERATIONS,
JOSELITO F. FLORDELIZA; MOTORISTS HERITAGE
CORPORATION REPRESENTED BY ITS VICE-PRESIDENT FOR
OPERATIONS, JOSELITO F. FLORDELIZA; PHILIPPINE
STANDARD OIL 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, 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, RESPONDENTS.
[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, RESPONDENTS.
[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, RESPONDENTS.
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. 3555[2] 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. 3705[3] 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.
1950[4] 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. : No, Your Honor.
BANIQUED
J. PANGANIBAN : It is not?
ATTY. : Its not, because, Your Honor, there is an Executive Order that
BANIQUED granted the Petroleum companies some subsidy . . . interrupted
J. PANGANIBAN : Thats correct . . .
ATTY. : . . . and therefore that was meant to temper the impact . . .
BANIQUED interrupted
J. PANGANIBAN : . . . mitigating measures . . .
ATTY. : Yes, Your Honor.
BANIQUED
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%.
BANIQUED
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. : Youre right, Your Honor.
BANIQUED
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. : I guess so, Your Honor, yes.
BANIQUED
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?
BANIQUED
J. PANGANIBAN : Alright. So thats one reason why we had to issue a TRO pending
the clarification of all these and we wish the government will take
time to clarify all these by means of a more detailed implementing
rules, in case the law is upheld by this Court. . . .[6]
The Court also directed the parties to file their respective Memoranda.
G.R. No. 168056

Before R.A. No. 9337 took effect, petitioners ABAKADA GURO Party List, et al., filed
a petition for prohibition on May 27, 2005. They question the constitutionality of
Sections 4, 5 and 6 of R.A. No. 9337, amending Sections 106, 107 and 108,
respectively, of the National Internal Revenue Code (NIRC). Section 4 imposes a
10% VAT on sale of goods and properties, Section 5 imposes a 10% VAT on
importation of goods, and Section 6 imposes a 10% VAT on sale of services and use
or lease of properties. These questioned provisions contain a uniform proviso
authorizing the President, upon recommendation of the Secretary of Finance, to
raise the VAT rate to 12%, effective January 1, 2006, after any of the following
conditions have been satisfied, to wit:
. . . That the President, upon the recommendation of the Secretary of Finance,
shall, effective January 1, 2006, raise the rate of value-added tax to twelve percent
(12%), after any of the following conditions has been satisfied:
(i) Value-added tax collection as a percentage of Gross Domestic Product (GDP) of

the previous year exceeds two and four-fifth percent (2 4/5%); or
(ii) National government deficit as a percentage of GDP of the previous year

exceeds one and one-half percent (1 %).
Petitioners argue that the law is unconstitutional, as it constitutes abandonment by
Congress of its exclusive authority to fix the rate of taxes under Article VI, Section
28(2) of the 1987 Philippine Constitution.
G.R. No. 168207
On June 9, 2005, Sen. Aquilino Q. Pimentel, Jr., et al., filed a petition for certiorari
likewise assailing the constitutionality of Sections 4, 5 and 6 of R.A. No. 9337.
Aside from questioning the so-called stand-by authority of the President to increase
the VAT rate to 12%, on the ground that it amounts to an undue delegation of
legislative power, petitioners also contend that the increase in the VAT rate to 12%
contingent on any of the two conditions being satisfied violates the due process
clause embodied in Article III, Section 1 of the Constitution, as it imposes an unfair
and additional tax burden on the people, in that: (1) the 12% increase is
ambiguous because it does not state if the rate would be returned to the original
10% if the conditions are no longer satisfied; (2) the rate is unfair and
unreasonable, as the people are unsure of the applicable VAT rate from year to
year; and (3) the increase in the VAT rate, which is supposed to be an incentive to
the President to raise the VAT collection to at least 2 4/5 of the GDP of the previous
year, should only be based on fiscal adequacy.
Petitioners further claim that the inclusion of a stand-by authority granted to the
President by the Bicameral Conference Committee is a violation of the no-
amendment rule upon last reading of a bill laid down in Article VI, Section 26(2) of
the Constitution.
G.R. No. 168461
Thereafter, a petition for prohibition was filed on June 29, 2005, by the Association
of Pilipinas Shell Dealers, Inc., et al., assailing the following provisions of R.A. No.
9337:
1) Section 8, amending Section 110 (A)(2) of the NIRC, requiring that the
input tax on depreciable goods shall be amortized over a 60-month period,
if the acquisition, excluding the VAT components, exceeds One Million
Pesos (P1, 000,000.00);
2) Section 8, amending Section 110 (B) of the NIRC, imposing a 70% limit on
the amount of input tax to be credited against the output tax; and
3) Section 12, amending Section 114 (c) of the NIRC, authorizing the
Government or any of its political subdivisions, instrumentalities or
agencies, including GOCCs, to deduct a 5% final withholding tax on gross
payments of goods and services, which are subject to 10% VAT under
Sections 106 (sale of goods and properties) and 108 (sale of services and
use or lease of properties) of the NIRC.
Petitioners contend that these provisions are unconstitutional for being arbitrary,
oppressive, excessive, and confiscatory.
Petitioners argument is premised on the constitutional right of non-deprivation of

life, liberty or property without due process of law under Article III, Section 1 of the
Constitution. According to petitioners, the contested sections impose limitations on
the amount of input tax that may be claimed. Petitioners also argue that the input
tax partakes the nature of a property that may not be confiscated, appropriated, or
limited without due process of law. Petitioners further contend that like any other
property or property right, the input tax credit may be transferred or disposed of,
and that by limiting the same, the government gets to tax a profit or value-added
even if there is no profit or value-added.
Petitioners also believe that these provisions violate the constitutional guarantee of
equal protection of the law under Article III, Section 1 of the Constitution, as the
limitation on the creditable input tax if: (1) the entity has a high ratio of input tax;
or (2) invests in capital equipment; or (3) has several transactions with the
government, is not based on real and substantial differences to meet a valid
classification.
Lastly, petitioners contend that the 70% limit is anything but progressive, violative
of Article VI, Section 28(1) of the Constitution, and that it is the smaller businesses
with higher input tax to output tax ratio that will suffer the consequences thereof
for it wipes out whatever meager margins the petitioners make.
G.R. No. 168463
Several members of the House of Representatives led by Rep. Francis Joseph G.

Escudero filed this petition for certiorari on June 30, 2005. They question the
constitutionality of R.A. No. 9337 on the following grounds:
1) Sections 4, 5, and 6 of R.A. No. 9337 constitute an undue delegation of
legislative power, in violation of Article VI, Section 28(2) of the
Constitution;
2) The Bicameral Conference Committee acted without jurisdiction in deleting
the no pass on provisions present in Senate Bill No. 1950 and House Bill
No. 3705; and
3) Insertion by the Bicameral Conference Committee of Sections 27, 28, 34,
116, 117, 119, 121, 125,[7] 148, 151, 236, 237 and 288, which were
present in Senate Bill No. 1950, violates Article VI, Section 24(1) of the
Constitution, which provides that all appropriation, revenue or tariff bills
shall originate exclusively in the House of Representatives
G.R. No. 168730
On the eleventh hour, Governor Enrique T. Garcia filed a petition for certiorari and
prohibition on July 20, 2005, alleging unconstitutionality of the law on the ground
that the limitation on the creditable input tax in effect allows VAT-registered
establishments to retain a portion of the taxes they collect, thus violating the
principle that tax collection and revenue should be solely allocated for public
purposes and expenditures. Petitioner Garcia further claims that allowing these
establishments to pass on the tax to the consumers is inequitable, in violation of
Article VI, Section 28(1) of the Constitution.
RESPONDENTS COMMENT
The Office of the Solicitor General (OSG) filed a Comment in behalf of respondents.
Preliminarily, respondents contend that R.A. No. 9337 enjoys the presumption of
constitutionality and petitioners failed to cast doubt on its validity.
Relying on the case of Tolentino vs. Secretary of Finance, 235 SCRA 630 (1994),
respondents argue that the procedural issues raised by petitioners, i.e., legality of
the bicameral proceedings, exclusive origination of revenue measures and the
power of the Senate concomitant thereto, have already been settled. With regard to
the issue of undue delegation of legislative power to the President, respondents
contend that the law is complete and leaves no discretion to the President but to
increase the rate to 12% once any of the two conditions provided therein arise.
Respondents also refute petitioners argument that the increase to 12%, as well as
the 70% limitation on the creditable input tax, the 60-month amortization on the
purchase or importation of capital goods exceeding P1,000,000.00, and the 5%
final withholding tax by government agencies, is arbitrary, oppressive, and
confiscatory, and that it violates the constitutional principle on progressive taxation,
among others.
Finally, respondents manifest that R.A. No. 9337 is the anchor of the governments
fiscal reform agenda. A reform in the value-added system of taxation is the core
revenue measure that will tilt the balance towards a sustainable macroeconomic
environment necessary for economic growth.
ISSUES
The Court defined the issues, as follows:
PROCEDURAL ISSUE
Whether R.A. No. 9337 violates the following provisions of the Constitution:
a. Article VI, Section 24, and

b. Article VI, Section 26(2)
SUBSTANTIVE ISSUES
1. Whether Sections 4, 5 and 6 of R.A. No. 9337, amending Sections

106, 107 and 108 of the NIRC, violate the following provisions of
the Constitution:
a. Article VI, Section 28(1), and

2. Whether Section 8 of R.A. No. 9337, amending Sections 110(A)(2)

and 110(B) of the NIRC; and Section 12 of R.A. No. 9337,
amending Section 114(C) of the NIRC, violate the following
provisions of the Constitution:

b. Article III, Section 1
RULING OF THE COURT
As a prelude, the Court deems it apt to restate the general principles and concepts
of value-added tax (VAT), as the confusion and inevitably, litigation, breeds from a
fallacious notion of its nature.
The VAT is a tax on spending or consumption. It is levied on the sale, barter,

exchange or lease of goods or properties and services.[8] Being an indirect tax on
expenditure, the seller of goods or services may pass on the amount of tax paid to
the buyer,[9] with the seller acting merely as a tax collector.[10] The burden of VAT is
intended to fall on the immediate buyers and ultimately, the end-consumers.
In contrast, a direct tax is a tax for which a taxpayer is directly liable on the
transaction or business it engages in, without transferring the burden to someone
else.[11] Examples are individual and corporate income taxes, transfer taxes, and
residence taxes.[12]
In the Philippines, the value-added system of sales taxation has long been in
existence, albeit in a different mode. Prior to 1978, the system was a single-stage
tax computed under the cost deduction method and was payable only by the
original sellers. The single-stage system was subsequently modified, and a mixture
of the cost deduction method and tax credit method was used to determine the
value-added tax payable.[13] Under the tax credit method, an entity can credit
against or subtract from the VAT charged on its sales or outputs the VAT paid on its
purchases, inputs and imports.[14]
It was only in 1987, when President Corazon C. Aquino issued Executive Order No.
273, that the VAT system was rationalized by imposing a multi-stage tax rate of 0%
or 10% on all sales using the tax credit method.[15]
E.O. No. 273 was followed by R.A. No. 7716 or the Expanded VAT Law,[16] R.A. No.
8241 or the Improved VAT Law,[17] R.A. No. 8424 or the Tax Reform Act of 1997,[18]
and finally, the presently beleaguered R.A. No. 9337, also referred to by
respondents as the VAT Reform Act.
The Court will now discuss the issues in logical sequence.
PROCEDURAL ISSUE
I.
Whether R.A. No. 9337 violates the following provisions of the Constitution:
a. Article VI, Section 24, and

A. The Bicameral Conference Committee

Petitioners Escudero, et al., and Pimentel, et al., allege that the Bicameral
Conference Committee exceeded its authority by:
1) Inserting the stand-by authority in favor of the President in Sections 4, 5, and 6
of R.A. No. 9337;
2) Deleting entirely the no pass-on provisions found in both the House and Senate
bills;
3) Inserting the provision imposing a 70% limit on the amount of input tax to be
credited against the output tax; and
4) Including the amendments introduced only by Senate Bill No. 1950 regarding
other kinds of taxes in addition to the value-added tax.
Petitioners now beseech the Court to define the powers of the Bicameral Conference
Committee.
It should be borne in mind that the power of internal regulation and discipline are
intrinsic in any legislative body for, as unerringly elucidated by Justice Story, [i]f
the power did not exist, it would be utterly impracticable to transact the
business of the nation, either at all, or at least with decency, deliberation,
and order.[19] Thus, Article VI, Section 16 (3) of the Constitution provides that
each House may determine the rules of its proceedings. Pursuant to this inherent
constitutional power to promulgate and implement its own rules of procedure, the
respective rules of each house of Congress provided for the creation of a Bicameral
Conference Committee.
Thus, Rule XIV, Sections 88 and 89 of the Rules of House of Representatives

provides as follows:
Sec. 88. Conference Committee. In the event that the House does not agree with
the Senate on the amendment to any bill or joint resolution, the differences may be
settled by the conference committees of both chambers.
In resolving the differences with the Senate, the House panel shall, as much as
possible, adhere to and support the House Bill. If the differences with the Senate
are so substantial that they materially impair the House Bill, the panel shall report
such fact to the House for the latters appropriate action.
Sec. 89. Conference Committee Reports. . . . Each report shall contain a detailed,
sufficiently explicit statement of the changes in or amendments to the subject
measure.
...
The Chairman of the House panel may be interpellated on the Conference
Committee Report prior to the voting thereon. The House shall vote on the
Conference Committee Report in the same manner and procedure as it votes on a
bill on third and final reading.
Rule XII, Section 35 of the Rules of the Senate states:
Sec. 35. In the event that the Senate does not agree with the House of
Representatives on the provision of any bill or joint resolution, the differences shall
be settled by a conference committee of both Houses which shall meet within ten
(10) days after their composition. The President shall designate the members of the
Senate Panel in the conference committee with the approval of the Senate.
Each Conference Committee Report shall contain a detailed and sufficiently explicit
statement of the changes in, or amendments to the subject measure, and shall be
signed by a majority of the members of each House panel, voting separately.
A comparative presentation of the conflicting House and Senate provisions and a

reconciled version thereof with the explanatory statement of the conference
committee shall be attached to the report.
...
The creation of such conference committee was apparently in response to a
problem, not addressed by any constitutional provision, where the two houses of
Congress find themselves in disagreement over changes or amendments introduced
by the other house in a legislative bill. Given that one of the most basic powers of
the legislative branch is to formulate and implement its own rules of proceedings
and to discipline its members, may the Court then delve into the details of how
Congress complies with its internal rules or how it conducts its business of passing
legislation? Note that in the present petitions, the issue is not whether provisions of
the rules of both houses creating the bicameral conference committee are
unconstitutional, but whether the bicameral conference committee has
strictly complied with the rules of both houses, thereby remaining within
the jurisdiction conferred upon it by Congress.
In the recent case of Farias vs. The Executive Secretary,[20] the Court En Banc,
unanimously reiterated and emphasized its adherence to the enrolled bill
doctrine, thus, declining therein petitioners plea for the Court to go behind the
enrolled copy of the bill. Assailed in said case was Congresss creation of two sets of
bicameral conference committees, the lack of records of said committees
proceedings, the alleged violation of said committees of the rules of both houses,
and the disappearance or deletion of one of the provisions in the compromise bill
submitted by the bicameral conference committee. It was argued that such
irregularities in the passage of the law nullified R.A. No. 9006, or the Fair Election
Act.
Striking down such argument, the Court held thus:

Under the enrolled bill doctrine, the signing of a bill by the Speaker of the House
and the Senate President and the certification of the Secretaries of both Houses of
Congress that it was passed are conclusive of its due enactment. A review of cases
reveals the Courts consistent adherence to the rule. The Court finds no reason
to deviate from the salutary rule in this case where the irregularities
alleged by the petitioners mostly involved the internal rules of Congress,
e.g., creation of the 2nd or 3rd Bicameral Conference Committee by the
House. This Court is not the proper forum for the enforcement of these
internal rules of Congress, whether House or Senate. Parliamentary rules
are merely procedural and with their observance the courts have no
concern. Whatever doubts there may be as to the formal validity of Rep.
Act No. 9006 must be resolved in its favor. The Court reiterates its ruling in
Arroyo vs. De Venecia, viz.:
But the cases, both here and abroad, in varying forms of expression, all
deny to the courts the power to inquire into allegations that, in enacting a
law, a House of Congress failed to comply with its own rules, in the
absence of showing that there was a violation of a constitutional provision
or the rights of private individuals. In Osmea v. Pendatun, it was held: At any
rate, courts have declared that the rules adopted by deliberative bodies are subject
to revocation, modification or waiver at the pleasure of the body adopting them.
And it has been said that Parliamentary rules are merely procedural, and
with their observance, the courts have no concern. They may be waived or
disregarded by the legislative body. Consequently, mere failure to
conform to parliamentary usage will not invalidate the action (taken by a
deliberative body) when the requisite number of members have agreed to
a particular measure.[21] (Emphasis supplied)
The foregoing declaration is exactly in point with the present cases, where
petitioners allege irregularities committed by the conference committee in
introducing changes or deleting provisions in the House and Senate bills. Akin to
the Farias case,[22] the present petitions also raise an issue regarding the actions
taken by the conference committee on matters regarding Congress compliance
with its own internal rules. As stated earlier, one of the most basic and inherent
power of the legislature is the power to formulate rules for its proceedings and the
discipline of its members. Congress is the best judge of how it should conduct its
own business expeditiously and in the most orderly manner. It is also the sole
concern of Congress to instill discipline among the members of its conference

committee if it believes that said members violated any of its rules of proceedings.
Even the expanded jurisdiction of this Court cannot apply to questions regarding
only the internal operation of Congress, thus, the Court is wont to deny a review of
the internal proceedings of a co-equal branch of government.
Moreover, as far back as 1994 or more than ten years ago, in the case of Tolentino
vs. Secretary of Finance,[23] the Court already made the pronouncement that [i]f a
change is desired in the practice [of the Bicameral Conference Committee]
it must be sought in Congress since this question is not covered by any
constitutional provision but is only an internal rule of each house. [24] To
date, Congress has not seen it fit to make such changes adverted to by the Court.
It seems, therefore, that Congress finds the practices of the bicameral conference
committee to be very useful for purposes of prompt and efficient legislative action.
Nevertheless, just to put minds at ease that no blatant irregularities tainted the
proceedings of the bicameral conference committees, the Court deems it necessary
to dwell on the issue. The Court observes that there was a necessity for a
conference committee because a comparison of the provisions of House Bill Nos.
3555 and 3705 on one hand, and Senate Bill No. 1950 on the other, reveals that
there were indeed disagreements. As pointed out in the petitions, said
disagreements were as follows:
House Bill No. 3555 House Bill No.3705 Senate Bill No. 1950
With regard to Stand-By Authority in favor of President
Provides for 12% VAT on Provides for 12% VAT Provides for a single rate
every sale of goods or in general on sales of of 10% VAT on sale of
properties (amending goods or properties and goods or properties
Sec. 106 of NIRC); 12% reduced rates for sale (amending Sec. 106 of
VAT on importation of of certain locally NIRC), 10% VAT on sale
goods (amending Sec. manufactured goods of services including sale
107 of NIRC); and 12% and petroleum products of electricity by
VAT on sale of services and raw materials to be generation companies,
and use or lease of used in the transmission and
properties (amending manufacture thereof distribution companies,
Sec. 108 of NIRC) (amending Sec. 106 of and use or lease of
NIRC); 12% VAT on properties (amending
importation of goods Sec. 108 of NIRC)
and reduced rates for
certain imported
products including
petroleum products
(amending Sec. 107 of
NIRC); and 12% VAT
on sale of services and
use or lease of
properties and a
reduced rate for certain
services including
power generation
(amending Sec. 108 of
NIRC)
With regard to the no pass-on provision
No similar provision Provides that the VAT Provides that the VAT
imposed on power imposed on sales of
generation and on the electricity by generation
sale of petroleum companies and services
products shall be of transmission
absorbed by generation companies and
companies or sellers, distribution companies,
respectively, and shall as well as those of
not be passed on to franchise grantees of
consumers electric utilities shall not
apply to residential end-
users. VAT shall be
absorbed by generation,
transmission, and
distribution companies.
With regard to 70% limit on input tax credit
Provides that the input No similar provision Provides that the input
tax credit for capital tax credit for capital
goods on which a VAT goods on which a VAT
has been paid shall be has been paid shall be
equally distributed over equally distributed over 5
5 years or the years or the depreciable
depreciable life of such life of such capital goods;
capital goods; the input the input tax credit for
tax credit for goods and goods and services other
services other than than capital goods shall
capital goods shall not not exceed 90% of the
exceed 5% of the total output VAT.
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.
With regard to amendments to be made to NIRC provisions regarding income and
excise taxes
No similar provision No similar provision Provided for amendments
to several NIRC
provisions regarding
corporate income,
percentage, franchise and
excise taxes
The disagreements between the provisions in the House bills and the Senate bill
were with regard to (1) what rate of VAT is to be imposed; (2) whether only the
VAT imposed on electricity generation, transmission and distribution companies
should not be passed on to consumers, as proposed in the Senate bill, or both the
VAT imposed on electricity generation, transmission and distribution companies and
the VAT imposed on sale of petroleum products should not be passed on to
consumers, as proposed in the House bill; (3) in what manner input tax credits
should be limited; (4) and whether the NIRC provisions on corporate income taxes,
percentage, franchise and excise taxes should be amended.
There being differences and/or disagreements on the foregoing provisions of the

House and Senate bills, the Bicameral Conference Committee was mandated by the
rules of both houses of Congress to act on the same by settling said differences
and/or disagreements. The Bicameral Conference Committee acted on the
disagreeing provisions by making the following changes:
1. With regard to the disagreement on the rate of VAT to be imposed, it

would appear from the Conference Committee Report that the Bicameral
Conference Committee tried to bridge the gap in the difference between
the 10% VAT rate proposed by the Senate, and the various rates with
12% as the highest VAT rate proposed by the House, by striking a
compromise whereby the present 10% VAT rate would be retained until
certain conditions arise, i.e., the value-added tax collection as a
percentage of gross domestic product (GDP) of the previous year
exceeds 2 4/5%, or National Government deficit as a percentage of GDP
of the previous year exceeds 1%, when the President, upon
recommendation of the Secretary of Finance shall raise the rate of VAT to
12% effective January 1, 2006.
2. With regard to the disagreement on whether only the VAT imposed on

electricity generation, transmission and distribution companies should
not be passed on to consumers or whether both the VAT imposed on
electricity generation, transmission and distribution companies and the
VAT imposed on sale of petroleum products may be passed on to
consumers, the Bicameral Conference Committee chose to settle such
disagreement by altogether deleting from its Report any no pass-on
provision.
3. With regard to the disagreement on whether input tax credits should be

limited or not, the Bicameral Conference Committee decided to adopt the
position of the House by putting a limitation on the amount of input tax
that may be credited against the output tax, although it crafted its own
language as to the amount of the limitation on input tax credits and the
manner of computing the same by providing thus:
(A) Creditable Input Tax. . . .
...
Provided, The input tax on goods purchased or imported in a calendar

month for use in trade or business for which deduction for depreciation is
allowed under this Code, shall be spread evenly over the month of
acquisition and the fifty-nine (59) succeeding months if the aggregate
acquisition cost for such goods, excluding the VAT component thereof,
exceeds one million Pesos (P1,000,000.00): PROVIDED, however, that if
the estimated useful life of the capital good is less than five (5) years, as
used for depreciation purposes, then the input VAT shall be spread over
such shorter period: . . .
(B) Excess Output or Input Tax. If at the end of any taxable quarter
the output tax exceeds the input tax, the excess shall be paid by the
VAT-registered person. If the input tax exceeds the output tax, the
excess shall be carried over to the succeeding quarter or quarters:
PROVIDED that the input tax inclusive of input VAT carried over from the
previous quarter that may be credited in every quarter shall not exceed
seventy percent (70%) of the output VAT: PROVIDED, HOWEVER, THAT
any input tax attributable to zero-rated sales by a VAT-registered person
may at his option be refunded or credited against other internal revenue
taxes, . . .
4. With regard to the amendments to other provisions of the NIRC on

corporate income tax, franchise, percentage and excise taxes, the
conference committee decided to include such amendments and basically
adopted the provisions found in Senate Bill No. 1950, with some changes
as to the rate of the tax to be imposed.
Under the provisions of both the Rules of the House of Representatives and Senate
Rules, the Bicameral Conference Committee is mandated to settle the differences
between the disagreeing provisions in the House bill and the Senate bill. The term
settle is synonymous to reconcile and harmonize.[25] To reconcile or harmonize
disagreeing provisions, the Bicameral Conference Committee may then (a) adopt
the specific provisions of either the House bill or Senate bill, (b) decide that neither
provisions in the House bill or the provisions in the Senate bill would be carried into
the final form of the bill, and/or (c) try to arrive at a compromise between the
disagreeing provisions.
In the present case, the changes introduced by the Bicameral Conference

Committee on disagreeing provisions were meant only to reconcile and harmonize
the disagreeing provisions for it did not inject any idea or intent that is wholly
foreign to the subject embraced by the original provisions.
The so-called stand-by authority in favor of the President, whereby the rate of 10%
VAT wanted by the Senate is retained until such time that certain conditions arise
when the 12% VAT wanted by the House shall be imposed, appears to be a
compromise to try to bridge the difference in the rate of VAT proposed by the two
houses of Congress. Nevertheless, such compromise is still totally within the
subject of what rate of VAT should be imposed on taxpayers.
The no pass-on provision was deleted altogether. In the transcripts of the

proceedings of the Bicameral Conference Committee held on May 10, 2005, Sen.
Ralph Recto, Chairman of the Senate Panel, explained the reason for deleting the
no pass-on provision in this wise:
. . . the thinking was just to keep the VAT law or the VAT bill simple. And we were
thinking that no sector should be a beneficiary of legislative grace, neither should
any sector be discriminated on. The VAT is an indirect tax. It is a pass on-tax.
And lets keep it plain and simple. Lets not confuse the bill and put a no pass-on
provision. Two-thirds of the world have a VAT system and in this two-thirds of the
globe, I have yet to see a VAT with a no pass-though provision. So, the thinking of
the Senate is basically simple, lets keep the VAT simple.[26] (Emphasis supplied)
Rep. Teodoro Locsin further made the manifestation that the no pass-on provision
never really enjoyed the support of either House.[27]
With regard to the amount of input tax to be credited against output tax, the
Bicameral Conference Committee came to a compromise on the percentage rate of
the limitation or cap on such input tax credit, but again, the change introduced by
the Bicameral Conference Committee was totally within the intent of both houses to
put a cap on input tax that may be redited 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.
Prado[29] and Tolentino vs. Secretary of Finance,[30] the Court recognized the long-
standing legislative practice of giving said conference committee ample latitude for
compromising differences between the Senate and the House. Thus, in the
Tolentino case, it was held that:
. . . it is within the power of a conference committee to include in its report an
entirely new provision that is not found either in the House bill or in the Senate bill.
If the committee can propose an amendment consisting of one or two provisions,
there is no reason why it cannot propose several provisions, collectively considered
as an amendment in the nature of a substitute, so long as such amendment is
germane to the subject of the bills before the committee. After all, its report was
not final but needed the approval of both houses of Congress to become valid as an
act of the legislative department. The charge that in this case the Conference
Committee acted as a third legislative chamber is thus without any
basis.[31] (Emphasis supplied)
B. R.A. No. 9337 Does Not Violate Article VI,
Section 26(2) of the Constitution on the
No-Amendment Rule
Article VI, Sec. 26 (2) of the Constitution, states:

No bill passed by either House shall become a law unless it has passed three
readings on separate days, and printed copies thereof in its final form have been
distributed to its Members three days before its passage, except when the President
certifies to the necessity of its immediate enactment to meet a public calamity or
emergency. Upon the last reading of a bill, no amendment thereto shall be allowed,
and the vote thereon shall be taken immediately thereafter, and the yeas and nays
entered in the Journal.
Petitioners argument that the practice where a bicameral conference committee is
allowed to add or delete provisions in the House bill and the Senate bill after these
had passed three readings is in effect a circumvention of the no amendment rule
(Sec. 26 (2), Art. VI of the 1987 Constitution), fails to convince the Court to deviate
from its ruling in the Tolentino case that:
Nor is there any reason for requiring that the Committees Report in these cases
must have undergone three readings in each of the two houses. If that be the case,
there would be no end to negotiation since each house may seek modification of the
compromise bill. . . .
Art. VI. 26 (2) must, therefore, be construed as referring only to bills

introduced for the first time in either house of Congress, not to the
conference committee report.[32] (Emphasis supplied)
The Court reiterates here that the no-amendment rule refers only to the
procedure to be followed by each house of Congress with regard to bills
initiated in each of said respective houses, before said bill is transmitted to
the other house for its concurrence or amendment. Verily, to construe said
provision in a way as to proscribe any further changes to a bill after one house has
voted on it would lead to absurdity as this would mean that the other house of
Congress would be deprived of its constitutional power to amend or introduce
changes to said bill. Thus, Art. VI, Sec. 26 (2) of the Constitution cannot be taken
to mean that the introduction by the Bicameral Conference Committee of
amendments and modifications to disagreeing provisions in bills that have been
acted upon by both houses of Congress is prohibited.
C. R.A. No. 9337 Does Not Violate Article VI,

Section 24 of the Constitution on Exclusive
Origination of Revenue Bills
Coming to the issue of the validity of the amendments made regarding the NIRC
provisions on corporate income taxes and percentage, excise taxes. Petitioners
refer to the following provisions, to wit:
Section 27 Rates of Income Tax on Domestic
Corporation
28(A)(1) Tax on Resident Foreign Corporation
28(B)(1) Inter-corporate Dividends
34(B)(1) Inter-corporate Dividends
116 Tax on Persons Exempt from VAT
117 Percentage Tax on domestic carriers and
keepers of Garage
119 Tax on franchises
121 Tax on banks and Non-Bank Financial
Intermediaries
148 Excise Tax on manufactured oils and other
fuels
151 Excise Tax on mineral products
236 Registration requirements
237 Issuance of receipts or sales or commercial
invoices
288 Disposition of Incremental Revenue
Petitioners claim that the amendments to these provisions of the NIRC did not at all
originate from the House. They aver that House Bill No. 3555 proposed
amendments only regarding Sections 106, 107, 108, 110 and 114 of the NIRC,
while House Bill No. 3705 proposed amendments only to Sections 106, 107,108,
109, 110 and 111 of the NIRC; thus, the other sections of the NIRC which the
Senate amended but which amendments were not found in the House bills are not
intended to be amended by the House of Representatives. Hence, they argue that
since the proposed amendments did not originate from the House, such
amendments are a violation of Article VI, Section 24 of the Constitution.
The argument does not hold water.
Article VI, Section 24 of the Constitution reads:

Sec. 24. All appropriation, revenue or tariff bills, bills authorizing increase of the
public debt, bills of local application, and private bills shall originate exclusively in
the House of Representatives but the Senate may propose or concur with
amendments.
In the present cases, petitioners admit that it was indeed House Bill Nos. 3555 and
3705 that initiated the move for amending provisions of the NIRC dealing mainly
with the value-added tax. Upon transmittal of said House bills to the Senate, the
Senate came out with Senate Bill No. 1950 proposing amendments not only to
NIRC provisions on the value-added tax but also amendments to NIRC provisions
on other kinds of taxes. Is the introduction by the Senate of provisions not dealing
directly with the value- added tax, which is the only kind of tax being amended in
the House bills, still within the purview of the constitutional provision authorizing
the Senate to propose or concur with amendments to a revenue bill that originated
from the House?
The foregoing question had been squarely answered in the Tolentino case, wherein
the Court held, thus:
. . . To begin with, it is not the law but the revenue bill which is required by the
Constitution to originate exclusively in the House of Representatives. It is
important to emphasize this, because a bill originating in the House may undergo
such extensive changes in the Senate that the result may be a rewriting of the
whole. . . . At this point, what is important to note is that, as a result of the Senate
action, a distinct bill may be produced. To insist that a revenue statute and
not only the bill which initiated the legislative process culminating in the
enactment of the law must substantially be the same as the House bill
would be to deny the Senates power not only to concur with
amendments but also to propose amendments. It would be to violate the
coequality of legislative power of the two houses of Congress and in fact make the
House superior to the Senate.
Given, then, the power of the Senate to propose amendments, the Senate
can propose its own version even with respect to bills which are required
by the Constitution to originate in the House.
...
Indeed, what the Constitution simply means is that the initiative for filing revenue,
tariff or tax bills, bills authorizing an increase of the public debt, private bills and
bills of local application must come from the House of Representatives on the
theory that, elected as they are from the districts, the members of the House
can be expected to be more sensitive to the local needs and problems. On
the other hand, the senators, who are elected at large, are expected to
approach the same problems from the national perspective. Both views are
thereby made to bear on the enactment of such laws.[33] (Emphasis supplied)
Since there is no question that the revenue bill exclusively originated in the House
of Representatives, the Senate was acting within its constitutional power to
introduce amendments to the House bill when it included provisions in Senate Bill
No. 1950 amending corporate income taxes, percentage, excise and franchise
taxes. Verily, Article VI, Section 24 of the Constitution does not contain any
prohibition or limitation on the extent of the amendments that may be introduced
by the Senate to the House revenue bill.
Furthermore, the amendments introduced by the Senate to the NIRC provisions

that had not been touched in the House bills are still in furtherance of the intent of
the House in initiating the subject revenue bills. The Explanatory Note of House Bill
No. 1468, the very first House bill introduced on the floor, which was later
substituted by House Bill No. 3555, stated:
One of the challenges faced by the present administration is the urgent and
daunting task of solving the countrys serious financial problems. To do this,
government expenditures must be strictly monitored and controlled and revenues
must be significantly increased. This may be easier said than done, but our fiscal
authorities are still optimistic the government will be operating on a balanced
budget by the year 2009. In fact, several measures that will result to significant
expenditure savings have been identified by the administration. It is supported
with a credible package of revenue measures that include measures to
improve tax administration and control the leakages in revenues from
income taxes and the value-added tax (VAT). (Emphasis supplied)
Rep. Eric D. Singson, in his sponsorship speech for House Bill No. 3555, declared
that:
In the budget message of our President in the year 2005, she reiterated that we all
acknowledged that on top of our agenda must be the restoration of the health of
our fiscal system.
In order to considerably lower the consolidated public sector deficit and eventually
achieve a balanced budget by the year 2009, we need to seize windows of
opportunities which might seem poignant in the beginning, but in the long
run prove effective and beneficial to the overall status of our economy.
One such opportunity is a review of existing tax rates, evaluating the
relevance given our present conditions.[34] (Emphasis supplied)
Notably therefore, the main purpose of the bills emanating from the House of
Representatives is to bring in sizeable revenues for the government to supplement
our countrys serious financial problems, and improve tax administration and
control of the leakages in revenues from income taxes and value-added taxes. As
these house bills were transmitted to the Senate, the latter, approaching the
measures from the point of national perspective, can introduce amendments within
the purposes of those bills. It can provide for ways that would soften the impact of
the VAT measure on the consumer, i.e., by distributing the burden across all
sectors instead of putting it entirely on the shoulders of the consumers. The
sponsorship speech of Sen. Ralph Recto on why the provisions on income tax on
corporation were included is worth quoting:
All in all, the proposal of the Senate Committee on Ways and Means will raise P64.3
billion in additional revenues annually even while by mitigating prices of power,
services and petroleum products.
However, not all of this will be wrung out of VAT. In fact, only P48.7 billion amount
is from the VAT on twelve goods and services. The rest of the tab P10.5 billion-
will be picked by corporations.
What we therefore prescribe is a burden sharing between corporate Philippines and

the consumer. Why should the latter bear all the pain? Why should the fiscal
salvation be only on the burden of the consumer?
The corporate worlds equity is in form of the increase in the corporate income tax
from 32 to 35 percent, but up to 2008 only. This will raise P10.5 billion a year. After
that, the rate will slide back, not to its old rate of 32 percent, but two notches
lower, to 30 percent.
Clearly, we are telling those with the capacity to pay, corporations, to bear with this
emergency provision that will be in effect for 1,200 days, while we put our fiscal
house in order. This fiscal medicine will have an expiry date.
For their assistance, a reward of tax reduction awaits them. We intend to keep the
length of their sacrifice brief. We would like to assure them that not because there
is a light at the end of the tunnel, this government will keep on making the tunnel
long.
The responsibility will not rest solely on the weary shoulders of the small man. Big
business will be there to share the burden.[35]
As the Court has said, the Senate can propose amendments and in fact, the
amendments made on provisions in the tax on income of corporations are germane
to the purpose of the house bills which is to raise revenues for the government.
Likewise, the Court finds the sections referring to other percentage and excise
taxes germane to the reforms to the VAT system, as these sections would cushion
the effects of VAT on consumers. Considering that certain goods and services which
were subject to percentage tax and excise tax would no longer be VAT-exempt, the
consumer would be burdened more as they would be paying the VAT in addition to
these taxes. Thus, there is a need to amend these sections to soften the impact of
VAT. Again, in his sponsorship speech, Sen. Recto said:
However, for power plants that run on oil, we will reduce to zero the present excise
tax on bunker fuel, to lessen the effect of a VAT on this product.
For electric utilities like Meralco, we will wipe out the franchise tax in exchange for a
VAT.
And in the case of petroleum, while we will levy the VAT on oil products, so as not
to destroy the VAT chain, we will however bring down the excise tax on socially
sensitive products such as diesel, bunker, fuel and kerosene.
...
What do all these exercises point to? These are not contortions of giving to the left
hand what was taken from the right. Rather, these sprang from our concern of
softening the impact of VAT, so that the people can cushion the blow of higher
prices they will have to pay as a result of VAT.[36]
The other sections amended by the Senate pertained to matters of tax
administration which are necessary for the implementation of the changes in the
VAT system.
To reiterate, the sections introduced by the Senate are germane to the subject
matter and purposes of the house bills, which is to supplement our countrys fiscal
deficit, among others. Thus, the Senate acted within its power to propose those
amendments.
SUBSTANTIVE ISSUES
I.
Whether Sections 4, 5 and 6 of R.A. No. 9337, amending Sections 106, 107 and
108 of the NIRC, violate the following provisions of the Constitution:

A. No Undue Delegation of Legislative Power
Petitioners ABAKADA GURO Party List, et al., Pimentel, Jr., et al., and Escudero, et
al. contend in common that Sections 4, 5 and 6 of R.A. No. 9337, amending
Sections 106, 107 and 108, respectively, of the NIRC giving the President the
stand-by authority to raise the VAT rate from 10% to 12% when a certain condition
is met, constitutes undue delegation of the legislative power to tax.
The assailed provisions read as follows:

SEC. 4. Sec. 106 of the same Code, as amended, is hereby further amended to
read as follows:
SEC. 106. Value-Added Tax on Sale of Goods or Properties.

(A) Rate and Base of Tax. There shall be levied, assessed and collected on every
sale, barter or exchange of goods or properties, a value-added tax equivalent to ten
percent (10%) of the gross selling price or gross value in money of the goods or
properties sold, bartered or exchanged, such tax to be paid by the seller or
transferor: provided, that the President, upon the recommendation of the
Secretary of Finance, shall, effective January 1, 2006, raise the rate of
value-added tax to twelve percent (12%), after any of the following
conditions has been satisfied.
(i) value-added tax collection as a percentage of Gross Domestic

Product (GDP) of the previous year exceeds two and four-fifth
percent (2 4/5%) or
(ii) national government deficit as a percentage of GDP of the previous
year exceeds one and one-half percent (1 %).
SEC. 5. Section 107 of the same Code, as amended, is hereby further amended to
read as follows:
SEC. 107. Value-Added Tax on Importation of Goods.
(A) In General. There shall be levied, assessed and collected on every importation
of goods a value-added tax equivalent to ten percent (10%) based on the total
value used by the Bureau of Customs in determining tariff and customs duties, plus
customs duties, excise taxes, if any, and other charges, such tax to be paid by the
importer prior to the release of such goods from customs custody: Provided, That
where the customs duties are determined on the basis of the quantity or volume of
the goods, the value-added tax shall be based on the landed cost plus excise taxes,
if any: provided, further, that the President, upon the recommendation of
the Secretary of Finance, shall, effective January 1, 2006, raise the rate of
value-added tax to twelve percent (12%) after any of the following

percent (2 4/5%) or
year exceeds one and one-half percent (1 %).
read as 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.

percent (2 4/5%) or
year exceeds 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 four-fifth percent (24/5%) or the national government deficit as a
percentage of GDP of the previous year exceeds one and one-half percent (1%).
If either of these two instances has occurred, the Secretary of Finance, by
legislative mandate, must submit such information to the President. Then the 12%
VAT rate must be imposed by the President effective January 1, 2006. There is no
undue delegation of legislative power but only of the discretion as to the
execution of a law. This is constitutionally permissible.[57] Congress does not
abdicate its functions or unduly delegate power when it describes what job must be
done, who must do it, and what is the scope of his authority; in our complex
economy that is frequently the only way in which the legislative process can go
forward.[58]
As to the argument of petitioners ABAKADA GURO Party List, et al. that delegating
to the President the legislative power to tax is contrary to the principle of
republicanism, the same deserves scant consideration. Congress did not delegate
the power to tax but the mere implementation of the law. The intent and will to
increase the VAT rate to 12% came from Congress and the task of the President is
to simply execute the legislative policy. That Congress chose to do so in such a
manner is not within the province of the Court to inquire into, its task being to
interpret the law.[59]
The insinuation by petitioners Pimentel, et al. that the President has ample powers
to cause, influence or create the conditions to bring about either or both the
conditions precedent does not deserve any merit as this argument is highly
speculative. The Court does not rule on allegations which are manifestly
conjectural, as these may not exist at all. The Court deals with facts, not fancies;
on realities, not appearances. When the Court acts on appearances instead of
realities, justice and law will be short-lived.
B. The 12% Increase VAT Rate Does Not

Impose an Unfair and Unnecessary
Additional Tax Burden
Petitioners Pimentel, et al. argue that the 12% increase in the VAT rate imposes an
unfair and additional tax burden on the people. Petitioners also argue that the 12%
increase, dependent on any of the 2 conditions set forth in the contested
provisions, is ambiguous because it does not state if the VAT rate would be
returned to the original 10% if the rates are no longer satisfied. Petitioners also
argue that such rate is unfair and unreasonable, as the people are unsure of the
applicable VAT rate from year to year.
Under the common provisos of Sections 4, 5 and 6 of R.A. No. 9337, if any of the
two conditions set forth therein are satisfied, the President shall increase the VAT
rate to 12%. The provisions of the law are clear. It does not provide for a return to
the 10% rate nor does it empower the President to so revert if, after the rate is
increased to 12%, the VAT collection goes below the 24/5 of the GDP of the
previous year or that the national government deficit as a percentage of GDP of the
previous year does not exceed 1%.
Therefore, no statutory construction or interpretation is needed. Neither can

conditions or limitations be introduced where none is provided for. Rewriting the
law is a forbidden ground that only Congress may tread upon.[60]
Thus, in the absence of any provision providing for a return to the 10% rate, which
in this case the Court finds none, petitioners argument is, at best, purely
speculative. There is no basis for petitioners fear of a fluctuating VAT rate because
the law itself does not provide that the rate should go back to 10% if the conditions
provided in Sections 4, 5 and 6 are no longer present. The rule is that where the
provision of the law is clear and unambiguous, so that there is no occasion for the
court's seeking the legislative intent, the law must be taken as it is, devoid of
judicial addition or subtraction.[61]
Petitioners also contend that the increase in the VAT rate, which was allegedly an
incentive to the President to raise the VAT collection to at least 2 4/5 of the GDP of
the previous year, should be based on fiscal adequacy.
Petitioners obviously overlooked that increase in VAT collection is not the only
condition. There is another condition, i.e., the national government deficit as a
percentage of GDP of the previous year exceeds one and one-half percent (1 %).
Respondents explained the philosophy behind these alternative conditions:
1. VAT/GDP Ratio > 2.8%
The condition set for increasing VAT rate to 12% have economic or fiscal
meaning. If VAT/GDP is less than 2.8%, it means that government has
weak or no capability of implementing the VAT or that VAT is not
effective in the function of the tax collection. Therefore, there is no value
to increase it to 12% because such action will also be ineffectual.
2. Natl Govt Deficit/GDP >1.5%
The condition set for increasing VAT when deficit/GDP is 1.5% or less
means the fiscal condition of government has reached a relatively sound
position or is towards the direction of a balanced budget position.
Therefore, there is no need to increase the VAT rate since the fiscal
house is in a relatively healthy position. Otherwise stated, if the ratio is
more than 1.5%, there is indeed a need to increase the VAT rate.[62]
That the first condition amounts to an incentive to the President to increase the VAT
collection does not render it unconstitutional so long as there is a public purpose for
which the law was passed, which in this case, is mainly to raise revenue. In fact,
fiscal adequacy dictated the need for a raise in revenue.
The principle of fiscal adequacy as a characteristic of a sound tax system was

originally stated by Adam Smith in his Canons of Taxation (1776), as:
IV. Every tax ought to be so contrived as both to take out and to keep out of
the pockets of the people as little as possible over and above what it brings
into the public treasury of the state.[63]
It simply means that sources of revenues must be adequate to meet government
expenditures and their variations.[64]
The dire need for revenue cannot be ignored. Our country is in a quagmire of
financial woe. During the Bicameral Conference Committee hearing, then Finance
Secretary Purisima bluntly depicted the countrys gloomy state of economic affairs,
thus:
First, let me explain the position that the Philippines finds itself in right now. We are
in a position where 90 percent of our revenue is used for debt service. So, for every
peso of revenue that we currently raise, 90 goes to debt service. Thats interest
plus amortization of our debt. So clearly, this is not a sustainable situation. Thats
the first fact.
The second fact is that our debt to GDP level is way out of line compared to other
peer countries that borrow money from that international financial markets. Our
debt to GDP is approximately equal to our GDP. Again, that shows you that this is
not a sustainable situation.
The third thing that Id like to point out is the environment that we are presently
operating in is not as benign as what it used to be the past five years.
What do I mean by that?
In the past five years, weve been lucky because we were operating in a period of
basically global growth and low interest rates. The past few months, we have seen
an inching up, in fact, a rapid increase in the interest rates in the leading
economies of the world. And, therefore, our ability to borrow at reasonable prices is
going to be challenged. In fact, ultimately, the question is our ability to access the
financial markets.
When the President made her speech in July last year, the environment was not as
bad as it is now, at least based on the forecast of most financial institutions. So, we
were assuming that raising 80 billion would put us in a position where we can then
convince them to improve our ability to borrow at lower rates. But conditions have
changed on us because the interest rates have gone up. In fact, just within this
room, we tried to access the market for a billion dollars because for this year alone,
the Philippines will have to borrow 4 billion dollars. Of that amount, we have
borrowed 1.5 billion. We issued last January a 25-year bond at 9.7 percent cost. We
were trying to access last week and the market was not as favorable and up to now
we have not accessed and we might pull back because the conditions are not very
good.
So given this situation, we at the Department of Finance believe that we really need
to front-end our deficit reduction. Because it is deficit that is causing the increase of
the debt and we are in what we call a debt spiral. The more debt you have, the
more deficit you have because interest and debt service eats and eats more of your
revenue. We need to get out of this debt spiral. And the only way, I think, we can
get out of this debt spiral is really have a front-end adjustment in our revenue
base.[65]
The image portrayed is chilling. Congress passed the law hoping for rescue from an
inevitable catastrophe. Whether the law is indeed sufficient to answer the states
economic dilemma is not for the Court to judge. In the Farias case, the Court
refused to consider the various arguments raised therein that dwelt on the wisdom
of Section 14 of R.A. No. 9006 (The Fair Election Act), pronouncing that:
. . . policy matters are not the concern of the Court. Government policy is within
the exclusive dominion of the political branches of the government. It is not for this
Court to look into the wisdom or propriety of legislative determination. Indeed,
whether an enactment is wise or unwise, whether it is based on sound economic
theory, whether it is the best means to achieve the desired results, whether, in
short, the legislative discretion within its prescribed limits should be exercised in a
particular manner are matters for the judgment of the legislature, and the serious
conflict of opinions does not suffice to bring them within the range of judicial
cognizance.[66]
In the same vein, the Court in this case will not dawdle on the purpose of Congress
or the executive policy, given that it is not for the judiciary to "pass upon questions
of wisdom, justice or expediency of legislation.[67]
II.
Whether Section 8 of R.A. No. 9337, amending Sections 110(A)(2) and 110(B) of
the NIRC; and Section 12 of R.A. No. 9337, amending Section 114(C) of the NIRC,
violate the following provisions of the Constitution:

b. Article III, Section 1
A. Due Process and Equal Protection Clauses
Petitioners Association of Pilipinas Shell Dealers, Inc., et al. argue that Section 8 of
R.A. No. 9337, amending Sections 110 (A)(2), 110 (B), and Section 12 of R.A. No.
9337, amending Section 114 (C) of the NIRC are arbitrary, oppressive, excessive
and confiscatory. Their argument is premised on the constitutional right against
deprivation of life, liberty of property without due process of law, as embodied in
Article III, Section 1 of the Constitution.
Petitioners also contend that these provisions violate the constitutional guarantee of
equal protection of the law.
The doctrine is that where the due process and equal protection clauses are
invoked, considering that they are not fixed rules but rather broad standards, there
is a need for proof of such persuasive character as would lead to such a conclusion.
Absent such a showing, the presumption of validity must prevail.[68]
Section 8 of R.A. No. 9337, amending Section 110(B) of the NIRC imposes a
limitation on the amount of input tax that may be credited against the output tax.
It states, in part: [P]rovided, that the input tax inclusive of the input VAT carried
over from the previous quarter that may be credited in every quarter shall not
exceed seventy percent (70%) of the output VAT:
Input Tax is defined under Section 110(A) of the NIRC, as amended, as the value-
added tax due from or paid by a VAT-registered person on the importation of goods
or local purchase of good and services, including lease or use of property, in the
course of trade or business, from a VAT-registered person, and Output Tax is the
value-added tax due on the sale or lease of taxable goods or properties or services
by any person registered or required to register under the law.
Petitioners claim that the contested sections impose limitations on the amount of
input tax that may be claimed. In effect, a portion of the input tax that has already
been paid cannot now be credited against the output tax.
Petitioners argument is not absolute. It assumes that the input tax exceeds 70% of
the output tax, and therefore, the input tax in excess of 70% remains uncredited.
However, to the extent that the input tax is less than 70% of the output tax, then
100% of such input tax is still creditable.
More importantly, the excess input tax, if any, is retained in a businesss books of
accounts and remains creditable in the succeeding quarter/s. This is explicitly
allowed by Section 110(B), which provides that if the input tax exceeds the output
tax, the excess shall be carried over to the succeeding quarter or quarters. In
addition, Section 112(B) allows a VAT-registered person to apply for the issuance of
a tax credit certificate or refund for any unused input taxes, to the extent that such
input taxes have not been applied against the output taxes. Such unused input tax
may be used in payment of his other internal revenue taxes.
The non-application of the unutilized input tax in a given quarter is not ad infinitum,
as petitioners exaggeratedly contend. Their analysis of the effect of the 70%
limitation is incomplete and one-sided. It ends at the net effect that there will be
unapplied/unutilized inputs VAT for a given quarter. It does not proceed further to
the fact that such unapplied/unutilized input tax may be credited in the subsequent
periods as allowed by the carry-over provision of Section 110(B) or that it may later
on be refunded through a tax credit certificate under Section 112(B).
Therefore, petitioners argument must be rejected.

On the other hand, it appears that petitioner Garcia failed to comprehend the
operation of the 70% limitation on the input tax. According to petitioner, the
limitation on the creditable input tax in effect allows VAT-registered establishments
to retain a portion of the taxes they collect, which violates the principle that tax
collection and revenue should be for public purposes and expenditures
As earlier stated, the input tax is the tax paid by a person, passed on to him by the
seller, when he buys goods. Output tax meanwhile is the tax due to the person
when he sells goods. In computing the VAT payable, three possible scenarios may
arise:
First, if at the end of a taxable quarter the output taxes charged by the seller are
equal to the input taxes that he paid and passed on by the suppliers, then no
payment is required;
Second, when the output taxes exceed the input taxes, the person shall be liable
for the excess, which has to be paid to the Bureau of Internal Revenue (BIR);[69]
and
Third, if the input taxes exceed the output taxes, the excess shall be carried over to
the succeeding quarter or quarters. Should the input taxes result from zero-rated or
effectively zero-rated transactions, any excess over the output taxes shall instead
be refunded to the taxpayer or credited against other internal revenue taxes, at the
taxpayers option.[70]
Section 8 of R.A. No. 9337 however, imposed a 70% limitation on the input tax.
Thus, a person can credit his input tax only up to the extent of 70% of the output
tax. In laymans term, the value-added taxes that a person/taxpayer paid and
passed on to him by a seller can only be credited up to 70% of the value-added
taxes that is due to him on a taxable transaction. There is no retention of any tax
collection because the person/taxpayer has already previously paid the input tax to
a seller, and the seller will subsequently remit such input tax to the BIR. The party
directly liable for the payment of the tax is the seller.[71] What only needs to be
done is for the person/taxpayer to apply or credit these input taxes, as evidenced
by receipts, against his output taxes.
Petitioners Association of Pilipinas Shell Dealers, Inc., et al. also argue that the
input tax partakes the nature of a property that may not be confiscated,
appropriated, or limited without due process of law.
The input tax is not a property or a property right within the constitutional purview
of the due process clause. A VAT-registered persons entitlement to the creditable
input tax is a mere statutory privilege.
The distinction between statutory privileges and vested rights must be borne in
mind for persons have no vested rights in statutory privileges. The state may
change or take away rights, which were created by the law of the state, although it
may not take away property, which was vested by virtue of such rights.[72]
Under the previous system of single-stage taxation, taxes paid at every level of
distribution are not recoverable from the taxes payable, although it becomes part of
the cost, which is deductible from the gross revenue. When Pres. Aquino issued
E.O. No. 273 imposing a 10% multi-stage tax on all sales, it was then that the
crediting of the input tax paid on purchase or importation of goods and services by
VAT-registered persons against the output tax was introduced.[73] This was adopted
by the Expanded VAT Law (R.A. No. 7716),[74] and The Tax Reform Act of 1997
(R.A. No. 8424).[75] The right to credit input tax as against the output tax is clearly
a privilege created by law, a privilege that also the law can remove, or in this case,
limit.
Petitioners also contest as arbitrary, oppressive, excessive and confiscatory, Section

8 of R.A. No. 9337, amending Section 110(A) of the NIRC, which provides:
SEC. 110. Tax Credits.
(A) Creditable Input Tax.
Provided, That the input tax on goods purchased or imported in a calendar month
for use in trade or business for which deduction for depreciation is allowed under
this Code, shall be spread evenly over the month of acquisition and the fifty-nine
(59) succeeding months if the aggregate acquisition cost for such goods, excluding
the VAT component thereof, exceeds One million pesos (P1,000,000.00): Provided,
however, That if the estimated useful life of the capital goods is less than five (5)
years, as used for depreciation purposes, then the input VAT shall be spread over
such a shorter period: Provided, finally, That in the case of purchase of services,
lease or use of properties, the input tax shall be creditable to the purchaser, lessee
or license upon payment of the compensation, rental, royalty or fee.
The foregoing section imposes a 60-month period within which to amortize the
creditable input tax on purchase or importation of capital goods with acquisition
cost of P1 Million pesos, exclusive of the VAT component. Such spread out only
poses a delay in the crediting of the input tax. Petitioners argument is without
basis because the taxpayer is not permanently deprived of his privilege to credit the
input tax.
It is worth mentioning that Congress admitted that the spread-out of the creditable
input tax in this case amounts to a 4-year interest-free loan to the government.[76]
In the same breath, Congress also justified its move by saying that the provision
was designed to raise an annual revenue of 22.6 billion.[77] The legislature also
dispelled the fear that the provision will fend off foreign investments, saying that
foreign investors have other tax incentives provided by law, and citing the case of
China, where despite a 17.5% non-creditable VAT, foreign investments were not
deterred.[78] Again, for whatever is the purpose of the 60-month amortization, this
involves executive economic policy and legislative wisdom in which the Court
cannot intervene.
With regard to the 5% creditable withholding tax imposed on payments made by

the government for taxable transactions, Section 12 of R.A. No. 9337, which
amended Section 114 of the NIRC, reads:
SEC. 114. Return and Payment of Value-added Tax.
(C) Withholding of Value-added Tax. The Government or any of its political

subdivisions, instrumentalities or agencies, including government-owned or
controlled corporations (GOCCs) shall, before making payment on account of each
purchase of goods and services which are subject to the value-added tax imposed
in Sections 106 and 108 of this Code, deduct and withhold a final value-added tax
at the rate of five percent (5%) of the gross payment thereof: Provided, That the
payment for lease or use of properties or property rights to nonresident owners
shall be subject to ten percent (10%) withholding tax at the time of payment. For
purposes of this Section, the payor or person in control of the payment shall be
considered as the withholding agent.
The value-added tax withheld under this Section shall be remitted within ten (10)
days following the end of the month the withholding was made.
Section 114(C) merely provides a method of collection, or as stated by
respondents, a more simplified VAT withholding system. The government in this
case is constituted as a withholding agent with respect to their payments for goods
and services.
Prior to its amendment, Section 114(C) provided for different rates of value-added
taxes to be withheld -- 3% on gross payments for purchases of goods; 6% on gross
payments for services supplied by contractors other than by public works
contractors; 8.5% on gross payments for services supplied by public work
contractors; or 10% on payment for the lease or use of properties or property
rights to nonresident owners. Under the present Section 114(C), these different
rates, except for the 10% on lease or property rights payment to nonresidents,
were deleted, and a uniform rate of 5% is applied.
The Court observes, however, that the law the used the word final. In tax usage,
final, as opposed to creditable, means full. Thus, it is provided in Section 114(C):
final value-added tax at the rate of five percent (5%).
In Revenue Regulations No. 02-98, implementing R.A. No. 8424 (The Tax Reform
Act of 1997), the concept of final withholding tax on income was explained, to wit:
SECTION 2.57. Withholding of Tax at Source
(A) Final Withholding Tax. Under the final withholding tax system the amount of
income tax withheld by the withholding agent is constituted as full and final
payment of the income tax due from the payee on the said income. The liability for
payment of the tax rests primarily on the payor as a withholding agent. Thus, in
case of his failure to withhold the tax or in case of underwithholding, the deficiency
tax shall be collected from the payor/withholding agent.
(B) Creditable Withholding Tax. Under the creditable withholding tax system,
taxes withheld on certain income payments are intended to equal or at least
approximate the tax due of the payee on said income. Taxes withheld on income
payments covered by the expanded withholding tax (referred to in Sec. 2.57.2 of
these regulations) and compensation income (referred to in Sec. 2.78 also of these
regulations) are creditable in nature.
As applied to value-added tax, this means that taxable transactions with the
government are subject to a 5% rate, which constitutes as full payment of the tax
payable on the transaction. This represents the net VAT payable of the seller. The
other 5% effectively accounts for the standard input VAT (deemed input VAT), in
lieu of the actual input VAT directly or attributable to the taxable transaction.[79]
The Court need not explore the rationale behind the provision. It is clear that
Congress intended to treat differently taxable transactions with the government.[80]
This is supported by the fact that under the old provision, the 5% tax withheld by
the government remains creditable against the tax liability of the seller or
contractor, to wit:
SEC. 114. Return and Payment of Value-added Tax.
(C) Withholding of Creditable Value-added Tax. The Government or any of

its political subdivisions, instrumentalities or agencies, including government-owned
or controlled corporations (GOCCs) shall, before making payment on account of
each purchase of goods from sellers and services rendered by contractors which are
subject to the value-added tax imposed in Sections 106 and 108 of this Code,
deduct and withhold the value-added tax due at the rate of three percent (3%) of
the gross payment for the purchase of goods and six percent (6%) on gross
receipts for services rendered by contractors on every sale or installment payment
which shall be creditable against the value-added tax liability of the seller or
contractor: Provided, however, That in the case of government public works
contractors, the withholding rate shall be eight and one-half percent (8.5%):
Provided, further, That the payment for lease or use of properties or property rights
to nonresident owners shall be subject to ten percent (10%) withholding tax at the
time of payment. For this purpose, the payor or person in control of the payment
shall be considered as the withholding agent.
The valued-added tax withheld under this Section shall be remitted within ten (10)
days following the end of the month the withholding was made. (Emphasis
supplied)
As amended, the use of the word final and the deletion of the word creditable
exhibits Congresss intention to treat transactions with the government differently.
Since it has not been shown that the class subject to the 5% final withholding tax
has been unreasonably narrowed, there is no reason to invalidate the provision.
Petitioners, as petroleum dealers, are not the only ones subjected to the 5% final
withholding tax. It applies to all those who deal with the government.
Moreover, the actual input tax is not totally lost or uncreditable, as petitioners
believe. Revenue Regulations No. 14-2005 or the Consolidated Value-Added Tax
Regulations 2005 issued by the BIR, provides that should the actual input tax
exceed 5% of gross payments, the excess may form part of the cost. Equally,
should the actual input tax be less than 5%, the difference is treated as income.[81]
Petitioners also argue that by imposing a limitation on the creditable input tax, the
government gets to tax a profit or value-added even if there is no profit or value-
added.
Petitioners stance is purely hypothetical, argumentative, and again, one-sided. The

Court will not engage in a legal joust where premises are what ifs, arguments,
theoretical and facts, uncertain. Any disquisition by the Court on this point will only
be, as Shakespeare describes life in Macbeth,[82] full of sound and fury, signifying
nothing.
Whats more, petitioners contention assumes the proposition that there is no profit
or value-added. It need not take an astute businessman to know that it is a matter
of exception that a business will sell goods or services without profit or value-
added. It cannot be overstressed that a business is created precisely for profit.
The equal protection clause under the Constitution means that no person or class
of persons shall be deprived of the same protection of laws which is enjoyed by
other persons or other classes in the same place and in like circumstances.[83]
The power of the State to make reasonable and natural classifications for the
purposes of taxation has long been established. Whether it relates to the subject of
taxation, the kind of property, the rates to be levied, or the amounts to be raised,
the methods of assessment, valuation and collection, the States power is entitled
to presumption of validity. As a rule, the judiciary will not interfere with such power
absent a clear showing of unreasonableness, discrimination, or arbitrariness.[84]
Petitioners point out that the limitation on the creditable input tax if the entity has a
high ratio of input tax, or invests in capital equipment, or has several transactions
with the government, is not based on real and substantial differences to meet a
valid classification.
The argument is pedantic, if not outright baseless. The law does not make any
classification in the subject of taxation, the kind of property, the rates to be levied
or the amounts to be raised, the methods of assessment, valuation and collection.
Petitioners alleged distinctions are based on variables that bear different
consequences. While the implementation of the law may yield varying end results
depending on ones profit margin and value-added, the Court cannot go beyond
what the legislature has laid down and interfere with the affairs of business.
The equal protection clause does not require the universal application of the laws
on all persons or things without distinction. This might in fact sometimes result in
unequal protection. What the clause requires is equality among equals as
determined according to a valid classification. By classification is meant the
grouping of persons or things similar to each other in certain particulars and
different from all others in these same particulars.[85]
Petitioners brought to the Courts attention the introduction of Senate Bill No. 2038
by Sens. S.R. Osmea III and Ma. Ana Consuelo A.S. Madrigal on June 6, 2005,
and House Bill No. 4493 by Rep. Eric D. Singson. The proposed legislation seeks to
amend the 70% limitation by increasing the same to 90%. This, according to
petitioners, supports their stance that the 70% limitation is arbitrary and
confiscatory. On this score, suffice it to say that these are still proposed
legislations. Until Congress amends the law, and absent any unequivocal basis for
its unconstitutionality, the 70% limitation stays.
B. Uniformity and Equitability of Taxation
Article VI, Section 28(1) of the Constitution reads:

The rule of taxation shall be uniform and equitable. The Congress shall evolve a
progressive system of taxation.
Uniformity in taxation means that all taxable articles or kinds of property of the
same class shall be taxed at the same rate. Different articles may be taxed at
different amounts provided that the rate is uniform on the same class everywhere
with all people at all times.[86]
In this case, the tax law is uniform as it provides a standard rate of 0% or 10% (or
12%) on all goods and services. Sections 4, 5 and 6 of R.A. No. 9337, amending
Sections 106, 107 and 108, respectively, of the NIRC, provide for a rate of 10% (or
12%) on sale of goods and properties, importation of goods, and sale of services
and use or lease of properties. These same sections also provide for a 0% rate on
certain sales and transaction.
Neither does the law make any distinction as to the type of industry or trade that
will bear the 70% limitation on the creditable input tax, 5-year amortization of
input tax paid on purchase of capital goods or the 5% final withholding tax by the
government. It must be stressed that the rule of uniform taxation does not deprive
Congress of the power to classify subjects of taxation, and only demands uniformity
within the particular class.[87]
R.A. No. 9337 is also equitable. The law is equipped with a threshold margin. The
VAT rate of 0% or 10% (or 12%) does not apply to sales of goods or services with
gross annual sales or receipts not exceeding P1,500,000.00.[88] Also, basic marine
and agricultural food products in their original state are still not subject to the
tax,[89] thus ensuring that prices at the grassroots level will remain accessible. As
was stated in Kapatiran ng mga Naglilingkod sa Pamahalaan ng Pilipinas, Inc. vs.
Tan:[90]
The disputed sales tax is also equitable. It is imposed only on sales of goods or
services by persons engaged in business with an aggregate gross annual sales
exceeding P200,000.00. Small corner sari-sari stores are consequently exempt
from its application. Likewise exempt from the tax are sales of farm and marine
products, so that the costs of basic food and other necessities, spared as they are
from the incidence of the VAT, are expected to be relatively lower and within the
reach of the general public.
It is admitted that R.A. No. 9337 puts a premium on businesses with low profit
margins, and unduly favors those with high profit margins. Congress was not
oblivious to this. Thus, to equalize the weighty burden the law entails, the law,
under Section 116, imposed a 3% percentage tax on VAT-exempt persons under
Section 109(v), i.e., transactions with gross annual sales and/or receipts not
exceeding P1.5 Million. This acts as a equalizer because in effect, bigger businesses
that qualify for VAT coverage and VAT-exempt taxpayers stand on equal-footing.
Moreover, Congress provided mitigating measures to cushion the impact of the

imposition of the tax on those previously exempt. Excise taxes on petroleum
products[91] and natural gas[92] 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. Avelino[101] 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.
Carpio, J. concur.
Davide, Jr., C.J., Please see Separate Concurring and Dissenting Opinion.
Puno, J., Pls. see Concurring and Dissenting Opinion.
Panganiban, J., Please see Separate Opinion.
Quisumbing, J., in the result.
Ynares-Santiago, J., on leave. I certify that she participated in the oral arguments
and initial deliberation and allowed to vote and submit her separate opinion.
Sandoval-Gutierrez, J., Pls. see my Concurring & Dissenting Opinion.
Corona, J., I join Mme. Justice Gutierrez in her concurring and dissenting opinion.
Carpio-Morales, J., I concur. I also concur with the dessent of J. Tinga on Section 8
of the law.
Callejo, Sr., J., Please see my Concurring and Dessent Opinion.
Azcuna, J., Pls. see Separate concurring & dessenting opinion.
Tinga, J., See dissenting & concurring opinion.
Chico-Nazario,J., Please see separate concurring opinion.
Garcia, J., I also concur with J. Puno in so far as the deletion of no pass provision is
concerned including sec. 21.
[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.
Entitled, An Act Restructuring the Value-Added Tax, Amending for the Purpose
[2]
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
[3]
National Internal Revenue Code of 1997, As Amended, and For Other Purposes.
Entitled, An Act Amending Sections 27, 28, 34, 106, 108, 109, 110, 112, 113,
[4]
114, 116, 117, 119, 121, 125, 148, 151, 236, 237 and 288 of the National Internal
Revenue Code of 1997, As Amended, and For Other Purposes.
[5]
Section 26, R.A. No. 9337.
[6]
TSN, July 14, 2005.
Section 125 of the National Internal Revenue Code, as amended, was not
[7]
amended by R.A. No. 9337, as can be gleaned from the title and body of the law.
[8]
Section 105, National Internal Revenue of the Philippines, as amended.
[9]
Ibid.
[10]
Deoferio, Jr., V.A. and Mamalateo, V.C., The Value Added Tax in the Philippines
(First Edition 2000).
[11]
Maceda vs. Macaraig, Jr., G.R. No. 88291, May 31, 1991, 197 SCRA 771.
[12]
Maceda vs. Macaraig, Jr., G.R. No. 88291, June 8, 1993, 223 SCRA, 217.
[13]
Id., Deoferio, Jr., V.A. and Mamalateo, V.C., The Value Added Tax in the
Philippines (First Edition 2000).
Commissioner of Internal Revenue vs. Seagate, G.R. No. 153866, February 11,
[14]
2005.
Kapatiran ng mga Naglilingkod sa Pamahalaan ng Pilipinas, Inc. vs. Tan, G.R.

[15]
Nos. L-81311, L-81820, L-81921, L-82152, June 30, 1988, 163 SCRA 371.
Entitled, An Act Restructuring the Value-Added Tax (VAT) System, Widening its
[16]
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.
Entitled, An Act Amending Republic Act No. 7716, otherwise known as the
[17]
Value-Added Tax Law and Other Pertinent Provisions of the National Internal
Revenue Code, as Amended.
Entitled, An Act Amending the National Internal Revenue Code, as Amended,

[18]
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.
Sponsorship Speech of Representative Teves, in behalf of Representative Jesli

[28]
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.
See Angara vs. Electoral Commission, No. 45081, July 15, 1936, 63 Phil. 139,
[37]
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.
Pelaez vs. Auditor General, No. L-23825, December 24, 1965, 122 Phil. 965,
[41]
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.
Pelaez vs. Auditor General, supra, citing People vs. Lim Ho, No. L-12091-2,
[42]
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.
Eastern Shipping Lines, Inc. vs. POEA, No. L-76633, October 18, 1988, 166
[44]
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.
Yajus vs. United States, 321 US 414, 88 L Ed 834, 64 S Ct. 660, 28 Ohio Ops
[52]
220.
Province of Batangas vs. Romulo, G.R. No. 152774, May 27, 2004; Enriquez vs.
[53]
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.
Villena vs. Secretary of Interior, No. 46570, April 21, 1939, 67 Phil 451, 463-
[55]
464.
[56]
Alunan vs. Mirasol, G.R. No. 108399, July 31, 1997, 276 SCRA 501, 513-514,
citing Panama Refining Co. vs. Ryan, 293 U.S. 388, 79 L.Ed. 469 (1935).
Compaia General de Tabacos de Filipinas vs. The Board of Public Utility

[57]
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.
United Residents of Dominican Hill, Inc. vs. Commission on the Settlement of

[59]
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.
Commission on Internal Revenue vs. American Express International, Inc.

[60]
(Philippine Branch), G.R. No. 152609, June 29, 2005.
Acting Commissioner of Customs vs. MERALCO, No. L-23623, June 30, 1977, 77
[61]
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.
National Housing Authority vs. Reyes, G.R. No. L-49439, June 29, 1983, 123
[67]
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.
Commissioner of Internal Revenue vs. Benguet Corp., G.R. Nos. 134587 &
[71]
134588, July 8, 2005.
United Paracale Mining Co. vs. Dela Rosa, G.R. Nos. 63786-87, April 7, 1993,
[72]
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).
Commissioner of Internal Revenue vs. Philam, G.R. No. 141658, March 18,
[80]
2005.
[81]
Revenue Regulations No. 14-2005, Sec. 4. 114-2.
[82]
Act V, Scene V.
Philippine Rural Electric Cooperatives Association, Inc. vs. DILG, G.R. No.
[83]
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.
Commissioner of Internal Revenue vs. Court of Appeals, G.R. No. 119761,

[86]
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.
Tolentino vs. Secretary of Finance, G.R. No. 115455, October 30, 1995, 249
[99]
SCRA 628, 659.
[100]
Vera vs. Avelino, G.R. No. L-543, August 31, 1946, 77 Phil. 365.
[101]
Ibid.
RESOLUTION
The Court, by a majority vote and per the Decision written by Justice Ma. Alicia
Austria-Martinez, DISMISSED all the Petitions and upheld the constitutionality of
Republic Act No. 9337 in its entirety. However, the following Justices dissented and
voted to declare specific provisions of the law unconstitutional per their Separate
Opinions, as follows:
1. Sections 1, 2 and 3 Chief Justice Davide, Jr. and Justices Panganiban,

Sandoval-Gutierrez, Corona, and Azcuna.
2. Sections 4, 5, 6 and 7 Justices Sandoval-Gutierrez and Corona;
3. Section 8 Justices Tinga and Carpio Morales;
4. Section 10 and 11 Justices Sandoval-Gutierrez and Corona;
5. Section 12 Justices Sandoval-Gutierrez, Corona, and Tinga;
6. Section 13 Justices Sandoval-Gutierrez and Corona,
7. Sections 14, 15, 16, 17 and 18 Chief Justice Davide, Jr. and Justices
Sandoval-Gutierrez and Corona;
8. Sections 19 and 20 Justices Sandoval Gutierrez and Corona; and
9. Section 21 Justices Puno, Ynares-Santiago, Sandoval-Gutierrez,

Corona, Callejo, Sr., Tinga, and Garcia.
In addition, Justices Puno, Ynares-Santiago, Sandoval-Gutierrez, Corona, Callejo,

Sr., and Garcia voted to declare unconstitutional the deletion by the Bicameral
Conference Committee of the "no pass on provision."
SEPARATE CONCURRING
AND DISSENTING OPINION
DAVIDE, JR., C.J.:

While I still hold on to my position expressed in my dissenting opinion in the first
VAT cases,[1] I partly yield to the application to the cases at bar of the rule on
germaneness therein enunciated. Thus, I concur with the ponencia of my highly-
esteemed colleague Mme. Justice Ma. Alicia Austria-Martinez except as regards its
ruling on the issue of whether Republic Act No. 9337 violates Section 24, Article VI
of the Constitution.
R.A. No. 9337 primarily aims to restructure the value-added tax (VAT) system by
broadening its base and raising the rate so as to generate more revenues for the
government that can assuage the economic predicament that our country is now
facing. This recently enacted law stemmed from three legislative bills: House Bill
(HB) No. 3555, HB No. 3705, and Senate Bill (SB) 1950. The first (HB No. 3555)
called for the amendment of Sections 106, 107, 108, 109, 110, and 111 of the
National Internal Revenue Code (NIRC) as amended; while the second (HB No.
3705) proposed amendments to Sections 106, 107, 108, 110, and 114 of the NIRC,
as amended. It is significant to note that all these Sections specifically deal with
VAT. And indubitably, these bills are revenue bills in that they are intended to levy
taxes and raise funds for the government.[2]
On the other hand, SB No. 1950 introduced amendments to Sections 27, 28, 34,
106, 108, 109, 110, 111, 112, 113, 114, 116, 117, 118, 119, 125, 148, 236, 237,
and 288 of the NIRC, as amended. Among the provisions sought to be amended,
only Sections 106, 108, 109, 110, 111, 112, 113, 114, and 116 pertain to VAT. And
while Sections 236, 237, and 288 are administrative provisions pertaining to
registration requirements and issuance of receipts commercial invoices, the
proposed amendments thereto are related to VAT. Hence, the proposed
amendments to these Sections were validly taken cognizance of and properly
considered by the Bicameral Conference Committee (BCC).
However, I am of the opinion that the inclusion into the law of the amendments
proposed in SB No. 1950 to the following provisions (with modifications on the rates
of taxes) is invalid.
Provision Subject matter

Section 27 Rate of income tax on domestic corporations
Section 28(A)(1) Rate of income tax on resident foreign
corporation
Section 28(B)(1) Rate of income tax on non-resident foreign
corporation
Section 28(B)(5-b) Rate of income tax on intra-corporate
dividends received by non-resident foreign
corporation
Section 34(B)(1) Deductions from gross income
Section 117 Percentage tax on domestic carriers and
keepers of garages
Section 119 Tax on franchises
Section 148 Excise tax on manufactured oils and other
fuels
Obviously, these provisions do not deal with VAT. It must be noted that the House
Bills initiated amendments to provisions pertaining to VAT only. Doubtless, the
Senate has the constitutional power to concur with the amendments to the VAT
provisions introduced in the House Bills or even to propose its own version of VAT
measure. But that power does not extend to initiation of other tax measures, such
as introducing amendments to provisions on corporate income taxes, percentage
taxes, franchise taxes, and excise taxes like what the Senate did in these cases. It
was beyond the ambit of the authority of the Senate to propose amendments to
provisions not covered by the House Bills or not related to the subject matter of the
House Bills, which is VAT. To allow the Senate to do so would be tantamount to
vesting in it the power to initiate revenue bills -- a power that exclusively pertains
to the House of Representatives under Section 24, Article VI of the Constitution,
which provides:
Sec. 24. All appropriation, revenue or tariff bills, bills authorizing increase of the
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.
Tolentino v. Secretary of Finance, G.R. No. 115455, 25 August 1994, 235 SCRA
[1]
630, and companion cases.
SAGANI A. CRUZ, POLITICAL LAW 154 (2002 ed.) citing U.S. v. Nortorn, 91 U.S.
[2]
566.
G.R. No. 105371, 11 November 1993, 27 SCRA 703, 708, citing Davies,
[3]
Legislative Law and Process: In a Nutshell 81 (1986 ed.)
[4]
Supra note 1.
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:

exceeds one and one-half percent (1 %)
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 Jefferson's Manual has been adopted as a supplement to our parliamentary
rules and practice. Section 456 of Jefferson's Manual similarly confines the powers
of a conference committee, viz:
The managers of a conference must confine themselves to the differences
committed to them ... and may not include subjects not within the disagreements,
even though germane to a question in issue.
This rule of antiquity has been honed and honored in practice by the Congress of
the United States. Thus, it is chronicled by Floyd Biddick, Parliamentarian Emeritus
of the United States Senate, viz:
Committees of conference are appointed for the sole purpose of compromising and
adjusting the differing and conflicting opinions of the two Houses and the
committees of conference alone can grant compromises and modify propositions of
either Houses within the limits of the disagreement. Conferees are limited to the
consideration of differences between the two Houses.
Congress shall not insert in their report matters not committed to them by either
House, nor shall they strike from the bill matters agreed to by both Houses. No
matter on which there is nothing in either the Senate or House passed versions of a
bill may be included in the conference report and actions to the contrary would
subject the report to a point of order. (Emphasis ours)
In fine, there is neither a sound nor a syllable in the Rules of the Senate and the
House of Representatives to support the thesis of the respondents that a bicameral
conference committee is clothed with an ex post veto power.
But the thesis that a Bicameral Conference Committee can wield ex post veto power
does not only contravene the rules of both the Senate and the House. It wages war
against our settled ideals of representative democracy. For the inevitable,
catastrophic effect of the thesis is to install a Bicameral Conference Committee as
the Third Chamber of our Congress, similarly vested with the power to make laws
but with the dissimilarity that its laws are not the subject of a free and full
discussion of both Houses of Congress. With such a vagrant power, a Bicameral
Conference Committee acting as a Third Chamber will be a constitutional
monstrosity.
It needs no omniscience to perceive that our Constitution did not provide for a
Congress composed of three chambers. On the contrary, section 1, Article VI of the
Constitution provides in clear and certain language: "The legislative power shall be
vested in the Congress of the Philippines which shall consist of a Senate and a
House of Representatives ..." Note that in vesting legislative power exclusively to
the Senate and the House, the Constitution used the word "shall." Its command for
a Congress of two houses is mandatory. It is not mandatory sometimes.
In vesting legislative power to the Senate, the Constitution means the Senate "...
composed of twenty-four Senators xxx elected at large by the qualified voters of
the Philippines ..." Similarly, when the Constitution vested the legislative power to
the House, it means the House "... composed of not more than two hundred and
fifty members xxx who shall be elected from legislative districts xxx and those who
xxx shall be elected through a party-list system of registered national, regional, and
sectoral parties or organizations." The Constitution thus, did not vest on a
Bicameral Conference Committee with an ad hoc membership the power to legislate
for it exclusively vested legislative power to the Senate and the House as co-equal
bodies. To be sure, the Constitution does not mention the Bicameral Conference
Committees of Congress. No constitutional status is accorded to them. They are not
even statutory creations. They owe their existence from the internal rules of the
two Houses of Congress. Yet, respondents peddle the disconcerting idea that they
should be recognized as a Third Chamber of Congress and with ex post veto power
at that.
The thesis that a Bicameral Conference Committee can exercise law making power
with ex post veto power is freighted with mischief. Law making is a power that can
be used for good or for ill, hence, our Constitution carefully laid out a plan and a
procedure for its exercise. Firstly, it vouchsafed that the power to make laws should
be exercised by no other body except the Senate and the House. It ought to be
indubitable that what is contemplated is the Senate acting as a full Senate and the
House acting as a full House. It is only when the Senate and the House act as whole
bodies that they truly represent the people. And it is only when they represent the
people that they can legitimately pass laws. Laws that are not enacted by the
people's rightful representatives subvert the people's sovereignty. Bicameral
Conference Committees, with their ad hoc character and limited membership,
cannot pass laws for they do not represent the people. The Constitution does not
allow the tyranny of the majority. Yet, the respondents will impose the worst kind
of tyranny - the tyranny of the minority over the majority. Secondly, the
Constitution delineated in deft strokes the steps to be followed in making laws. The
overriding purpose of these procedural rules is to assure that only bills that
successfully survive the searching scrutiny of the proper committees of Congress
and the full and unfettered deliberations of both Houses can become laws. For this
reason, a bill has to undergo three (3) mandatory separate readings in each House.
In the case at bench, the additions and deletions made by the Bicameral
Conference Committee did not enjoy the enlightened studies of appropriate
committees. It is meet to note that the complexities of modern day legislations
have made our committee system a significant part of the legislative process.
Thomas Reed called the committee system as "the eye, the ear, the hand, and very
often the brain of the house." President Woodrow Wilson of the United States once
referred to the government of the United States as "a government by the Chairmen
of the Standing Committees of Congress ..." Neither did these additions and
deletions of the Bicameral Conference Committee pass through the coils of
collective deliberation of the members of the two Houses acting separately. Due to
this shortcircuiting of the constitutional procedure of making laws, confusion
shrouds the enactment of R.A. No. 7716. Who inserted the additions and deletions
remains a mystery. Why they were inserted is a riddle. To use a Churchillian
phrase, lawmaking should not be a riddle wrapped in an enigma. It cannot be, for
Article II, section 28 of the Constitution mandates the State to adopt and
implement a "policy of full public disclosure of all its transactions involving public
interest." The Constitution could not have contemplated a Congress of invisible and
unaccountable John and Mary Does. A law whose rationale is a riddle and whose
authorship is obscure cannot bind the people.
All these notwithstanding, respondents resort to the legal cosmetology that these
additions and deletions should govern the people as laws because the Bicameral
Conference Committee Report was anyway submitted to and approved by the
Senate and the House of Representatives. The submission may have some merit
with respect to provisions agreed upon by the Committee in the process of
reconciling conflicts between S.B. No. 1630 and H.B. No. 11197. In these instances,
the conflicting provisions had been previously screened by the proper committees,
deliberated upon by both Houses and approved by them. It is, however, a different
matter with respect to additions and deletions which were entirely new and which
were made not to reconcile inconsistencies between S.B. No. 1630 and H.B. No.
11197. The members of the Bicameral Conference Committee did not have any
authority to add new provisions or delete provisions already approved by both
Houses as it was not necessary to discharge their limited task of reconciling
differences in bills. At that late stage of law making, the Conference Committee
cannot add/delete provisions which can become laws without undergoing the study
and deliberation of both chambers given to bills on 1st, 2nd, and 3rd readings. Even
the Senate and the House cannot enact a law which will not undergo these
mandatory three (3) readings required by the Constitution. If the Senate and the
House cannot enact such a law, neither can the lesser Bicameral Conference
Committee.
Moreover, the so-called choice given to the members of both Houses to either
approve or disapprove the said additions and deletions is more of an optical illusion.
These additions and deletions are not submitted separately for approval. They are
tucked to the entire bill. The vote is on the bill as a package, i.e., together with the
insertions and deletions. And the vote is either "aye" or "nay," without any further
debate and deliberation. Quite often, legislators vote "yes" because they approve of
the bill as a whole although they may object to its amendments by the Conference
Committee. This lack of real choice is well observed by Robert Luce:
Their power lies chiefly in the fact that reports of conference committees must be
accepted without amendment or else rejected in toto. The impulse is to get done
with the matter and so the motion to accept has undue advantage, for some
members are sure to prefer swallowing unpalatable provisions rather than prolong
controversy. This is the more likely if the report comes in the rush of business
toward the end of a session, when to seek further conference might result in the
loss of the measure altogether. At any time in the session there is some risk of such
a result following the rejection of a conference report, for it may not be possible to
secure a second conference, or delay may give opposition to the main proposal
chance to develop more strength.
In a similar vein, Prof. Jack Davies commented that "conference reports are
returned to assembly and Senate on a take-it or leave-it-basis, and the bodies are
generally placed in the position that to leave-it is a practical impossibility." Thus, he
concludes that "conference committee action is the most undemocratic procedure in
the legislative process."
The respondents also contend that the additions and deletions made by the
Bicameral Conference Committee were in accord with legislative customs and
usages. The argument does not persuade for it misappreciates the value of customs
and usages in the hierarchy of sources of legislative rules of procedure. To be sure,
every legislative assembly has the inherent right to promulgate its own internal
rules. In our jurisdiction, Article VI, section 16(3) of the Constitution provides that
"Each House may determine the rules of its proceedings x x x." But it is hornbook
law that the sources of Rules of Procedure are many and hierarchical in character.
Mason laid them down as follows:
xxx
1. Rules of Procedure are derived from several sources. The principal

sources are as follows:
a. Constitutional rules.
b. Statutory rules or charter provisions.
c. Adopted rules.
d. Judicial decisions.
e. Adopted parliamentary authority.
f. Parliamentary law.
g. Customs and usages.
2. The rules from the different sources take precedence in the order listed
above except that judicial decisions, since they are interpretations of
rules from one of the other sources, take the same precedence as the
source interpreted. Thus, for example, an interpretation of a
constitutional provision takes precedence over a statute.
3. Whenever there is conflict between rules from these sources the rule
from the source listed earlier prevails over the rule from the source listed
later. Thus, where the Constitution requires three readings of bills, this
provision controls over any provision of statute, adopted rules, adopted
manual, or of parliamentary law, and a rule of parliamentary law controls
over a local usage but must give way to any rule from a higher source of
authority. (Emphasis ours)
As discussed above, the unauthorized additions and deletions made by the

Bicameral Conference Committee violated the procedure fixed by the Constitution in
the making of laws. It is reasonless for respondents therefore to justify these
insertions as sanctioned by customs and usages.
Finally, respondents seek sanctuary in the conclusiveness of an enrolled bill to bar

any judicial inquiry on whether Congress observed our constitutional procedure in
the passage of R.A. No. 7716. The enrolled bill theory is a historical relic that
should not continuously rule us from the fossilized past. It should be immediately
emphasized that the enrolled bill theory originated in England where there is no
written constitution and where Parliament is supreme. In this jurisdiction, we have
a written constitution and the legislature is a body of limited powers. Likewise, it
must be pointed out that starting from the decade of the 40s, even American courts
have veered away from the rigidity and unrealism of the conclusiveness of an
enrolled bill. Prof. Sutherland observed:
xxx
Where the failure of constitutional compliance in the enactment of statutes is not

discoverable from the face of the act itself but may be demonstrated by recourse to
the legislative journals, debates, committee reports or papers of the governor,
courts have used several conflicting theories with which to dispose of the issue.
They have held: (1) that the enrolled bill is conclusive and like the sheriff's return
cannot be attacked; (2) that the enrolled bill is prima facie correct and only in case
the legislative journal shows affirmative contradiction of the constitutional
requirement will the bill be held invalid; (3) that although the enrolled bill is prima
facie correct, evidence from the journals, or other extrinsic sources is admissible to
strike the bill down; (4) that the legislative journal is conclusive and the enrolled
bills is valid only if it accords with the recital in the journal and the constitutional
procedure.
Various jurisdictions have adopted these alternative approaches in view of strong
dissent and dissatisfaction against the philosophical underpinnings of the
conclusiveness of an enrolled bill. Prof. Sutherland further observed:
x x x. Numerous reasons have been given for this rule. Traditionally, an enrolled bill
was "a record" and as such was not subject to attack at common law. Likewise, the
rule of conclusiveness was similar to the common law rule of the inviolability of the
sheriff's return. Indeed, they had the same origin, that is, the sheriff was an officer
of the king and likewise the parliamentary act was a regal act and no official might
dispute the king's word. Transposed to our democratic system of government,
courts held that as the legislature was an official branch of government the court
must indulge every presumption that the legislative act was valid. The doctrine of
separation of powers was advanced as a strong reason why the court should treat
the acts of a co-ordinate branch of government with the same respect as it treats
the action of its own officers; indeed, it was thought that it was entitled to even
greater respect, else the court might be in the position of reviewing the work of a
supposedly equal branch of government. When these arguments failed, as they
frequently did, the doctrine of convenience was advanced, that is, that it was not
only an undue burden upon the legislature to preserve its records to meet the
attack of persons not affected by the procedure of enactment, but also that it
unnecessarily complicated litigation and confused the trial of substantive issues.
Although many of these arguments are persuasive and are indeed the basis for the
rule in many states today, they are not invulnerable to attack. The rule most relied
on the sheriff's return or sworn official rule did not in civil litigation deprive the
injured party of an action, for always he could sue the sheriff upon his official bond.
Likewise, although collateral attack was not permitted, direct attack permitted
raising the issue of fraud, and at a later date attack in equity was also available;
and that the evidence of the sheriff was not of unusual weight was demonstrated by
the fact that in an action against the sheriff no presumption of its authenticity
prevailed.
The argument that the enrolled bill is a "record" and therefore unimpeachable is
likewise misleading, for the correction of records is a matter of established judicial
procedure. Apparently, the justification is either the historical one that the king's
word could not be questioned or the separation of powers principle that one branch
of the government must treat as valid the acts of another.
Persuasive as these arguments are, the tendency today is to avoid reaching results
by artificial presumptions and thus it would seem desirable to insist that the
enrolled bill stand or fall on the basis of the relevant evidence which may be
submitted for or against it. (Emphasis ours)
Thus, as far back as the 1940s, Prof. Sutherland confirmed that "x x x the tendency
seems to be toward the abandonment of the conclusive presumption rule and the
adoption of the third rule leaving only a prima facie presumption of validity which
may be attacked by any authoritative source of information.
Third. I respectfully submit that it is only by strictly following the contours of
powers of a Bicameral Conference Committee, as delineated by the rules of the
House and the Senate, that we can prevent said Committee from acting as a
"third" chamber of Congress. Under the clear rules of both the Senate and House,
its power can go no further than settling differences in their bills or joint
resolutions. Sections 88 and 89, Rule XIV of the Rules of the House of
Representatives provide as follows:
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.
such fact to the House for the latter's appropriate action.
Sec. 89. Conference Committee Reports. - . . . Each report shall contain a detailed,
measure.
...

Conference Committee Report in the same manner and procedure as it votes a bill
on third and final reading.
Section 35, Rule XII of the Rules of the Senate states:
The House rule brightlines the following: (1) the power of the Conference
Committee is limited . . . it is only to settle differences with the Senate; (2) if the
differences are substantial, the Committee must report to the House for the
latter's appropriate action; and (3) the Committee report has to be voted upon in
the same manner and procedure as a bill on third and final reading. Similarly, the
Senate rule underscores in crimson that (1) the power of the Committee is
limited - - - to settle differences with the House; (2) it can make changes or
amendments only in the discharge of this limited power to settle differences with
the House; and (3) the changes or amendments are merely recommendatory for
they still have to be approved by the Senate.
Under both rules, it is obvious that a Bicameral Conference Committee is a mere

agent of the House or the Senate with limited powers. The House contingent in
the Committee cannot, on its own, settle differences which are substantial
in character. If it is confronted with substantial differences, it has to go back to
the chamber that created it "for the latter's appropriate action." In other words,
it must take the proper instructions from the chambers that created it. It cannot
exercise its unbridled discretion. Where there is no difference between the
bills, it cannot make any change. Where the difference is substantial, it has to
return to the chamber of its origin and ask for appropriate instructions. It ought to
be indubitable that it cannot create a new law, i.e., that which has never been
discussed in either chamber of Congress. Its parameters of power are not
porous, for they are hedged by the clear limitation that its only power is to settle
differences in bills and joint resolutions of the two chambers of Congress.
Fourth. Prescinding from these premises, I respectfully submit that the following
acts of the Bicameral Conference Committee constitute grave abuse of discretion
amounting to lack or excess of jurisdiction and should be struck down as
unconstitutional nullities, viz:
a. Its deletion of the pro poor "no pass on provision" which is common in both
Senate Bill No. 1950 and House Bill No. 3705.
Sec. 1 of House Bill No. 3705[9] provides:

Section 106 of the National Internal Revenue Code of 1997, as amended, is hereby
further amended to read as follows:
SEC. 106. Value-added Tax on Sale of Goods or Properties.
xxx
Provided, further, that notwithstanding the provision of the second paragraph of

Section 105 of this Code, the Value-added Tax herein levied on the sale of
petroleum products under Subparagraph (1) hereof shall be paid and absorbed by
the sellers of petroleum products who shall be prohibited from passing on
the cost of such tax payments, either directly or indirectly[,] to any
consumer in whatever form or manner, it being the express intent of this act
that the Value-added Tax shall be borne and absorbed exclusively by the sellers of
petroleum products x x x.
Sec. 3 of the same House bill provides:
Section 108 of the National Internal Revenue Code of 1997, as amended, is hereby
further amended to read as follows:
Sec. 108. Value-added Tax on Sale of Goods or Properties.
Provided, further, that notwithstanding the provision of the second paragraph of

Section 105 of this Code, the Value-added Tax imposed under this paragraph shall
be paid and absorbed by the subject generation companies who shall be
prohibited from passing on the cost of such tax payments, either directly
or indirectly[,] to any consumer in whatever form or manner, it being the
express intent of this act that the Value-added Tax shall be borne and absorbed
exclusively [by] the power-generating companies.
In contrast and comparison, Sec. 5 of Senate Bill No. 1950 provides:
Value-added Tax on sale of Services and Use or Lease of Properties.
x x x Provided, that the VAT on sales of electricity by generation companies, and

services of transmission companies and distribution companies, as well as those of
franchise grantees of electrical utilities shall not apply to residential end-users:
Provided, that the Value-added Tax herein levied shall be absorbed and paid by the
generation, transmission and distribution companies concerned. The said
companies shall not pass on such tax payments to NAPOCOR or ultimately
to the consumers, including but not limited to residential end users, either as
costs or in any other form whatsoever, directly or indirectly. x x x.
Even the faintest eye contact with the above provisions will reveal that: (a) both
the House bill and the Senate bill prohibited the passing on to consumers of the
VAT on sales of electricity and (b) the House bill prohibited the passing on to
consumers of the VAT on sales of petroleum products while the Senate bill is
silent on the prohibition.
In the guise of reconciling disagreeing provisions of the House and the Senate bills
on the matter, the Bicameral Conference Committee deleted the "no pass on
provision" on both the sales of electricity and petroleum products. This
action by the Committee is not warranted by the rules of either the Senate or the
House. As aforediscussed, the only power of a Bicameral Conference Committee is
to reconcile disagreeing provisions in the bills or joint resolutions of the two houses
of Congress. The House and the Senate bills both prohibited the passing on to
consumers of the VAT on sales of electricity. The Bicameral Conference
Committee cannot override this unequivocal decision of the Senate and the
House. Nor is it clear that there is a conflict between the House and Senate
versions on the "no pass on provisions" of the VAT on sales of petroleum
products. The House version contained a "no pass on provision" but the Senate
had none. Elementary logic will tell us that while there may be a difference
in the two versions, it does not necessarily mean that there is a
disagreement or conflict between the Senate and the House. The silence of
the Senate on the issue cannot be interpreted as an outright opposition to the
House decision prohibiting the passing on of the VAT to the consumers on sales of
petroleum products. Silence can even be conformity, albeit implicit in nature. But
granting for the nonce that there is conflict between the two versions, the conflict
cannot escape the characterization as a substantial difference. The seismic
consequence of the deletion of the "no pass on provision" of the VAT on sales of
petroleum products on the ability of our consumers, especially on the roofless
and the shirtless of our society, to survive the onslaught of spiraling prices ought
to be beyond quibble. The rules require that the Bicameral Conference Committee
should not, on its own, act on this substantial conflict. It has to seek guidance from
the chamber that created it. It must receive proper instructions from its principal,
for it is the law of nature that no spring can rise higher than its source. The records
of both the Senate and the House do not reveal that this step was taken by the
members of the Bicameral Conference Committee. They bypassed their principal
and ran riot with the exercise of powers that the rules never bestowed on them.
b. Even more constitutionally obnoxious are the added restrictions on local

government's use of incremental revenue from the VAT in Section 21 of R.A.
No. 9337 which were not present in the Senate or House Bills. Section 21 of
R.A. No. 9337 provides:
Fifty percent of the local government unit's share from VAT shall be allocated and
used exclusively for the following purposes:
1. Fifteen percent (15%) for public elementary and secondary education to

finance the construction of buildings, purchases of school furniture and
in-service teacher trainings;
2. Ten percent (10%) for health insurance premiums of enrolled indigents

as a counterpart contribution of the local government to sustain the
universal coverage of the national health insurance program;
3. Fifteen percent (15%) for environmental conservation to fully implement

a comprehensive national reforestation program; and
4. Ten percent (10%) for agricultural modernization to finance the

construction of farm-to-market roads and irrigation facilities.
Such allocations shall be segregated as separate trust funds by the national

treasury and shall be over and above the annual appropriation for similar purposes.
These amendments did not harmonize conflicting provisions between the
constituent bills of R.A. No. 9337 but are entirely new and extraneous concepts
which fall beyond the median thereof. They transgress the limits of the Bicameral
Conference Committee's authority and must be struck down.
I cannot therefore subscribe to the thesis of the majority that "the changes
introduced by the Bicameral Conference Committee on disagreeing provisions were
meant only to reconcile and harmonize the disagreeing provisions for it did not
inject any idea or intent that is wholly foreign to the subject embraced by
the original provisions."
Fifth. The majority further defends the constitutionality of the above provisions by
holding that "all the changes or modifications were germane to subjects of the
provisions referred to it for reconciliation."
With due respect, it is high time to re-examine the test of germaneness proffered
in Tolentino.
The test of germaneness is overly broad and is the fountainhead of mischief for
it allows the Bicameral Conference Committee to change provisions in the bills of
the House and the Senate when they are not even in disagreement. Worse still, it
enables the Committee to introduce amendments which are entirely new and have
not previously passed through the coils of scrutiny of the members of both houses.
The Constitution did not establish a Bicameral Conference Committee that can act
as a "third house" of Congress with super veto power over bills passed by the
Senate and the House. We cannot concede that super veto power without
wrecking the delicate architecture of legislative power so carefully laid down in our
Constitution. The clear intent of our fundamental law is to install a lawmaking
structure composed only of two houses whose members would thoroughly
debate proposed legislations in representation of the will of their respective
constituents. The institution of this lawmaking structure is unmistakable from the
following provisions: (1) requiring that legislative power shall be vested in a
bicameral legislature;[10] (2) providing for quorum requirements;[11] (3) requiring
that appropriation, revenue or tariff bills, bills authorizing increase of public debt,
bills of local application, and private bills originate exclusively in the House of
Representatives;[12] (4) requiring
that bills embrace one subject expressed in the title thereof;[13] and (5) mandating
that bills undergo three readings on separate days in each House prior to passage
into law and prohibiting amendments on the last reading thereof.[14] A Bicameral
Conference Committee with untrammeled powers will destroy this lawmaking
structure. At the very least, it will diminish the free and open debate of proposed
legislations and facilitate the smuggling of what purports to be laws.
On this point, Mr. Robert Luce's disconcerting observations are apropos:
"Their power lies chiefly in the fact that reports of conference committees must be
accepted without amendment or else rejected in toto. The impulse is to get done
with the matters and so the motion to accept has undue advantage, for
some members are sure to prefer swallowing unpalatable provisions rather
than prolong controversy. This is more likely if the report comes in the rush of
business toward the end of the session, when to seek further conference might
result in the loss of the measure altogether. At any time in the session there is
some risk of such a result following the rejection of a conference report, for it may
not be possible to secure a second conference, or delay may give opposition to the
main proposal chance to develop more strength.
xxx xxx xxx
Entangled in a network of rule and custom, the Representative who resents and
would resist this theft of his rights, finds himself helpless. Rarely can be vote, rarely
can he voice his mind, in the matter of any fraction of the bill. Usually he cannot
even record himself as protesting against some one feature while accepting the
measure as whole. Worst of all, he cannot by argument or suggested change, try to
improve what the other branch has done.
This means more than the subversion of individual rights. It means to a degree
the abandonment of whatever advantage the bicameral system may have.
By so much it in effect transfers the lawmaking power to small group of
members who work out in private a decision that almost always prevails.
What is worse, these men are not chosen in a way to ensure the wisest choice. It
has become the practice to name as conferees the ranking members of the
committee, so that the accident of seniority determines. Exceptions are made, but
in general it is not a question of who are most competent to serve. Chance governs,
sometimes giving way to favor, rarely to merit.
xxx xxx xxx
Speaking broadly, the system of legislating by conference committee is unscientific

and therefore defective. Usually it forfeits the benefit of scrutiny and
judgment by all the wisdom available. Uncontrolled, it is inferior to that
process by which every amendment is secured independent discussion and
vote. . . ."[15]
It cannot be overemphasized that in a republican form of government, laws can
only be enacted by all the duly elected representatives of the people. It cuts
against conventional wisdom in democracy to lodge this power in the
hands of a few or in the claws of a committee. It is for these reasons that the
argument that we should overlook the excesses of the Bicameral Conference
Committee because its report is anyway approved by both houses is a futile
attempt to square the circle for an unconstitutional act is void and cannot be
redeemed by any subsequent ratification.
Neither can we shut our eyes to the unconstitutional acts of the Bicameral
Conference Committee by holding that the Court cannot interpose its checking
powers over mere violations of the internal rules of Congress. In Arroyo, et al. v.
de Venecia, et al.,[16] we ruled that when the violations affect private rights or
impair the Constitution, the Court has all the power, nay, the duty to strike
them down.
In conclusion, I wish to stress that this is not the first time nor will it be last that
arguments will be foisted for the Court to merely wink at assaults on the
Constitution on the ground of some national interest, sometimes clear and at other
times inchoate. To be sure, it cannot be gainsaid that the country is in the vortex of
a financial crisis. The broadsheets scream the disconcerting news that our debt
payments for the year 2006 will exceed Pph1 billion daily for interest alone. Experts
underscore some factors that will further drive up the debt service expenses such
as the devaluation of the peso, credit downgrades and a spike in interest rates.[17]
But no doomsday scenario will ever justify the thrashing of the Constitution. The
Constitution is meant to be our rule both in good times as in bad times. It is the
Court's uncompromising obligation to defend the Constitution at all times lest it be
condemned as an irrelevant relic.
WHEREFORE, I concur with the majority but dissent on the following points:
a) I vote to withhold judgment on the constitutionality of the "standby authority" in

Sections 4 to 6 of Republic Act No. 9337 as this issue is not ripe for adjudication.;
b) I vote to declare unconstitutional the deletion by the Bicameral Conference

Committee of the pro poor "no pass on provision" on electricity to residential
consumers as it contravened the unequivocal intent of both Houses of Congress;
and
c) I vote to declare Section 21 of Republic Act No. 9337 as unconstitutional as it

contains extraneous provisions not found in its constituent bills.
Angara v. Electoral Commission, 63 Phil. 139 (1936); See also Tribe, American
[1]
Constitutional Law, pp. 311-314 (3rd ed.).

Mendoza, Judicial Review of Constitutional Questions: Cases and Materials, p. 86
[2]
(2004).
[3]
Id. at 87.
Abbott Laboratories v. Gardner, 387 U.S. 136 (1967); I Tribe, American

[4]
Constitutional Law, p. 334 (3rd ed.).
Texas v. United States, 523 U.S. 296 (1998); Thomas v. Union Carbide
[5]
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
[6]
U.S. 1, 71 (1961); I Tribe, American Constitutional Law, p. 336 (3rd ed.); See also
concurring opinion of Justice Brandeis in Ashwander v. Tennessee Valley Authority,
297 U.S. 288 (1936).
[7]
235 SCRA 630 (1994).
[8]
See Opinion in 235 SCRA 630, 805-825.
[9]
H.B. No. 3555 has no "no pass on provision." House Bill No. 3705 expresses the
latest intent of the House on the matter.
[10]
1 Sutherland Statutory Construction 6:2 (6th ed.): The provision requiring that
legislative power shall be vested in a bicameral legislature seeks to "assure sound
judgment that comes from separate deliberations and actions in the respective
bodies that check and balance each other."
Const., Article VI, Section 16(2) (1987): "(2) A majority of each House shall
[11]
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."
Const., Article VI, Section 24 (1987); 1 Sutherland Statutory Construction 9:6

[12]
(6 ed.): The provision helps guarantee that the exercise of the taxing power is
th
well studied as the lower house is "presumably more representative in character."
Const., Article VI, Section 26(1) (1987); I Cooley, A Treatise on Constitutional

[13]
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."
235 SCRA 630, 783-784 citing Luce, Legislative Procedure, pp. 404-405, 407
[15]
(1922); See also Davies, Legislative Law and Process, p. 81 (2nd ed.): "conference
reports are returned to assembly and Senate on a take-it or leave-it-basis, and the
bodies are generally placed in the position that to leave-it is a practical
impossibility." Thus, he concludes that "conference committee action is the most
undemocratic procedure in the legislative process."
[16]
268 SCRA 269, 289 (1997).
[17]
The Manila Standard Today, August 26, 2005, p. 1.
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 judgments[1] and Farias v. Executive Secretary.[2]
Precedence of Mandatory
Constitutional Provisions
Over the Enrolled Bill Doctrine
I believe, however, that the enrolled bill doctrine[3] is not absolute. It may be all-
encompassing in some countries like Great Britain,[4] but as applied to our
jurisdiction, it must yield to mandatory provisions of our 1987 Constitution. The
Court can take judicial notice of the form of government[5] in Great Britain.[6] It is
unlike that in our country and, therefore, the doctrine from which it originated[7]
could be modified accordingly by our Constitution.
In fine, the enrolled bill doctrine applies mainly to the internal rules and processes
followed by Congress in its principal duty of lawmaking. However, when the
Constitution imposes certain conditions, restrictions or limitations on the exercise of
congressional prerogatives, the judiciary has both the power and the duty to strike
down congressional actions that are done in plain contravention of such conditions,
restrictions or limitations.[8] Insofar as the present case is concerned, the three
most important restrictions or limitations to the enrolled bill doctrine are the
origination, no-amendment and three-reading rules which I will discuss later.
Verily, these restrictions or limitations to the enrolled bill doctrine are safeguarded
by the expanded[9] 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 bills[13] is one such branch or instrumentality of the government, over which
this Court may exercise certiorari review to determine whether or not grave abuse
of discretion has been committed; and, specifically, to find out whether the
constitutional conditions, restrictions and limitations on law-making have been
violated.
In general, the BCC has at least five options in performing its functions: (1) adopt
the House version in part or in toto, (2) adopt the Senate version in part or in toto,
(3) consolidate the two versions, (4) reject non-conflicting provisions, and (5)
adopt completely new provisions not found in either version. This, therefore, is the
simple question: In the performance of its function of reconciling conflicting
provisions, has the Committee blatantly violated the Constitution?
My short answer is: No, except those relating to income taxes referred to in
Sections 1, 2 and 3 of Republic Act (RA) No. 9337. Let me explain.
Adopting the House

Version in Part or in Toto
First, the BCC had the option of adopting the House bills either in part or in toto,
endorsing them without changes. Since these bills had passed the three-reading
requirement[14] under the Constitution,[15] it readily becomes apparent that no
procedural impediment would arise. There would also be no question as to their
origination,[16] because the bills originated exclusively from the House of
Representatives itself.
In the present case, the BCC did not ignore the Senate and adopt any of the House
bills in part or in toto. Therefore, this option was not taken by the BCC.
Adopting the Senate

Version in Part or in Toto
Second, the BCC may choose to adopt the Senate version either in part or in toto,
endorsing it also without changes. In so doing, the question of origination arises.
Under the 1987 Constitution, all revenue x x x bills x x x shall originate exclusively
in the House of Representatives, but the Senate may propose or concur with
amendments.[17]
If the revenue bill originates exclusively from the Senate, then obviously the
origination provision[18] 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 economic[22] 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 House[26] 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 GDP[34] --
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; 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
taxes[47] 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 8424[59] 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 taxes[90] 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 measures[91]
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 rule[93] in the Constitution was not violated by the BCC,
because no completely new provision was inserted in the approved bill. The
amendments may be unpopular or even work hardship upon everyone (this writer
included). If so, the remedy cannot be prescribed by this Court, but by Congress.
Rejecting Non-Conflicting
Provisions
Fourth, the BCC may choose neither to adopt nor to consolidate the versions
presented to it by both houses of Congress, but instead to reject non-conflicting
provisions in those versions. In other words, despite the lack of conflict in them,
such provisions are still eliminated entirely from the consolidated bill. There may be
a constitutional problem here.
The no pass-on provisions in the congressional bills are the only item raised by
petitioners concerning deletion.[94] As I have already mentioned earlier, these
provisions were in conflict. Thus, the BCC exercised its prerogative to remove them.
In fact, congressional rules give the BCC the power to reconcile disagreeing
provisions, and in the process of reconciliation, to delete them. No other non-
conflicting provision was deleted.
At this point, and after the extensive discussion above, it can readily be seen no
non-conflicting provisions of the E-VAT bills were rejected indiscriminately by the
BCC.
Approving and Inserting

Completely New Provisions
Fifth, the BCC had the option of inserting completely new provisions not found in
any of the provisions of the bills of either house of Congress, or make and endorse
an entirely new bill as a substitute. Taking this option may be a blatant violation of
the Constitution, for not only will the surreptitious insertion or unwarranted creation
contravene the origination principle; it may likewise desecrate the three-reading
requirement and the no-amendment rule.[95]
Fortunately, however, the BCC did not approve or insert completely new provisions.
Thus, no violation of the Constitution was committed in this regard.
Summary
The enrolled bill doctrine is said to be conclusive not only as to the provisions of a
law, but also to its due enactment. It is not absolute, however, and must yield to
mandatory provisions of the 1987 Constitution. Specifically, this Court has the duty
of striking down provisions of a law that in their enactment violate conditions,
restrictions or limitations imposed by the Constitution.[96] The Bicameral Conference
Committee (BCC) is a mere creation of Congress. Hence, the BCC may resolve
differences only in conflicting provisions of congressional bills that are referred to it;
and it may do so only on the condition that such resolution does not violate the
origination, the three-reading, and the no-amendment rules of the Constitution.
In crafting RA 9337, the BCC opted to reconcile the conflicting provisions of the
Senate and House bills, particularly those on the 70 percent cap on input tax; the 5
percent final withholding tax; percentage taxes on domestic carriers, keepers of
garages and international carriers; franchise taxes; amusement taxes; excise taxes
on manufactured oils and other fuels; registration requirements; issuance of
receipts or sales or commercial invoices; and disposition of incremental revenues.
To my mind, these changes do not violate the origination or the germaneness
principles.
Neither is there undue delegation of legislative power in the standby authority given
by Congress to the President. The law is complete, and the standards are fixed.
While I concur with the ponencias view that the President was given merely the
power to ascertain the facts to bring the law into operation -- clearly an
administrative, not a legislative, function -- I stress that the finance secretary
remains the Chief Executives alter ego, not an agent of Congress.
The BCC exercised its prerogative to delete the no pass-on provisions, because
these were in conflict. I believe, however, that it blatantly violated the origination
and the germaneness principles when it inserted provisions not found in the House
versions of the E-VAT Law: (1) increasing the tax rates on domestic, resident
foreign and nonresident foreign corporations; (2) increasing the tax credit against
taxes due from nonresident foreign corporations on intercorporate dividends; and
(3) reducing the allowable deduction for interest expense. Hence, I find these
insertions unconstitutional.
Some have criticized the E-VAT Law as oppressive to our already suffering people.
On the other hand, respondents have justified it by comparing it to bitter medicine
that patients must endure to be healed eventually of their maladies. The
advantages and disadvantages of the E-VAT Law, as well as its long-term effects on
the economy, are beyond the reach of judicial review. The economic repercussions
of the statute are policy in nature and are beyond the power of the courts to pass
upon.
I have combed through the specific points raised in the Petitions. Other than the
three items on income taxes that I respectfully submit are unconstitutional, I
cannot otherwise attribute grave abuse of discretion to the BCC, or Congress for
that matter, for passing the law.
[T]he Court -- as a rule -- is deferential to the actions taken by the other branches
of government that have primary responsibility for the economic development of
our country.[97] Thus, in upholding the Philippine ratification of the treaty
establishing the World Trade Organization (WTO), Taada v. Angara held that this
Court never forgets that the Senate, whose act is under review, is one of two
sovereign houses of Congress and is thus entitled to great respect in its actions. It
is itself a constitutional body, independent and coordinate, and thus its actions are
presumed regular and done in good faith. Unless convincing proof and persuasive
arguments are presented to overthrow such presumption, this Court will resolve
every doubt in its favor.[98] As pointed our in Cawaling Jr. v. Comelec, the grounds
for nullity of the law must be beyond reasonable doubt, for to doubt is to
sustain.[99] Indeed, there must be clear and unequivocal showing that what the
Constitutions prohibits, the statute permits.[100]
WHEREFORE, I vote to GRANT the Petitions in part and to declare Sections 1, 2,
and 3 of Republic Act No. 9337 unconstitutional, insofar as these sections (a)
amend the rates of income tax on domestic, resident foreign, and nonresident
foreign corporations; (b) amend the tax credit against taxes due from nonresident
foreign corporations on intercorporate dividends; and (c) reduce the allowable
deduction for interest expense. The other provisions are constitutional, and as to
these I vote to DISMISS the Petitions.
235 SCRA 630, August 25, 1994; and 249 SCRA 628, October 30, 1995. The
[1]
second case is an en banc Resolution on the Motions for Reconsideration of the first
case.
[2]
417 SCRA 503, December 10, 2003.
[3]
[I]t is well settled that the enrolled bill doctrine is conclusive upon the courts as
regards the tenor of the measure passed by Congress and approved by the
President. Resins Inc. v. Auditor General, 134 Phil. 697, 700, October 29, 1968,
per Fernando, J., later CJ.; (citing Casco Philippine Chemical Co., Inc. v. Gimenez,
117 Phil. 363, 366, February 28, 1963, per Concepcin, J., later CJ.). It is a
doctrine that flows as a corollary to the separation of powers, and by which due
respect is given by one branch of government to the actions of the others. See
Morales v. Subido, 136 Phil. 405, 412, February 27, 1969.
Following Field v. Clark (143 US 649, 12 S.Ct. 495, February 29, 1892), such
conclusiveness refers not only to the provisions of the law, but also to its due
enactment. Mabanag v. Lopez Vito, 78 Phil. 1, 13-18, March 5, 1947.
[T]he signing of a bill by the Speaker of the House and the Senate President and
the certification of the Secretaries of both [h]ouses of Congress that it was passed
are conclusive of its due enactment. Farias v. Executive Secretary, supra, p. 529,
per Callejo Sr., J.
[4]
Mabanag v. Lopez Vito, supra, p. 12.
[5]
1 of Rule 129 of the Rules of Court.
[6]
The United Kingdom has an uncodified Constitution, consisting of both written
and unwritten sources, capable of evolving to be responsive to political and social
change, and found partly in conventions and customs and partly in statute. Its
Parliament has the power to change or abolish any written or unwritten element of
the Constitution. There is neither separation of powers nor formal checks and
balances. Every bill drafted has to be approved by both the House of Commons and
the House of Lords, before it receives the Royal Assent and becomes an Act of
Parliament. The House of Lords is the second chamber that complements the work
of the Commons, whose members are elected to represent their constituents. The
first is the House of Commons that alone may start bills to raise taxes or authorize
expenditures. Each bill goes through several stages in each House. The first stage,
called the first reading, is a mere formality. The second -- the second reading -- is
when general principles of the bill are debated upon. At the second reading, the
House may vote to reject the bill. Once the House considers the bill, the third
reading follows. In the House of Commons, no further amendments may be made,
and the passage of the motion amounts to passage of the whole bill. The House of
Lords, however, may not amend a bill so as to insert a provision relating to
taxation. http://en.wikipedia.org/wiki/Constitution_of_the_United_Kingdom; http://
www.oefre.unibe.ch/law/icl/uk00000_.html; www.parliament.uk; and
http://encyclopedia.thefreedictionary.com/British+Parliament (Last visited August
4, 2005, 11:30am PST).
See Dissenting Opinion of Puno, J. in Tolentino v. Secretary of Finance, supra, p.

[7]
818.
[8]
Cf. Francisco Jr. v. House of Representatives, 415 SCRA 44, November 10, 2003.
[9]
Tolentino v. Secretary of Finance, supra.
[10]
2nd paragraph, 1 of Article VIII of the 1987 Constitution.
[11]
Tolentino v. Secretary of Finance, supra.
[12]
Arroyo v. De Venecia, 343 Phil. 42, 61-62, August 14, 1997, per Mendoza, J.
[13]
These refer to House Bill Nos. 3555 & 3705; and Senate Bill No. 1950.
[14]
26(2) of Article VI of the 1987 Constitution.
[15]
The purpose for which three readings on separate days is required is said to be
two-fold: (1) to inform the members of Congress of what they must vote on and
(2) to give them notice that a measure is progressing through the enacting process,
thus enabling them and others interested in the measure to prepare their positions
with reference to it. Tolentino v. Secretary of Finance, supra, p. 647, October 30,
1995, per Mendoza, J.
[16]
24 of Article VI of the 1987 Constitution.
[17]
The power of the Senate to propose or concur with amendments is, apparently,
without restriction. By virtue of this power, the Senate can practically rewrite a bill
that is required to come from the House and leave only a trace of the original bill.
See Flint v. Stone Tracy Co., 220 US 107, 31 S.Ct. 342, March 13, 1911.
[18]
[19]
Tolentino v. Secretary of Finance, supra, p. 661, August 25, 1994.
[20]
Garner (ed. in chief), Blacks Law Dictionary (8th ed., 2004), p. 708.
[21]
Statsky, Wests Legal Thesaurus/Dictionary (1986), p. 348.
[22]
To argue that the raising of revenues makes the non-VAT provisions of a VAT
bill automatically germane is to bring legal analysis within the penumbra of
economic scrutiny. The burden or impact of any tax depends on the relative
elasticities of supply and demand and is chiefly a matter of policy confined within
the august halls of Congress. See Pindyck and Rubinfeld, Microeconomics (5th ed.,
2003), pp. 314-317.
Exxon Mobil Corp. v. Allapattah Services, Inc., 125 S.Ct. 2611, 2622, June 23,
[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.
On the one hand, 1-3 of House Bill (HB) No. 3555 seek to amend 106, 107
[30]
& 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.
4-5 of Senate Bill (SB) No. 1950 seek to amend 106 & 108 of the Tax Code
[31]
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.
4-6 of the consolidated bill amending 106-108 of the Tax Code,

[32]
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
A negative budget surplus, or an excess of expenditure over revenues, is a

[33]
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).
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 regulations how much they [would] be
charged, how much should gasoline stations charge in
addition to their correct prices, how much carriers should
charge[,] so there [would] be no confusion.
Usec. Bonoan: Yes, Your Honor. (boldface supplied; pp. 665-666).

[37]
Using available statistics, it is approximated that the 2 4/5 percent has been
reached. VAT collection (in million pesos) for the first quarter alone of 2004 is
83,542.83, or 83 percent of revenue collections amounting to 100,654.01. Divided
into GDP of 13,053, the quotient is already 6.4 percent.
http://www.nscb.gov.ph/sna/2005/1stQ2005/2005per1.asp; and the 2003 Bureau
of Internal Revenue (BIR) Annual Report found on www.bir.gov.ph (Last visited July
14, 2005, 10:45am PST).
[38]
Besides, the use of the word shall in 106(A), 107(A) & 108(A) of the Tax
Code, as amended respectively by 4, 5 & 6 of RA 9337, is mandatory, imperative
and compulsory. See Agpalo, Statutory Construction (4th ed., 1998), p. 333.
See Separate Opinion (Concurring and Dissenting) of Panganiban, J., in

[39]
Southern Cross Cement Corp. v. Philippine Cement Manufacturers Corp., GR No.

158540, August 3, 2005, p. 31.
[40]
Escudero Memorandum, pp. 38-39.
GDP data are far from perfect measures of either economic output or welfare. There
are three major problems: (1) some outputs are poorly measured because they are
not traded in the market, and government services are not directly priced by such
market; (2) some activities measured as additions to GDP in fact only represent the
use of resources in order to avoid crime or risks to national security; and (3) it is
difficult to account correctly for improvements in the quality of goods. Dornbusch,
Fischer, and Startz, Macroeconomics (9th ed., 2005), pp. 35-36.
[41]
Farias v. Executive Secretary, 417 SCRA, 503, 530, December 10, 2003.
Any meaningful change in the method and procedures of Congress or its

[42]
committees must x x x be sought in that body itself. Tolentino v. Secretary of

Finance, supra, p. 650, October 30, 1995, per Mendoza, J.
[43]
The necessity, desirability or expediency of a law must be addressed to
Congress as the body that is responsible to the electorate, for legislators are the
ultimate guardians of the liberties and welfare of the people in quite as great a
degree [as the] courts. Tolentino v. Secretary of Finance, supra, p. 650, October
30, 1995, per Mendoza, J.; (citing Missouri, K. & T. Ry. Co. v. May, 194 US 267,
270, 24 S.Ct. 638, 639, May 2, 1904, per Holmes, J.)
[44]
Farias v. Executive Secretary, 417 SCRA, 503, 524, December 10, 2003.
Flint v. Stone Tracy Co., 220 US 107, 167, 31 S.Ct. 342, 355, March 13, 1911,
[45]
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.
Commissioner of Internal Revenue v. American Express International, Inc.

[50]
(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]
De Leon, The Law on Transfer and Business Taxation with Illustrations,

[55]
Problems, and Solutions (1998), pp. 195-196 & 222-224.
[56]
See 78 of Revenue Regulations No. 2-1940, recommended by Bibiano L. Meer,

[57]
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.
The 42 percent reduction rate under 3 of RA 9337, amending 34(B)(1) of the

[60]
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.
4 of HB 3555 seeks to amend 110(A) of the Tax Code by limiting to 5% and

[63]
11% of their respective total amounts the claim for input tax credit of capital goods,
through equal distribution of the amount of such claim over their depreciable lives;
and of goods and services other than capital goods, and goods purchased by
persons engaged in retail trade.
[64]
7 of SB 1950 seeks to amend 110 of the Tax Code by also limiting the claim
for input tax credit of goods purchased or imported for use in trade or business,
through an even depreciation or amortization over the month of acquisition and the
59 succeeding months, if the aggregate acquisition cost of such goods exceeds P
660,000.
The depreciation or amortization in the amendments is referred to as a spread-

out in an unnumbered Revenue Memorandum Circular dated July 12, 2005,
submitted to this Court by public respondents in their Compliance dated August 16,
2005. Such spread-out recognizes industries where capital assets are constructed
or assembled.
[65]
No cap is found in HB 3705.
5 of HB 3555 seeks to amend 114 of the Tax Code by requiring that the VAT
[66]
be deducted and withheld by the government or by any of its political subdivisions,

instrumentalities or agencies -- including government-owned-and-controlled
corporations (GOCCs) -- before making any payment on account of each purchase
of goods from sellers and services rendered by contractors. The VAT deducted and
withheld shall be at the rates of 5% of the gross payment for the purchase of goods
and 8% of the gross receipts for services rendered by contractors on every sale or
installment payment. The VAT that is deducted and withheld shall be creditable
against their respective VAT liabilities -- 10.5%, in case of government public works
contractors; and 12% of the payments for the lease or use of properties or property
rights to nonresident owners.
[67]
11 of SB 1950 seeks to amend 114 of the Tax Code by requiring that the VAT
be deducted and withheld by the government or by any of its political subdivisions,
instrumentalities or agencies -- including government-owned or -controlled
corporations (GOCCs) -- before making any payment on account of each purchase
of goods from sellers and services rendered by contractors. The VAT deducted and
withheld shall be at the rates of 5% of the gross payment for the purchase of goods
and on the gross receipts for services rendered by contractors, including public
works contractors. The VAT that is deducted and withheld shall be creditable
against the VAT liability of the seller; and 10% of the gross payment for the lease
or use of properties or property rights to nonresident owners.
Deoferio Jr. & Mamalateo, The Value Added Tax in the Philippines (2000), pp.
[68]
34-35 & 44.
http://explanation-guide.info/meaning/Maurice-Laur.html (Last visited

[69]
August 23, 2005, 3:25pm PST).
[70]
This refers to a tax on value added -- TVA in French and VAT in English.
http://en.wikipedia.org/wiki/ Maurice-Laur (Last visited August 23, 2005,

[71]
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?
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.
See United Paracale Mining Co. v. De la Rosa, 221 SCRA 108, 115, April 7,
[77]
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.
These are based on pronouncements of recognized bodies involved in setting

[79]
accounting principles. Greatest weight shall be given to their pronouncements in

the order listed below:
1. Securities and Exchange Commission (SEC);

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

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

[83]
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.)
Cawaling Jr. v. COMELEC, 420 Phil. 524, 530, October 26, 2001, per Sandoval-
[86]
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.
[T]he removal of the excise tax on diesel x x x and other socially sensitive
[91]
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.
Each house may not by its rules ignore constitutional restraints or violate
[96]
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.
Panganiban, Leveling the Playing Field (2004), PRINTTOWN Group of

[97]
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.).
Veterans Federation Party v. COMELEC, 396 Phil. 419, 452-453, October 6,

[100]
2000, per Panganiban, J.; (citing Garcia v. COMELEC, 227 SCRA 100, 107-108,
October 5, 1993).
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 Finance[3] that the
authority of the bicameral conference committee was limited to the reconciliation of
disagreeing provisions or the resolution of differences or inconsistencies. Thus, it
could only either (a) restore, wholly or partly, the specific provisions of the
House bill amended by the Senate bill, (b) sustain, wholly or partly, the
Senates amendments, or (c) by way of a compromise, to agree that
neither provisions in the House bill amended by the Senate nor the latters
amendments thereto be carried into the final form of the former.
Otherwise stated, the Bicameral Conference Committee is authorized only to adopt

either the version of the House bill or the Senate bill, or adopt neither. It cannot, as
the ponencia proposed, try to arrive at a compromise, such as introducing
provisions not included in either the House or Senate bill, as it would allow a mere
ad hoc committee to substitute the will of the entire Congress and without
undergoing the requisite three-reading, which are both constitutionally proscribed.
To allow the committee unbridled discretion to overturn the collective will of the
whole Congress defies logic considering that the bills are passed presumably after
study, deliberation and debate in both houses. A lesser body like the Bicameral
Conference Committee should not be allowed to substitute its judgment for that of
the entire Congress, whose will is expressed collectively through the passed bills.
When the Bicameral Conference Committee goes beyond its limited function by
substituting its own judgment for that of either of the two houses, it violates the
internal rules of Congress and contravenes material restrictions imposed by the
Constitution, particularly on the passage of law. While concededly, the internal rules
of both Houses do not explicitly limit the Bicameral Conference Committee to a
consideration only of conflicting provisions, it is understood that the provisions of
the Constitution should be read into these rules as imposing limits on what the
committee can or cannot do. As such, it cannot perform its delegated function in
violation of the three-reading requirement and the no-amendment rule.
Section 26(2) of Article VI of the 1987 Constitution provides that:

(2) No bill shall be passed by either House shall become a law unless it has passed
three readings on separate days, and printed copies thereof in its final form have
been distributed to its Members three days before its passage, except when the
President certifies to the necessity of its immediate enactment to meet a public
calamity or emergency. Upon the last reading of a bill, no amendment hereto shall
be allowed, and the vote thereon shall be taken immediately thereafter, 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 non-disagreeing provisions of the House and Senate bills. In sum,
the committee could only either adopt the version of the House bill or the Senate
bill, or adopt neither. As Justice Reynato S. Puno said in his Dissenting Opinion in
Tolentino v. Secretary of Finance,[4] there is absolutely no legal warrant for the bold
submission that a Bicameral Conference Committee possesses the power to
add/delete provisions in bills already approved on third reading by both Houses or
an ex post veto power.
In view thereof, it is my submission that the amendments introduced by the

Bicameral Conference Committee which are not found either in the House or Senate
versions of the VAT reform bills, but are inserted merely by the Bicameral
Conference Committee and thereafter included in Republic Act No. 9337, should be
declared unconstitutional. The insertions and deletions made do not merely settle
conflicting provisions but materially altered the bill, thus giving rise to the instant
petitions.
I, therefore, join the concurring and dissenting opinion of Mr. Justice Reynato S.
Puno.
[1]
Cooley on Constitutional Limitations, 8th Ed., Vol. I, p. 332.
[2]
Angara v. Electoral Commission, 63 Phil. 139, 158 [1936].
G.R. Nos. 115455, 115525, 115543, 115544, 115754, 115781, 115852, 115873,
[3]
115931, 25 August 1994, 235 SCRA 630, 750.
[4]
Supra, p. 811.
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
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] 168207[3] and 168463[4] 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] import[13] and export quotas,[14] tonnage[15]
and wharfage dues[16] 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. 3555[29] and 3705[30].
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.
[1]
Book V of The Wealth of Nations.
ABAKADA GURO Party List (Formerly AASJAS), Officers Samson S. Alcantara and
[2]
Ed Vincent S. Albano.
Aquilino Q. Pimentel, Jr., Luisa P. Ejercito-Estrada, Jinggoy E. Estrada, Panfilo M.

[3]
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.
Luzon Stevedoring Co. vs. Court of Tax Appeals, L-302332, July 29, 1998, 163
[5]
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,

[6]
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.
Bernas, SJ, The 1987 Constitution of the Republic of the Philippines, A

[7]
Commentary, 1996 Edition, at 687.

[8]
People vs. Vera, 65 Phil. 56 (1937).
[9]
Cooley on Constitutional Limitations, 8th ed., Vol. I, p. 224.
[10]
Vitug, Acosta, Tax Law and Jurisprudence, Second Edition, at 8-9.
[11]
Espiritu vs. Cipriano, G.R. No. 32743, February 15, 1974, 55 SCRA 533, 538,
citing Sutherlands Statutory Construction, Vol. 2, Section 4945, p. 412.
[12]
A tariff is a list or schedule of articles on which a duty is imposed upon their
importation, with the rates at which they are severally taxed, it is also the custom
or duty payable on such articles. (Blacks Law Dictionary [6th Edition], 1990, at
1456).
An import quota is a quantitative restriction on the importation of an article into

[13]
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).
Tonnage dues are duties laid upon vessels according to their tonnage or cubical
[15]
capacity. (Id. at 1488).
Wharfage dues are generally understood to be the fees paid for landing goods
[16]
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.
City Mayor vs. The Chief of Philippine Constabulary, G.R. No. 20346, October
[26]
31, 1967, 21 SCRA 665, 673.
[27]
[28]
Davies, Legislative Law and Process, (2d. Ed. 1986), at 89.
Entitled An Act Restructuring the Value-Added Tax, Amending for the Purpose
[29]
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.
Entitled An Act Amending Sections 106, 107, 108, 109, 110 and 111 of the
[30]
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.
CALLEJO, SR., J.:

I join the concurring and dissenting opinion of Mr. Justice Reynato S. Puno as I
concur with the majority opinion but vote to declare as unconstitutional the deletion
of the no-pass on provision contained in Senate Bill No. 1950 and House Bill No.
3705 (the constituent bills of Republic Act No. 9337).
The present petitions provide an opportune

occasion for the Court to re-examine
Tolentino v. Secretary of Finance
In ruling that Congress, in enacting R.A. No. 9337, complied with the formal
requirements of the Constitution, the ponencia relies mainly on the Courts rulings
in Tolentino v. Secretary of Finance.[1] To recall, Tolentino involved Republic Act No.
7716, which similarly amended the NIRC by widening the tax base of the VAT
system. The procedural attacks against R.A. No. 9337 are substantially the same as
those leveled against R.A. No. 7716, e.g., violation of the Origination Clause
(Article VI, Section 24) and the Three-Reading Rule and the No-Amendment
Rule (Article VI, Section 26[2]) of the Constitution.
The present petitions provide an opportune occasion for the Court to re-examine its
rulings in Tolentino particularly with respect to the scope of the powers of the
Bicameral Conference Committee vis--vis Article VI, Section 26(2) of the
Constitution.
The crucial issue posed by the present petitions is whether the Bicameral
Conference Committee may validly introduce amendments that were not contained
in the respective bills of the Senate and the House of Representatives. As a
corollary, whether it may validly delete provisions uniformly contained in the
respective bills of the Senate and the House of Representatives.
In Tolentino, the Court declared as valid amendments introduced by the Bicameral

Conference Committee even if these were not contained in the Senate and House
bills. The majority opinion therein held:
As to the possibility of an entirely new bill emerging out of a Conference
Committee, it has been explained:
Under congressional rules of procedures, conference committees are not expected
to make any material change in the measure at issue, either by deleting provisions
to which both houses have already agreed or by inserting new provisions. But this
is a difficult provision to enforce. Note the problem when one house amends a
proposal originating in either house by striking out everything following the
enacting clause and substituting provisions which make it an entirely new bill. The
versions are now altogether different, permitting a conference committee to draft
essentially a new bill
The result is a third version, which is considered an amendment in the nature of a
substitute, the only requirement for which being that the third version be germane
to the subject of the House and Senate bills.
Indeed, this Court recently held that it is within the power of a conference
committee to include in its report an entirely new provision that is not found either
in the House bill or in the Senate Bill. If the committee can propose an amendment
consisting of one or two provisions, collectively considered as an amendment in
the nature of a substitute, so long as such an amendment is germane to the
subject of the bills before the committee. After all, its report was not final but
needed the approval of both houses of Congress to become valid as an act of the
legislative department. The charge that in this case the Conference Committee
acted a third legislative chamber is thus without any basis.[2]
The majority opinion in Tolentino relied mainly on the practice of the United States
legislature in making the foregoing disquisition. It was held, in effect, that following
the US Congress practice where a conference committee is permitted to draft a bill
that is entirely different from the bills of either the House of Representatives or
Senate, the Bicameral Conference Committee is similarly empowered to make
amendments not found in either the House or Senate bills.
The ponencia upholds the acts of the Bicameral Conference Committee with respect
to R.A. No. 9337, following the said ruling in Tolentino.
To my mind, this unqualified adherence by the majority opinion in Tolentino, and

now by the ponencia, to the practice of the US Congress and its conference
committee system ought to be re-examined. There are significant textual
differences between the US Federal Constitutions and our Constitutions prescribed
congressional procedure for enacting laws. Accordingly, the degree of freedom
accorded by the US Federal Constitution to the US Congress markedly differ from
that accorded by our Constitution to the Philippine Congress.
Section 7, Article I of the US Federal Constitution reads:

[1] All Bills for raising Revenue shall originate in the House of Representatives; but
the Senate may propose or concur with Amendments as on other Bills.
[2] Every Bill which shall have passed the House of Representatives and the
Senate, shall, before it become a Law, be presented to the President of the United
States; If he approve he shall it, but if not he shall return it, with his Objections to
the House in which it shall have originated, who shall enter the Objections at large
on their Journal, and proceed to reconsider it. If after such Reconsideration two
thirds of that House shall agree to pass the Bill, it shall be sent together with the
Objections, to the other House, by which it shall, likewise, be reconsidered, and if
approved by two thirds of that House, it shall become a Law. But in all such Cases
the Votes of both Houses shall be determined by yeas and Nays, and the Names of
the Persons voting for and against the Bill shall be entered on the Journal of each
House respectively. If any Bill shall not be returned by the President within ten
Days (Sundays excepted) after it shall have been presented to him, the Same shall
be a Law, in like Manner as if he had signed it, unless the Congress by their
Adjournment prevent its return in which Case it shall not be a Law.
[3] Every Order, Resolution, or Vote to Which the Concurrence of the Senate and
House of Representatives may be necessary (except on a question of Adjournment)
shall be presented to the President of the United States; and before the Same shall
take Effect, shall be approved by him, or being disapproved by him, shall be
repassed by two thirds of the Senate and House of Representatives, according to
the Rules and Limitations prescribed in the Case of a Bill.
On the other hand, Article VI of our Constitution prescribes for the following
procedure for enacting a law:
Sec. 26. (1) Every bill passed by Congress shall embrace only one subject which
shall be expressed in the title thereof.
(2) No bill passed by either House shall become a law unless it has passed three
readings on separate days, and printed copies thereof in its final form have been
distributed to its Members three days before its passage, except when the President
certifies to the necessity of its 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 no-amendment rule.[5]
The task at hand for the Court, but which the ponencia eschews, is to circumscribe
the powers of the Bicameral Conference Committee in light of the three-reading
and no-amendment rules in Article VI, Section 26(2) of the Constitution.
The Bicameral Conference Committee, in

deleting the no pass on provision contained in
Senate Bill No. 1950 and House Bill No. 3705,
violated Article VI , Section 26(2) of the Constitution
Pertinently, in his dissenting opinion in Tolentino, Justice Davide (now Chief Justice)
opined that the duty of the Bicameral Conference Committee was limited to the
reconciliation of disagreeing provisions or the resolution of differences or
inconsistencies. This proposition still applies as can be gleaned from the following
text of Sections 88 and 89, Rule XIV of the Rules of the House of Representatives:
Sec. 88. Conference Committee. 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 the conference committees of both chambers.
such fact to the House for the latters appropriate action.
Sec. 89. Conference Committee Reports. -Each report shall contain a detailed,
measure.

Conference Committee report in the same manner and procedure as it votes on a
bill on third and final reading.
and Rule XII, Section 35 of the Rules of the Senate:
Justice Davide further explained that under its limited authority, the Bicameral
Conference Committee could only (a) restore, wholly or partly, the specific
provisions of the House Bill amended by the Senate Bill; (b) sustain, wholly or
partly, the Senates amendments, or (c) by way of compromise, to agree that
neither provisions in the House Bill amended by the Senate nor the latters
amendments thereto be carried into the final form of the former. Justice Romero,
who also dissented in Tolentino, added that the conference committee is not
authorized to initiate or propose completely new matters although under certain
legislative rules like the Jeffersons Manual, a conference committee may introduce
germane matters in a particular bill. However, such matters should be
circumscribed by the committees sole authority and function to reconcile
differences.
In the case of R.A. No. 9337, the Bicameral Conference Committee made an
amendment by deletion with respect to the no pass on provision contained in
both House Bill (HB) No. 3705 and Senate Bill (SB) No. 1950. HB 3705 proposed to
amend Sections 106 and 108 of the NIRC by expressly stating therein that sellers of
petroleum products and power generation companies selling electricity are
prohibited from passing on the VAT to the consumers. SB 1950 proposed to amend
Section 108 by likewise prohibiting power generation companies from passing on
the VAT to the consumers. However, these no pass on provisions were altogether
deleted by the Bicameral Conference Committee. At the least, since there was no
disagreement between HB 3705 and SB 1950 with respect to the no pass on
provision on the sale of electricity, the Bicameral Conference Committee acted
beyond the scope of its authority in deleting the pertinent proviso.
At this point, it is well to recall the rationale for the no-amendment rule and the
three-reading rule in Article VI, Section 26(2) of the Constitution. The proscription
on amendments upon the last reading is intended to subject all bills and their
amendments to intensive deliberation by the legislators and the ample ventilation
of issues to afford the public an opportunity to express their opinions or objections
thereon.[6] Analogously, it is said that the three-reading rule operates as a self-
binding mechanism that allows the legislature to guard against the consequences of
its own future passions, myopia, or herd behavior. By requiring that bills be read
and debated on successive days, legislature may anticipate and forestall future
occasions on which it will be seized by deliberative pathologies.[7] As Jeremy
Bentham, a noted political analyst, put it: [t]he more susceptible a people are of
excitement and being led astray, so much the more ought they to place themselves
under the protection of forms which impose the necessity of reflection, and prevent
surprises.[8]
Reports of the Bicameral Conference Committee, especially in cases where

substantial amendments, or in this case deletions, have been made to the
respective bills of either house of Congress, ought to undergo the three-reading
requirement in order to give effect to the letter and spirit of Article VI, Section
26(2) of the Constitution.
The Bicameral Conference Committee Report that eventually became R.A. No.
9337, in fact, bolsters the argument for the strict compliance by Congress of the
legislative procedure prescribed by the Constitution. As can be gleaned from the
said Report, of the 9 Senators-Conferees,[9] only 5 Senators[10] 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 three[13]
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 Secretary[15] 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.
[1]
G.R. No. 115455, 25 August 1994, 235 SCRA 630.
[2]
Tolentino v. Secretary of Finance, supra, at 667-668.
See, for example, Vermuele, A., The Constitutional Law of Congressional

[3]
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
[5]
Commentary, pp. 702-703 (1996 Ed.).
[6]
Dissenting Opinion of Justice Romero in Tolentino, supra.
[7]
Vermuele, supra.
[8]
Id. citing Bentham, J., Political Tactics.
Senators Ralph G. Recto, Joker P. Arroyo, Manuel B. Villar, Richard J. Gordon,

[9]
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.
Representatives Suarez, Fuentebella, Cua, Locsin, Jr., Teves, Gullas, Javier,

[12]
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.
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:


exceeds one 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 E-VAT through reduction of other kinds of taxes and duties, and
other similar measures, specially as to goods that go into the supply chain of the
affected products. A proper implementation of the E-VAT, therefore, should cause
only the appropriate incremental increase in prices, reflecting the net incremental
effect of the tax, which is not necessarily 10%, but possibly less, depending on the
products involved.
The introduction of the mitigating or cushioning measures through the Senate or

through the Bicameral Conference Committee, is also being questioned by
petitioners as unconstitutional for violating the rule against amendments after third
reading and the rule that tax measures must originate exclusively in the House of
Representatives (Art. VI, Secs. 24 and 26 [2], Constitution). For my part, I would
rather give the necessary leeway to Congress, as long as the changes are germane
to the bill being changed, the bill which
originated from the House of Representatives, and these are so, since these were
precisely the mitigating measures that go hand-on-hand with the E-VAT, and are,
therefore, essential -- and hopefully sufficient -- means to enable our people to
bear the sacrifices they are being asked to make. Such an approach is in
accordance with the Enrolled Bill Doctrine that is the prevailing rule in this
jurisdiction. (Tolentino v. Secretary of Finance, 249 SCRA 628 [1994]). The
exceptions I find are the provisions on corporate income taxes, which are not
germane to the E-VAT law, and are not found in the Senate and House bills.
I thus agree with Chief Justice Hilario G. Davide, Jr. in his separate opinion that the
following are not germane to the E-VAT legislation:
Amended TAX
CODE Provision Subject Matter
Section 27 Rate of income tax on domestic corporations
Section 28(A)(1) Rate of income tax on resident foreign corporations
Section 28(B)(1) Rate of income tax on non-resident foreign corporations
Section 28(B)(5-b) Rate of income tax on intercorporate dividends received

by non-resident foreign corporations
Section 34(B)(1) Deduction from gross income

Similarly, I agree with Justice Artemio V. Panganiban in his separate opinion that
the following are not germane to the E-VAT law:
Sections 1, 2, and 3 of the Republic Act No. 9337, in so far as these sections (a)
amend the rates of income tax on domestic, resident foreign, and nonresident
foreign corporations; (b) amend the tax credit against taxes due from nonresident
foreign corporations on the intercorporate dividends; and (c) reduce the allowable
deduction from interest expense.
Respondents should, in any case, now be able to implement the E-VAT law without
confusion and thereby achieve its purpose.[4]
I vote to GRANT the petitions to the extent of declaring unconstitutional the

provisions in Republic Act. No. 9337 that are not germane to the subject matter
and DENY said petitions as to the rest of the law, which are constitutional.
[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:
read as follows:
SEC. 106. Value-added Tax on Sale of Goods or Properties.
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:

[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.
DISSENTING and CONCURRING 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.
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
(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

year exceeds one and one-half percent 1 %).
Sec. 5. Section 107 of the same Code, as amended, is hereby further amended to
read as follows:
SEC. 107. Value-Added Tax on Importation of Goods.
(a) In General. There shall be levied, assessed and collected on every importation
of goods a value-added tax equivalent to ten percent (10%) based on the total
value used by the Bureau of Customs in determining tariff and customs duties, plus
customs duties, excise taxes, if any, and other charges, such tax to be paid by the
importer prior to the release of such goods from customs custody: Provided, That
where the customs duties are determined on the basis of the quantity or volume of
the goods, the value-added tax shall be based on the landed cost plus excise taxes,
if any: provided, further, that the President, upon the recommendation of
the Secretary of Finance, shall, effective January 1, 2006, raise the rate of
value-added tax to twelve percent (12%) after any of the following
(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

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
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
(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
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. Ancheta[29] has long provided sanctuary for persons assailing the
constitutionality of taxing statutes. The oft-quoted pronouncement of Justice
Fernando follows:
2. The power to tax moreover, to borrow from Justice Malcolm, "is an

attribute of sovereignty. It is the strongest of all the powers of
government." It is, of course, to be admitted that for all its
plenitude, the power to tax is not unconfined. There are
restrictions. The Constitution sets forth such limits. Adversely
affecting as it does property rights, both the due process and
equal protection clauses may properly be invoked, as petitioner
does, to invalidate in appropriate cases a revenue measure. If it
were otherwise, there would be truth to the 1803 dictum of Chief Justice
Marshall that "the power to tax involves the power to destroy." In a
separate opinion in Graves v. New York, Justice Frankfurter, after
referring to it as an "unfortunate remark," characterized it as "a flourish
of rhetoric [attributable to] the intellectual fashion of the times [allowing]
a free use of absolutes." This is merely to emphasize that it is not and
there cannot be such a constitutional mandate. Justice Frankfurter could
rightfully conclude: "The web of unreality spun from Marshall's famous
dictum was brushed away by one stroke of Mr. Justice Holmes's pen:
'The power to tax is not the power to destroy while this Court sits.'" So it
is in the Philippines.
3. This Court then is left with no choice. The Constitution as the

fundamental law overrides any legislative or executive act that
runs counter to it. In any case therefore where it can be
demonstrated that the challenged statutory provision as
petitioner here alleges fails to abide by its command, then this
Court must so declared and adjudge it null. The inquiry thus is
centered on the question of whether the imposition of a higher tax rate
on taxable net income derived from business or profession than on
compensation is constitutionally infirm.
4. The difficulty confronting petitioner is thus apparent. He alleges
arbitrariness. A mere allegation, as here, does not suffice. There must be
a factual foundation of such unconstitutional taint. Considering that
petitioner here would condemn such a provision as void on its face, he
has not made out a case. This is merely to adhere to the authoritative
doctrine that where the due process and equal protection clauses are
invoked, considering that they are not fixed rules but rather broad
standards, there is a need for proof of such persuasive character as
would lead to such a conclusion. Absent such a showing, the presumption
of validity must prevail.
5. It is undoubted that the due process clause may be invoked

where a taxing statute is so arbitrary that it finds no support in
the Constitution. An obvious example is where it can be shown to
amount to the confiscation of property. That would be a clear
abuse of power. It then becomes the duty of this Court to say
that such an arbitrary act amounted to the exercise of an
authority not conferred. That properly calls for the application of
the Holmes dictum. It has also been held that where the assailed
tax measure is beyond the jurisdiction of the state, or is not for a
public purpose, or, in case of a retroactive statute is so harsh and
unreasonable, it is subject to attack on due process grounds.[30]
Sison pronounces more concretely how a tax statute may contravene the due
process clause. Arbitrariness, confiscation, overstepping the states jurisdiction, and
lack of a public purpose are all grounds for nullity encompassed under the due
process invocation.
Yet even these more particular standards as enunciated in Sison are quite exacting,
and difficult to reach. Even the constitutional challenge posed in Sison failed to pass
muster. The ponencia cites Sison in asserting that due process and equal protection
are broad standards which need proof of such persuasive character to lead to such
a conclusion.
It is difficult though to put into quantifiable terms how onerous a taxation statute
must be before it contravenes the due process clause.[31] After all, the inherent
nature of taxation is to cause pain and injury to the taxpayer, albeit for the greater
good of society. Perhaps whatever collective notion there may be of what
constitutes an arbitrary, confiscatory, and unreasonable tax might draw more from
the fairy tale/legend traditions of absolute monarchs and the oppressed peasants
they tax. Indeed, it is easier to jump to the conclusion that a tax is oppressive and
unfair if it is imposed by a tyrant or an authoritarian state.
But could an arbitrary, confiscatory or unreasonable tax actually be enacted by a
democratic state such as ours? Of course it could, but these would exist in more
palatable guises. In a democratic society wherein statutes are enacted by a
representative legislature only after debate and deliberation, tax statutes will most
likely, on their face, seem fair and even-handed. After all, if Congress passes a tax
law that on facial examination is obviously harsh and unfair, it faces the wrath of
the voting public, to say nothing of the media.
In testing the validity of a tax statute as against the due process clause, I think
that the Court should go beyond a facial examination of the statute, and seek to
understand how exactly it would operate. The express terms of a statute, especially
tax laws, are usually inadequate in spelling out the practical effects of its
implementation. The devil is usually in the details.
Admittedly, the degree of difficulty involved of judicial review of tax laws has
increased with the growing complexities of business, economic and accounting
practices. These are sciences which laymen are not normally equipped by their
general education to fully grasp, hence the possible insecurity on their part when
confronted with such questions on these fields.
However, we should not cede ground to those transgressions of the peoples

fundamental rights simply because the mechanism employed to violate
constitutional guarantees is steeped in disciplines not normally associated with the
legal profession. Venality cannot be allowed to triumph simply due to its
sophistication. This petition imputes in the E-VAT Law unconstitutional oppression
of the fatal variety, but in order to comprehend exactly how and why that is so, one
has to delve into the complex milieu of the VAT system. The party alleging the laws
unconstitutionality of course has the burden to demonstrate the violations in
understandable terms, but if such proof is presented, the Courts duty is to engage
accordingly.
The Viability of the Clear and Present

Danger Doctrine as Counterweight
To the Shibboleths of Speculation
and Wisdom
I do not see as an impediment to the annulment of a tax law the fact that it has yet
to be implemented, or the fear that doing so constitutes an undue attack on the
wisdom, rather than the legality of a statute. However, my position in this petition
has been challenged on those grounds, and I see it fit to refute these preemptive
allegations before delving into the operative aspect of the E-VAT Law.
If there is cause to characterize my arguments as speculative, it is only

because the E-VAT Law has yet to be implemented. No person as of yet can
claim to have sustained actual injury by reason of the implementation of the
assailed provisions in G.R. No. 168461. Yet this should not mean that the Court is
impotent from declaring a provision of law as violative of the due process clause if it
is clear that its implementation will cause the illegal deprivation of life, liberty or
property without due process of law. This is especially so if, as in this case, the
injury is of mathematical certainty, and the extent of the loss quantifiable through
easy reference to the most basic of business practices.
These arguments are conjectural for the same reason that the bare
statement firing a gunshot into the head will cause a fatal wound would
be conjectural. Some people are lucky enough to survive gunshot wounds to the
head, while many others are not. Yet just because the fear of mortality would be
merely speculative, it does not mean that there should be less compulsion to avoid
a situation of getting shot in the head.
Indeed, the Court has long responded to strike down prospective actions, even if
the injury has not yet even occurred. One of the most significant legal
principles of the last century, the clear and present danger doctrine in
free speech cases, in fact emanates from the prospectivity, and not the
actuality of danger. The Court has not been hesitant to nullify acts which might
cause injury, owing to the presence of a clear and present danger of a substantive
evil which the State has the right to prevent. It has even extended the clear and
present danger rule beyond the confines of freedom of expression to the realm of
freedom of religion, as noted by Justice Puno in his ponencia in Estrada v.
Escritor.[32]
Justice Teodoro Padilla goes further in his concurring opinion in Basco v. PAGCOR,
and asserts that the clear and present danger test squarely applies to the due
process clause: The courts, as the decision states, cannot inquire into the
wisdom, morality or expediency of policies adopted by the political
departments of government in areas which fall within their authority,
except only when such policies pose a clear and present danger to the life,
liberty or property of the individual.
I see no reason why the clear and present danger test cannot apply in this
case, or any case wherein a taxing statute poses a clear and present
danger to the life, liberty or property of the individual. The application of
this standard frees the Court from inutility in the face of patently
unconstitutional tax laws that have been enacted but are yet to be fully
operational.
If for example, Congress deems it wise to impose the most draconian of tax
measures such as trebling the income taxes of all persons over 40, raising the
gross sales tax rate to 50%, or penalizing delinquent taxpayers with 50 lashes of
the whip there certainly would be a massive public outcry, and an expectation
that the Court would immediately nullify the offensive measures even before they
are actually imposed. Applying the clear and present danger test, the Court is
empowered to strike down the noxious measures even before they are
implemented. Yet with this bar on speculativeness as argued by the majority, the
Court could easily refuse to pay heed to the prayers for injunctive relief, and
instead demand that the taxing subjects must first suffer before the Court can act.
In the same vein, the claim that my arguments strike at the wisdom, rather than
the constitutionality of the law are misplaced. Concededly, the assailed provisions
of the E-VAT law are basically unwise. But any provision of law that directly
contradicts the Constitution, especially the Bill of Rights, are similarly unwise, as
they run inconsistent with the fundamental law of the land, the enunciated state
policies and the elemental guarantees assured by the State to its people. Not
every unwise law is unconstitutional, but every unconstitutional law is
unwise, for an unconstitutional law contravenes a primordial principle or
guarantee on which our polity is founded.
If it can be shown that the E-VAT Law violates these provisions of the Constitution,
especially the due process clause, then the Court should accordingly act and nullify.
Such is the essence of judicial review, which stands as the sole barrier to the
implementation of an unconstitutional law.
The Separate Opinion of Justice Panganiban notes that [t]he Court cannot step
beyond the confines of its constitutional power, if there is absolutely no clear
showing of grave abuse of discretion in the enactment of the law[33]. This, I feel, is
an unduly narrow view of judicial review, implying that such merely encompasses
the procedural aspect by which a law is enacted. If the policy of the law, and/or the
means by which such policy is implemented run counter to the Constitution, then
the Court is empowered to strike down the law, even if the legislative and executive
branches act within their discretion in legislating and signing the law.
It is also asserted that if the implementation of the 70% cap imposes an unequal
effect on different types of businesses with varying profit margins and capital
requirements, then the remedy would be an amendment of the law.[34] Of course,
the remedy of legislative amendment applies to even the most unconstitutional of
laws. But if our society can take cold comfort in the ability of the legislature to
amend its enactments as the defense against unconstitutional laws, what remains
then as the function of judicial review? This legislative capacity to amend
unconstitutional laws runs concurrently with the judicial capacity to strike down
unconstitutional laws. In fact, the long-standing tradition has been reliance on the
judicial branch, and not the legislative branch, for salvation from unconstitutional
laws.
I do recognize that the Separate Opinion of Justice Panganiban ultimately proceeds

from the premise that the assailed provisions of the E-VAT Law may be merely
unwise, but not unconstitutional. Hence, its preference to rely on Congress to
amend the offending provisions rather than judicial nullification. But I maintain that
the assailed provisions of the E-VAT Law violate the due process clause of the
Constitution and must be stricken down.
The Nature of VAT
To understand why Sections 8 and 12 of the E-VAT law contravenes the due
process clause, it is essential to understand the nature of the value-added tax itself.
Filipino consumers may comprehend VAT at its elemental form, having been
accustomed for several years now in paying an extra 10% of the listed selling price
for a wide class of consumer goods. From the perspective of the end consumer,
such as the patron who purchases a meal from a fastfood restaurant, VAT is simply
a tax on transactions involving the sale of goods. The tax is shouldered by the
buyer, and is based on a percentage of the purchase price. Since an excise or
percentage tax shares the same characteristics, there could be some confusion as
between such taxes and the VAT.
However, VAT is distinguishable from the standard excise or percentage taxes in

that it is imposable not only on the final transaction involving the end user, but on
previous stages as well so long as there was a sale involved. Thus, VAT does not
simply pertain to the extra percentage paid by the buyer of a fast-food meal, but
also that paid by restaurant itself to its suppliers of raw food products. This multi-
stage system is more acclimated to the vagaries of the modern industrial climate,
which has long surpassed the stage when there was only one level of transfer
between the farmer who harvests the crop and the person who eats the crop.
Indeed, from the extraction or production of the raw material to its final
consumption by a user, several transactions or sales materialize. The VAT system
assures that the government shall reap income for every transaction that is had,
and not just on the final sale or transfer.
The European Union, which has long required its member states to apply the VAT
system, provided the following definition of the tax which I deem clear and
comprehensive:
The principle of the common system of value added tax involves the application to
goods and services of a general tax on consumption exactly proportional to the
price of the goods and services, whatever the number of transactions that
take place in the production and distribution process before the stage at
which tax is charged.
On each transaction, value added tax, calculated on the price of the goods or
services at the rate applicable to such goods or services, shall be chargeable
after deduction of the amount of value added tax borne directly by the
various cost components.[35]
The above definition alludes to a key characteristic of the VAT system, that the
imposable tax remains proportional to the price of goods and services no matter the
number of transactions that takes place.
There is another key characteristic of the VAT that no matter how many the
taxable transactions that precede the final purchase or sale, it is the end-user, or
the consumer, that ultimately shoulders the tax. Despite its name, VAT is generally
not intended to be a tax on value added, but rather as a tax on consumption.
Hence, there is a mechanism in the VAT system that enables firms to offset the tax
they have paid on their own purchases of goods and services against the tax they
charge on their sales of goods and services.[36] Section 105 of the NIRC assures
that the amount of tax may be shifted or passed on to the buyer, transferee or
lessee of the goods, properties or services. The assailed provisions of the E-VAT
law strike at the heart of this accepted principle.
And there is one final basic element of the VAT system integral to this disquisition:
the mode by which the tax is remitted to the government. In simple theory, the
VAT payable can be remitted to the government immediately upon the occurrence
of the transaction, but such a demand proves excessively unwieldy. The number of
VAT covered transactions a modern enterprise may contract in a single day, plus
the recognized principle that it is the final end user who ultimately shoulders the
tax; render the remittance of the tax on a per transaction basis impossible.
Thus, the VAT is delivered by the purchaser not directly to the government but to
the seller, who then collates the VAT received and remits it to the government
every quarter. The process may seem simple if cast in this manner, but there is a
wrinkle, due to the offsetting mechanism designed to ultimately make the end
consumer bear the cost of the VAT.
The Concepts of Input and

Output VAT
This mechanism is employed through the introduction of two concepts, the input
tax and the output tax. Section 110(A) of the National Internal Revenue Code
defines the input tax as the VAT due from or paid by a VAT-registered person on
the importation of goods or local purchase of goods and services in the course of
trade or business, from a VAT registered person.
Let us put this in operational terms. A VAT registered person, engaged in an
enterprise, necessarily purchases goods such as raw materials and machinery in
order to produce consumer goods. The purchase of such raw materials and
machineries is subject to VAT, hence the enterprise pays an additional 10% of the
purchase price to the supplier as VAT. This extra amount paid by the enterprise
constitutes its input VAT. The enterprise likewise pays input VAT when it purchases
services covered by the tax, or rentals of property.
Since VAT is a final tax that is supposed to be ultimately shouldered by the end
consumer, the VAT system allows for a mechanism by which the business is able to
recover the input VAT that it paid. This comes into play when the business, having
transformed the raw materials into consumer goods, sells these goods to the public.
As widely known, the consumer pays to the business an additional amount of 10%
of the purchase price as VAT. As to the business, this VAT payments it collects from
the consumer represents output VAT, which is formally described under Section
110(A) of the NIRC as the value-added tax due on the sale or lease of taxable
goods or properties or services by by any VAT-registered person.
The output VAT collected by the business from the consumers accumulates, until
the end of every quarter, when the enterprise is obliged to remit the collected
output VAT to the government. This is where the crediting mechanism comes into
play. Since the business is entitled to recover the prepaid input VAT, it does so in
every quarter by applying the amount of prepaid input VAT against the collected
output VAT which is to be remitted. If the output VAT collected exceeds the prepaid
input VAT, then the amount of input VAT is deducted from the output VAT, and it is
entitled to remit only the remainder as output VAT to the government. To illustrate,
if Business X collects P1,000,000.00 as output VAT and incurs P500,000.00 as input
VAT, the P500,000.00 is deducted from the P1,000,000.00 output VAT, and X is
required to remit only P500,000.00 of the output VAT it collected from customers.
On the other hand, if the input VAT prepaid exceeds the output VAT collected, then
the business need not remit any amount as output VAT for the quarter. Moreover,
the difference between the input VAT and the output VAT may be credited as input
VAT by the business in the succeeding quarter. Thus, if in the First Quarter of a
year, Business X prepays P1,000,000.00 as input VAT, and collects only
P500,000.00 as output VAT, it need not remit any amount of output VAT to the
government. Moreover, in the Second Quarter, Business X can credit the remaining
P500,000.00 as part of its input VAT for that quarter. Hence, if in the Second
Quarter, X actually prepays P400,000.00 as input VAT, and collects P500,000.00 as
output VAT, it may add the P500,000.00 input VAT from the previous quarter to the
P400,000.00 prepaid in the current quarter, bringing the total input VAT it could
claim to P900,000.00. Since the input VAT of P900,000.00 now exceeds the output
VAT collected of P500,000, then X need not remit any output VAT as well to the
government for the Second Quarter.
However, reality is far bleaker than that befaced by Business X. The VAT collected
and remitted is not the most relevant statistic evaluated by the business. The figure
of primary concern of the enterprise would be the profit margin, which is simply the
excess of revenue less expenditures. Revenue is derived from the gross sales of the
business. Expenditures encompass all expenses incurred by the business including
overhead expenses, wages and purchases of capital goods. Crucially, expenditures
would include the input VAT prepaid by the business on its capital expenditures.
Since a significant amount of the capital outlay incurred by a business is subjected

to the prepayment of input taxes, the necessity of recovering these losses through
the output VAT collected becomes more impelling. These output taxes are obviously
proportional to the volume of gross sales the higher the gross sales the higher
the output VAT collected. The output taxes collected on sales answer for not
only those input taxes paid on the purchase of the raw materials, but also
for the input taxes paid on the multifarious overhead expenses covered by
VAT. The burden carried by the sales volume on the stability, if not survival of the
business thus just became more crucial. The maintenance of the proper equilibrium
is not an easy matter. Increasing the selling price of the goods sold does not
necessarily increase the gross sales, as it could have the counter-effect of repelling
the consumer and diminishing the number of goods sold. At the same time, keeping
the selling price low may increase the volume of goods sold, but not necessarily the
amount of gross sales.
Profit is a chancy matter, and in cases of small to medium enterprises, usually

small if any. It is quite common for retail and distribution enterprises to incur
profits of less than 1% of their gross revenues. Low profitability is not an automatic
badge of poor business skills, but a reality dictated by the laws of the marketplace.
The probability of profit is lower than that of capital expenditures, and ultimately,
many business establishments end up with a higher input tax than output tax in a
given quarter. This would be especially true for small to medium enterprises who do
not reap sufficient profits from its business in the first place, and for those firms
that opt to also invest in capital expenses in addition to the overhead. Whatever
miniscule profit margins that can be obtained usually spell the difference between
life and death of the business.
The possibility of profit is further diminished by the fact that businesses have to
shoulder the input VAT in the purchase of their capital expenses. Yet the
erstwhile VAT system was not tainted by the label of oppressiveness and
neither did it bear the confiscatory mode. This was because of the
immediate relief afforded from the input taxes paid by the crediting
system. In theory, VAT is not supposed to affect the profit margin. If such
margin is affected, it is only because of the prepayment of the input taxes,
and this should be remedied by the immediate recovery through the
crediting system of the settled input taxes.
The new E-VAT law changes all that, and puts in jeopardy the survival of
small to medium enterprises.
The Effects of the 70% Cap on Creditable Input VAT
The first radical shift introduced by the E-VAT law to the creditable input system
the 70% cap on the creditable input tax that may be carried over into the next
quarter is provided in Section 8 of the law, which amends Section 110(A) of the
NIRC, among others. Section 110(A) as amended would now read:
Sec. 110. Tax Credits.
(B) Excess Output or Input Tax. If at the end of any taxable quarter the
output tax exceeds the input tax, the excess shall be paid by the VAT-
registered person. If the input tax exceeds the output tax, the excess shall
be carried over to the succeeding quarter or quarters. Provided, That the
input tax inclusive of input VAT carried over from the previous
quarter that may be credited in every quarter shall not exceed
seventy percent (70%) of the output VAT: Provided, however, That
any input tax attributable to zero rated sales by a VAT-registered person
may at his option be refunded or credited against other internal revenue
taxes, subject to the provisions of Section 112. (emphasis supplied)
All hope for entrepreneurial stability is dashed with the imposition of the 70% cap.
Under the E-VAT Law, the business, regardless of stability or financial capability, is
obliged to remit to the government every quarter at least 30% of the output VAT
collected from customers, or roughly 3% of the amount of gross sales. Thus, if a
quarterly gross sales of Y Business totaled P1,000,000, and Y is prudent enough to
keep its capital expenses down to P980,000, it would then appear on paper that Y
incurred a profit of P20,000. However, with the 70% cap, Y would be obliged to
remit to the government P30,000, thus wiping out the profit margin for the quarter.
Y would be entitled to credit the excess input VAT it prepaid for the next quarter,
but the continuous operation of the 70% cap obviates whatever benefits this may
give, and cause the accumulation of the unutilized creditable input VAT which
should be returned to the business.
The difference is even more dramatic if seen how the unutilized creditable input
VAT accumulates over a one year period. To illustrate, Business Y prepays the
following amounts of input VAT over a one-year period: P100,000.00 - First
Quarter; P100,000.00 2nd Quarter; P34,000.00 3rd Quarter; and P50,000.00
4th Quarter. On the other hand, Y collects the following amounts of output VAT
from consumers: P60,000.00 - First Quarter; P60,000.00 2nd Quarter;
P100,000.00 3rd Quarter; and P50,000.00 4th Quarter. Applying the 70% cap,
which would limit the amount of the declarable input VAT to 70% in a quarter, the
following results obtain, as presented in tabular form:
Particulars 1st Quarter 2nd Quarter 3rd Quarter 4th Quarter
Output VAT 60,000 60,000 100,000 50,000
Input VAT 100,000 100,000 34,000 50,000
(Actual) + Carry [input] [input] [input]
Over +58,000 +116,000 +80,000
[excess [excess [excess
creditable] creditable] creditable]
158,000 150,000 130,000

Declarable Input (60,000x70%) (60,000x70%) (100,000x70%) (50,000x70%)
VAT (70% of
output VAT) 42,000 42,000 70,000 35,000
Lower of actual (60,000 - (60,000 - (100,000- (50,000-
and 70% cap 42,000) 42,000) 70,000) 35,000)
allowable
VAT Payable
18,000 18,000 30,000 15,000

Creditable (100,000 (158,000 (150,000- (130,000-
Input VAT 42,000) 42,000) 70,000) 35,000)
58,000 116,000 80,000 95,000
This stands in contrast to same business VAT accountability under the present
system, using the same variables of output VAT and input VAT. The need to
distinguish a declarable input VAT is obviated with the elimination of the 70% cap.
Particulars 1st Quarter 2nd Quarter 3rd Quarter 4th Quarter
Output VAT 60,000 60,000 100,000 50,000
Input VAT 100,000 34,000 50,000
(Actual) + Carry [input] [input] [input]
Over +40,000 +80,000 + 14,000
[excess [excess (excess
creditable] creditable] creditable)
100,000 140,000 114,000 50,000

VAT Payable 0 0 0 0
Creditable
Input VAT 40,000 80,000 14,000 14,000
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-22[40] situation
no matter which means the enterprise employs to recover from the E-VAT Law, it
will still go down in flames.
Section 8 of the E-VAT law, while ostensibly even-handed in application, fails to

appreciate valid substantial distinctions between large scale enterprises and small
and medium enterprises. The latter group, owing to the limited capability for capital
investment, subsists on modest profit margins, whereas the former expects, by
reason of its substantial capital investments, a high margin. In essentially
prohibiting the recovery of small profit margins, the E-VAT law effectively
sends the message that only high margin businesses are welcome to do
business in the Philippines. It stifles any entrepreneurial ambitions of
Filipinos unfortunate enough to have been born poor yet seek a better life
by sacrificing all to start a small business.
Among the enunciated State policies in the Constitution, as stated in Section 20,
Article II, is that the State recognizes the indispensable role of the private sector,
encourages private enterprise, and provides incentives to needed investments.[41]
The provision, as with other declared State policies in the Constitution, have
sufficient import and consequence such that in assessing the constitutionality of the
governmental action, these provisions should be considered and weighed as against
the rationale for the assailed State action.[42] The incompatibility of the 70% cap
with this provision is patent.
Pilipinas Shell Dealers, on whom the burden to establish the violation of due
process and equal protection lies, offers the following chart of the income statement
of a typical petroleum dealer:
QUARTERLY PROFIT AND LOSS STATEMENT
DEALER A
Price VAT (without 70% VAT

cap) (with
70% cap)
Sales/Output 32,748,534 3,274,853.40 3,274,853.40
Cost of Sales 31,834,717 3,183,471.70
Gross Margin 913,817
Operating Expenses Non-
vatable items 536,249
Vatable Items 317,584 31,758.40
Total Cost 853,833
Net Profit 59,984
Total Input Tax 3,215,230.10 2,292,397.38
VAT Payable 59,623.30 982,456.02
Unutilized Input VAT 922,832.72
*computed by multiplying output VAT by 70% [3,274,853.40 x 70% =

2,292.397.38]
The presentation of the Pilipinas Shell Dealers more or less jibes with my own
observations on the impact of the 70% cap. The dealer whose income is illustrated
above has to outlay a cash amount of 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 Panglossian[43] 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 60,000.00 Allowable Input VAT 60,000.00
Net VAT Payable 40,000.00 Net VAT Payable 40,000.00
Excess Input VAT 0
Carry-over to next quarter
This presentation of the respondents is grossly deceptive, as it fails to account for
the excess creditable input VAT that remains unutilized due to the 70% cap. This
excess or creditable input VAT is supposed to be carried over for the computation of
the input VAT of the next quarter. Instead, this excess or creditable input VAT
magically disappears from the table of the respondents. In their memorandum, the
Pilipinas Shell Dealers counter with their own presentation using the same variables
as respondents, but taking into account the excess creditable input VAT and
extending the situation over a one-year period. I cite with approval the following
chart 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
Output VAT
Less: Input VAT 100,000.00
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
Output VAT
Excess Input VAT fr. 2nd Quarter 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
Output VAT
Excess Input VAT fr. 2nd Quarter 20,000.00
=========
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.[43] 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:
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 VAT-
registered person, was deleted under the new E-VAT Law. At present, the refund or
tax credit certificate may only be issued upon two instances: on zero-rated or
effectively zero-rated sales, and upon cancellation of VAT registration due to
retirement from or cessation of business.[44] 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 Standards[45], 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[46] 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 recogni[z]ed.[47] 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.[48] 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.[49] 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.[50] 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 utili[z]ed[51] If not probable, it would be
recognized as a loss.[52] 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.[53] Moreover, the Constitution also requires the State to
recognize the right of enterprises to reasonable returns on investments,
and to expansion and growth.[54] 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:
read as 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:
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.[56] 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.[57] 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 Zialcita[58] 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.[59]
Conclusions
The VAT system, in itself, is intelligently designed, and stands as a fair means to
raise revenue. It has been adopted worldwide by countries hoping to employ an
efficient means of taxation. The concerns I have raised do not detract from my
general approval of the VAT system.
I do lament though that our governments wholehearted adoption of the VAT

system is endemic of what I deem a flaw in our national tax policy in the last few
decades. The power of taxation, inherent in the State and ever so powerful, has
been generally employed by our financial planners for a solitary purpose: the
raising of revenue. Revenue generation is a legitimate purpose of taxation, but
standing alone, it is a woefully unsophisticated design. Intelligent tax policy should
extend beyond the singular-minded goal of raising State funds the old-time
philosophy behind the taxing schemes of war-mongering monarchs and totalitarian
states and should sincerely explore the concept of taxation as a means of
providing genuine incentives to private enterprise to spur economic growth; of
promoting egalitarian social justice that would allow everyone to their fair share of
the nations wealth.
Instead, we are condemned by a national policy driven by the monomania for State
revenue. It may be beyond my oath as a Justice to compel the government to
adopt an economic policy in consonance with my personal views, but I offer these
observations since they lie at the very heart of the noxiousness of the assailed
provisions of the E-VAT law. The 70% cap, the 60-month amortization period and
the 5% withholding tax on government transactions were selfishly designed to
increase government revenue at the expense of the survival of local industries.
I am not insensitive to the concerns raised by the respondents as to the dire
consequences to the economy should the E-VAT law be struck down. I am aware
that the granting of the petition in G.R. No. 168461 will negatively affect the cash
flow of the government. If that were the only relevant concern at stake, I would
have no problems denying the petition. Unfortunately, under the device
employed in the E-VAT law, the price to be paid for a more sustainable
liquidity of the governments finances will be the death of local business,
and correspondingly, the demise of our society. It is a measure just as
draconian as the standard issue taxes of medieval tyrants.
I am not normally inclined towards the language of the overwrought, yet if the sky
were indeed truly falling, how else could that fact be communicated. The E-VAT Law
is of multiple fatal consequences. How are we to survive as a nation without the
bulwark of private industries? Perhaps the larger scale, established businesses may
ultimately remain standing, but they will be unable to sustain the void left by the
demise of small to medium enterprises. Or worse, domestic industry would be left
in the absolute control of monopolies, combines or cartels, whether dominated by
foreigners or local oligarchs. The destruction of subsisting industries would be bad
enough, the destruction of opportunity and the entrepreneurial spirit would be even
more grievous and tragic, as it would mark as well the end of hope. Taxes may be
the lifeblood of the state, but never at the expense of the life of its subjects.
Accordingly, I VOTE to:

1) DENY the Petitions in G.R. Nos. 168056, 168207, and 168730 for lack of
merit;
2) PARTIALLY GRANT the Petition in G.R. Nos. 168463 and declare Section 21
of the E-VAT Law as unconstitutional;
3) GRANT the Petition in G.R. No. 168461 and declare as unconstitutional
Section 8 of Republic Act No. 9337, insofar as it amends Section 110(A)
and (B) of the National Internal Revenue Code (NIRC) as well as Section
12 of the same law, with respect to its amendment of Section 114(C) of
the NIRC.
[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

[2]
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
[4]
1990, 186 SCRA 198, 203.
[5]
See Section 24, Article VI, Constitution.
The recognized exceptions, both expressly provided by the Constitution, being

[6]
the tariff clause under Section 28(2), Article VI, and the powers of taxation of local
government units under Section 5, Article X.
[7]
G.R. No. 158540, 8 July 2005, 434 SCRA 65.
[8]
See People v. Vera, 65 Phil. 56, 117 (1937).
[9]
Decision, infra.
Carpio v. Executive Secretary, GR No. 96409 February 14,1992, 206 SCRA 290,
[10]
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.
Decision, infra, citing Alunan v. Mirasol, G.R. No. 108399, 31 July 1997, 276
[14]
SCRA 501, 513-514.
Notwithstanding, the Court in Southern Cross did rule that Section 5 of the
[15]
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.
The Federalist No. 58, at 394 (J. Madison) (J.Cooke ed. 1961), cited in J. M.
[18]
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.
See Section 1, Article III, CONSTITUTION. Private corporations and partnerships

[25]
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.
Art. 2, European Commission First Council Directive 67/227 of 11 April 1967 on

[35]
the Harmonization of Legislation of Member States Concerning Turnover Taxes,

1971 O.J. (L 71) 1301.
[36]
Liam & Ebrill, THE MODERN VAT.
The most basic law in finance! Understand the Time Value of Money.
[37]
http://www.free-financial-advice.net/time-value-of-money.html. Last visited, 30

August 2005.
Time Value of Money. http://www.jetobjects.com/components/finance/

[38]
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.
Pangloss was a famed character ridiculed in Voltaires Candide, renowned for his
[41]
absolute blind faith in optimism, no matter how dire the circumstances.
[42]
Id. at 29-30.
[43]
Decision, infra.
[44]
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.

[45]
See SRC Rule 68(1)(b)(c), IMPLEMENTING RULES AND REGULATIONS TO THE
SECURITIES AND REGULATIONS CODE.
[46]
Section 34, INTERNATIONAL ACCOUNTING STANDARDS 12.
[47]
Section 36, id.
In his Separate Opinion, Justice Panganiban asserts that the deferred input tax
[48]
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.
Justice Panganiban cites United Paracale Mining Co. v. De la Rosa (cited as 221
[51]
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.
[50]
See Part III, Paragraph 3, Revenue Memorandum Ruling No. 1-2002.
[51]
Section 32, International Accounting Standards 12.
[52]
Supra note 47.
[53]
Supra note 9.
[54]
Section 3, Article XIII, CONSTITUTION.
Kapatiran ng Mga Naglilingkod sa Pamahalaan ng Pilipinas, Inc. et al. v. Tan,

[55]
G.R. No. L-81311, 30 June 1988.
[56]
J. Vitug and E. Acosta, supra note 3 at 41.
Pepsi-Cola Bottling Co. of the Philippines, Inc. v. Municipality of Tanauan, G.R.

[57]
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.
[58]
A.M. No. 90-6-015-SC, 18 October 1990, 190 SCRA 851.
[59]
Id. at 856.
CONCURRING OPINION
CHICO-NAZARIO, J.:
Five petitions were filed before this Court questioning the constitutionality of
Republic Act No. 9337. Rep. Act No. 9337, which amended certain provisions of the
National Internal Revenue Code of 1997,[1] by essentially increasing the tax rates
and expanding the coverage of the Value-Added Tax (VAT). Undoubtedly, during
these financially difficult times, more taxes would be additionally burdensome to
the citizenry. However, like a bitter pill, all Filipino citizens must bear the burden of
these new taxes so as to raise the much-needed revenue for the ailing Philippine
economy. Taxation is the indispensable and inevitable price for a civilized society,
and without taxes, the government would be paralyzed.[2] Without the tax reforms
introduced by Rep. Act No. 9337, the then Secretary of the Department of Finance,
Cesar V. Purisima, assessed that all economic scenarios point to the National
Governments inability to sustain its precarious fiscal position, resulting in severe
erosion of investor confidence and economic stagnation.[3]
Finding Rep. Act No. 9337 as not unconstitutional, both in its procedural enactment
and in its substance, I hereby concur in full in the foregoing majority opinion,
penned by my esteemed colleague, Justice Ma. Alicia Austria-Martinez.
According to petitioners, the enactment of Rep. Act No. 9337 by Congress was
riddled with irregularities and violations of the Constitution. In particular, they
alleged that: (1) The Bicameral Conference Committee exceeded its authority to
merely settle or reconcile the differences among House Bills No. 3555 and 3705 and
Senate Bill No. 1950, by including in Rep. Act No. 9337 provisions not found in any
of the said bills, or deleting from Rep. Act No. 9337 or amending provisions therein
even though they were not in conflict with the provisions of the other bills; (2) The
amendments introduced by the Bicameral Conference Committee violated Article
VI, Section 26(2), of the Constitution which forbids the amendment of a bill after it
had passed third reading; and (3) Rep. Act No. 9337 contravened Article VI,
Section 24, of the Constitution which prescribes that revenue bills should originate
exclusively from the House of Representatives.
Invoking the expanded power of judicial review granted to it by the Constitution of

1987, petitioners are calling upon this Court to look into the enactment of Rep. Act
No. 9337 by Congress and, consequently, to review the applicability of the enrolled
bill doctrine in this jurisdiction. Under the said doctrine, the enrolled bill, as signed
by the Speaker of the House of Representatives and the Senate President, and
certified by the Secretaries of both Houses of Congress, shall be conclusive proof of
its due enactment.[4]
Petitioners arguments failed to convince me of the wisdom of abandoning the

enrolled bill doctrine. I believe that it is more prudent for this Court to remain
conservative and to continue its adherence to the enrolled bill doctrine, for to
abandon the said doctrine would be to open a Pandoras Box, giving rise to a
situation more fraught with evil and mischief. Statutes enacted by Congress may
not attain finality or conclusiveness unless declared so by this Court. This would
undermine the authority of our statutes because despite having been signed and
certified by the designated officers of Congress, their validity would still be in doubt
and their implementation would be greatly hampered by allegations of irregularities
in their passage by the Legislature. Such an uncertainty in the statutes would
indubitably result in confusion and disorder. In all probability, it is the
contemplation of such a scenario that led an American judge to proclaim, thus
. . . Better, far better, that a provision should occasionally find its way into the
statute through mistake, or even fraud, than, that every Act, state and national,
should at any and all times be liable to put in issue and impeached by the journals,
loose papers of the Legislature, and parol evidence. Such a state of uncertainty in
the statute laws of the land would lead to mischiefs absolutely intolerable. . . .[5]
Moreover, this Court must attribute good faith and accord utmost respect to the
acts of a co-equal branch of government. While it is true that its jurisdiction has
been expanded by the Constitution, the exercise thereof should not violate the
basic principle of separation of powers. The expanded jurisdiction does not
contemplate judicial supremacy over the other branches of government. Thus, in
resolving the procedural issues raised by the petitioners, this Court should limit
itself to a determination of compliance with, or conversely, the violation of a
specified procedure in the Constitution for the passage of laws by Congress, and
not of a mere internal rule of proceedings of its Houses.
It bears emphasis that most of the irregularities in the enactment of Rep. Act No.
9337 concern the amendments introduced by the Bicameral Conference Committee.
The Constitution is silent on such a committee, it neither prescribes the creation
thereof nor does it prohibit it. The creation of the Bicameral Conference Committee
is authorized by the Rules of both Houses of Congress. That the Rules of both
Houses of Congress provide for the creation of a Bicameral Conference Committee
is within the prerogative of each House under the Constitution to determine its own
rules of proceedings.
The Bicameral Conference Committee is a creation of necessity and practicality

considering that our Congress is composed of two Houses, and it is highly
improbable that their respective bills on the same subject matter shall always be in
accord and consistent with each other. Instead of all their members, only the
appointed representatives of both Houses shall meet to reconcile or settle the
differences in their bills. The resulting bill from their meetings, embodied in the
Bicameral Conference Report, shall be subject to approval and ratification by both
Houses, voting separately.
It does perplex me that members of both Houses would again ask the Court to
define and limit the powers of the Bicameral Conference Committee when such
committee is of their own creation. In a number of cases,[6] this Court already made
a determination of the extent of the powers of the Bicameral Conference Committee
after taking into account the existing Rules of both Houses of Congress. In gist, the
power of the Bicameral Conference Committee to reconcile or settle the differences
in the two Houses respective bills is not limited to the conflicting provisions of the
bills; but may include matters not found in the original bills but germane to the
purpose thereof. If both Houses viewed the pronouncement made by this Court in
such cases as extreme or beyond what they intended, they had the power to
amend their respective Rules to clarify or limit even further the scope of the
authority which they grant to the Bicameral Conference Committee. Petitioners
grievance that, unfortunately, they cannot bring about such an amendment of the
Rules on the Bicameral Conference Committee because they are members of the
minority, deserves scant consideration. That the majority of the members of both
Houses refuses to amend the Rules on the Bicameral Conference Committee is an
indication that it is still satisfied therewith. At any rate, this is how democracy
works the will of the majority shall be controlling.
Worth reiterating herein is the concluding paragraph in Arroyo v. De Venecia,[7]

which reads
It would be unwarranted invasion of the prerogative of a coequal department for
this Court either to set aside a legislative action as void because the Court thinks
the house has disregarded its own rules of procedure, or to allow those defeated in
the political arena to seek a rematch in the judicial forum when petitioners can find
remedy in that department. The Court has not been invested with a roving
commission to inquire into complaints, real or imagined, of legislative skullduggery.
It would be acting in excess of its power and would itself be guilty of grave abuse of
its discretion were it to do so. . . .
Present jurisprudence allows the Bicameral Conference Committee to amend, add,
and delete provisions of the Bill under consideration, even in the absence of conflict
thereon between the Senate and House versions, but only so far as said provisions
are germane to the purpose of the Bill.[8] Now, there is a question as to whether the
Bicameral Conference Committee, which produced Rep. Act No. 9337, exceeded its
authority when it included therein amendments of provisions of the National
Internal Revenue Code of 1997 not related to VAT.
Although House Bills No. 3555 and 3705 were limited to the amendments of the
provisions on VAT of the National Internal Revenue Code of 1997, Senate Bill No.
1950 had a much wider scope and included amendments of other provisions of the
said Code, such as those on income, percentage, and excise taxes. It should be
borne in mind that the very purpose of these three Bills and, subsequently, of Rep.
Act No. 9337, was to raise additional revenues for the government to address the
dire economic situation of the country. The National Internal Revenue Code of
1997, as its title suggests, is the single Code that governs all our national internal
revenue taxes. While it does cover different taxes, all of them are imposed and
collected by the national government to raise revenues. If we have one Code for all
our national internal revenue taxes, then there is no reason why we cannot have a
single statute amending provisions thereof even if they involve different taxes
under separate titles. I hereby submit that the amendments introduced by the
Bicameral Conference Committee to non-VAT provisions of the National Internal
Revenue Code of 1997 are not unconstitutional for they are germane to the purpose
of House Bills No. 3555 and 3705 and Senate Bill No. 1950, which is to raise
national revenues.
Furthermore, the procedural issues raised by the petitioners were already

addressed and resolved by this Court in Tolentino v. Executive Secretary.[9] Since
petitioners failed to proffer novel factual or legal argument in support of their
positions that were not previously considered by this Court in the same case, then I
am not compelled to depart from the conclusions made therein.
The majority opinion has already thoroughly discussed each of the substantial
issues raised by the petitioners. I would just wish to discuss additional matters
pertaining to the petition of the petroleum dealers in G.R. No. 168461.
They claim that the provision of Rep. Act No. 9337 limiting their input VAT credit to
only 70% of their output VAT deprives them of their property without due process
of law. They argue further that such 70% cap violates the equal protection and
uniformity of taxation clauses under Article III, Section 1, and Article VI, Section
28(1), respectively, of the Constitution, because it will unduly prejudice taxpayers
who have high input VAT and who, because of the cap, cannot fully utilize their
input VAT as credit.
I cannot sustain the petroleum dealers position for the following reasons
First, I adhere to the view that the input VAT is not a property to which the
taxpayer has vested rights. Input VAT consists of the VAT a VAT-registered person
had paid on his purchases or importation of goods, properties, and services from a
VAT-registered supplier; more simply, it is VAT paid. It is not, as averred by
petitioner petroleum dealers, a property that the taxpayer acquired for valuable
consideration.[10] A VAT-registered person incurs input VAT because he complied
with the National Internal Revenue Code of 1997, which imposed the VAT and made
the payment thereof mandatory; and not because he paid for it or purchased it for
a price.
Generally, when one pays taxes to the government, he cannot expect any direct
and concrete benefit to himself for such payment. The benefit of payment of taxes
shall redound to the society as a whole. However, by virtue of Section 110(A) of the
National Internal Revenue Code of 1997, prior to its amendment by Rep. Act No.
9337, a VAT-registered person is allowed, subject to certain substantiation
requirements, to credit his input VAT against his output VAT.
Output VAT is the VAT imposed by the VAT-registered person on his own sales of
goods, properties, and services or the VAT he passes on to his buyers. Hence, the
VAT-registered person selling the goods, properties, and services does not pay for
the output VAT; said output VAT is paid for by his consumers and he only collects
and remits the same to the government.
The crediting of the input VAT against the output VAT is a statutory privilege,
granted by Section 110 of the National Internal Revenue Code of 1997. It gives the
VAT-registered person the opportunity to recover the input VAT he had paid, so
that, in effect, the input VAT does not constitute an additional cost for him. While it
is true that input VAT credits are reported as assets in a VAT-registered persons
financial statements and books of account, this accounting treatment is still based
on the statutory provision recognizing the input VAT as a credit. Without Section
110 of the National Internal Revenue Code of 1997, then the accounting treatment
of any input VAT will also change and may no longer be booked outright as an
asset. Since the privilege of an input VAT credit is granted by law, then an
amendment of such law may limit the exercise of or may totally withdraw the
privilege.
The amendment of Section 110 of the National Internal Revenue Code of 1997 by
Rep. Act No. 9337, which imposed the 70% cap on input VAT credits, is a legitimate
exercise by Congress of its law-making power. To say that Congress may not trifle
with Section 110 of the National Internal Revenue Code of 1997 would be to violate
a basic precept of constitutional law that no law is irrepealable.[11] There can be
no vested right to the continued existence of a statute, which precludes its change
or repeal.[12]
It bears to emphasize that Rep. Act No. 9337 does not totally remove the privilege
of crediting the input VAT against the output VAT. It merely limits the amount of
input VAT one may credit against his output VAT per quarter to an amount
equivalent to 70% of the output VAT. What is more, any input VAT in excess of the
70% cap may be carried-over to the next quarter.[13] It is certainly a departure
from the VAT crediting system under Section 110 of the National Internal Revenue
Code of 1997, but it is an innovation that Congress may very well introduce,
because
VAT will continue to evolve from its pioneering original structure. Dynamically, it
will be subjected to reforms that will make it conform to many factors, among
which are: the changing requirements of government revenue; the social, economic
and political vicissitudes of the times; and the conflicting interests in our society. In
the course of its evolution, it will be injected with some oddities and inevitably
transformed into a structure which its revisionists believe will be an improvement
overtime.[14]
Second, assuming for the sake of argument, that the input VAT credit is indeed a
property, the petroleum dealers right thereto has not vested. A right is deemed
vested and subject to constitutional protection when
. . . [T]he right to enjoyment, present or prospective, has become the property of
some particular person or persons as a present interest. The right must be
absolute, complete, and unconditional, independent of a contingency, and a mere
expectancy of future benefit, or a contingent interest in property founded on
anticipated continuance of existing laws, does not constitute a vested right. So,
inchoate rights which have not been acted on are not vested. (16 C. J. S. 214-
215)[15]
Under the National Internal Revenue Code of 1997, before it was amended by Rep.
Act No. 9337, the sale or importation of petroleum products were exempt from
VAT, and instead, were subject to excise tax.[16] Petroleum dealers did not impose
any output VAT on their sales to consumers. Since they had no output VAT against
which they could credit their input VAT, they shouldered the costs of the input VAT
that they paid on their purchases of goods, properties, and services. Their sales not
being subject to VAT, the petroleum dealers had no input VAT credits to speak of.
It is only under Rep. Act No. 9337 that the sales by the petroleum dealers have
become subject to VAT and only in its implementation may they use their input VAT
as credit against their output VAT. While eager to use their input VAT credit
accorded to it by Rep. Act No. 9337, the petroleum dealers reject the limitation
imposed by the very same law on such use.
It should be remembered that prior to Rep. Act No. 9337, the petroleum dealers
input VAT credits were inexistent they were unrecognized and disallowed by law.
The petroleum dealers had no such property called input VAT credits. It is only
rational, therefore, that they cannot acquire vested rights to the use of such input
VAT credits when they were never entitled to such credits in the first place, at least,
not until Rep. Act No. 9337.
My view, at this point, when Rep. Act No. 9337 has not yet even been
implemented, is that petroleum dealers right to use their input VAT as credit
against their output VAT unlimitedly has not vested, being a mere expectancy of a
future benefit and being contingent on the continuance of Section 110 of the
National Internal Revenue Code of 1997, prior to its amendment by Rep. Act No.
9337.
Third, although the petroleum dealers presented figures and computations to

support their contention that the cap shall lead to the demise of their businesses, I
remain unconvinced.
Rep. Act No. 9337, while imposing the 70% cap on input VAT credits, allows the
taxpayer to carry-over to the succeeding quarters any excess input VAT. The
petroleum dealers presented a situation wherein their input VAT would always
exceed 70% of their output VAT, and thus, their excess input VAT will be
perennially carried-over and would remain unutilized. Even though they consistently
questioned the 70% cap on their input VAT credits, the petroleum dealers failed to
establish what is the average ratio of their input VAT vis--vis their output VAT per
quarter. Without such fact, I consider their objection to the 70% cap arbitrary
because there is no basis therefor.
On the other, I find that the 70% cap on input VAT credits was not imposed by
Congress arbitrarily. Members of the Bicameral Conference Committee settled on
the said percentage so as to ensure that the government can collect a minimum of
30% output VAT per taxpayer. This is to put a VAT-taxpayer, at least, on equal
footing with a VAT-exempt taxpayer under Section 109(V) of the National Internal
Revenue Code, as amended by Rep. Act No. 9337.[17] The latter taxpayer is exempt
from VAT on the basis that his sale or lease of goods or properties or services do
not exceed P1,500,000; instead, he is subject to pay a three percent (3%) tax on
his gross receipts in lieu of the VAT.[18] If a taxpayer with presumably a smaller
business is required to pay three percent (3%) gross receipts tax, a type of tax
which does not even allow for any crediting, a VAT-taxpayer with a bigger business
should be obligated, likewise, to pay a minimum of 30% output VAT (which should
be equivalent to 3% of the gross selling price per good or property or service sold).
The cap assures the government a collection of at least 30% output VAT,
contributing to an improved cash flow for the government.
Attention is further called to the fact that the output VAT is the VAT imposed on the
sales by a VAT-taxpayer; it is paid by the purchasers of the goods, properties, and
services, and merely collected through the VAT-registered seller. The latter,
therefore, serves as a collecting agent for the government. The VAT-registered
seller is merely being required to remit to the government a minimum of 30% of
his output VAT collection.
Fourth, I give no weight to the figures and computations presented before this
Court by the petroleum dealers, particularly the supposed quarterly profit and loss
statement of a typical dealer. How these data represent the financial status of a
typical dealer, I would not know when there was no effort to explain the manner by
which they were surveyed, collated, and averaged out. Without establishing their
source therefor, the figures and computations presented by the petroleum dealers
are merely self-serving and unsubstantiated, deserving scant consideration by this
Court. Even assuming that these figures truly represent the financial standing of
petroleum dealers, the introduction and application thereto of the VAT factor, which
forebode the collapse of said petroleum dealers businesses, would be nothing more
than an anticipated damage an injury that may or may not happen. To resolve
their petition on this basis would be premature and contrary to the established
tenet of ripeness of a cause of action before this Court could validly exercise its
power of judicial review.
Fifth, in response to the contention of the petroleum dealers during oral arguments
before this Court that they cannot pass on to the consumers the VAT burden and
increase the prices of their goods, it is worthy to quote below this Courts ruling in
Churchill v. Concepcion,[19] to wit
It will thus be seen that the contention that the rates charged for advertising
cannot be raised is purely hypothetical, based entirely upon the opinion of the
plaintiffs, unsupported by actual test, and that the plaintiffs themselves admit that
a number of other persons have voluntarily and without protest paid the tax herein
complained of. Under these circumstances, can it be held as a matter of fact that
the tax is confiscatory or that, as a matter of law, the tax is unconstitutional? Is the
exercise of the taxing power of the Legislature dependent upon and restricted by
the opinion of two interested witnesses? There can be but one answer to these
questions, especially in view of the fact that others are paying the tax and
presumably making reasonable profit from their business.
As a final observation, I perceive that what truly underlies the opposition to Rep.
Act No. 9337 is not the question of its constitutionality, but rather the wisdom of its
enactment. Would it truly raise national revenue and benefit the entire country, or
would it only increase the burden of the Filipino people? Would it contribute to a
revival of our economy or only contribute to the difficulties and eventual closure of
businesses? These are issues that we cannot resolve as the Supreme Court. As this
Court explained in Agustin v. Edu,[20] to wit
It does appear clearly that petitioners objection to this Letter of Instruction is not
premised on lack of power, the justification for a finding of unconstitutionality, but
on the pessimistic, not to say negative, view he entertains as to its wisdom. That
approach, it put it at its mildest, is distinguished, if that is the appropriate word, by
its unorthodoxy. It bears repeating that this Court, in the language of Justice
Laurel, does not pass upon questions of wisdom, justice or expediency of
legislation. As expressed by Justice Tuason: It is not the province of the courts to
supervise legislation and keep it within the bounds of propriety and common sense.
That is primarily and exclusively a legislative concern. There can be no possible
objection then to the observation of Justice Montemayor: As long as laws do not
violate any Constitutional provision, the Courts merely interpret and apply them
regardless of whether or not they are wise or salutary. For they, according to
Justice Labrador, are not supposed to override legitimate policy and * * * never
inquire into the wisdom of the law. It is thus settled, to paraphrase Chief Justice
Concepcion in Gonzales v. Commission on Elections, that only congressional power
or competence, not the wisdom of the action taken, may be the basis for declaring
a statute invalid. This is as it ought to be. The principle of separation of powers has
in the main wisely allocated the respective authority of each department and
confined its jurisdiction to such sphere. There would then be intrusion not allowable
under the Constitution if on a matter left to the discretion of a coordinate branch,
the judiciary would substitute its own[21]
To reiterate, we cannot substitute our discretion for Congress, and even though
there are provisions in Rep. Act No. 9337 which we may believe as unwise or
iniquitous, but not unconstitutional, we cannot strike them off by invoking our
power of judicial review. In such a situation, the recourse of the people is not
judicial, but rather political. If they severely doubt the wisdom of the present
Congress for passing a statute such as Rep. Act No. 9337, then they have the
power to hold the members of said Congress accountable by using their voting
power in the next elections.
In view of the foregoing, I vote for the denial of the present petitions and the
upholding of the constitutionality of Rep. Act No. 9337 in its entirety.
[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

[2]
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.
Farias v. Executive Secretary, G.R. No. 147387, 10 December 2003, 417 SCRA
[4]
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.
Tolentino v. Secretary of Finance, G.R. No. 115544, 25 August 1994, 235 SCRA
[6]
630; Philippine Judges Association v. Prado, G.R. No. 105371, 11 November 1993,
227 SCRA 703.
[7]
G.R. No. 127255, 14 August 1997, 277 SCRA 268, 299.
[8]
Supra, note 6.
[9]
Supra, note 3.
[10]
Petition for Prohibition (Under Rule 65 with Prayer for the Issuance of a
Temporary Restraining Order and/or Writ of Preliminary Injunction) in G.R. No.
168461 entitled, Association of Pilipinas Shell Dealers, Inc., et al. v. Purisima, et
al., p. 17, paragraph 52.
Asociacion de Agricultores de Talisay-Silay, Inc. v. Talisay-Silay Milling Co., Inc.,

[11]
G.R. No. L-19937, 19 February 1979, 88 SCRA 294; Duarte v. Dade, 32 Phil. 36
(1915).
Traux v. Corrigan, 257 U.S. 312, 66 L. Ed. 254, as quoted in Asociacion de

[12]
Agricultores de Talisay-Silay, Inc. v. Talisay-Silay Milling Co., Inc., Id., p. 452.
Section 110(B) of the National Internal Revenue Code of 1997, as amended by

[13]
Section 8 of Rep. Act No. 9337.
VICTORIO A. DEOFERIO, JR. AND VICTORINO C. MAMALATEO, THE VALUE

[14]
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.
Section 116 of the National Internal Revenue Code, as amended by Rep. Act No.
[18]
9337.
[19]
34 Phil. 969, 973 (1916).
[20]
G.R. No. L-49112, 02 February 1979, 88 SCRA 195.
[21]
Id., pp. 210-211.
RESOLUTION
AUSTRIA-MARTINEZ, J.:
In view of the Courts Resolution dated July 12, 2005, which required Former
Finance Secretary Cesar V. Purisima to show cause why he should not be held in
contempt of court for conduct which puts the Court and its Members into dishonor,
disrepute and discredit, and degrades the administration of justice, Purisima filed
his Compliance thereto, stating that:
It is not true that I claimed or even insinuated that this Honorable Court was
pressured or influenced by President Gloria Macapagal Arroyo or Malacaang Palace
to issue a Temporary Restraining Order (TRO) in the instant cases. What I stated
was simply that President Arroyo had on several occasions discussed with the
economic team the possibility of postponing the implementation of Republic Act No.
9337. While I believe that President Arroyo wanted to postpone the implementation
of the said law, I never claimed or insinuated that this Honorable Court was
influenced or pressured to issue the TRO against its implementation.
I do not deny that I was extremely disappointed when this Honorable Court issued
the TRO, which was a serious setback to our fiscal consolidation program. And my
disappointment grew when I felt that the Government specifically the Executive
branch, was not doing enough to have the TRO lifted. At the height of my
disappointment, and after hearing of rumors that Executive officials may have been
instrumental in procuring the TRO, I did enquire from the other cabinet officials
whether Malacaang had a hand in the issuance of the order. I felt that it was my
right and duty as Finance Secretary to make such an inquiry, given that before the
issuance of the TRO, the President had inquired about the possibility of deferring
the implementation of Republic Act No. 9337. But surely, my inquiries whether
Malacaang did so, did not amount to, as it was not intended to have the effect of,
claiming outright or necessarily insinuating that Malacaang did so, or to hold, in
any manner, this Honorable Court in contempt.[1]
Purisima cites the July 11, 2005 edition of the Philippine Star and the July 10, 2005
edition of the Philippine Daily Inquirer, which reported that
Purisima did not directly accuse the President of influencing the Court in issuing the
TRO, and that he would neither confirm nor deny the reports that the President had
a hand in its issuance.
The Court finds Purisimas explanation unsatisfactory.
The Court reproduces excerpts from some of the reports contained in the
newspapers with regard to Purisimas statements, to wit:
(1) July 10, 2005, The Philippine Star, Opinion Section (Its the Economy, Stupid!)
The present political crisis will inevitably boil down to the economy as the real issue
that will ultimately bring down the Arroyo Administration. What we are hearing
from people close to the Palace is that the TRO issued by the Supreme Court on the
EVAT is the real reason why 10 Cabinet members, specially Cesar Purisima and
Johnny Santos, resigned. Cesar Purisima further pointed out that her decision-
making process has adversely affected the economy. The frustrated economic team
felt that GMA had actually influenced the Supreme Court to issue the TRO to
postpone the bad effects of the EVAT on prices purely for her political survival. If
indeed that is true, then it just confirms that our present political system has really
gone from bad to worse. What I found disgusting is that the plotters, especially
Cesar Purisima, sounded like Judas Iscariot. They could just have simply resigned
without making a spectacle out of it.
(2) July 10, 2005, The Daily Tribune (SC Denies Palace Pressed Issuance of E-VAT
TRO)
Reports had claimed that the former economic team of Mrs. Arroyo decided to
resign over the weekend due in part to the administrations lobbying the SC to issue
a restraining order on the e-VAT, apparently to prevent the public from further
seething against the government over the continuous spiraling of the prices of basic
goods and services.
Finance officials led by Purisima previously expressed dismay over the suspension
of the e-VAT as they claimed that the TRO would cost the government at least P140
million a day in unrealized revenues.
Purisima hinted that Mrs. Arroyo had a hand in the SCs TRO to save her
presidency.
(3) July 11, 2005, Manila Standard Today (Palace Debunks Purisima Claim on
EVAT)
Malacaang yesterday branded as ridiculous the insinuations that President Gloria
Macapagal Arroyo had a hand in the Supreme Courts July 1 order suspending the
implementation of the Expanded Value-Added Tax Law.
At the same time, Justice Secretary Raul Gonzalez slammed resigned Finance
Secretary Cesar Purisima and ex-Trade Secretary Juan Santos for claiming that the
President had wanted the implementation of the law delayed so she would not get
too much political flak for the tax measure.
(4) July 11, 2005, The Philippine Star, Business Section (The Last Straw that Broke
a Cabinet)
For ex-Finance Secretary Cesar Purisima, the implementation of the EVAT law was
a major pillar to strengthen the countrys finances, to get our fiscal house in order.
As far as he and the rest of the economic management team he heads are
concerned, they are operating under the fiscal equivalent of a red alert. They have
scored some early victories, like the increase in revenue collections in recent
months, but they know that they are still far from being in the clear.
That was why Purisima felt truly betrayed when he reportedly got a phone call from
an official telling him yung hinihingi nyo sa Supreme Court binigay na. He didnt
have any pending requests from the Court so he wondered, refusing to accept the
reality of his worst fear: The EVAT had been sacrificed by the Palace.
(5) July 12, 2005, The Philippine Daily Inquirer (No GMA Influence on e-VAT freeze-
SC)
Bunye made the reaffirmation after Purisima and former Trade Secretary Juan
Santos insinuated that the President might have influenced the Supreme Court to
grant the TRO.
At the time the reports came out, Purisima did not controvert the truth or falsity of
the statements attributed to him. It was only after the Court issued the show-cause
order that Purisima saw it fit to deny having uttered these statements. By then, it
was already impressed upon the publics mind that the issuance of the TRO was the
product of machinations on the Court by the executive branch.
If it were true that Purisima felt that the media misconstrued his actions, then he
should have immediately rectified it. He should not have waited until the Court
required him to explain before he denied having made such statements. And even
then, his denials were made as a result of the Courts show-cause order and not by
any voluntary act on his part that will show utter regret for having been
misquoted. Purisima should know that these press releases placed the Court into
dishonor, disrespect, and public contempt, diminished public confidence, promoted
distrust in the Court, and assailed the integrity of its Members. The Court already
took a beating before Purisima made any disclaimer. The damage has been done,
so to speak.
WHEREFORE, Cesar V. Purisima is found GUILTY of indirect contempt of court and

FINED in the amount of Twenty Thousand Pesos (P20,000.00) to be paid within ten
(10) days from finality of herein Resolution.
SO ORDERED.
Davide, Jr., C.J., Puno, Panganiban, Quisumbing, Sandoval-Gutierrez, Carpio,

Corona, Carpio-Morales, Callejo, Sr., Azcuna, Tinga, Chico-Nazario, and Garcia, JJ.,
concur.
Ynares-Santiago, J., on leave.
[1]
Compliance, pp. 2-3.
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G.R. No. 168056, September 01, 2005

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EN BANC

[ G.R. No. 168056, September 01, 2005 ]

[G.R. NO. 168207]

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

[G.R. NO. 168461]

ASSOCIATION OF PILIPINAS SHELL DEALERS, INC.

FRANCIS JOSEPH G. ESCUDERO, VINCENT CRISOLOGO,

[G.R. NO. 168730]

BATAAN GOVERNOR ENRIQUE T. GARCIA, JR. PETITIONER,

-Anne Robert Jacques Turgot (1727-1781)

G.R. No. 168056

(i) Value-added tax collection as a percentage of Gross Domestic Product (GDP) of

(ii) National government deficit as a percentage of GDP of the previous year

G.R. No. 168207

G.R. No. 168461

Petitioners argument is premised on the constitutional right of non-deprivation of

G.R. No. 168463

Several members of the House of Representatives led by Rep. Francis Joseph G.

The Court defined the issues, as follows:

a. Article VI, Section 24, and

1. Whether Sections 4, 5 and 6 of R.A. No. 9337, amending Sections

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

2. Whether Section 8 of R.A. No. 9337, amending Sections 110(A)(2)

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

RULING OF THE COURT

The VAT is a tax on spending or consumption. It is levied on the sale, barter,

The Court will now discuss the issues in logical sequence.

a. Article VI, Section 24, and

A. The Bicameral Conference Committee

Thus, Rule XIV, Sections 88 and 89 of the Rules of House of Representatives

A comparative presentation of the conflicting House and Senate provisions and a

Striking down such argument, the Court held thus:

concern of Congress to instill discipline among the members of its conference

There being differences and/or disagreements on the foregoing provisions of the

1. With regard to the disagreement on the rate of VAT to be imposed, it

2. With regard to the disagreement on whether only the VAT imposed on

3. With regard to the disagreement on whether input tax credits should be

(A) Creditable Input Tax. . . .

Provided, The input tax on goods purchased or imported in a calendar

4. With regard to the amendments to other provisions of the NIRC on

In the present case, the changes introduced by the Bicameral Conference

The no pass-on provision was deleted altogether. In the transcripts of the

Thus, all the changes or modifications made by the Bicameral Conference

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

Art. VI. 26 (2) must, therefore, be construed as referring only to bills

C. R.A. No. 9337 Does Not Violate Article VI,

The argument does not hold water.

Article VI, Section 24 of the Constitution reads:

Furthermore, the amendments introduced by the Senate to the NIRC provisions

What we therefore prescribe is a burden sharing between corporate Philippines and

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

A. No Undue Delegation of Legislative Power

The assailed provisions read as follows:

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

(i) value-added tax collection as a percentage of Gross Domestic

(i) value-added tax collection as a percentage of Gross Domestic

(i) value-added tax collection as a percentage of Gross Domestic

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

With respect to the Legislature, Section 1 of Article VI of the Constitution provides

Nonetheless, the general rule barring delegation of legislative powers is subject to

The true distinction, says Judge Ranney, is between the delegation of

No discretion would be exercised by the President. Highlighting the absence of

In the present case, in making his recommendation to the President on the

B. The 12% Increase VAT Rate Does Not