FRANCIS A. CHURCHILL and STEWART TAIT ET AL., plaintiffs and appellants, vs.

VENANCIO CONCEPCION, as Acting

Collector of Internal Revenue, defendant and appellee.

1.REVENUE STATUTES; VALIDITY OF.—The validity of a revenue statute or the exercise of the taxing power of the
Legislature is not dependent upon the opinion of two interested witnesses to the effect that a certain tax is confiscatory
when it is agreed that a number of other persons have paid such tax.

2.TAXATION; POWER OF THE PHILIPPINE LEGISLATURE; SIGNS AND BILLBOARDS.—The Legislature having the power to
impose a tax upon signs, signboards, and billboards, the courts will not attempt to restrict such power in the absence of a
showing that the exercise thereof on the part of the Legislature was so abused as to make it clear to the judicial mind that
the power had been exercised for the sole purpose of destroying rights which could not be rightfully destroyed
consistently with the principles of freedom and justice.

3.ID.; UNIFORMITY OF.—Uniformity in taxation means that all taxable articles or kinds of property of the same classes
shall be taxed at the same rate. A tax is uniform when it operates with the same .force and effect in every place where the
subject of it is found.

4.ID.; ID.—A tax of P2 a square meter or fraction thereof imposed upon every electric sign, billboard, etc., wherever found
in the Philippine Islands, satisfies the requirement of the Philippine Bill "that the rule of taxation in said Islands shall be
uniform."

APPEAL from a judgment of the Court of First Instance of Manila. Ostrand, J.

The facts are stated in the opinion of the court.
Aitken & DeSelms for appellants.
Attorney-General Avanceña for appellee.

TRENT, J.:

Section 100 of Act No. 2339, passed February 27, 1914, effective July 1, 1914, imposed an annual tax of P4 per square
meter upon "electric signs, billboards, and spaces used for posting or displaying temporary signs, and all signs displayed on
premises not occupied by buildings." This section was subsequently amended by Act No. 2432, effective January 1, 1915,
by reducing the tax on such signs, billboards, etc., to P2 per square meter or fraction thereof. Section 26 of Act No. 2432
was in turn amended by Act No. 2445, but this amendment does not in any way affect the questions involved in the case
under consideration. The taxes imposed by Act No. 2432, as amended, were ratified by the Congress of the United States
on March 4, 1915. The ratifying clause reads as follows:

"The internal-revenue taxes imposed by the Philippine Legislature under the law enacted by that body on December
twenty-third, nineteen hundred and fourteen (Act No. 2432), as amended by the law enacted by it on January sixteenth,
nineteen hundred and fifteen (Act No. 2445), are hereby legalized and ratified, and the collection of all such taxes
heretofore or hereafter is hereby legalized, ratified and confirmed as fully to all intents and purposes as if the same had by
prior Act of Congress been specifically authorized and directed."

Francis A. Churchill and Stewart Tait, copartners doing business under the firm name and style of the Mercantile
Advertising Agency, owners of a sign or billboard containing an area of 52 square meters constructed on private property
in the city of Manila and exposed to public view, were taxed thereon P104. The tax was paid under protest and the
plaintiffs having exhausted all their administrative remedies instituted the present action under section 140 of Act No.
2339 against the Collector of Internal Revenue to recover back the amount thus paid. From a judgment dismissing the
complaint upon the merits, with costs, the plaintiffs appealed.
It is now urged that the trial court erred:
"(1) In not holding that the tax as imposed by virtue of Act No. 2339, as amended by Act No. 2432, as amended by Act No.
2445, constitutes deprivation of property without compensation or due process of law, because it is confiscatory and
unjustly discriminatory and (2) in not holding that the said tax is void for lack of uniformity, because it is not graded
according to value; because the classification on which it is based is mere arbitrary selection and not based on any
reasonable ground; and furthermore, because it constitutes double taxation."

We will first inquire whether the tax in question is confiscatory as to the business of the plaintiff. Upon this point the lower
court, in accepting the testimony of the plaintiff Churchill, to the effect that "the billboard in question cost P300 to
construct, that its annual gross earning power is P268, and that the annual tax is P104," found "that for a five years' period
the gross income from the billboard would be P1,340, and that the expenditures for original construction and taxes would
amount to P820, leaving a balance of P520," held that "unless the tax equals or exceeds the gross income, the court would
hardly be justified in declaring the tax confiscatory." These findings of fact and conclusions of law are attacked upon the
ground that the court failed to take into-consideration the pertinent facts that the annual depreciation of the billboard is
20 per cent; that at the end of five years the capital of P300 would be completely lost; that the plaintiffs are entitled to
receive a reasonable rate of interest on this capital; and that there should be charged against the billboard its proportion
of the overhead charges such as labor, management, maintenance, rental of office premises, rental or purchase of ground
space for board, repair, paints, oils, etc., resulting in an actual loss per year on the business, instead of an apparent profit
of P520 for five years, or P44 for one year, If these contentions rested upon a sound basis it might be said that the tax is, in
a sense, confiscatory; but they do not, as we will attempt to show from the evidence of record.

The plaintiff Churchill testified in part as follows:

"Q. In your opinion, Mr. Churchill, state what you would think of the rates that are charged by you for advertising purposes
in connection with this board; could they be raised?—A. No.
"Q. Why?—A. The business wouldn't allow it; the business wouldn't afford it; and otherwise it would mean bankruptcy to
try to increase it.
"Q. Who couldn't afford it? Explain it fully Mr. Churchill?—A, The merchants couldn't afford to pay more.
On cross-examination: "Q. It is a fact, is it not, Mr. Churchill, that since the passage of Act No. 2339 you have never made
any attempt to raise the advertising rates?—A. It would be impossible to raise them.
"Q. My question is: You have never made any attempt to raise them?—A. We have talked it over with the merchants and
talked over the price on the event of a tax being put at a reasonable amount, about putting up some increase.
"Q. But you have never made an actual attempt to increase your rates?—A. I would consider that an actual attempt.
"Q. You have never fixed the rate higher than it is now?—A. No; no."
It was agreed that Tait, the other plaintiff, would testify to the same effect. The parties, plaintiffs and defendant, further
agreed "that a number of persons have voluntarily and without protest paid the taxes imposed by section 100 of Act No.
2339, as amended by Act No. 2432, and in turn amended by Act No. 2445."

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 a reasonable profit from their business.

In Chicago and Grand Trunk Railway Co. vs. Wellman (143 U. S,, 339), a question similar to the one now under
consideration was raised and decided by the Supreme Court of the United States. The principal contention made in that
case was that an Act of the Legislature of Michigan fixing the amount per mile to be charged by railways for the
transportation of a passenger was unconstitutional, on the ground that the rate so fixed was confiscatory. It was agreed in
the pleadings that the total earnings and income of the company from all sources for a given year were less than the
expenses for the same period. In addition to this agreed statement of facts, two witnesses were called, one the traffic
manager and the other the treasurer of the company. Their testimony was to the effect that in view of the competition
prevailing at Chicago for through business, it was impossible to increase the freight rates then charged by the company
because it would throw the volume of business into the hands of competing roads. In overruling the contention of the
company that the act in question was unconstitutional on the ground that the rate fixed thereby was confiscatory, the
court said:

"Surely, before the courts are called upon to adjudge an act of the legislature fixing the maximum passenger rates for
railroad companies to be unconstitutional, on the ground that its enforcement would prevent the stockholders from
receiving any dividends on their investments, or the bondholders any interest on their loans, they should be fully advised
as to what is done with the receipts and earnings of the company; for if so advised, it might clearly appear that a prudent
and honest management would, within the rates prescribed, secure to the bondholders their interest, and to the
stockholders reasonable dividends. While the protection of vested rights of property Is a supreme duty of the courts, it has
not come to this, that the legislative power rests subservient to the discretion of any railroad corporation which may, by
exhorbitant and unreasonable salaries, or in some other improper way, transfer its earnings into what it is pleased to call
'operating expenses.' "

It is further alleged that the tax in question is unconstitutional because "the law herein complained of was enacted for the
sole purpose of destroying billboards and advertising business depending on the use of signs or billboards." If it be
conceded that the Legislature has the power to impose a tax upon signs, signboards, and billboards, then "the judicial
cannot prescribe to the legislative department of the Government limitation upon the exercise of its acknowledged
powers." (Veazie Bank vs. Fenno, 8 Wall., 533, 548.) That the Philippine Legislature has the power to impose such taxes,
we think there can be no serious doubt, because "the power to impose taxes is one so unlimited in force and so searching
in extent, that the courts scarcely venture to declare that it is subject to any restrictions whatever, except such as rest in
the discretion of the authority which exercises it. It reaches to every trade or occupation; to every object of industry, use,
or enjoyment; to every species of possession; and it imposes a burden which, in case of failure to discharge it, may be
followed by seizure and sale or confiscation of property. No attribute of sovereignty is more pervading, and at no point
does the power of the government affect more constantly and intimately all the relations of life than through the
exactions made under it." (Cooley's Constitutional Limitations, 6th Edition, p. 587.)

In McCray vs. U, S. (195 U. S., 27), the court, in ruling adversely to the contention that a federal tax on oleomargarine
artificially colored was void because the real purpose of Congress was not to raise revenue but to tax out of existence a
substance not harmful of itself and one which might be lawf ully manufactured and sold, said:

"Whilst, as a result of our written constitution, it Is axiomatic that the judicial department of the government is charged
with the solemn duty of enforcing the Constitution, and therefore, in cases properly presented, of determining whether a
given manifestation of authority has exceeded the power conferred by that instrument, no instance is afforded from the
foundation of the government where an act which was within a power conferred, was declared to be repugnant to the
Constitution, because it appeared to the judicial mind that the particular exertion of constitutional power was either
unwise or unjust. To announce such a principle would amount to declaring that, in our constitutional system, the judiciary
was not only charged with the duty of upholding the Constitution, but also with the responsibility of correcting every
possible abuse arising from the exercise by the other departments of their conceded authority, So to hold would be to
overthrow the entire distinction between the.legislative, judicial, and executive departments of the government, upon
which our system is founded, and would be a mere act of judicial usurpation."
If a case were presented where the abuse of the taxing power of the local legislature was so extreme as to make it plain to
the judicial mind that the power had been exercised for the sole purpose of destroying rights which could not be rightfully
destroyed consistently with the principles of freedom and justice upon which the Philippine Government rests, then it
would be the duty of the courts to say that such an arbitrary act was not merely an abuse of the power, but was the
exercise of an authority not conferred. (McCray vs. U. S., supra.) But the instant case is not one of that character, for the
reason that the tax herein complained of falls far short of being confiscatory. Consequently, it cannot be held that the
Legislature has gone beyond the power conferred upon it by the Philippine Bill in so far as the amount of the tax is
concerned.

Is the tax void for lack of uniformity or because it is not graded according to value or constitutes double taxation, or
because the classification upon which it is based is mere arbitrary selection and not based on any reasonable grounds ?
The only limitation, in so f ar as these questions are concerned, placed upon the Philippine Legislature in the exercise of its
taxing power is that found in section 5 of the Philippine Bill, wherein it is declared "that the rule of taxation in said Islands
shall be uniform."

"Uniformity in taxation—says Black on Constitutional Law, page 292—means that all taxable articles or kinds of property,
of the same class, shall be taxed at the same rate. It does not mean that lands, chattels, securities, incomes, occupations, f
ranchises, privileges, necessities, and luxuries, shall all be assessed at the same rate. Different articles may be taxed at
different amounts, provided the rate is uniform on the same class everywhere, with all people, and at all times."

A tax is uniform when it operates with the same force and effect in every place where the subject of it is found (State
Railroad Tax Cases, 92 U. S., 575.) The words "uniform throughout the United States," as required of a tax by the
Constitution, do not signify an intrinsic, but simply a geographical, uniformity, and such uniformity is therefore the only
uniformity which is prescribed by the Constitution. (Patton vs. Brady, 184 U. S., 608; 46 L. Ed., 713.) A tax is uniform, within
the constitutional requirement, when it operates with the same force and effect in every place where the subject of it is
found. (Edye vs. Robertson, 112 U. S., 580; 28 L. Ed., 798.) "Uniformity," as applied to the constitutional provision that all
taxes shall be uniform, means that all property belonging to the same class shall be taxed alike. (Adams vs. Mississippi
State Bank, 23 South, 395, citing Mississippi Mills vs. Cook, 56 Miss., 40.) The statute under consideration imposes a tax of
P2 per square meter or fraction thereof upon every electric sign, bill-board, etc., wherever found in the Philippine Islands.
Or in other words, "the rule of taxation" upon such signs is uniform throughout the Islands. The rule, which we have just
quoted from the Philippine Bill, does not require taxes to be graded according to the value of the subject or subjects upon
which they are imposed, especially those levied as privilege or occupation taxes. We can hardly see wherein the tax in
question constitutes double taxation. The fact that the land upon which the billboards are located is taxed at so much per
unit and the billboards at so much per square meter does not constitute "double taxation." Double taxation, within the
true meaning of that expression, does not necessarily affect its validity. (1 Cooley on Taxation, 3d ed., 389.) And again, it is
not for the judiciary to say that the classification upon which the tax is based "is mere arbitrary selection and not based
upon any reasonable grounds." The Legislature selected signs and billboards as a subject for taxation and it must be
presumed that it, in so doing, acted with a full knowledge of the situation.

For the foregoing reasons, the judgment appealed from is affirmed, with costs against the appellants. So ordered.

Torres, Johnson, Carson, and Araullo, JJ., concur.

Judgment affirmed. Churchill vs. Concepcion., 34 Phil. 969, No, 11572 September 22, 1916
ANTERO M. SISON, JR., petitioner, vs. RUBEN B. ANCHETA, Acting Commissioner, Bureau of Internal Revenue; ROMULO
VILLA, Deputy Commissioner, Bureau of Internal Revenue; TOMAS TOLEDO, Deputy Commissioner, Bureau of Internal
Revenue; MANUEL ALBA, Minister of Budget, FRANCISCO TANTUICO, Chairman, Commissioner on Audit, and CESAR E.
A. VIRATA, Minister of Finance, respondents.

Taxation; Constitutional Law; The Constitution sets forth the restrictions to the power to tax.—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.

Same; Same; A bare allegation that Batas 135, which sets different income tax schedules for fixed income earners and
business or professional income earners, is arbitrary does not suffice to invalidate said tax statute.—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.

Same; Same; Due process clause may be invoked where a tax statute is so arbitrary as to find no support in
Constitution.—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.

Same; Same; The State is free to select the subjects of taxation and inequalities consequent to its exercise infringe no
constitutional limitation.—The equal protection clause is, of course, inspired by the noble concept of approximating the
ideal of the laws’s benefits being available to all and the affairs of men being governed by that serene and impartial
uniformity, which is of the very essence of the idea of law. There is, however, wisdom, as well as realism, in these words of
Justice Frankfurter: “The equality at which the ‘equal protection’ clause aims is not a disembodied equality. The
Fourteenth Amendment enjoins ‘the equal protection of the laws,’ and laws are not abstract propositions. They do not
relate to abstract units A, B and C, but are expressions of policy arising out of specific difficulties, addressed to the
attainment of specific ends by the use of specific remedies. The Constitution does not require things which are different in
fact or opinion to be treated in law as though they were the same.” Hence the constant reiteration of the view that
classification if rational in character is allowable. As a matter of fact, in a leading case of Lutz V. Araneta, this Court,
through Justice J.B.L. Reyes, went so far as to hold “at any rate, it is inherent in the power to tax that a state be free to
select the subjects of taxation, and it has been repeatedly held that ‘inequalities which result from a singling out of one
particular class for taxation, or exemption infringe no constitutional limitation.’ ”
Same; Same; Uniformity in taxation quite similar to the standard of equal protection.—Petitioner likewise invoked the
kindred concept of uniformity. According to the Constitution: “The rule of taxation shall be uniform and equitable.” This
requirement is met according to Justice Laurel in Philippine Trust Company v. Yatco, decided in 1940, when the tax
“operates with the same force and effect in every place where the subject may be found.” He likewise added: “The rule of
uniformity does not call for perfect uniformity or perfect equality, because this is hardly attainable.” The problem of
classification did not present itself in that case. It did not arise until nine years later, when the Supreme Court held:
“Equality and uniformity in taxation means that all taxable articles or kinds of property of the same class shall be taxed at
the same rate. The taxing power has the authority to make reasonable and natural classifications for purposes of taxation,
* * *. As clarified by Justice Tuason, where “the differentiation” complained of “conforms to the practical dictates of
justice and equity” it “is not discriminatory within the meaning of this clause and is therefore uniform.” There is quite a
similarity then to the standard of equal protection for all that is required is that the tax “applies equally to all persons,
firms and corporations placed in similar situation.”

Same; Same; Taxpayers may be classified into different categories where it rests on real differences.—Apparently, what
misled petitioner is his failure to take into consideration the distinction between a tax rate and a tax base. There is no legal
objection to a broader tax base or taxable income by eliminating all deductible items and at the same time reducing the
applicable tax rate. Taxpayers may be classified into different categories. To repeat, it is enough that the classification
must rest upon substantial distinctions that make real differences. In the case of the gross income taxation embodied in
Batas Pambansa Blg. 135, the discernible basis of classification is the susceptibility of the income to the application of
generalized rules removing all deductible items for all taxpayers within the class and fixing a set of reduced tax rates to be
applied to all of them. Taxpayers who are recipients of compensation income are set apart as a class. As there is practically
no overhead expense, these taxpayers are not entitled to make deductions for income tax purposes because they are in
the same situation more or less. On the other hand, in the case of professionals in the practice of their calling and
businessmen, there is no uniformity in the costs or expenses necessary to produce their income. It would not be just then
to disregard the disparities by giving all of them zero deduction and indiscriminately impose on all alike the same tax rates
on the basis of gross income. There is ample justification then for the Batasang Pambansa to adopt the gross system of
income taxation to compensation income, while continuing the system of net income taxation as regards professional and
business income.

PETITION to review the decision of the Acting Commissioner of Internal Revenue.

The facts are stated in the opinion of the Court.

Antero M. Sison for petitioner and for his own behalf.
The Solicitor General for respondents.

FERNANDO, C.J.:

The success of the challenge posed in this suit for declaratory relief or prohibition proceeding1 on the validity of Section 1
of Batas Pambansa Blg. 135 depends upon a showing of its constitutional infirmity. The assailed provision further amends
Section 21 of the National Internal Revenue Code of 1977, which provides for rates of tax on citizens or residents on (a)
taxable compensation income, (b) taxable net income, (c) royalties, prizes, and other winnings, (d) interest from bank
deposits and yield or any other monetary benefit from deposit substitutes and from trust fund and similar arrangements,
(e) dividends and share of individual partner in the net profits of taxable partnership, (f) adjusted gross income.2
Petitioner3 as taxpayer alleges that by virtue thereof, “he would be unduly discriminated against by the imposition of
higher rates of tax upon his income arising from the exercise of his profession vis-a-vis those which are imposed upon
fixed income or salaried individual taxpayers.”4 He characterizes the above section as arbitrary amounting to class
legislation, oppressive and capricious in character.5 For petitioner, therefore, there is a transgression of both the equal
protection and due process clauses6 of the Constitution as well as of the rule requiring uniformity in taxation.7

The Court, in a resolution of January 26, 1982, required respondents to file an answer within 10 days from notice. Such an
answer, after two extensions were granted the Office of the Solicitor General, was filed on May 28, 1982.8 The facts as
alleged were admitted but not the allegations which to their mind are “mere arguments, opinions or conclusions on the
part of the petitioner, the truth [for them] being those stated [in their] Special and Affirmative Defenses.”9 The answer
then affirmed: “Batas Pambansa Big. 135 is a valid exercise of the State’s power to tax. The authorities and cases cited,
while correctly quoted or paraphrased, do not support petitioner’s stand.”10 The prayer is for the dismissal of the petition
for lack of merit.
This Court finds such a plea more than justified. The petition must be dismissed.

1. It is manifest that the field of state activity has assumed a much wider scope. The reason was so clearly set forth by
retired Chief Justice Makalintal thus: “The areas which used to be left to private enterprise and initiative and which the
government was called upon to enter optionally, and only ‘because it was better equipped to administer for the public
welfare than is any private individual or group of individuals,’ continue to lose their well-defined boundaries and to be
absorbed within activities that the government must undertake in its sovereign capacity if it is to meet the increasing
social challenges of the times.”11 Hence the need for more revenues. The power to tax, an inherent prerogative, has to be
availed of to assure the performance of vital state functions. It is the source of the bulk of public funds. To paraphrase a
recent decision, taxes being the lifeblood of the government, their prompt and certain availability is of the essence.12

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.”13 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.”14 In a separate opinion in Graves v. New York,15 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.”16 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.’ ”17 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 declare 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.

6. Now for equal protection. The applicable standard to avoid the charge that there is a denial of this constitutional
mandate whether the assailed act is in the exercise of the police power or the power of eminent domain is to demonstrate
“that the governmental act assailed, far from being inspired by the attainment of the common weal was prompted by the
spirit of hostility, or at the very least, discrimination that finds no support in reason. It suffices then that the laws operate
equally and uniformly on all persons under similar circumstances or that all persons must be treated in the same manner,
the conditions not being different, both in the privileges conferred and the liabilities imposed. Favoritism and undue
preference cannot be allowed. For the principle is that equal protection and security shall be given to every person under
circumstances, which if not identical are analogous. If law be looked upon in terms of burden or charges, those that fall
within a class should be treated in the same fashion, whatever restrictions cast on some in the group equally binding on
the rest.”20 That same formulation applies as well to taxation measures. The equal protection clause is, of course, inspired
by the noble concept of approximating the ideal of the laws’s benefits being available to all and the affairs of men being
governed by that serene and impartial uniformity, which is of the very essence of the idea of law. There is, however,
wisdom, as well as realism, in these words of Justice Frankfurter: “The equality at which the ‘equal protection’ clause aims
is not a disembodied equality. The Fourteenth Amendment enjoins ‘the equal protection of the laws,’ and laws are not
abstract propositions. They do not relate to abstract units A, B and C, but are expressions of policy arising out of specific
difficulties, addressed to the attainment of specific ends by the use of specific remedies. The Constitution does not require
things which are different in fact or opinion to be treated in law as though they were the same.”21 Hence the constant
reiteration of the view that classification if rational in character is allowable. As a matter of fact, in a leading case of Lutz V.
Araneta,22 this Court, through Justice J.B.L. Reyes, went so far as to hold “at any rate, it is inherent in the power to tax
that a state be free to select the subjects of taxation, and it has been repeatedly held that ‘inequalities which result from a
singling out of one particular class for taxation, or exemption infringe no constitutional limitation.’ ”23

7. Petitioner likewise invoked the kindred concept of uniformity. According to the Constitution: “The rule of taxation shall
be uniform and equitable.”24 This requirement is met according to Justice Laurel in Philippine Trust Company v. Yatco,25
decided in 1940, when the tax “operates with the same force and effect in every place where the subject may be
found.”26 He likewise added: “The rule of uniformity does not call for perfect uniformity or perfect equality, because this
is hardly attainable.”27 The problem of classification did not present itself in that case. It did not arise until nine years
later, when the Supreme Court held: “Equality and uniformity in taxation means that all taxable articles or kinds of
property of the same class shall be taxed at the same rate. The taxing power has the authority to make reasonable and
natural classifications for purposes of taxation, * * *.28 As clarified by Justice Tuason, where “the differentiation”
complained of “conforms to the practical dictates of justice and equity” it “is not discriminatory within the meaning of this
clause and is therefore uniform.”29 There is quite a similarity then to the standard of equal protection for all that is
required is that the tax “applies equally to all persons, firms and corporations placed in similar situation.”30
8. Further on this point. Apparently, what misled petitioner is his failure to take into consideration the distinction between
a tax rate and a tax base. There is no legal objection to a broader tax base or taxable income by eliminating all deductible
items and at the same time reducing the applicable tax rate. Taxpayers may be classified into different categories. To
repeat, it is enough that the classification must rest upon substantial distinctions that make real differences. In the case of
the gross income taxation embodied in Batas Pambansa Blg. 135, the discernible basis of classification is the susceptibility
of the income to the application of generalized rules removing all deductible items for all taxpayers within the class and
fixing a set of reduced tax rates to be applied to all of them. Taxpayers who are recipients of compensation income are set
apart as a class. As there is practically no overhead expense, these taxpayers are not entitled to make deductions for
income tax purposes because they are in the same situation more or less. On the other hand, in the case of professionals
in the practice of their calling and businessmen, there is no uniformity in the costs or expenses necessary to produce their
income. It would not be just then to disregard the disparities by giving all of them zero deduction and indiscriminately
impose on all alike the same tax rates on the basis of gross income. There is ample justification then for the Batasang
Pambansa to adopt the gross system of income taxation to compensation income, while continuing the system of net
income taxation as regards professional and business income.

9. Nothing can be clearer, therefore, than that the petition is without merit, considering the (1) lack of factual foundation
to show the arbitrary character of the assailed provision;31 (2) the force of controlling doctrines on due process, equal
protection, and uniformity in taxation and (3) the reasonableness of the distinction between compensation and taxable
net income of professionals and businessmen—certainly not a suspect classification.
WHEREFORE, the petition is dismissed. Costs against petitioner.
Makasiar, Concepcion, Jr., Guerrero, Melencio-Herrera, Escolin, Relova, Gutierrez, Jr., De la Fuente and Cuevas, JJ.,
concur.
Teehankee, J., in the result.
Aquino, J., In the result. The petitioner has no cause of action for prohibition.
Plana, J., did not take part.
Abad Santos, J., This is a frivolous suit. While the tax rates for compensation income are lower than those for net
income such circumstance does not necessarily result in lower tax payments for those receiving compensation income. In
fact, the reverse will most likely be the case; those who file returns on the basis of net income will pay less taxes because
they can claim all sorts of deductions justified or not. I vote for dismissal.

Petition dismissed.
Notes.—Taxes being the chief source of revenue for the Government to keep it running must be paid immediately and
without delay. (Collector of Internal Revenue vs. Yuseco, 3 SCRA 313.)
Taxes are the lifeblood of government and their prompt and certain availability is an imperious need. (Commissioner of
Internal Revenue vs. Pineda, 21 SCRA 105.)

The power of taxation should be exercised with caution to minimize injury to the proprietary rights of a taxpayer. (Roxas
vs. Court of Tax Appeals, 23 SCRA 276.) Sison, Jr. vs. Ancheta, 130 SCRA 654, No. L-59431 July 25, 1984
 G. R. No. 160756. March 9, 2010.*
CHAMBER OF REAL ESTATE AND BUILDERS’ ASSOCIATIONS, INC., petitioner, vs. THE HON. EXECUTIVE SECRETARY
ALBERTO ROMULO, THE HON. ACTING SECRETARY OF FINANCE JUANITA D. AMATONG, and THE HON. COMMISSIONER
OF INTERNAL REVENUE GUILLERMO PARAYNO, JR., respondents.

Remedial Law; Actions; Justiciable Review; Requisites before the courts will assume jurisdiction over a constitutional
question.—Courts will not assume jurisdiction over a constitutional question unless the following requisites are satisfied:
(1) there must be an actual case calling for the exercise of judicial review; (2) the question before the court must be ripe
for adjudication; (3) the person challenging the validity of the act must have standing to do so; (4) the question of
constitutionality must have been raised at the earliest opportunity and (5) the issue of constitutionality must be the very
lis mota of the case.

Same; Same; Same; Meaning of an Actual Case or Controversy; A question is considered ripe for adjudication when the
act being challenged has a direct adverse effect on the individual challenging it.—An actual case or controversy involves
a conflict of legal rights or an assertion of opposite legal claims which is susceptible of judicial resolution as distinguished
from a hypothetical or abstract difference or dispute. On the other hand, a question is considered ripe for adjudication
when the act being challenged has a direct adverse effect on the individual challenging it.

Same; Same; Same; Locus Standi; Legal standing or locus standi is a party’s personal and substantial interest in a case
such that it has sustained or will sustain direct injury as a result of the governments act being challenged.—Legal
standing or locus standi is a party’s personal and substantial interest in a case such that it has sustained or will sustain
direct injury as a result of the governmental act being challenged. In Holy Spirit Homeowners Association, Inc. v. Defensor,
497 SCRA 581 (2006) we held that the association had legal standing because its members stood to be injured by the
enforcement of the assailed provisions.
Same; Same; Same; Courts; Court has the discretion to take cognizance of a suit which does not satisfy the requirements
of an actual case, ripeness or legal standing when paramount public interest is involved.—In any event, this Court has
the discretion to take cognizance of a suit which does not satisfy the requirements of an actual case, ripeness or legal
standing when paramount public interest is involved. The questioned MCIT and CWT affect not only petitioners but
practically all domestic corporate taxpayers in our country. The transcendental importance of the issues raised and their
overreaching significance to society make it proper for us to take cognizance of this petition.

Taxation; Corporation Law; Domestic corporations owe their corporate existence and their privilege to do business to
the government; It is therefore fair for the government to require them to make a reasonable contribution to the public
expenses.—Domestic corporations owe their corporate existence and their privilege to do business to the government.
They also benefit from the efforts of the government to improve the financial market and to ensure a favorable business
climate. It is therefore fair for the government to require them to make a reasonable contribution to the public expenses.

Same; Minimum Corporate Income Tax (MCIT); As a tax on gross income, Minimum Corporate Income Tax (MCIT)
prevents tax evasion and minimizes tax avoidance schemes achieved through sophisticated and artful manipulations of
deductions and other stratagems.—The primary purpose of any legitimate business is to earn a profit. Continued and
repeated losses after operations of a corporation or consistent reports of minimal net income render its financial
statements and its tax payments suspect. For sure, certain tax avoidance schemes resorted to by corporations are allowed
in our jurisdiction. The MCIT serves to put a cap on such tax shelters. As a tax on gross income, it prevents tax evasion and
minimizes tax avoidance schemes achieved through sophisticated and artful manipulations of deductions and other
stratagems. Since the tax base was broader, the tax rate was lowered.
Same; Same; Taxes are the lifeblood of the government; Taxation is an inherent attribute of sovereignty; The legislature
wields the power to define what tax shall be imposed, why it should be imposed, how much tax shall be imposed,
against whom (or what) it shall be imposed and where it shall be imposed.—Taxes are the lifeblood of the government.
Without taxes, the government can neither exist nor endure. The exercise of taxing power derives its source from the very
existence of the State whose social contract with its citizens obliges it to promote public interest and the common good.
Taxation is an inherent attribute of sovereignty. It is a power that is purely legislative. Essentially, this means that in the
legislature primarily lies the discretion to determine the nature (kind), object (purpose), extent (rate), coverage (subjects)
and situs (place) of taxation. It has the authority to prescribe a certain tax at a specific rate for a particular public purpose
on persons or things within its jurisdiction. In other words, the legislature wields the power to define what tax shall be
imposed, why it should be imposed, how much tax shall be imposed, against whom (or what) it shall be imposed and
where it shall be imposed.

Same; Same; Like any other statute, tax legislation carries a presumption of constitutionality.—As a general rule, the
power to tax is plenary and unlimited in its range, acknowledging in its very nature no limits, so that the principal check
against its abuse is to be found only in the responsibility of the legislature (which imposes the tax) to its constituency who
are to pay it. Nevertheless, it is circumscribed by constitutional limitations. At the same time, like any other statute, tax
legislation carries a presumption of constitutionality.

Same; Same; Courts; Court will not strike down a revenue measure as unconstitutional (for being violative of the due
process clause) on the mere allegation of arbitrariness by the taxpayer.—In Sison, Jr. v. Ancheta, et al., 130 SCRA 654
(1984) we held that the due process clause may properly be invoked to invalidate, in appropriate cases, a revenue
measure when it amounts to a confiscation of property. But in the same case, we also explained that we will not strike
down a revenue measure as unconstitutional (for being violative of the due process clause) on the mere allegation of
arbitrariness by the taxpayer. There must be a factual foundation to such an unconstitutional taint. This merely adheres to
the authoritative doctrine that, where the due process clause is invoked, considering that it is not a fixed rule but rather a
broad standard, there is a need for proof of such persuasive character.

Same; Same; The Minimum Corporate Income Tax (MCIT) is not a tax on capital; The Minimum Corporate Income Tax
(MCIT) is imposed on gross income.—Certainly, an income tax is arbitrary and confiscatory if it taxes capital because
capital is not income. In other words, it is income, not capital, which is subject to income tax. However, the MCIT is not a
tax on capital. The MCIT is imposed on gross income which is arrived at by deducting the capital spent by a corporation in
the sale of its goods, i.e., the cost of goods and other direct expenses from gross sales. Clearly, the capital is not being
taxed.

Same; Same; Minimum Corporate Income Tax (MCIT) is not an additional tax imposition; It is imposed in lieu of the
normal net income tax and only if the normal income tax is suspiciously low.—Furthermore, the MCIT is not an additional
tax imposition. It is imposed in lieu of the normal net income tax, and only if the normal income tax is suspiciously low.
The MCIT merely approximates the amount of net income tax due from a corporation, pegging the rate at a very much
reduced 2% and uses as the base the corporation’s gross income.

Same; Same; Withholding Tax System; The method of withholding tax at source is a procedure of collecting income tax
which is sanctioned by our tax laws; Three primary lessons why the withholding tax system was devised.—We have long
recognized that the method of withholding tax at source is a procedure of collecting income tax which is sanctioned by our
tax laws. The withholding tax system was devised for three primary reasons: first, to provide the taxpayer a convenient
manner to meet his probable income tax liability; second, to ensure the collection of income tax which can otherwise be
lost or substantially reduced through failure to file the corresponding returns and third, to improve the government’s cash
flow.
Same; Same; Same; The creditable withholding tax (CWT) does not impose new taxes nor does it increase taxes; It
relates entirely to the method and time of payment.—It is stressed that the CWT is creditable against the tax due from
the seller of the property at the end of the taxable year. The seller will be able to claim a tax refund if its net income is less
than the taxes withheld. Nothing is taken that is not due so there is no confiscation of property repugnant to the
constitutional guarantee of due process. More importantly, the due process requirement applies to the power to tax. The
CWT does not impose new taxes nor does it increase taxes. It relates entirely to the method and time of payment.

Same; Constitutional Law; Equal Protection Clause; The guaranty of the equal protection of the laws is not violated by
legislation based on a reasonable classification; Requisites for Classification to be Valid.—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.” Stated differently, all persons
belonging to the same class shall be taxed alike. It follows that the guaranty of the equal protection of the laws is not
violated by legislation based on a reasonable classification. Classification, to be valid, must (1) rest on substantial
distinctions; (2) be germane to the purpose of the law; (3) not be limited to existing conditions only and (4) apply equally
to all members of the same class.

Same; Same; Same; The taxing power has the authority to make reasonable classifications for purposes of taxation.—
The taxing power has the authority to make reasonable classifications for purposes of taxation. Inequalities which result
from a singling out of one particular class for taxation, or exemption, infringe no constitutional limitation. The real estate
industry is, by itself, a class and can be validly treated differently from other business enterprises.

SPECIAL CIVIL ACTION in the Supreme Court. Certiorari and Mandamus.

The facts are stated in the opinion of the Court.
Isagani A. Cruz for petitioner.
Manuel M. Serrano collaborating counsel for petitioner.
The Solicitor General for respondents.

CORONA, J.:

In this original petition for certiorari and mandamus,1 petitioner Chamber of Real Estate and Builders’ Associations, Inc. is
questioning the constitutionality of Section 27 (E) of Republic Act (RA) 84242 and the revenue regulations (RRs) issued by
the Bureau of Internal Revenue (BIR) to implement said provision and those involving creditable withholding taxes.3

Petitioner is an association of real estate developers and builders in the Philippines. It impleaded former Executive
Secretary Alberto Romulo, then acting Secretary of Finance Juanita D. Amatong and then Commissioner of Internal
Revenue Guillermo Parayno, Jr. as respondents.

Petitioner assails the validity of the imposition of minimum corporate income tax (MCIT) on corporations and creditable
withholding tax (CWT) on sales of real properties classified as ordinary assets.

Section 27(E) of RA 8424 provides for MCIT on domestic corporations and is implemented by RR 9-98. Petitioner argues
that the MCIT violates the due process clause because it levies income tax even if there is no realized gain.

Petitioner also seeks to nullify Sections 2.57.2(J) (as amended by RR 6-2001) and 2.58.2 of RR 2-98, and Section 4(a)(ii) and
(c)(ii) of RR 7-2003, all of which prescribe the rules and procedures for the collection of CWT on the sale of real properties
categorized as ordinary assets. Petitioner contends that these revenue regulations are contrary to law for two
reasons: first, they ignore the different treatment by RA 8424 of ordinary assets and capital assets and second, respondent
Secretary of Finance has no authority to collect CWT, much less, to base the CWT on the gross selling price or fair market
value of the real properties classified as ordinary assets.
Petitioner also asserts that the enumerated provisions of the subject revenue regulations violate the due process clause
because, like the MCIT, the government collects income tax even when the net income has not yet been determined. They
contravene the equal protection clause as well because the CWT is being levied upon real estate enterprises but not on
other business enterprises, more particularly those in the manufacturing sector.

The issues to be resolved are as follows:

(1) whether or not this Court should take cognizance of the present case;

(2) whether or not the imposition of the MCIT on domestic corporations is unconstitutional and

(3) whether or not the imposition of CWT on income from sales of real properties classified as ordinary assets
under RRs 2-98, 6-2001 and 7-2003, is unconstitutional.

Overview of the Assailed Provisions

Under the MCIT scheme, a corporation, beginning on its fourth year of operation, is assessed an MCIT of 2% of its gross
income when such MCIT is greater than the normal corporate income tax imposed under Section 27(A).4 If the regular
income tax is higher than the MCIT, the corporation does not pay the MCIT. Any excess of the MCIT over the normal tax
shall be carried forward and credited against the normal income tax for the three immediately succeeding taxable years.
Section 27(E) of RA 8424 provides:

Section 27 (E). [MCIT] on Domestic Corporations. -

(1) Imposition of Tax. – A [MCIT] of two percent (2%) of the gross income as of the end of the taxable year, as
defined herein, is hereby imposed on a corporation taxable under this Title, beginning on the fourth taxable year
immediately following the year in which such corporation commenced its business operations, when the minimum
income tax is greater than the tax computed under Subsection (A) of this Section for the taxable year.

(2) Carry Forward of Excess Minimum Tax. – Any excess of the [MCIT] over the normal income tax as computed
under Subsection (A) of this Section shall be carried forward and credited against the normal income tax for the
three (3) immediately succeeding taxable years.

(3) Relief from the [MCIT] under certain conditions. – The Secretary of Finance is hereby authorized to suspend the
imposition of the [MCIT] on any corporation which suffers losses on account of prolonged labor dispute, or
because of force majeure, or because of legitimate business reverses.

The Secretary of Finance is hereby authorized to promulgate, upon recommendation of the Commissioner, the
necessary rules and regulations that shall define the terms and conditions under which he may suspend the
imposition of the [MCIT] in a meritorious case.

(4) Gross Income Defined. – For purposes of applying the [MCIT] provided under Subsection (E) hereof, the term
‘gross income’ shall mean gross sales less sales returns, discounts and allowances and cost of goods sold. "Cost of
goods sold" shall include all business expenses directly incurred to produce the merchandise to bring them to their
present location and use.

For trading or merchandising concern, "cost of goods sold" shall include the invoice cost of the goods sold, plus import
duties, freight in transporting the goods to the place where the goods are actually sold including insurance while the goods
are in transit.

For a manufacturing concern, "cost of goods manufactured and sold" shall include all costs of production of finished
goods, such as raw materials used, direct labor and manufacturing overhead, freight cost, insurance premiums and other
costs incurred to bring the raw materials to the factory or warehouse.
In the case of taxpayers engaged in the sale of service, "gross income" means gross receipts less sales returns, allowances,
discounts and cost of services. "Cost of services" shall mean all direct costs and expenses necessarily incurred to provide
the services required by the customers and clients including (A) salaries and employee benefits of personnel, consultants
and specialists directly rendering the service and (B) cost of facilities directly utilized in providing the service such as
depreciation or rental of equipment used and cost of supplies: Provided, however, that in the case of banks, "cost of
services" shall include interest expense.

On August 25, 1998, respondent Secretary of Finance (Secretary), on the recommendation of the Commissioner of Internal
Revenue (CIR), promulgated RR 9-98 implementing Section 27(E).5 The pertinent portions thereof read:

Sec. 2.27(E) [MCIT] on Domestic Corporations. –

(1) Imposition of the Tax. – A [MCIT] of two percent (2%) of the gross income as of the end of the taxable year (whether
calendar or fiscal year, depending on the accounting period employed) is hereby imposed upon any domestic corporation
beginning the fourth (4th) taxable year immediately following the taxable year in which such corporation commenced its
business operations. The MCIT shall be imposed whenever such corporation has zero or negative taxable income or
whenever the amount of minimum corporate income tax is greater than the normal income tax due from such
corporation.

For purposes of these Regulations, the term, "normal income tax" means the income tax rates prescribed under Sec. 27(A)
and Sec. 28(A)(1) of the Code xxx at 32% effective January 1, 2000 and thereafter.

xxx xxx xxx

(2) Carry forward of excess [MCIT]. – Any excess of the [MCIT] over the normal income tax as computed under Sec. 27(A)
of the Code shall be carried forward on an annual basis and credited against the normal income tax for the three (3)
immediately succeeding taxable years.

xxx xxx xxx

Meanwhile, on April 17, 1998, respondent Secretary, upon recommendation of respondent CIR, promulgated RR 2-98
implementing certain provisions of RA 8424 involving the withholding of taxes.6 Under Section 2.57.2(J) of RR No. 2-98,
income payments from the sale, exchange or transfer of real property, other than capital assets, by persons residing in the
Philippines and habitually engaged in the real estate business were subjected to CWT:

Sec. 2.57.2. Income payment subject to [CWT] and rates prescribed thereon:

xxx xxx xxx

(J) Gross selling price or total amount of consideration or its equivalent paid to the seller/owner for the sale, exchange or
transfer of. – Real property, other than capital assets, sold by an individual, corporation, estate, trust, trust fund or
pension fund and the seller/transferor is habitually engaged in the real estate business in accordance with the following
schedule –

Those which are exempt from a Exempt

withholding tax at source as
prescribed in Sec. 2.57.5 of these
regulations.

With a selling price of five hundred 1.5%

thousand pesos (₱500,000.00) or less.

With a selling price of more than five 3.0%

 hundred thousand pesos
(₱500,000.00) but not more than two
million pesos (₱2,000,000.00).

With selling price of more than two 5.0%

million pesos (₱2,000,000.00)

xxx xxx xxx

Gross selling price shall mean the consideration stated in the sales document or the fair market value determined in
accordance with Section 6 (E) of the Code, as amended, whichever is higher. In an exchange, the fair market value of the
property received in exchange, as determined in the Income Tax Regulations shall be used.

Where the consideration or part thereof is payable on installment, no withholding tax is required to be made on the
periodic installment payments where the buyer is an individual not engaged in trade or business. In such a case, the
applicable rate of tax based on the entire consideration shall be withheld on the last installment or installments to be paid
to the seller.

However, if the buyer is engaged in trade or business, whether a corporation or otherwise, the tax shall be deducted and
withheld by the buyer on every installment.

This provision was amended by RR 6-2001 on July 31, 2001:

Sec. 2.57.2. Income payment subject to [CWT] and rates prescribed thereon:

xxx xxx xxx

(J) Gross selling price or total amount of consideration or its equivalent paid to the seller/owner for the sale, exchange or
transfer of real property classified as ordinary asset. - A [CWT] based on the gross selling price/total amount of
consideration or the fair market value determined in accordance with Section 6(E) of the Code, whichever is higher, paid
to the seller/owner for the sale, transfer or exchange of real property, other than capital asset, shall be imposed upon the
withholding agent,/buyer, in accordance with the following schedule:

Where the seller/transferor is exempt from [CWT] in Exempt

accordance with Sec. 2.57.5 of these regulations.
Upon the following values of real property, where the
seller/transferor is habitually engaged in the real estate
business.
With a selling price of Five Hundred Thousand Pesos 1.5%
(₱500,000.00) or less.
With a selling price of more than Five Hundred Thousand 3.0%
Pesos (₱500,000.00) but not more than Two Million Pesos
(₱2,000,000.00).
With a selling price of more than two Million Pesos 5.0%
(₱2,000,000.00).

xxx xxx xxx

Gross selling price shall remain the consideration stated in the sales document or the fair market value determined in
accordance with Section 6 (E) of the Code, as amended, whichever is higher. In an exchange, the fair market value of the
property received in exchange shall be considered as the consideration.

xxx xxx xxx

However, if the buyer is engaged in trade or business, whether a corporation or otherwise, these rules shall apply:

(i) If the sale is a sale of property on the installment plan (that is, payments in the year of sale do not exceed 25% of the
selling price), the tax shall be deducted and withheld by the buyer on every installment.

(ii) If, on the other hand, the sale is on a "cash basis" or is a "deferred-payment sale not on the installment plan" (that is,
payments in the year of sale exceed 25% of the selling price), the buyer shall withhold the tax based on the gross selling
price or fair market value of the property, whichever is higher, on the first installment.

In any case, no Certificate Authorizing Registration (CAR) shall be issued to the buyer unless the [CWT] due on the sale,
transfer or exchange of real property other than capital asset has been fully paid. (Underlined amendments in the original)

Section 2.58.2 of RR 2-98 implementing Section 58(E) of RA 8424 provides that any sale, barter or exchange subject to the
CWT will not be recorded by the Registry of Deeds until the CIR has certified that such transfers and conveyances have
been reported and the taxes thereof have been duly paid:7

Sec. 2.58.2. Registration with the Register of Deeds. – Deeds of conveyances of land or land and building/improvement
thereon arising from sales, barters, or exchanges subject to the creditable expanded withholding tax shall not be recorded
by the Register of Deeds unless the [CIR] or his duly authorized representative has certified that such transfers and
conveyances have been reported and the expanded withholding tax, inclusive of the documentary stamp tax, due thereon
have been fully paid xxxx.

On February 11, 2003, RR No. 7-20038 was promulgated, providing for the guidelines in determining whether a particular
real property is a capital or an ordinary asset for purposes of imposing the MCIT, among others. The pertinent portions
thereof state:

Section 4. Applicable taxes on sale, exchange or other disposition of real property. - Gains/Income derived from sale,
exchange, or other disposition of real properties shall, unless otherwise exempt, be subject to applicable taxes imposed
under the Code, depending on whether the subject properties are classified as capital assets or ordinary assets;

a. In the case of individual citizen (including estates and trusts), resident aliens, and non-resident aliens engaged in trade
or business in the Philippines;

xxx xxx xxx

(ii) The sale of real property located in the Philippines, classified as ordinary assets, shall be subject to the [CWT]
(expanded) under Sec. 2.57..2(J) of [RR 2-98], as amended, based on the gross selling price or current fair market value as
determined in accordance with Section 6(E) of the Code, whichever is higher, and consequently, to the ordinary income
tax imposed under Sec. 24(A)(1)(c) or 25(A)(1) of the Code, as the case may be, based on net taxable income.

xxx xxx xxx

c. In the case of domestic corporations. –

xxx xxx xxx

(ii) The sale of land and/or building classified as ordinary asset and other real property (other than land and/or building
treated as capital asset), regardless of the classification thereof, all of which are located in the Philippines, shall be subject
to the [CWT] (expanded) under Sec. 2.57.2(J) of [RR 2-98], as amended, and consequently, to the ordinary income tax
under Sec. 27(A) of the Code. In lieu of the ordinary income tax, however, domestic corporations may become subject to
the [MCIT] under Sec. 27(E) of the Code, whichever is applicable.

xxx xxx xxx

We shall now tackle the issues raised.

Existence of a Justiciable Controversy

Courts will not assume jurisdiction over a constitutional question unless the following requisites are satisfied: (1) there
must be an actual case calling for the exercise of judicial review; (2) the question before the court must be ripe for
adjudication; (3) the person challenging the validity of the act must have standing to do so; (4) the question of
constitutionality must have been raised at the earliest opportunity and (5) the issue of constitutionality must be the
very lis mota of the case.9

Respondents aver that the first three requisites are absent in this case. According to them, there is no actual case calling
for the exercise of judicial power and it is not yet ripe for adjudication because

[petitioner] did not allege that CREBA, as a corporate entity, or any of its members, has been assessed by the BIR for the
payment of [MCIT] or [CWT] on sales of real property. Neither did petitioner allege that its members have shut down their
businesses as a result of the payment of the MCIT or CWT. Petitioner has raised concerns in mere abstract and
hypothetical form without any actual, specific and concrete instances cited that the assailed law and revenue regulations
have actually and adversely affected it. Lacking empirical data on which to base any conclusion, any discussion on the
constitutionality of the MCIT or CWT on sales of real property is essentially an academic exercise.

Perceived or alleged hardship to taxpayers alone is not an adequate justification for adjudicating abstract issues.
Otherwise, adjudication would be no different from the giving of advisory opinion that does not really settle legal issues.10

An actual case or controversy involves a conflict of legal rights or an assertion of opposite legal claims which is susceptible
of judicial resolution as distinguished from a hypothetical or abstract difference or dispute.11 On the other hand, a
question is considered ripe for adjudication when the act being challenged has a direct adverse effect on the individual
challenging it.12

Contrary to respondents’ assertion, we do not have to wait until petitioner’s members have shut down their operations as
a result of the MCIT or CWT. The assailed provisions are already being implemented. As we stated in Didipio Earth-Savers’
Multi-Purpose Association, Incorporated (DESAMA) v. Gozun:13

By the mere enactment of the questioned law or the approval of the challenged act, the dispute is said to have ripened
into a judicial controversy even without any other overt act. Indeed, even a singular violation of the Constitution and/or
the law is enough to awaken judicial duty.14

If the assailed provisions are indeed unconstitutional, there is no better time than the present to settle such question once
and for all.

Respondents next argue that petitioner has no legal standing to sue:

Petitioner is an association of some of the real estate developers and builders in the Philippines. Petitioners did not allege
that [it] itself is in the real estate business. It did not allege any material interest or any wrong that it may suffer from the
enforcement of [the assailed provisions].15

Legal standing or locus standi is a party’s personal and substantial interest in a case such that it has sustained or will
sustain direct injury as a result of the governmental act being challenged.16 In Holy Spirit Homeowners Association, Inc. v.
Defensor,17 we held that the association had legal standing because its members stood to be injured by the enforcement
of the assailed provisions:

Petitioner association has the legal standing to institute the instant petition xxx. There is no dispute that the individual
members of petitioner association are residents of the NGC. As such they are covered and stand to be either benefited or
injured by the enforcement of the IRR, particularly as regards the selection process of beneficiaries and lot allocation to
qualified beneficiaries. Thus, petitioner association may assail those provisions in the IRR which it believes to be
unfavorable to the rights of its members. xxx Certainly, petitioner and its members have sustained direct injury arising
from the enforcement of the IRR in that they have been disqualified and eliminated from the selection process. 18

In any event, this Court has the discretion to take cognizance of a suit which does not satisfy the requirements of an actual
case, ripeness or legal standing when paramount public interest is involved.19 The questioned MCIT and CWT affect not
only petitioners but practically all domestic corporate taxpayers in our country. The transcendental importance of the
issues raised and their overreaching significance to society make it proper for us to take cognizance of this petition.20

Concept and Rationale of the MCIT

The MCIT on domestic corporations is a new concept introduced by RA 8424 to the Philippine taxation system. It came
about as a result of the perceived inadequacy of the self-assessment system in capturing the true income of
corporations.21 It was devised as a relatively simple and effective revenue-raising instrument compared to the normal
income tax which is more difficult to control and enforce. It is a means to ensure that everyone will make some minimum
contribution to the support of the public sector. The congressional deliberations on this are illuminating:

Senator Enrile. Mr. President, we are not unmindful of the practice of certain corporations of reporting constantly a loss in
their operations to avoid the payment of taxes, and thus avoid sharing in the cost of government. In this regard, the Tax
Reform Act introduces for the first time a new concept called the [MCIT] so as to minimize tax evasion, tax avoidance, tax
manipulation in the country and for administrative convenience. … This will go a long way in ensuring that corporations
will pay their just share in supporting our public life and our economic advancement.22

Domestic corporations owe their corporate existence and their privilege to do business to the government. They also
benefit from the efforts of the government to improve the financial market and to ensure a favorable business climate. It
is therefore fair for the government to require them to make a reasonable contribution to the public expenses.

Congress intended to put a stop to the practice of corporations which, while having large turn-overs, report minimal or
negative net income resulting in minimal or zero income taxes year in and year out, through under-declaration of income
or over-deduction of expenses otherwise called tax shelters.23

Mr. Javier (E.) … [This] is what the Finance Dept. is trying to remedy, that is why they have proposed the [MCIT]. Because
from experience too, you have corporations which have been losing year in and year out and paid no tax. So, if the
corporation has been losing for the past five years to ten years, then that corporation has no business to be in business. It
is dead. Why continue if you are losing year in and year out? So, we have this provision to avoid this type of tax shelters,
Your Honor.24

The primary purpose of any legitimate business is to earn a profit. Continued and repeated losses after operations of a
corporation or consistent reports of minimal net income render its financial statements and its tax payments suspect. For
sure, certain tax avoidance schemes resorted to by corporations are allowed in our jurisdiction. The MCIT serves to put a
cap on such tax shelters. As a tax on gross income, it prevents tax evasion and minimizes tax avoidance schemes achieved
through sophisticated and artful manipulations of deductions and other stratagems. Since the tax base was broader, the
tax rate was lowered.

To further emphasize the corrective nature of the MCIT, the following safeguards were incorporated into the law:

First, recognizing the birth pangs of businesses and the reality of the need to recoup initial major capital expenditures, the
imposition of the MCIT commences only on the fourth taxable year immediately following the year in which the
corporation commenced its operations.25 This grace period allows a new business to stabilize first and make its ventures
viable before it is subjected to the MCIT.26

Second, the law allows the carrying forward of any excess of the MCIT paid over the normal income tax which shall be
credited against the normal income tax for the three immediately succeeding years.27
Third, since certain businesses may be incurring genuine repeated losses, the law authorizes the Secretary of Finance to
suspend the imposition of MCIT if a corporation suffers losses due to prolonged labor dispute, force majeure and
legitimate business reverses.28

Even before the legislature introduced the MCIT to the Philippine taxation system, several other countries already had
their own system of minimum corporate income taxation. Our lawmakers noted that most developing countries,
particularly Latin American and Asian countries, have the same form of safeguards as we do. As pointed out during the
committee hearings:

[Mr. Medalla:] Note that most developing countries where you have of course quite a bit of room for underdeclaration of
gross receipts have this same form of safeguards.

In the case of Thailand, half a percent (0.5%), there’s a minimum of income tax of half a percent (0.5%) of gross assessable
income. In Korea a 25% of taxable income before deductions and exemptions. Of course the different countries have
different basis for that minimum income tax.

The other thing you’ll notice is the preponderance of Latin American countries that employed this method. Okay, those
are additional Latin American countries.29

At present, the United States of America, Mexico, Argentina, Tunisia, Panama and Hungary have their own versions of the
MCIT.30

MCIT Is Not Violative of Due Process

Petitioner claims that the MCIT under Section 27(E) of RA 8424 is unconstitutional because it is highly oppressive, arbitrary
and confiscatory which amounts to deprivation of property without due process of law. It explains that gross income as
defined under said provision only considers the cost of goods sold and other direct expenses; other major expenditures,
such as administrative and interest expenses which are equally necessary to produce gross income, were not taken into
account.31 Thus, pegging the tax base of the MCIT to a corporation’s gross income is tantamount to a confiscation of
capital because gross income, unlike net income, is not "realized gain."32

We disagree.

Taxes are the lifeblood of the government. Without taxes, the government can neither exist nor endure. The exercise of
taxing power derives its source from the very existence of the State whose social contract with its citizens obliges it to
promote public interest and the common good.33

Taxation is an inherent attribute of sovereignty.34 It is a power that is purely legislative.35 Essentially, this means that in the
legislature primarily lies the discretion to determine the nature (kind), object (purpose), extent (rate), coverage (subjects)
and situs (place) of taxation.36 It has the authority to prescribe a certain tax at a specific rate for a particular public purpose
on persons or things within its jurisdiction. In other words, the legislature wields the power to define what tax shall be
imposed, why it should be imposed, how much tax shall be imposed, against whom (or what) it shall be imposed and
where it shall be imposed.

As a general rule, the power to tax is plenary and unlimited in its range, acknowledging in its very nature no limits, so that
the principal check against its abuse is to be found only in the responsibility of the legislature (which imposes the tax) to its
constituency who are to pay it.37 Nevertheless, it is circumscribed by constitutional limitations. At the same time, like any
other statute, tax legislation carries a presumption of constitutionality.

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." In Sison, Jr. v. Ancheta, et al.,38 we held that the due process clause may properly be
invoked to invalidate, in appropriate cases, a revenue measure39 when it amounts to a confiscation of property.40 But in
the same case, we also explained that we will not strike down a revenue measure as unconstitutional (for being violative
of the due process clause) on the mere allegation of arbitrariness by the taxpayer.41 There must be a factual foundation to
such an unconstitutional taint.42 This merely adheres to the authoritative doctrine that, where the due process clause is
invoked, considering that it is not a fixed rule but rather a broad standard, there is a need for proof of such persuasive
character.43

Petitioner is correct in saying that income is distinct from capital.44 Income means all the wealth which flows into the
taxpayer other than a mere return on capital. Capital is a fund or property existing at one distinct point in time while
income denotes a flow of wealth during a definite period of time.45 Income is gain derived and severed from capital.46 For
income to be taxable, the following requisites must exist:

(1) there must be gain;

(2) the gain must be realized or received and

(3) the gain must not be excluded by law or treaty from taxation.47

Certainly, an income tax is arbitrary and confiscatory if it taxes capital because capital is not income. In other words, it is
income, not capital, which is subject to income tax. However, the MCIT is not a tax on capital.

The MCIT is imposed on gross income which is arrived at by deducting the capital spent by a corporation in the sale of its
goods, i.e., the cost of goods48 and other direct expenses from gross sales. Clearly, the capital is not being taxed.

Furthermore, the MCIT is not an additional tax imposition. It is imposed in lieu of the normal net income tax, and only if
the normal income tax is suspiciously low. The MCIT merely approximates the amount of net income tax due from a
corporation, pegging the rate at a very much reduced 2% and uses as the base the corporation’s gross income.

Besides, there is no legal objection to a broader tax base or taxable income by eliminating all deductible items and at the
same time reducing the applicable tax rate.49

Statutes taxing the gross "receipts," "earnings," or "income" of particular corporations are found in many jurisdictions.
Tax thereon is generally held to be within the power of a state to impose; or constitutional, unless it interferes with
interstate commerce or violates the requirement as to uniformity of taxation.50

The United States has a similar alternative minimum tax (AMT) system which is generally characterized by a lower tax rate
but a broader tax base.51 Since our income tax laws are of American origin, interpretations by American courts of our
parallel tax laws have persuasive effect on the interpretation of these laws.52 Although our MCIT is not exactly the same as
the AMT, the policy behind them and the procedure of their implementation are comparable. On the question of the
AMT’s constitutionality, the United States Court of Appeals for the Ninth Circuit stated in Okin v. Commissioner:53

In enacting the minimum tax, Congress attempted to remedy general taxpayer distrust of the system growing from large
numbers of taxpayers with large incomes who were yet paying no taxes.

xxx xxx xxx

We thus join a number of other courts in upholding the constitutionality of the [AMT]. xxx [It] is a rational means of
obtaining a broad-based tax, and therefore is constitutional.54

The U.S. Court declared that the congressional intent to ensure that corporate taxpayers would contribute a minimum
amount of taxes was a legitimate governmental end to which the AMT bore a reasonable relation.55

American courts have also emphasized that Congress has the power to condition, limit or deny deductions from gross
income in order to arrive at the net that it chooses to tax.56 This is because deductions are a matter of legislative grace.57

Absent any other valid objection, the assignment of gross income, instead of net income, as the tax base of the MCIT,
taken with the reduction of the tax rate from 32% to 2%, is not constitutionally objectionable.
Moreover, petitioner does not cite any actual, specific and concrete negative experiences of its members nor does it
present empirical data to show that the implementation of the MCIT resulted in the confiscation of their property.

In sum, petitioner failed to support, by any factual or legal basis, its allegation that the MCIT is arbitrary and confiscatory.
The Court cannot strike down a law as unconstitutional simply because of its yokes.58 Taxation is necessarily burdensome
because, by its nature, it adversely affects property rights.59 The party alleging the law’s unconstitutionality has the burden
to demonstrate the supposed violations in understandable terms.60

RR 9-98 Merely Clarifies Section 27(E) of RA 8424

Petitioner alleges that RR 9-98 is a deprivation of property without due process of law because the MCIT is being imposed
and collected even when there is actually a loss, or a zero or negative taxable income:

Sec. 2.27(E) [MCIT] on Domestic Corporations. —

(1) Imposition of the Tax. — xxx The MCIT shall be imposed whenever such corporation has zero or negative taxable
income or whenever the amount of [MCIT] is greater than the normal income tax due from such corporation. (Emphasis
supplied)

RR 9-98, in declaring that MCIT should be imposed whenever such corporation has zero or negative taxable income,
merely defines the coverage of Section 27(E). This means that even if a corporation incurs a net loss in its business
operations or reports zero income after deducting its expenses, it is still subject to an MCIT of 2% of its gross income. This
is consistent with the law which imposes the MCIT on gross income notwithstanding the amount of the net income. But
the law also states that the MCIT is to be paid only if it is greater than the normal net income. Obviously, it may well be the
case that the MCIT would be less than the net income of the corporation which posts a zero or negative taxable income.

We now proceed to the issues involving the CWT.

The withholding tax system is a procedure through which taxes (including income taxes) are collected.61 Under Section 57
of RA 8424, the types of income subject to withholding tax are divided into three categories: (a) withholding of final tax on
certain incomes; (b) withholding of creditable tax at source and (c) tax-free covenant bonds. Petitioner is concerned with
the second category (CWT) and maintains that the revenue regulations on the collection of CWT on sale of real estate
categorized as ordinary assets are unconstitutional.

Petitioner, after enumerating the distinctions between capital and ordinary assets under RA 8424, contends that Sections
2.57.2(J) and 2.58.2 of RR 2-98 and Sections 4(a)(ii) and (c)(ii) of RR 7-2003 were promulgated "with grave abuse of
discretion amounting to lack of jurisdiction" and "patently in contravention of law"62 because they ignore such distinctions.
Petitioner’s conclusion is based on the following premises: (a) the revenue regulations use gross selling price (GSP) or fair
market value (FMV) of the real estate as basis for determining the income tax for the sale of real estate classified as
ordinary assets and (b) they mandate the collection of income tax on a per transaction basis, i.e., upon consummation of
the sale via the CWT, contrary to RA 8424 which calls for the payment of the net income at the end of the taxable period. 63

Petitioner theorizes that since RA 8424 treats capital assets and ordinary assets differently, respondents cannot disregard
the distinctions set by the legislators as regards the tax base, modes of collection and payment of taxes on income from
the sale of capital and ordinary assets.

Petitioner’s arguments have no merit.

Authority of the Secretary of Finance to Order the Collection of CWT on Sales of Real Property Considered as Ordinary
Assets

The Secretary of Finance is granted, under Section 244 of RA 8424, the authority to promulgate the necessary rules and
regulations for the effective enforcement of the provisions of the law. Such authority is subject to the limitation that the
rules and regulations must not override, but must remain consistent and in harmony with, the law they seek to apply and
implement.64 It is well-settled that an administrative agency cannot amend an act of Congress.65
We have long recognized that the method of withholding tax at source is a procedure of collecting income tax which is
sanctioned by our tax laws.66 The withholding tax system was devised for three primary reasons: first, to provide the
taxpayer a convenient manner to meet his probable income tax liability; second, to ensure the collection of income tax
which can otherwise be lost or substantially reduced through failure to file the corresponding returns and third, to
improve the government’s cash flow.67 This results in administrative savings, prompt and efficient collection of taxes,
prevention of delinquencies and reduction of governmental effort to collect taxes through more complicated means and
remedies.68

Respondent Secretary has the authority to require the withholding of a tax on items of income payable to any person,
national or juridical, residing in the Philippines. Such authority is derived from Section 57(B) of RA 8424 which provides:

SEC. 57. Withholding of Tax at Source. –

xxx xxx xxx

(B) Withholding of Creditable Tax at Source. The [Secretary] may, upon the recommendation of the [CIR], require the
withholding of a tax on the items of income payable to natural or juridical persons, residing in the Philippines, by payor-
corporation/persons as provided for by law, at the rate of not less than one percent (1%) but not more than thirty-two
percent (32%) thereof, which shall be credited against the income tax liability of the taxpayer for the taxable year.

The questioned provisions of RR 2-98, as amended, are well within the authority given by Section 57(B) to the
Secretary, i.e., the graduated rate of 1.5%-5% is between the 1%-32% range; the withholding tax is imposed on the income
payable and the tax is creditable against the income tax liability of the taxpayer for the taxable year.

Effect of RRs on the Tax Base for the Income Tax of Individuals or Corporations Engaged in the Real Estate Business

Petitioner maintains that RR 2-98, as amended, arbitrarily shifted the tax base of a real estate business’ income tax from
net income to GSP or FMV of the property sold.

Petitioner is wrong.

The taxes withheld are in the nature of advance tax payments by a taxpayer in order to extinguish its possible tax
obligation. 69 They are installments on the annual tax which may be due at the end of the taxable year.70

Under RR 2-98, the tax base of the income tax from the sale of real property classified as ordinary assets remains to be the
entity’s net income imposed under Section 24 (resident individuals) or Section 27 (domestic corporations) in relation to
Section 31 of RA 8424, i.e. gross income less allowable deductions. The CWT is to be deducted from the net income tax
payable by the taxpayer at the end of the taxable year.71 Precisely, Section 4(a)(ii) and (c)(ii) of RR 7-2003 reiterate that the
tax base for the sale of real property classified as ordinary assets remains to be the net taxable income:

Section 4. – Applicable taxes on sale, exchange or other disposition of real property. - Gains/Income derived from sale,
exchange, or other disposition of real properties shall unless otherwise exempt, be subject to applicable taxes imposed
under the Code, depending on whether the subject properties are classified as capital assets or ordinary assets;

xxx xxx xxx

a. In the case of individual citizens (including estates and trusts), resident aliens, and non-resident aliens engaged in trade
or business in the Philippines;

xxx xxx xxx

(ii) The sale of real property located in the Philippines, classified as ordinary assets, shall be subject to the [CWT]
(expanded) under Sec. 2.57.2(j) of [RR 2-98], as amended, based on the [GSP] or current [FMV] as determined in
accordance with Section 6(E) of the Code, whichever is higher, and consequently, to the ordinary income tax imposed
under Sec. 24(A)(1)(c) or 25(A)(1) of the Code, as the case may be, based on net taxable income.

xxx xxx xxx

c. In the case of domestic corporations.

The sale of land and/or building classified as ordinary asset and other real property (other than land and/or building
treated as capital asset), regardless of the classification thereof, all of which are located in the Philippines, shall be subject
to the [CWT] (expanded) under Sec. 2.57.2(J) of [RR 2-98], as amended, and consequently, to theordinary income tax
under Sec. 27(A) of the Code. In lieu of the ordinary income tax, however, domestic corporations may become subject to
the [MCIT] under Sec. 27(E) of the same Code, whichever is applicable. (Emphasis supplied)

Accordingly, at the end of the year, the taxpayer/seller shall file its income tax return and credit the taxes withheld (by the
withholding agent/buyer) against its tax due. If the tax due is greater than the tax withheld, then the taxpayer shall pay
the difference. If, on the other hand, the tax due is less than the tax withheld, the taxpayer will be entitled to a refund or
tax credit. Undoubtedly, the taxpayer is taxed on its net income.

The use of the GSP/FMV as basis to determine the withholding taxes is evidently for purposes of practicality and
convenience. Obviously, the withholding agent/buyer who is obligated to withhold the tax does not know, nor is he privy
to, how much the taxpayer/seller will have as its net income at the end of the taxable year. Instead, said withholding
agent’s knowledge and privity are limited only to the particular transaction in which he is a party. In such a case, his basis
can only be the GSP or FMV as these are the only factors reasonably known or knowable by him in connection with the
performance of his duties as a withholding agent.

No Blurring of Distinctions Between Ordinary Assets and Capital Assets

RR 2-98 imposes a graduated CWT on income based on the GSP or FMV of the real property categorized as ordinary
assets. On the other hand, Section 27(D)(5) of RA 8424 imposes a final tax and flat rate of 6% on the gain presumed to be
realized from the sale of a capital asset based on its GSP or FMV. This final tax is also withheld at source.72

The differences between the two forms of withholding tax, i.e., creditable and final, show that ordinary assets are not
treated in the same manner as capital assets. Final withholding tax (FWT) and CWT are distinguished as follows:

FWT CWT

a) The amount of income tax withheld by a) Taxes withheld on certain income

the withholding agent is constituted as a payments are intended to equal or at least
full and final payment of the income tax approximate the tax due of the payee on
due from the payee on the said income. said income.

b)The liability for payment of the tax rests
primarily on the payor as a withholding
agent.
b) Payee of income is required to report
the income and/or pay the difference
between the tax withheld and the tax due
on the income. The payee also has the right
to ask for a refund if the tax withheld is
more than the tax due.

c) The payee is not required to file an c) The income recipient is still required to
income tax return for the particular file an income tax return, as prescribed in
income.73 Sec. 51 and Sec. 52 of the NIRC, as
amended.74

As previously stated, FWT is imposed on the sale of capital assets. On the other hand, CWT is imposed on the sale of
ordinary assets. The inherent and substantial differences between FWT and CWT disprove petitioner’s contention that
ordinary assets are being lumped together with, and treated similarly as, capital assets in contravention of the pertinent
provisions of RA 8424.

Petitioner insists that the levy, collection and payment of CWT at the time of transaction are contrary to the provisions of
RA 8424 on the manner and time of filing of the return, payment and assessment of income tax involving ordinary assets.75

The fact that the tax is withheld at source does not automatically mean that it is treated exactly the same way as capital
gains. As aforementioned, the mechanics of the FWT are distinct from those of the CWT. The withholding agent/buyer’s
act of collecting the tax at the time of the transaction by withholding the tax due from the income payable is the essence
of the withholding tax method of tax collection.

No Rule that Only Passive

Incomes Can Be Subject to CWT

Petitioner submits that only passive income can be subjected to withholding tax, whether final or creditable. According to
petitioner, the whole of Section 57 governs the withholding of income tax on passive income. The enumeration in Section
57(A) refers to passive income being subjected to FWT. It follows that Section 57(B) on CWT should also be limited to
passive income:

SEC. 57. Withholding of Tax at Source. —

(A) Withholding of Final Tax on Certain Incomes. — Subject to rules and regulations, the [Secretary] may
promulgate, upon the recommendation of the [CIR], requiring the filing of income tax return by certain income
payees, the tax imposed or prescribed by Sections 24(B)(1), 24(B)(2), 24(C), 24(D)(1); 25(A)(2), 25(A)(3), 25(B),
25(C), 25(D), 25(E); 27(D)(1), 27(D)(2), 27(D)(3), 27(D)(5); 28(A)(4), 28(A)(5), 28(A)(7)(a), 28(A)(7)(b), 28(A)(7)(c),
28(B)(1), 28(B)(2), 28(B)(3), 28(B)(4), 28(B)(5)(a), 28(B)(5)(b), 28(B)(5)(c); 33; and 282 of this Code on specified
items of income shall be withheld by payor-corporation and/or person and paid in the same manner and subject
to the same conditions as provided in Section 58 of this Code.

(B) Withholding of Creditable Tax at Source. — The [Secretary] may, upon the recommendation of the [CIR],
require the withholding of a tax on the items of income payable to natural or juridical persons, residing in the
Philippines, by payor-corporation/persons as provided for by law, at the rate of not less than one percent (1%) but
not more than thirty-two percent (32%) thereof, which shall be credited against the income tax liability of the
taxpayer for the taxable year. (Emphasis supplied)

This line of reasoning is non sequitur.

Section 57(A) expressly states that final tax can be imposed on certain kinds of income and enumerates these as passive
income. The BIR defines passive income by stating what it is not:

…if the income is generated in the active pursuit and performance of the corporation’s primary purposes, the same is not
passive income…76

It is income generated by the taxpayer’s assets. These assets can be in the form of real properties that return rental
income, shares of stock in a corporation that earn dividends or interest income received from savings.
On the other hand, Section 57(B) provides that the Secretary can require a CWT on "income payable to natural or juridical
persons, residing in the Philippines." There is no requirement that this income be passive income. If that were the intent of
Congress, it could have easily said so.

Indeed, Section 57(A) and (B) are distinct. Section 57(A) refers to FWT while Section 57(B) pertains to CWT. The former
covers the kinds of passive income enumerated therein and the latter encompasses any income other than those listed in
57(A). Since the law itself makes distinctions, it is wrong to regard 57(A) and 57(B) in the same way.

To repeat, the assailed provisions of RR 2-98, as amended, do not modify or deviate from the text of Section 57(B). RR 2-98
merely implements the law by specifying what income is subject to CWT. It has been held that, where a statute does not
require any particular procedure to be followed by an administrative agency, the agency may adopt any reasonable
method to carry out its functions.77 Similarly, considering that the law uses the general term "income," the Secretary and
CIR may specify the kinds of income the rules will apply to based on what is feasible. In addition, administrative rules and
regulations ordinarily deserve to be given weight and respect by the courts78 in view of the rule-making authority given to
those who formulate them and their specific expertise in their respective fields.

No Deprivation of Property Without Due Process

Petitioner avers that the imposition of CWT on GSP/FMV of real estate classified as ordinary assets deprives its members
of their property without due process of law because, in their line of business, gain is never assured by mere receipt of the
selling price. As a result, the government is collecting tax from net income not yet gained or earned.

Again, it is stressed that the CWT is creditable against the tax due from the seller of the property at the end of the taxable
year. The seller will be able to claim a tax refund if its net income is less than the taxes withheld. Nothing is taken that is
not due so there is no confiscation of property repugnant to the constitutional guarantee of due process. More
importantly, the due process requirement applies to the power to tax.79 The CWT does not impose new taxes nor does it
increase taxes.80 It relates entirely to the method and time of payment.

Petitioner protests that the refund remedy does not make the CWT less burdensome because taxpayers have to wait years
and may even resort to litigation before they are granted a refund.81 This argument is misleading. The practical problems
encountered in claiming a tax refund do not affect the constitutionality and validity of the CWT as a method of collecting
the tax.1avvphi1

Petitioner complains that the amount withheld would have otherwise been used by the enterprise to pay labor wages,
materials, cost of money and other expenses which can then save the entity from having to obtain loans entailing
considerable interest expense. Petitioner also lists the expenses and pitfalls of the trade which add to the burden of the
realty industry: huge investments and borrowings; long gestation period; sudden and unpredictable interest rate surges;
continually spiraling development/construction costs; heavy taxes and prohibitive "up-front" regulatory fees from at least
20 government agencies.82

Petitioner’s lamentations will not support its attack on the constitutionality of the CWT. Petitioner’s complaints are
essentially matters of policy best addressed to the executive and legislative branches of the government. Besides, the CWT
is applied only on the amounts actually received or receivable by the real estate entity. Sales on installment are taxed on a
per-installment basis.83 Petitioner’s desire to utilize for its operational and capital expenses money earmarked for the
payment of taxes may be a practical business option but it is not a fundamental right which can be demanded from the
court or from the government.

No Violation of Equal Protection

Petitioner claims that the revenue regulations are violative of the equal protection clause because the CWT is being levied
only on real estate enterprises. Specifically, petitioner points out that manufacturing enterprises are not similarly imposed
a CWT on their sales, even if their manner of doing business is not much different from that of a real estate enterprise.
Like a manufacturing concern, a real estate business is involved in a continuous process of production and it incurs costs
and expenditures on a regular basis. The only difference is that "goods" produced by the real estate business are house
and lot units.84
Again, we disagree.

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."85 Stated differently, all persons belonging to the same class shall be taxed alike. It follows that the
guaranty of the equal protection of the laws is not violated by legislation based on a reasonable classification.
Classification, to be valid, must (1) rest on substantial distinctions; (2) be germane to the purpose of the law; (3) not be
limited to existing conditions only and (4) apply equally to all members of the same class.86

The taxing power has the authority to make reasonable classifications for purposes of taxation.87 Inequalities which result
from a singling out of one particular class for taxation, or exemption, infringe no constitutional limitation.88 The real estate
industry is, by itself, a class and can be validly treated differently from other business enterprises.

Petitioner, in insisting that its industry should be treated similarly as manufacturing enterprises, fails to realize that what
distinguishes the real estate business from other manufacturing enterprises, for purposes of the imposition of the CWT, is
not their production processes but the prices of their goods sold and the number of transactions involved. The income
from the sale of a real property is bigger and its frequency of transaction limited, making it less cumbersome for the
parties to comply with the withholding tax scheme.

On the other hand, each manufacturing enterprise may have tens of thousands of transactions with several thousand
customers every month involving both minimal and substantial amounts. To require the customers of manufacturing
enterprises, at present, to withhold the taxes on each of their transactions with their tens or hundreds of suppliers may
result in an inefficient and unmanageable system of taxation and may well defeat the purpose of the withholding tax
system.

Petitioner counters that there are other businesses wherein expensive items are also sold infrequently, e.g. heavy
equipment, jewelry, furniture, appliance and other capital goods yet these are not similarly subjected to the CWT.89As
already discussed, the Secretary may adopt any reasonable method to carry out its functions.90 Under Section 57(B), it may
choose what to subject to CWT.

A reading of Section 2.57.2 (M) of RR 2-98 will also show that petitioner’s argument is not accurate. The sales of
manufacturers who have clients within the top 5,000 corporations, as specified by the BIR, are also subject to CWT for
their transactions with said 5,000 corporations.91

Section 2.58.2 of RR No. 2-98 Merely Implements Section 58 of RA 8424

Lastly, petitioner assails Section 2.58.2 of RR 2-98, which provides that the Registry of Deeds should not effect the
regisration of any document transferring real property unless a certification is issued by the CIR that the withholding tax
has been paid. Petitioner proffers hardly any reason to strike down this rule except to rely on its contention that the CWT
is unconstitutional. We have ruled that it is not. Furthermore, this provision uses almost exactly the same wording as
Section 58(E) of RA 8424 and is unquestionably in accordance with it:

Sec. 58. Returns and Payment of Taxes Withheld at Source. –

(E) Registration with Register of Deeds. - No registration of any document transferring real property shall be effected by
the Register of Deeds unless the [CIR] or his duly authorized representative has certified that such transfer has been
reported, and the capital gains or [CWT], if any, has been paid: xxxx any violation of this provision by the Register of
Deeds shall be subject to the penalties imposed under Section 269 of this Code. (Emphasis supplied)

Conclusion

The renowned genius Albert Einstein was once quoted as saying "[the] hardest thing in the world to understand is the
income tax."92 When a party questions the constitutionality of an income tax measure, it has to contend not only with
Einstein’s observation but also with the vast and well-established jurisprudence in support of the plenary powers of
Congress to impose taxes. Petitioner has miserably failed to discharge its burden of convincing the Court that the
imposition of MCIT and CWT is unconstitutional.

WHEREFORE, the petition is hereby DISMISSED.

Costs against petitioner.

SO ORDERED.
 G.R. No. 193007. July 19, 2011.*
RENATO V. DIAZ and AURORA MA. F. TIMBOL, petitioners, vs. THE SECRETARY OF FINANCE and THE COMMISSIONER OF
INTERNAL REVENUE, respondents.

Taxation; Value Added Tax (VAT); Tollways; Declaratory Relief; Prohibition; A petition for declaratory relief may be
treated as one for prohibition if the case has far-reaching implications and raises questions that need to be resolved for
the public good; A petition for prohibition is a proper remedy to prohibit or nullify acts of executive officials that amount
to usurpation of legislative authority.—On August 24, 2010 the Court issued a resolution, treating the petition as one for
prohibition rather than one for declaratory relief, the characterization that petitioners Diaz and Timbol gave their action.
The government has sought reconsideration of the Court’s resolution, however, arguing that petitioners’ allegations
clearly made out a case for declaratory relief, an action over which the Court has no original jurisdiction. The government
adds, moreover, that the petition does not meet the requirements of Rule 65 for actions for prohibition since the BIR did
not exercise judicial, quasi-judicial, or ministerial functions when it sought to impose VAT on toll fees. Besides, petitioners
Diaz and Timbol has a plain, speedy, and adequate remedy in the ordinary course of law against the BIR action in the form
of an appeal to the Secretary of Finance. But there are precedents for treating a petition for declaratory relief as one for
prohibition if the case has far-reaching implications and raises questions that need to be resolved for the public good. The
Court has also held that a petition for prohibition is a proper remedy to prohibit or nullify acts of executive officials that
amount to usurpation of legislative authority.

Same; Same; Same; Pleadings, Practice and Procedure; The imposition of value added tax (VAT) on toll fees has far-
reaching implications; The Supreme Court has ample power to waive technical requirements when the legal questions to
be resolved are of great importance to the public.—The imposition of VAT on toll fees has far-reaching implications. Its
imposition would impact, not only on the more than half a million motorists who use the tollways everyday, but more so
on the government’s effort to raise revenue for funding various projects and for reducing budgetary deficits. To dismiss
the petition and resolve the issues later, after the challenged VAT has been imposed, could cause more mischief both to
the tax-paying public and the government. A belated declaration of nullity of the BIR action would make any attempt to
refund to the motorists what they paid an administrative nightmare with no solution. Consequently, it is not only the right,
but the duty of the Court to take cognizance of and resolve the issues that the petition raises. Although the petition does
not strictly comply with the requirements of Rule 65, the Court has ample power to waive such technical requirements
when the legal questions to be resolved are of great importance to the public. The same may be said of the requirement
of locus standi which is a mere procedural requisite.

Same; Same; Same; Words and Phrases; The law imposes value added tax (VAT) on “all kinds of services” rendered in
the Philippines for a fee, including those specified in the list—every activity that can be imagined as a form of “service”
rendered for a fee should be deemed included unless some provision of law especially excludes it.—It is plain from the
above that the law imposes VAT on “all kinds of services” rendered in the Philippines for a fee, including those specified in
the list. The enumeration of affected services is not exclusive. By qualifying “services” with the words “all kinds,” Congress
has given the term “services” an all-encompassing meaning. The listing of specific services are intended to illustrate how
pervasive and broad is the VAT’s reach rather than establish concrete limits to its application. Thus, every activity that can
be imagined as a form of “service” rendered for a fee should be deemed included unless some provision of law especially
excludes it.

Same; Same; Same; When a tollway operator takes a toll fee from a motorist, the fee is in effect for the latter’s use of
the tollway facilities over which the operator enjoys private proprietary rights that its contract and the law recognize.—
Now, do tollway operators render services for a fee? Presidential Decree (P.D.) 1112 or the Toll Operation Decree
establishes the legal basis for the services that tollway operators render. Essentially, tollway operators construct,
maintain, and operate expressways, also called tollways, at the operators’ expense. Tollways serve as alternatives to
regular public highways that meander through populated areas and branch out to local roads. Traffic in the regular public
highways is for this reason slow-moving. In consideration for constructing tollways at their expense, the operators are
allowed to collect government-approved fees from motorists using the tollways until such operators could fully recover
their expenses and earn reasonable returns from their investments. When a tollway operator takes a toll fee from a
motorist, the fee is in effect for the latter’s use of the tollway facilities over which the operator enjoys private proprietary
rights that its contract and the law recognize. In this sense, the tollway operator is no different from the following service
providers under Section 108 who allow others to use their properties or facilities for a fee: 1. Lessors of property, whether
personal or real; 2. Warehousing service operators; 3. Lessors or distributors of cinematographic films; 4. Proprietors,
operators or keepers of hotels, motels, resthouses, pension houses, inns, resorts; 5. Lending investors (for use of money);

Transportation contractors on their transport of goods or cargoes, including persons who transport goods or cargoes for
hire and other domestic common carriers by land relative to their transport of goods or cargoes; and 7. Common carriers
by air and sea relative to their transport of passengers, goods or cargoes from one place in the Philippines to another place
in the Philippines.

Same; Same; Same; Franchises; Words and Phrases; Tollway operators are franchise grantees and they do not belong to
exceptions that Section 119 spares from the payment of value added tax (VAT); The word “franchise” broadly covers
government grants of a special right to do an act or series of acts of public concern.—And not only do tollway operators
come under the broad term “all kinds of services,” they also come under the specific class described in Section 108 as “all
other franchise grantees” who are subject to VAT, “except those under Section 119 of this Code.” Tollway operators are
franchise grantees and they do not belong to exceptions (the low-income radio and/or television broadcasting companies
with gross annual incomes of less than P10 million and gas and water utilities) that Section 119 spares from the payment
of VAT. The word “franchise” broadly covers government grants of a special right to do an act or series of acts of public
concern.

Same; Same; Same; Same; Nothing in Section 108 of the National Internal Revenue Code indicates that the “franchise
grantees” it speaks of are those who hold legislative franchises; The term “franchise” has been broadly construed as
referring, not only to authorizations that Congress directly issues in the form of a special law, but also to those granted
by administrative agencies to which the power to grant franchises has been delegated by Congress.—Petitioners of
course contend that tollway operators cannot be considered “franchise grantees” under Section 108 since they do not
hold legislative franchises. But nothing in Section 108 indicates that the “franchise grantees” it speaks of are those who
hold legislative franchises. Petitioners give no reason, and the Court cannot surmise any, for making a distinction between
franchises granted by Congress and franchises granted by some other government agency. The latter, properly
constituted, may grant franchises. Indeed, franchises conferred or granted by local authorities, as agents of the state,
constitute as much a legislative franchise as though the grant had been made by Congress itself. The term “franchise” has
been broadly construed as referring, not only to authorizations that Congress directly issues in the form of a special law,
but also to those granted by administrative agencies to which the power to grant franchises has been delegated by
Congress.

Same; Same; Same; Statutory Construction; Statements made by individual members of Congress in the consideration of
a bill do not necessarily reflect the sense of that body and are, consequently, not controlling in the interpretation of
law—the congressional will is ultimately determined by the language of the law that the lawmakers voted on.—Nor can
petitioners cite as binding on the Court statements made by certain lawmakers in the course of congressional
deliberations of the would-be law. As the Court said in South African Airways v. Commissioner of Internal Revenue, 612
SCRA 665 (2010), “statements made by individual members of Congress in the consideration of a bill do not necessarily
reflect the sense of that body and are, consequently, not controlling in the interpretation of law.” The congressional will is
ultimately determined by the language of the law that the lawmakers voted on. Consequently, the meaning and intention
of the law must first be sought “in the words of the statute itself, read and considered in their natural, ordinary, commonly
accepted and most obvious significations, according to good and approved usage and without resorting to forced or subtle
construction.”

Same; Same; Same; Tollway fees are not taxes.—As can be seen, the discussion in the MIAA case on toll roads and toll
fees was made, not to establish a rule that tollway fees are user’s tax, but to make the point that airport lands and
buildings are properties of public dominion and that the collection of terminal fees for their use does not make them
private properties. Tollway fees are not taxes. Indeed, they are not assessed and collected by the BIR and do not go to the
general coffers of the government. It would of course be another matter if Congress enacts a law imposing a user’s tax,
collectible from motorists, for the construction and maintenance of certain roadways. The tax in such a case goes directly
to the government for the replenishment of resources it spends for the roadways. This is not the case here. What the
government seeks to tax here are fees collected from tollways that are constructed, maintained, and operated by private
tollway operators at their own expense under the build, operate, and transfer scheme that the government has adopted
for expressways. Except for a fraction given to the government, the toll fees essentially end up as earnings of the tollway
operators.

Same; Same; Same; A tax is imposed under the taxing power of the government principally for the purpose of raising
revenues to fund public expenditures while toll fees are collected by private tollway operators as reimbursement for the
costs and expenses incurred in the construction, maintenance and operation of the tollways, as well as to assure them a
reasonable margin of income.—In sum, fees paid by the public to tollway operators for use of the tollways, are not taxes
in any sense. A tax is imposed under the taxing power of the government principally for the purpose of raising revenues to
fund public expenditures. Toll fees, on the other hand, are collected by private tollway operators as reimbursement for the
costs and expenses incurred in the construction, maintenance and operation of the tollways, as well as to assure them a
reasonable margin of income. Although toll fees are charged for the use of public facilities, therefore, they are not
government exactions that can be properly treated as a tax. Taxes may be imposed only by the government under its
sovereign authority, toll fees may be demanded by either the government or private individuals or entities, as an attribute
of ownership.

Same; Same; Same; Value added tax (VAT) on tollway operations cannot be deemed a tax on tax due to the nature of
VAT as an indirect tax; Once shifted, the value added tax (VAT) ceases to be a tax and simply becomes part of the cost
that the buyer must pay in order to purchase the good, property or service.—Parenthetically, VAT on tollway operations
cannot be deemed a tax on tax due to the nature of VAT as an indirect tax. In indirect taxation, a distinction is made
between the liability for the tax and burden of the tax. The seller who is liable for the VAT may shift or pass on the amount
of VAT it paid on goods, properties or services to the buyer. In such a case, what is transferred is not the selle’s liability but
merely the burden of the VAT. Thus, the seller remains directly and legally liable for payment of the VAT, but the buyer
bears its burden since the amount of VAT paid by the former is added to the selling price. Once shifted, the VAT ceases to
be a tax and simply becomes part of the cost that the buyer must pay in order to purchase the good, property or service.
Consequently, VAT on tollway operations is not really a tax on the tollway user, but on the tollway operator. Under Section
105 of the Code, VAT is imposed on any person who, in the course of trade or business, sells or renders services for a fee.
In other words, the seller of services, who in this case is the tollway operator, is the person liable for VAT. The latter
merely shifts the burden of VAT to the tollway user as part of the toll fees.

Same; Same; Same; Parties; Non-Impairment Clause; A person who will neither be prejudiced by nor be affected by the
alleged diminution in return of investments that may result from the value added tax (VAT) imposition has no
personality to invoke the non-impairment of contract clause on behalf of private investors in the tollway projects.—
Petitioner Timbol has no personality to invoke the non-impairment of contract clause on behalf of private investors in the
tollway projects. She will neither be prejudiced by nor be affected by the alleged diminution in return of investments that
may result from the VAT imposition. She has no interest at all in the profits to be earned under the TOAs. The interest in
and right to recover investments solely belongs to the private tollway investors.
Same; Same; Same; The Court cannot rule on matters that are manifestly conjectural, and neither can it prohibit the
State from exercising its sovereign taxing power based on uncertain, prophetic grounds.—Besides, her allegation that
the private investors’ rate of recovery will be adversely affected by imposing VAT on tollway operations is purely
speculative. Equally presumptuous is her assertion that a stipulation in the TOAs known as the Material Adverse Grantor
Action will be activated if VAT is thus imposed. The Court cannot rule on matters that are manifestly conjectural. Neither
can it prohibit the State from exercising its sovereign taxing power based on uncertain, prophetic grounds.

Same; Same; Same; Administrative feasibility, one of the canons of a sound tax system, simply means that the tax
system should be capable of being effectively administered and enforced with the least inconvenience to the taxpayer;
Even if the imposition of value added tax (VAT) on tollway operations may seem burdensome to implement, it is not
necessarily invalid unless some aspect of it is shown to violate any law or the Constitution.—Administrative feasibility is
one of the canons of a sound tax system. It simply means that the tax system should be capable of being effectively
administered and enforced with the least inconvenience to the taxpayer.

Non-observance of the canon, however, will not render a tax imposition invalid “except to the extent that specific
constitutional or statutory limitations are impaired.” Thus, even if the imposition of VAT on tollway operations may seem
burdensome to implement, it is not necessarily invalid unless some aspect of it is shown to violate any law or the
Constitution. Here, it remains to be seen how the taxing authority will actually implement the VAT on tollway operations.
Any declaration by the Court that the manner of its implementation is illegal or unconstitutional would be premature.
Although the transcript of the August 12, 2010 Senate hearing provides some clue as to how the BIR intends to go about it,
the facts pertaining to the matter are not sufficiently established for the Court to pass judgment on. Besides, any concern
about how the VAT on tollway operations will be enforced must first be addressed to the BIR on whom the task of
implementing tax laws primarily and exclusively rests. The Court cannot preempt the BIR’s discretion on the matter,
absent any clear violation of law or the Constitution.

Same; Same; Same; Parties; The right to claim the 2% transitional input value added tax (VAT) belongs to the tollway
operators who have not questioned the Bureau of Internal Revenue Revenue Memorandum Circular (BIR RMC) 63-
2010’s validity.—For the same reason, the Court cannot prematurely declare as illegal, BIR RMC 63-2010 which directs toll
companies to record an accumulated input VAT of zero balance in their books as of August 16, 2010, the date when the
VAT imposition was supposed to take effect. The issuance allegedly violates Section 111(A) of the Code which grants first
time VAT payers a transitional input VAT of 2% on beginning inventory. In this connection, the BIR explained that BIR RMC
63-2010 is actually the product of negotiations with tollway operators who have been assessed VAT as early as 2005, but
failed to charge VAT-inclusive toll fees which by now can no longer be collected. The tollway operators agreed to waive
the 2% transitional input VAT, in exchange for cancellation of their past due VAT liabilities. Notably, the right to claim the
2% transitional input VAT belongs to the tollway operators who have not questioned the circular’s validity. They are thus
the ones who have a right to challenge the circular in a direct and proper action brought for the purpose.

Same; Same; Same; Statutory Construction; If the legislative intent was to exempt tollway operations from value added
tax (VAT), as petitioners so strongly allege, then it would have been well for the law to clearly say so.—In fine, the
Commissioner of Internal Revenue did not usurp legislative prerogative or expand the VAT law’s coverage when she
sought to impose VAT on tollway operations. Section 108(A) of the Code clearly states that services of all other franchise
grantees are subject to VAT, except as may be provided under Section 119 of the Code. Tollway operators are not among
the franchise grantees subject to franchise tax under the latter provision. Neither are their services among the VAT-
exempt transactions under Section 109 of the Code. If the legislative intent was to exempt tollway operations from VAT, as
petitioners so strongly allege, then it would have been well for the law to clearly say so. Tax exemptions must be justified
by clear statutory grant and based on language in the law too plain to be mistaken. But as the law is written, no such
exemption obtains for tollway operators. The Court is thus duty-bound to simply apply the law as it is found.
Same; Same; Same; Separation of Powers; The grant of tax exemption is a matter of legislative policy that is within the
exclusive prerogative of Congress.—The grant of tax exemption is a matter of legislative policy that is within the exclusive
prerogative of Congress. The Court’s role is to merely uphold this legislative policy, as reflected first and foremost in the
language of the tax statute. Thus, any unwarranted burden that may be perceived to result from enforcing such policy
must be properly referred to Congress. The Court has no discretion on the matter but simply applies the law.

Same; Same; Same; Same; The executive exercises exclusive discretion in matters pertaining to the implementation and
execution of tax laws—it is more properly suited to deal with the immediate and practical consequences of the value
added tax (VAT) imposition.—The VAT on franchise grantees has been in the statute books since 1994 when R.A. 7716 or
the Expanded Value-Added Tax law was passed. It is only now, however, that the executive has earnestly pursued the VAT
imposition against tollway operators. The executive exercises exclusive discretion in matters pertaining to the
implementation and execution of tax laws. Consequently, the executive is more properly suited to deal with the
immediate and practical consequences of the VAT imposition.

PETITION FOR DECLARATORY RELIEF in the Supreme Court.

The facts are stated in the opinion of the Court.
Ma. Rica A. Gatchalian for petitioners.
The Solicitor General for respondents.

ABAD, J.:

May toll fees collected by tollway operators be subjected to value-added tax?

The Facts and the Case

Petitioners Renato V. Diaz and Aurora Ma. F. Timbol (petitioners) filed this petition for declaratory relief1 assailing the
validity of the impending imposition of value-added tax (VAT) by the Bureau of Internal Revenue (BIR) on the collections of
tollway operators.

Petitioners claim that, since the VAT would result in increased toll fees, they have an interest as regular users of tollways in
stopping the BIR action. Additionally, Diaz claims that he sponsored the approval of Republic Act 7716 (the 1994 Expanded
VAT Law or EVAT Law) and Republic Act 8424 (the 1997 National Internal Revenue Code or the NIRC) at the House of
Representatives. Timbol, on the other hand, claims that she served as Assistant Secretary of the Department of Trade and
Industry and consultant of the Toll Regulatory Board (TRB) in the past administration.
Petitioners allege that the BIR attempted during the administration of President Gloria Macapagal-Arroyo to impose VAT
on toll fees. The imposition was deferred, however, in view of the consistent opposition of Diaz and other sectors to such
move. But, upon President Benigno C. Aquino III’s assumption of office in 2010, the BIR revived the idea and would impose
the challenged tax on toll fees beginning August 16, 2010 unless judicially enjoined.

Petitioners hold the view that Congress did not, when it enacted the NIRC, intend to include toll fees within the meaning
of “sale of services” that are subject to VAT; that a toll fee is a “user’s tax,” not a sale of services; that to impose VAT on
toll fees would amount to a tax on public service; and that, since VAT was never factored into the formula for computing
toll fees, its imposition would violate the non-impairment clause of the constitution.

On August 13, 2010 the Court issued a temporary restraining order (TRO), enjoining the implementation of the VAT. The
Court required the government, represented by respondents Cesar V. Purisima, Secretary of the Department of Finance,
and Kim S. Jacinto-Henares, Commissioner of Internal Revenue, to comment on the petition within 10 days from notice.2
Later, the Court issued another resolution treating the petition as one for prohibition.3
On August 23, 2010 the Office of the Solicitor General filed the government’s comment.4 The government avers that the
NIRC imposes VAT on all kinds of services of franchise grantees, including tollway operations, except where the law
provides otherwise; that the Court should seek the meaning and intent of the law from the words used in the statute; and
that the imposition of VAT on tollway operations has been the subject as early as 2003 of several BIR rulings and
circulars.5

The government also argues that petitioners have no right to invoke the non-impairment of contracts clause since they
clearly have no personal interest in existing toll operating agreements (TOAs) between the government and tollway
operators. At any rate, the non-impairment clause cannot limit the State’s sovereign taxing power which is generally read
into contracts.

Finally, the government contends that the non-inclusion of VAT in the parametric formula for computing toll rates cannot
exempt tollway operators from VAT. In any event, it cannot be claimed that the rights of tollway operators to a reasonable
rate of return will be impaired by the VAT since this is imposed on top of the toll rate. Further, the imposition of VAT on
toll fees would have very minimal effect on motorists using the tollways.

In their reply to the government’s comment, petitioners point out that tollway operators cannot be regarded as franchise
grantees under the NIRC since they do not hold legislative franchises. Further, the BIR intends to collect the VAT by
rounding off the toll rate and putting any excess collection in an escrow account. But this would be illegal since only the
Congress can modify VAT rates and authorize its disbursement. Finally, BIR Revenue Memorandum Circular 63-2010 (BIR
RMC 63-2010), which directs toll companies to record an accumulated input VAT of zero balance in their books as of
August 16, 2010, contravenes Section 111 of the NIRC which grants entities that first become liable to VAT a transitional
input tax credit of 2% on beginning inventory. For this reason, the VAT on toll fees cannot be implemented.

The Issues Presented

The case presents two procedural issues:

1. Whether or not the Court may treat the petition for declaratory relief as one for prohibition; and
2. Whether or not petitioners Diaz and Timbol have legal standing to file the action.
The case also presents two substantive issues:
1. Whether or not the government is unlawfully expanding VAT coverage by including tollway operators and tollway
operations in the terms “franchise grantees” and “sale of services” under Section 108 of the Code; and
2. Whether or not the imposition of VAT on tollway operators a) amounts to a tax on tax and not a tax on services; b) will
impair the tollway operators’ right to a reasonable return of investment under their TOAs; and c) is not administratively
feasible and cannot be implemented.
The Court’s Rulings

A. On the Procedural Issues:

On August 24, 2010 the Court issued a resolution, treating the petition as one for prohibition rather than one for
declaratory relief, the characterization that petitioners Diaz and Timbol gave their action. The government has sought
reconsideration of the Court’s resolution,7 however, arguing that petitioners’ allegations clearly made out a case for
declaratory relief, an action over which the Court has no original jurisdiction. The government adds, moreover, that the
petition does not meet the requirements of Rule 65 for actions for prohibition since the BIR did not exercise judicial, quasi-
judicial, or ministerial functions when it sought to impose VAT on toll fees. Besides, petitioners Diaz and Timbol has a
plain, speedy, and adequate remedy in the ordinary course of law against the BIR action in the form of an appeal to the
Secretary of Finance.
But there are precedents for treating a petition for declaratory relief as one for prohibition if the case has far-reaching
implications and raises questions that need to be resolved for the public good.8 The Court has also held that a petition for
prohibition is a proper remedy to prohibit or nullify acts of executive officials that amount to usurpation of legislative
authority.9

Here, the imposition of VAT on toll fees has far-reaching implications. Its imposition would impact, not only on the more
than half a million motorists who use the tollways everyday, but more so on the government’s effort to raise revenue for
funding various projects and for reducing budgetary deficits.

To dismiss the petition and resolve the issues later, after the challenged VAT has been imposed, could cause more mischief
both to the tax-paying public and the government. A belated declaration of nullity of the BIR action would make any
attempt to refund to the motorists what they paid an administrative nightmare with no solution. Consequently, it is not
only the right, but the duty of the Court to take cognizance of and resolve the issues that the petition raises.

Although the petition does not strictly comply with the requirements of Rule 65, the Court has ample power to waive such
technical requirements when the legal questions to be resolved are of great importance to the public. The same may be
said of the requirement of locus standi which is a mere procedural requisite.

B. On the Substantive Issues:

One. The relevant law in this case is Section 108 of the NIRC, as amended. VAT is levied, assessed, and collected,
according to Section 108, on the gross receipts derived from the sale or exchange of services as well as from the use or
lease of properties. The third paragraph of Section 108 defines “sale or exchange of services” as follows:

“The phrase ‘sale or exchange of services’ means the performance of all kinds of services in the Philippines for others for a
fee, remuneration or consideration, including those performed or rendered by construction and service contractors; stock,
real estate, commercial, customs and immigration brokers; lessors of property, whether personal or real; warehousing
services; lessors or distributors of cinematographic films; persons engaged in milling, processing, manufacturing or
repacking goods for others; proprietors, operators or keepers of hotels, motels, resthouses, pension houses, inns, resorts;
proprietors or operators of restaurants, refreshment parlors, cafes and other eating places, including clubs and caterers;
dealers in securities; lending investors; transportation contractors on their transport of goods or cargoes, including
persons who transport goods or cargoes for hire and other domestic common carriers by land relative to their transport of
goods or cargoes; common carriers by air and sea relative to their transport of passengers, goods or cargoes from one
place in the Philippines to another place in the Philippines; sales of electricity by generation companies, transmission, and
distribution companies; services of franchise grantees of electric utilities, telephone and telegraph, radio and television
broadcasting and all other franchise grantees except those under Section 119 of this Code and non-life insurance
companies (except their crop insurances), including surety, fidelity, indemnity and bonding companies; and similar services
regardless of whether or not the performance thereof calls for the exercise or use of the physical or mental faculties.”
(Underscoring supplied)

It is plain from the above that the law imposes VAT on “all kinds of services” rendered in the Philippines for a fee, including
those specified in the list. The enumeration of affected services is not exclusive.11 By qualifying “services” with the words
“all kinds,” Congress has given the term “services” an all-encompassing meaning. The listing of specific services are
intended to illustrate how pervasive and broad is the VAT’s reach rather than establish concrete limits to its application.
Thus, every activity that can be imagined as a form of “service” rendered for a fee should be deemed included unless some
provision of law especially excludes it.

Now, do tollway operators render services for a fee? Presidential Decree (P.D.) 1112 or the Toll Operation Decree
establishes the legal basis for the services that tollway operators render. Essentially, tollway operators construct,
maintain, and operate expressways, also called tollways, at the operators’ expense. Tollways serve as alternatives to
regular public highways that meander through populated areas and branch out to local roads. Traffic in the regular public
highways is for this reason slow-moving. In consideration for constructing tollways at their expense, the operators are
allowed to collect government-approved fees from motorists using the tollways until such operators could fully recover
their expenses and earn reasonable returns from their investments.

When a tollway operator takes a toll fee from a motorist, the fee is in effect for the latter’s use of the tollway facilities over
which the operator enjoys private proprietary rights that its contract and the law recognize. In this sense, the tollway
operator is no different from the following service providers under Section 108 who allow others to use their properties or
facilities for a fee:
“1. Lessors of property, whether personal or real;
2. Warehousing service operators;
3. Lessors or distributors of cinematographic films;
4. Proprietors, operators or keepers of hotels, motels, resthouses, pension houses, inns, resorts;
5. Lending investors (for use of money);
6. Transportation contractors on their transport of goods or cargoes, including persons who transport goods or cargoes
for hire and other domestic common carriers by land relative to their transport of goods or cargoes; and
7. Common carriers by air and sea relative to their transport of passengers, goods or cargoes from one place in the
Philippines to another place in the Philippines.”

It does not help petitioners’ cause that Section 108 subjects to VAT “all kinds of services” rendered for a fee “regardless of
whether or not the performance thereof calls for the exercise or use of the physical or mental faculties.” This means that
“services” to be subject to VAT need not fall under the traditional concept of services, the personal or professional kinds
that require the use of human knowledge and skills.

And not only do tollway operators come under the broad term “all kinds of services,” they also come under the specific
class described in Section 108 as “all other franchise grantees” who are subject to VAT, “except those under Section 119 of
this Code.”

Tollway operators are franchise grantees and they do not belong to exceptions (the low-income radio and/or television
broadcasting companies with gross annual incomes of less than P10 million and gas and water utilities) that Section 119
spares from the payment of VAT. The word “franchise” broadly covers government grants of a special right to do an act or
series of acts of public concern.

Petitioners of course contend that tollway operators cannot be considered “franchise grantees” under Section 108 since
they do not hold legislative franchises. But nothing in Section 108 indicates that the “franchise grantees” it speaks of are
those who hold legislative franchises. Petitioners give no reason, and the Court cannot surmise any, for making a
distinction between franchises granted by Congress and franchises granted by some other government agency. The latter,
properly constituted, may grant franchises. Indeed, franchises conferred or granted by local authorities, as agents of the
state, constitute as much a legislative franchise as though the grant had been made by Congress itself.15 The term
“franchise” has been broadly construed as referring, not only to authorizations that Congress directly issues in the form of
a special law, but also to those granted by administrative agencies to which the power to grant franchises has been
delegated by Congress.

Tollway operators are, owing to the nature and object of their business, “franchise grantees.” The construction, operation,
and maintenance of toll facilities on public improvements are activities of public consequence that necessarily require a
special grant of authority from the state. Indeed, Congress granted special franchise for the operation of tollways to the
Philippine National Construction Company, the former tollway concessionaire for the North and South Luzon Expressways.
Apart from Congress, tollway franchises may also be granted by the TRB, pursuant to the exercise of its delegated powers
under P.D. 1112.17 The franchise in this case is evidenced by a “Toll Operation Certificate.”

Petitioners contend that the public nature of the services rendered by tollway operators excludes such services from the
term “sale of services” under Section 108 of the Code. But, again, nothing in Section 108 supports this contention. The
reverse is true. In specifically including by way of example electric utilities, telephone, telegraph, and broadcasting
companies in its list of VAT-covered businesses, Section 108 opens other companies rendering public service for a fee to
the imposition of VAT. Businesses of a public nature such as public utilities and the collection of tolls or charges for its use
or service is a franchise.

Nor can petitioners cite as binding on the Court statements made by certain lawmakers in the course of congressional
deliberations of the would-be law. As the Court said in South African Airways v. Commissioner of Internal Revenue,
“statements made by individual members of Congress in the consideration of a bill do not necessarily reflect the sense of
that body and are, consequently, not controlling in the interpretation of law.” The congressional will is ultimately
determined by the language of the law that the lawmakers voted on. Consequently, the meaning and intention of the law
must first be sought “in the words of the statute itself, read and considered in their natural, ordinary, commonly accepted
and most obvious significations, according to good and approved usage and without resorting to forced or subtle
construction.”

Two. Petitioners argue that a toll fee is a “user’s tax” and to impose VAT on toll fees is tantamount to taxing a tax.21
Actually, petitioners base this argument on the following discussion in Manila International Airport Authority (MIAA) v.
Court of Appeals:

“No one can dispute that properties of public dominion mentioned in Article 420 of the Civil Code, like “roads, canals,
rivers, torrents, ports and bridges constructed by the State,” are owned by the State. The term “ports” includes seaports
and airports. The MIAA Airport Lands and Buildings constitute a “port” constructed by the State. Under Article 420 of the
Civil Code, the MIAA Airport Lands and Buildings are properties of public dominion and thus owned by the State or the
Republic of the Philippines.

x x x The operation by the government of a tollway does not change the character of the road as one for public use.
Someone must pay for the maintenance of the road, either the public indirectly through the taxes they pay the
government, or only those among the public who actually use the road through the toll fees they pay upon using the road.
The tollway system is even a more efficient and equitable manner of taxing the public for the maintenance of public roads.
The charging of fees to the public does not determine the character of the property whether it is for public dominion or
not. Article 420 of the Civil Code defines property of public dominion as “one intended for public use.” Even if the
government collects toll fees, the road is still “intended for public use” if anyone can use the road under the same terms
and conditions as the rest of the public. The charging of fees, the limitation on the kind of vehicles that can use the road,
the speed restrictions and other conditions for the use of the road do not affect the public character of the road.

The terminal fees MIAA charges to passengers, as well as the landing fees MIAA charges to airlines, constitute the bulk of
the income that maintains the operations of MIAA. The collection of such fees does not change the character of MIAA as
an airport for public use. Such fees are often termed user’s tax. This means taxing those among the public who actually
use a public facility instead of taxing all the public including those who never use the particular public facility. A user’s tax
is more equitable—a principle of taxation mandated in the 1987 Constitution.”

Petitioners assume that what the Court said above, equating terminal fees to a “user’s tax” must also pertain to tollway
fees. But the main issue in the MIAA case was whether or not Parañaque City could sell airport lands and buildings under
MIAA administration at public auction to satisfy unpaid real estate taxes. Since local governments have no power to tax
the national government, the Court held that the City could not proceed with the auction sale. MIAA forms part of the
national government although not integrated in the department framework.”24 Thus, its airport lands and buildings are
properties of public dominion beyond the commerce of man under Article 420(1)25 of the Civil Code and could not be sold
at public auction.

As can be seen, the discussion in the MIAA case on toll roads and toll fees was made, not to establish a rule that tollway
fees are user’s tax, but to make the point that airport lands and buildings are properties of public dominion and that the
collection of terminal fees for their use does not make them private properties. Tollway fees are not taxes. Indeed, they
are not assessed and collected by the BIR and do not go to the general coffers of the government.

It would of course be another matter if Congress enacts a law imposing a user’s tax, collectible from motorists, for the
construction and maintenance of certain roadways. The tax in such a case goes directly to the government for the
replenishment of resources it spends for the roadways. This is not the case here. What the government seeks to tax here
are fees collected from tollways that are constructed, maintained, and operated by private tollway operators at their own
expense under the build, operate, and transfer scheme that the government has adopted for expressways.26 Except for a
fraction given to the government, the toll fees essentially end up as earnings of the tollway operators.

In sum, fees paid by the public to tollway operators for use of the tollways, are not taxes in any sense. A tax is imposed
under the taxing power of the government principally for the purpose of raising revenues to fund public expenditures. Toll
fees, on the other hand, are collected by private tollway operators as reimbursement for the costs and expenses incurred
in the construction, maintenance and operation of the tollways, as well as to assure them a reasonable margin of income.
Although toll fees are charged for the use of public facilities, therefore, they are not government exactions that can be
properly treated as a tax. Taxes may be imposed only by the government under its sovereign authority, toll fees may be
demanded by either the government or private individuals or entities, as an attribute of ownership.

Parenthetically, VAT on tollway operations cannot be deemed a tax on tax due to the nature of VAT as an indirect tax. In
indirect taxation, a distinction is made between the liability for the tax and burden of the tax. The seller who is liable for
the VAT may shift or pass on the amount of VAT it paid on goods, properties or services to the buyer. In such a case, what
is transferred is not the seller’s liability but merely the burden of the VAT.

Thus, the seller remains directly and legally liable for payment of the VAT, but the buyer bears its burden since the amount
of VAT paid by the former is added to the selling price. Once shifted, the VAT ceases to be a tax30 and simply becomes
part of the cost that the buyer must pay in order to purchase the good, property or service.

Consequently, VAT on tollway operations is not really a tax on the tollway user, but on the tollway operator. Under Section
105 of the Code, 31 VAT is imposed on any person who, in the course of trade or business, sells or renders services for a
fee. In other words, the seller of services, who in this case is the tollway operator, is the person liable for VAT. The latter
merely shifts the burden of VAT to the tollway user as part of the toll fees.

For this reason, VAT on tollway operations cannot be a tax on tax even if toll fees were deemed as a “user’s tax.” VAT is
assessed against the tollway operator’s gross receipts and not necessarily on the toll fees. Although the tollway operator
may shift the VAT burden to the tollway user, it will not make the latter directly liable for the VAT. The shifted VAT burden
simply becomes part of the toll fees that one has to pay in order to use the tollways.

Three. Petitioner Timbol has no personality to invoke the non-impairment of contract clause on behalf of private
investors in the tollway projects. She will neither be prejudiced by nor be affected by the alleged diminution in return of
investments that may result from the VAT imposition. She has no interest at all in the profits to be earned under the TOAs.
The interest in and right to recover investments solely belongs to the private tollway investors.
Besides, her allegation that the private investors’ rate of recovery will be adversely affected by imposing VAT on tollway
operations is purely speculative. Equally presumptuous is her assertion that a stipulation in the TOAs known as the
Material Adverse Grantor Action will be activated if VAT is thus imposed. The Court cannot rule on matters that are
manifestly conjectural. Neither can it prohibit the State from exercising its sovereign taxing power based on uncertain,
prophetic grounds.

Four. Finally, petitioners assert that the substantiation requirements for claiming input VAT make the VAT on tollway
operations impractical and incapable of implementation. They cite the fact that, in order to claim input VAT, the name,
address and tax identification number of the tollway user must be indicated in the VAT receipt or invoice. The manner by
which the BIR intends to implement the VAT—by rounding off the toll rate and putting any excess collection in an escrow
account—is also illegal, while the alternative of giving “change” to thousands of motorists in order to meet the exact toll
rate would be a logistical nightmare. Thus, according to them, the VAT on tollway operations is not administratively
feasible.

Administrative feasibility is one of the canons of a sound tax system. It simply means that the tax system should be
capable of being effectively administered and enforced with the least inconvenience to the taxpayer. Non-observance of
the canon, however, will not render a tax imposition invalid “except to the extent that specific constitutional or statutory
limitations are impaired.”34 Thus, even if the imposition of VAT on tollway operations may seem burdensome to
implement, it is not necessarily invalid unless some aspect of it is shown to violate any law or the Constitution.

Here, it remains to be seen how the taxing authority will actually implement the VAT on tollway operations. Any
declaration by the Court that the manner of its implementation is illegal or unconstitutional would be premature.
Although the transcript of the August 12, 2010 Senate hearing provides some clue as to how the BIR intends to go about
it,35 the facts pertaining to the matter are not sufficiently established for the Court to pass judgment on. Besides, any
concern about how the VAT on tollway operations will be enforced must first be addressed to the BIR on whom the task of
implementing tax laws primarily and exclusively rests. The Court cannot preempt the BIR’s discretion on the matter,
absent any clear violation of law or the Constitution.

For the same reason, the Court cannot prematurely declare as illegal, BIR RMC 63-2010 which directs toll companies to
record an accumulated input VAT of zero balance in their books as of August 16, 2010, the date when the VAT imposition
was supposed to take effect. The issuance allegedly violates Section 111(A)36 of the Code which grants first time VAT
payers a transitional input VAT of 2% on beginning inventory.

In this connection, the BIR explained that BIR RMC 63-2010 is actually the product of negotiations with tollway operators
who have been assessed VAT as early as 2005, but failed to charge VAT-inclusive toll fees which by now can no longer be
collected. The tollway operators agreed to waive the 2% transitional input VAT, in exchange for cancellation of their past
due VAT liabilities. Notably, the right to claim the 2% transitional input VAT belongs to the tollway operators who have not
questioned the circular’s validity. They are thus the ones who have a right to challenge the circular in a direct and proper
action brought for the purpose.

Conclusion
In fine, the Commissioner of Internal Revenue did not usurp legislative prerogative or expand the VAT law’s coverage
when she sought to impose VAT on tollway operations. Section 108(A) of the Code clearly states that services of all other
franchise grantees are subject to VAT, except as may be provided under Section 119 of the Code. Tollway operators are
not among the franchise grantees subject to franchise tax under the latter provision. Neither are their services among the
VAT-exempt transactions under Section 109 of the Code.
If the legislative intent was to exempt tollway operations from VAT, as petitioners so strongly allege, then it would have
been well for the law to clearly say so. Tax exemptions must be justified by clear statutory grant and based on language in
the law too plain to be mistaken.37 But as the law is written, no such exemption obtains for tollway operators. The Court
is thus duty-bound to simply apply the law as it is found.

Lastly, the grant of tax exemption is a matter of legislative policy that is within the exclusive prerogative of Congress. The
Court’s role is to merely uphold this legislative policy, as reflected first and foremost in the language of the tax statute.
Thus, any unwarranted burden that may be perceived to result from enforcing such policy must be properly referred to
Congress. The Court has no discretion on the matter but simply applies the law.

The VAT on franchise grantees has been in the statute books since 1994 when R.A. 7716 or the Expanded Value-Added Tax
law was passed. It is only now, however, that the executive has earnestly pursued the VAT imposition against tollway
operators. The executive exercises exclusive discretion in matters pertaining to the implementation and execution of tax
laws. Consequently, the executive is more properly suited to deal with the immediate and practical consequences of the
VAT imposition.

WHEREFORE, the Court DENIES respondents Secretary of Finance and Commissioner of Internal Revenue’s motion for
reconsideration of its August 24, 2010 resolution, DISMISSES the petitioners Renato V. Diaz and Aurora Ma. F. Timbol’s
petition for lack of merit, and SETS ASIDE the Court’s temporary restraining order dated August 13, 2010.

SO ORDERED.

Corona (C.J.), Carpio, Velasco, Jr., Leonardo-De Castro, Brion, Peralta, Del Castillo, Villarama, Jr., Perez and Mendoza, JJ.,
concur.

Bersamin, J., On Leave.

Sereno, J., On Official Leave.

Respondents’ motion for reconsideration denied, petition dismissed and temporary restraining order set aside.
Notes.—A toll way is not an ordinary road—the special purpose for which a toll way is constructed necessitates the
imposition of guidelines in the manner of its use and operation. (Mirasol vs. Department of Public Works and Highways,
490 SCRA 318 [2006])

Undeniably, the collection of toll fees is part of the execution or implementation of the Manila-Cavite Toll Expressway
Project (MCTEP) as agreed upon in the Toll Operation Agreement (TOA). (Francisco, Jr. vs. UEM-MARA Philippines
Corporation, 536 SCRA 518 [2007])
——o0o—— Diaz vs. Secretary of Finance, 654 SCRA 96, G.R. No. 193007 July 19, 2011
 G.R. No. 168056. September 1, 2005.*
ABAKADA GURO PARTY LIST (Formerly AASJAS) OFFICERS SAMSON S. ALCANTARA and ED VINCENT S. ALBANO,
petitioners, vs. THE HONORABLE EXECUTIVE SECRETARY EDUARDO ERMITA; HONORABLE SECRETARY OF THE
DEPARTMENT OF FINANCE CESAR PURISIMA; and HONORABLE COMMISSIONER OF INTERNAL REVENUE GUILLERMO
PARAYNO, JR., respondents.

G.R. No. 168207. September 1, 2005.*

AQUILINO Q. PIMENTEL, JR., LUISA P. EJERCITO-ESTRADA, JINGGOY E. ESTRADA, PANFILO M. LACSON, ALFREDO S. LIM,
JAMBY A.S. MADRIGAL, AND SERGIO R. OSMEÑA III, 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. September 1, 2005.*

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”; BETH-ZAIDA 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
MAÑEBO doing business under the name and style of “CMA MOTORISTS CENTER”; SUSAN M. ENTRATA doing business
under the name and style of “LEONA’S GASOLINE STATION and SERVICE CENTER”; CARMELITA BALDONADO doing
business under the name and style of “FIRST CHOICE SERVICE CENTER”; 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. September 1, 2005.*

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. CASIÑO, 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. September 1, 2005. *
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.

Courts; Contempt; Separation of Powers; If it were true that former Finance Secretary Purisima felt that the media
misconstrued his actions, then he should have immediately rectified it and not waited until the Supreme Court required
him to explain before he denied having made such statements which impressed upon the public’s mind that the issuance
of the TRO was the product of the machinations on the Court by the executive branch.—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 public’s 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 Court’s 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 dis-honor, 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.

SPECIAL CIVIL ACTION in the Supreme Court. Contempt.

The facts are stated in the resolution of the Court.

Carlos G. Baniqued and Laura Victoria Yuson-Layug for petitioners in G.R. No. 168461.
Eugenio H. Villareal, Dionisio B. Marasigan, Ma. Rosa-lie Taguian, Agustin C. Bacungan III and Roland Allan C. Abarquez
for petitioners in G.R. No. 168463.
Samson S. Alcantara, Ed Vincent S. Albano and Rene B. Gorospe for petitioners in G.R. No. 168056.
Luis Ma. Gil L. Gana for petitioners in G.R. No. 168207.
The Solicitor General for public respondents.

RESOLUTION
AUSTRIA-MARTINEZ, J.:

In view of the Court’s 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 dis-honor,
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 Malacañang 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 Malacañang 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 Malacañang did so, did not
amount to, as it was not intended to have the effect of, claiming outright or necessarily insinuating that Malacañang did
so, or to hold, in any manner, this Honorable Court in contempt.”

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 Purisima’s explanation unsatisfactory.

The Court reproduces excerpts from some of the reports contained in the newspapers with regard to Purisima’s
statements, to wit:

(1) July 10, 2005, The Philippine Star, Opinion Section (It’s 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
administration’s 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 SC’s TRO to save her presidency.

(3) July 11, 2005, Manila Standard Today (Palace Debunks Purisima Claim on EVAT)

Malacañang yesterday branded as “ridiculous” the insinuations that President Gloria Macapagal Arroyo had a hand in the
Supreme Court’s 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 exTrade
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
country’s 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 didn’t 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 contro-vert 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 public’s 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 Court’s 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.
Cesar V. Purisima meted with P20,000.00 fine for indirect contempt.

Notes.—A publication which tends to impede, obstruct, embarrass or influence the courts in administering justice in a
pending suit or proceeding, constitutes criminal contempt which is summarily punishable by courts. A publication which
tends to degrade the courts and to destroy public confidence in them or that which tends to bring them in any way into
disrepute, constitutes likewise criminal contempt, and is equally punishable by courts. (Social Weather Stations, Inc. vs.
Asuncion, 228 SCRA xi [1993])

Clearly, the public interest involved in freedom of speech and the individual interest of judges (and for that matter, all
other public officials) in the maintenance of private honor and reputation need to be accommodated one to the other.
And the point of adjustment or accommodation between these two legitimate interests is precisely found in the norm
which requires those who, invoking freedom of speech, publish statements which are clearly defamatory to identifiable
judges or other public officials to exercise bona fide care in ascertaining the truth of the statements they publish. The
norm does not require that a journalist guarantee the truth of what he says or publishes. But the norm does prohibit the
reckless disregard of private reputation by publishing or circulating defamatory statements without any bona fide effort to
ascertain the truth thereof. (In Re: Emil P. Jurado, 243 SCRA 299 [1995])
——o0o—— Abakada Guro Party List vs. Ermita, 469 SCRA 1, G.R. No. 168056, G.R. No. 168207, G.R. No. 168461, G.R. No.
168463, G.R. No. 168730 September 1, 2005
 G.R. No. 199669

SOUTHERN LUZON DRUG CORPORATION, Petitioner,

vs.
THE DEPARTMENT OF SOCIAL WELFARE AND DEVELOPMENT, THE NATIONAL COUNCIL FOR THE WELFARE OF DISABLED
PERSONS, THE DEPARTMENT OF FINANCE, and THE BUREAU OF INTERNAL REVENUE, Respondents

DECISION

REYES, J.:

Before the Court is a Petition for Review on Certiorari1under Rule 45 of the Rules of Court, assailing the Decision2dated
June 17, 2011, and Resolution3 dated November 25, 2011 of the Court of Appeals (CA) in CA-G.R. SP No. 102486, which
dismissed the petition for prohibition filed by Southern Luzon Drug Corporation (petitioner) against the Department of1
Social Welfare and Development (DSWD), the National Council for the Welfare of Disabled Persons (NCWDP) (now
National Council on Disability Affairs or NCDA), the Department of Finance (DOF) and the Bureau of: Internal Revenue
(collectively, the respondents), which sought to prohibit the implementation of Section 4(a) of Republic Act (R.A.) No.
9257, otherwise known as the "Expanded Senior Citizens Act of 2003" and Section 32 of R.A. No. 9442, which amends
the "Magna Carta for Disabled Persons," particularly the granting of 20% discount on the purchase of medicines by senior
citizens and persons with disability (PWD),: respectively, and treating them as tax deduction.

The petitioner is a domestic corporation engaged in the business of: drugstore operation in the Philippines while the
respondents are government' agencies, office and bureau tasked to monitor compliance with R.A. Nos. 9257 and 9442,
promulgate implementing rules and regulations for their effective implementation, as well as prosecute and revoke
licenses of erring1 establishments.

Factual Antecedents

On April 23, 1992, R.A. No. 7432, entitled "An Act to Maximize the Contribution of Senior Citizens to Nation-Building, Grant
Benefits and Special Privileges and For Other Purposes," was enacted. Under the said law, a senior citizen, who must be at
least 60 years old and has an annual income of not more than P60,000.00,4 may avail of the privileges provided in Section
4 thereof, one of which is 20% discount on the purchase of medicines. The said provision states:

Sec. 4. Privileges for the Senior Citizen. - x x x:

a) the grant of twenty percent (20%) discount from all establishments relative to utilization of transportation services,
hotels and similar lodging establishment, restaurants and recreation centers and purchase of medicine anywhere in the
country: Provided, That private establishments may claim the cost as tax credit[.]

x x x x (Emphasis ours)

To recoup the amount given as discount to qualified senior citizens, covered establishments can claim an equal amount as
tax credit which can be applied against the income tax due from them.

On February 26, 2004, then President Gloria Macapagal-Arroyo signed R.A. No. 9257, amending some provisions of R.A.
No. 7432. The new law retained the 20% discount on the purchase of medicines but removed the annual income ceiling
thereby qualifying all senior citizens to the privileges under the law. Further, R.A. No. 9257 modified the tax treatment of
the discount granted to senior citizens, from tax credit to tax deduction from gross income, computed based on the net
cost of goods sold or services rendered. The pertinent provision, as amended by R.A. No. 9257, reads as follows:

SEC. 4. Privileges for the Senior Citizens. - The senior citizens shall be entitled to the following:

(a) the grant of twenty percent (20%) discount from all establishments relative to the utilization of services in hotels and
similar lodging establishments, restaurants and recreation centers, and purchase of medicines in all establishments for the
exclusive use or enjoyment of senior citizens, including funeral and burial services for the death of senior citizens;
 xxxx

The establishment may claim the discounts granted under (a), (f), (g) and (h) as tax deduction based on the net cost of
the goods sold or services rendered: Provided, That the cost of the discount shall be allowed as deduction from gross
income for the same taxable year that the discount is granted. Provided, further, That the total amount of the claimed tax
deduction net of value-added tax if applicable, shall be included in their gross sales receipts for tax purposes and shall be
subject to proper documentation and to the provisions of the National Internal Revenue Code, as amended. (Emphasis
ours)

On May 28, 2004, the DSWD issued the Implementing Rules and Regulations (IRR) of R.A. No. 9257. Article 8 of Rule VI of
the said IRR provides:

Article 8. Tax Deduction of Establishments. - The establishment may claim the discounts granted under Rule V, Section 4 -
Discounts for Establishments; Section 9, Medical and Dental Services in Private Facilities and Sections 10 and 11 -Air, Sea
and Land Transportation as tax deduction based on the net cost of the goods sold or services rendered. Provided, That the
cost of the discount shall be allowed as deduction from gross income for the same taxable year that the discount is
granted; Provided, further, That the total amount of the claimed tax deduction net of value-added tax if applicable, shall
be included in their gross sales receipts for tax purposes and shall be subject to proper documentation and to the
provisions of the National Internal Revenue Code, as amended; Provided, finally, that the implementation of the tax
deduction shall be subject to the Revenue Regulations to be issued by the Bureau of Internal Revenue (BIR) and approved
by the Department of Finance (DOF). (Emphasis ours)

The change in the tax treatment of the discount given to senior citizens did not sit well with some drug store owners and
corporations, claiming it affected the profitability of their business. Thus, on January 13, 2005, I Carlos Superdrug
Corporation (Carlos Superdrug), together with other. corporation and proprietors operating drugstores in the Philippines,
filed a Petition for Prohibition with Prayer for Temporary Restraining Order (TRO) I and/or Preliminary Injunction before
this Court, entitled Carlos Superdrug I Corporation v. DSWD,5docketed as G.R. No. 166494, assailing the constitutionality of
Section 4(a) of R.A. No. 9257 primarily on the ground that it amounts to taking of private property without payment of just
compensation. In a Decision dated June 29, 2007, the Court upheld the constitutionality of the assailed provision, holding
that the same is a legitimate exercise of police power. The relevant portions of the decision read, thus:

The law is a legitimate exercise of police power which, similar to the power of eminent domain, has general welfare for its
object. Police power is not capable of an exact definition, but has been purposely veiled in general terms to underscore its
comprehensiveness to meet all exigencies and provide enough room for an efficient and flexible response to conditions
and circumstances, thus assuring the greatest benefits. Accordingly, it has been described as "the most essential, insistent
and the least limitable of powers, extending as it does to all the great public needs." It is "[t]he power vested in the
legislature by the constitution to make, ordain, and establish all manner of wholesome and reasonable laws, statutes, and
ordinances, either with penalties or without, not repugnant to the constitution, as they shall judge to be for the good and
welfare of the commonwealth, and of the subjects of the same."

For this reason, when the conditions so demand as determined by the legislature, property rights must bow to the primacy
of police power because property rights, though sheltered by due process, must yield to general welfare.

xxxx

Moreover, the right to property has a social dimension. While Article XIII of the Constitution provides the precept for the
protection of property, various laws and jurisprudence, particularly on agrarian reform and the regulation of contracts and
public utilities, continuously serve as a reminder that the right to property can be relinquished upon the command of the
State for the promotion of public good. Undeniably, the success of the senior citizens program rests largely on the support
imparted by petitioners and the other private establishments concerned. This being the case, the means employed in
invoking the active participation of the private sector, in order to achieve the purpose or objective of the law, is
reasonably and directly related. Without sufficient proof that Section 4(a) of RA. No. 9257 is arbitrary, and that the
continued implementation of the same would be unconscionably detrimental to petitioners, the Court will refrain from
quashing a legislative act.
WHEREFORE, the petition is DISMISSED for lack of merit.6 (Citations omitted)

On August 1, 2007, Carlos Superdrug filed a motion for reconsideration of the foregoing decision. Subsequently, the Court
issued Resolution dated August 21, 2007, denying the said motion with finality. 7

Meanwhile, on March 24, 1992, R.A. No. 7277 pertaining to the "Magna Carta for Disabled Persons" was enacted,
codifying the rights and privileges of PWDs. Thereafter, on April 30, 2007, R.A. No. 9442 was enacted, amending R.A. No.
7277. One of the salient amendments in the law is the insertion of Chapter 8 in Title 2 thereof, which enumerates the
other privileges and incentives of PWDs, including the grant of 20% discount on the purchase of medicines. Similar to R.A.
No. 9257, covered establishments shall claim the discounts given to PWDs as tax deductions from the gross income, based
on the net cost of goods sold or services rendered. Section 32 ofR.A. No. 9442 reads:

CHAPTER 8. Other Privileges and Incentives

SEC. 32. Persons with disability shall be entitled to the following:

xxxx

(c) At least twenty percent (20%) discount for the purchase of medicines in all drugstores for the exclusive use or
enjoyment of persons with disability;

xxxx

The establishments may claim the discounts granted in subsections (a), (b), (c), (e), (t) and (g) as taxdeductions based on
the net cost of the goods sold or services rendered: Provided, however, That the cost of the discount shall be allowed as
deduction from gross income for the same taxable year that the discount is granted: Provided, further, That the total
amount of the claimed tax deduction net of value-added tax if applicable, shall be included in their gross sales receipts for
tax purposes and shall be subject to proper documentation and to the provisions of the National Internal Revenue Code
(NIRC), as amended. (Emphasis ours)

Pursuant to the foregoing, the IRR of R.A. No. 9442 was promulgated by the DSWD, Department of Education, DOF,
Department of Tourism and the Department of Transportation and Communications.8Sections 5 .1 and 6.1.d thereof
provide:

Sec. 5. Definition of Terms. For purposes of these Rules and Regulations, these terms are defined as follows:

5.1. Persons with Disability are those individuals defined under Section 4 of RA 7277, "An Act Providing
for the Rehabilitation, Self-Development and Self-Reliance of Persons with Disability as amended and their
integration into the Mainstream of Society and for Other Purposes." This is defined as a person suffering
from restriction or different abilities, as a result of a mental, physical or sensory impairment, to perform
an activity in a manner or within the range considered normal for human being. Disability shall mean: (1) a
physical or mental impairment that substantially limits one or more psychological, physiological or
anatomical function of an individual or activities of such individual; (2) a record of such an impairment; or
(3) being regarded as having such an impairment.

xxxx

6.1.d Purchase of Medicine - At least twenty percent (20%) discount on the purchase of medicine for the
exclusive use and enjoyment of persons with disability. All drug stores, hospital, pharmacies, clinics and
other similar establishments selling medicines are required to provide at least twenty percent (20%)
discount subject to the guidelines issued by DOH and PHILHEALTH.

On February 26, 2008, the petitioner filed a Petition for Prohibition with Application for TRO and/or Writ of Preliminary
Injunction9 with the CA, seeking to declare as unconstitutional (a) Section 4(a) of R.A. No. 9257, and (b) Section 32 of R.A.
No. 9442 and Section 5.1 of its IRR, insofar as these provisions only allow tax deduction on the gross income based on the
net cost of goods sold or services rendered as compensation to private establishments for the 20% discount that they are
required to grant to senior citizens and PWDs. Further, the petitioner prayed that the respondents be permanently
enjoined from implementing the assailed provisions.

Ruling of the CA

On June 17, 2011, the CA dismissed the petition, reiterating the ruling of the Court in Carlos Superdrug10particularly that
Section 4(a) of R.A. No. 9257 was a valid exercise of police power. Moreover, the CA held that considering that the same
question had been raised by parties similarly situated and was resolved in Carlos Superdrug, the rule of stare decisis stood
as a hindrance to any further attempt to relitigate the same issue. It further noted that jurisdictional considerations also
compel the dismissal of the action. It particularly emphasized that it has no original or appellate jurisdiction to pass upon
the constitutionality of the assailed laws, 11 the same pertaining to the Regional Trial Court (RTC). Even assuming that it
had concurrent jurisdiction with the RTC, the principle of hierarchy of courts mandates that the case be commenced and
heard by the lower court. 12 The CA further ruled that the petitioner resorted to the wrong remedy as a petition for
prohibition will not lie to restrain the actions of the respondents for the simple reason that they do not exercise judicial,
quasi-judicial or ministerial duties relative to the issuance or implementation of the questioned provisions. Also, the
petition was wanting of the allegations of the specific acts committed by the respondents that demonstrate the exercise of
these powers which may be properly challenged in a petition for prohibition.13

The petitioner filed its Motion for Reconsideration 14 of the Decision dated June 17, 2011 of the CA, but the same was
denied in a Resolution 15 dated November 25, 2011.

Unyielding, the petitioner filed the instant petition, raising the following assignment of errors, to wit:

THE CA SERIOUSLY ERRED WHEN IT RULED THAT A PETITION FOR PROHIBITION FILED WITH THE CA IS AN IMPROPER
REMEDY TO ASSAIL THE CONSTITUTIONALITY OF THE 20%, SALES DISCOUNT FOR SENIOR CITIZENS AND PWDs;

II

THE CA SERIOUSLY ERRED WHEN IT HELD THAT THE SUPREME COURT'S RULING IN CARLOS
SUPERDRUG CONSTITUTES STARE DECISIS;

III

THE CA SERIOUSLY ERRED ON A QUESTION OF SUBSTANCE WHEN IT RULED THAT THE 20%, SALES DISCOUNT FOR
SENIOR CITIZENS AND PWDs IS A VALID EXERCISE OF POLICE POWER. ON THE CONTRARY, IT IS AN INVALID EXERCISE OF
THE POWER OF EMINENT DOMAIN BECAUSE IT FAILS TO PROVIDE JUST COMPENSATION TO THE PETITIONER AND
OTHER SIMILARLY SITUATED DRUGSTORES;

IV

THE CA SERIOUSLY ERRED ON A QUESTION OF SUBSTANCE WHEN IT RULED THAT THE 20°/o SALES DISCOUNT FOR
SENIOR CITIZENS AND PWDs DOES NOT VIOLATE THE PETITIONER'S RIGHT TO EQUAL PROTECTION OF THE LAW; and

THE CA SERIOUSLY ERRED ON A QUESTION OF SUBSTANCE WHEN IT RULED THAT THE DEFINITIONS OF DISABILITIES AND
PWDs ARE NOT VAGUE AND DO NOT VIOLATE THE PETITIONER'S RIGHT TO DUE PROCESS OF LAW. 16

Ruling of the Court

Prohibition may be filed to question
the constitutionality of a law

In the assailed decision, the CA noted that the action, although denominated as one for prohibition, seeks the declaration
of the unconstitutionality of Section 4(a) of R.A. No. 9257 and Section 32 of R.A. No.9442. It held that in such a case, the
proper remedy is not a special civil 1 action but a petition for declaratory relief, which falls under the exclusive original
jurisdiction of the RTC, in the first instance, and of the Supreme Court, on appeal. 17

The Court clarifies.

Generally, the office of prohibition is to prevent the unlawful and oppressive exercise of authority and is directed against
proceedings that are done without or in excess of jurisdiction, or with grave abuse of discretion, there being no appeal or
other plain, speedy, and adequate remedy in the ordinary course of law. It is the remedy to prevent inferior courts,
corporations, boards, or persons from usurping or exercising a jurisdiction or power with which they have not been vested
by law. 18 This is, however, not the lone office of an action for prohibition. In Diaz, et al. v. The Secretary of Finance, et
al., 19 prohibition was also recognized as a proper remedy to prohibit or nullify acts of executive officials that amount to
usurpation of legislative authority. 20 And, in a number of jurisprudence, prohibition was allowed as a proper action to
assail the constitutionality of a law or prohibit its implementation.

In Social Weather Stations, Inc. v. Commission on Elections,21therein petitioner filed a petition for prohibition to assail the
constitutionality of Section 5.4 of R.A. No. 9006, or the "Fair Elections Act," which prohibited the publication of surveys
within 15 days before an election for national candidates, and seven days for local candidates. Included in the petition is a
prayer to prohibit the Commission on Elections from enforcing the said provision. The Court granted the Petition and
struck down the assailed provision for being unconstitutional. 22

In Social Justice Society (SJS) v. Dangerous Drugs Board, et al.,23 therein petitioner assailed the constitutionality of
paragraphs (c ), (d), (f) and (g) of Section 36 of R.A. No. 9165, otherwise known as the "Comprehensive Dangerous Drugs
Act of 2002," on the ground that they constitute undue delegation of legislative power for granting unbridled discretion to
schools and private employers in determining the manner of drug 'testing of their employees, and that the law constitutes
a violation of the right against unreasonable searches and seizures. It also sought to enjoin the Dangerous Drugs Board
and the Philippine Drug Enforcement Agency from enforcing the challenged provision.24The Court partially granted the
petition by declaring Section 36(f) and (g) of R.A. No. 9165 unconstitutional, and permanently enjoined the concerned
agencies from implementing them. 25

In another instance, consolidated petitions for prohibitions26 questioning the constitutionality of the Priority Development
Assistance Fund were deliberated upon by this Court which ultimately granted the same.

Clearly, prohibition has been found an appropriate remedy to challenge the constitutionality of various laws, rules, and
regulations.

There is also no question regarding the jurisdiction of the CA to hear and decide a petition for prohibition. By express
provision of the law, particularly Section 9(1) of Batas Pambansa Bilang 129,27 the CA was granted "original jurisdiction to
issue writs of mandamus, prohibition, certiorari, habeas corpus, and quo warranto, and auxiliary writs or I processes,
whether or not in aid of its appellate jurisdiction." This authority· the CA enjoys concurrently with RTCs and this Court.

In the same manner, the supposed violation of the principle of the ·. hierarchy of courts does not pose any hindrance to
the full deliberation of the issues at hand. It is well to remember that "the judicial hierarchy of courts is not an iron-clad
rule. It generally applies to cases involving warring factual allegations. For this reason, litigants are required to [refer] to
the trial courts at the first instance to determine the truth or falsity of these contending allegations on the basis of the
evidence of the parties. Cases which depend on disputed facts for decision cannot be brought immediately before
appellate courts as they are not triers of facts. Therefore, a strict application of the rule of hierarchy of courts is not
necessary when the cases brought before the appellate courts do not involve factual but legal questions."28

Moreover, the principle of hierarchy of courts may be set aside for special and important reasons, such as when dictated
by public welfare and ' the advancement of public policy, or demanded by the broader interest of justice.29Thus, when
based on the good judgment of the court, the urgency and significance of the issues presented calls for its intervention, it
should not hesitate to exercise its duty to resolve.

The instant petition presents an exception to the principle as it basically raises a legal question on the constitutionality of
the mandatory discount and the breadth of its rightful beneficiaries. More importantly, the resolution of the issues will
redound to the benefit of the public as it will put to rest the questions on the propriety of the granting of discounts to
senior citizens and PWDs amid the fervent insistence of affected establishments that the measure transgresses their
property rights. The Court, therefore, finds it to the best interest of justice that the instant petition be resolved.

The instant case is not barred by

stare decisis

The petitioner contends that the CA erred in holding that the ruling in Carlos Superdrug constitutes as stare decisis or law
of the case which bars the relitigation of the issues that had been resolved therein and had been raised anew in the
instant petition. It argues that there are substantial differences between Carlos Superdrug and the circumstances in the
instant case which take it out from the operation of the doctrine of stare decisis. It cites that in Carlos Superdrug, the
Court denied the petition because the petitioner therein failed to prove the confiscatory effect of the tax deduction
scheme as no proof of actual loss was submitted. It believes that its submission of financial statements for the years 2006
and 2007 to prove the confiscatory effect of the law is a material fact that distinguishes the instant case from that
of Carlos Superdrug. 30

The Court agrees that the ruling in Carlos Superdrug does not constitute stare decisis to the instant case, not because of
the petitioner's submission of financial statements which were wanting in the first case, but because it had the good sense
of including questions that had not been raised or deliberated in the former case of Carlos Superdrug, i.e., validity of the
20% discount granted to PWDs, the supposed vagueness of the provisions of R.A. No. 9442 and violation of the equal
protection clause.

Nonetheless, the Court finds nothing in the instant case that merits a reversal of the earlier ruling of the Court in Carlos
Superdrug. Contrary to the petitioner's claim, there is a very slim difference between the issues in Carlos Superdrug and
the instant case with respect to the nature of the senior citizen discount. A perfunctory reading of the circumstances of
the two cases easily discloses marked similarities in the issues and the arguments raised by the petitioners in both cases
that semantics nor careful play of words can hardly obscure.

In both cases, it is apparent that what the petitioners are ultimately questioning is not the grant of the senior citizen
discount per se, but the manner by which they were allowed to recoup the said discount. In particular, they are protesting
the change in the tax treatment of the senior citizen discount from tax credit to being merely a deduction from gross
income which they claimed to have significantly reduced their profits.

This question had been settled in Carlos Superdrug, where the Court ruled that the change in the tax treatment of the
discount was a valid exercise of police power, thus:

Theoretically, the treatment of the discount as a deduction reduces the net income of the private establishments
concerned. The discounts given would have entered the coffers and formed part of the gross sales of the private
establishments, were it not for R.A. No. 9257.

xxxx

A tax deduction does not offer full reimbursement of the senior citizen discount. As such, it would not meet the definition
of just compensation.

Having said that, this raises the question of whether the State, in promoting the health and welfare of a special group of
citizens, can impose upon private establishments the burden of partly subsidizing a government program.

The Court believes so.

The Senior Citizens Act was enacted primarily to maximize the contribution of senior citizens to nation-building, and to
grant benefits and privileges to them for their improvement and well-being as the State considers them an integral part of
our society.

The priority given to senior citizens finds its basis in the Constitution as set forth in the law itself. Thus, the Act provides:

SEC. 2. [R.A.] No. 7432 is hereby amended to read as follows:

SEC. 1. Declaration of Policies and Objectives.- Pursuant to Article XV, Section 4 of the Constitution, it is the duty of the
family to take care of its elderly members while the State may design programs of social security for them. In addition to
this, Section 10 in the Declaration of Principles and State Policies provides: "The State shall provide social justice in all
phases of national development." Further, Article XIII, Section 11, provides: "The State shall adopt an integrated and
comprehensive approach to health development which shall endeavor to make essential goods, health and other social
services available to all the people at affordable cost. There shall be priority for the needs of the underprivileged sick,
elderly, disabled, women and children." Consonant with these constitutional principles the following are the declared
policies of this Act:

xxxx

(f) To recognize the important role of the private sector in the improvement of the welfare of senior citizens and to
actively seek their partnership.

To implement the above policy, the law grants a twenty percent discount to senior citizens for medical and dental services,
and diagnostic and laboratory fees; admission fees charged by theaters, concert halls, circuses, carnivals, and other similar
places of culture, leisure and amusement; fares for domestic land, air and sea travel; utilization of services in hotels and
similar lodging establishments, restaurants and recreation centers; and purchases of medicines for the exclusive use or
enjoyment of senior citizens. As a form of reimbursement, the law provides that business establishments extending the
twenty percent discount to senior citizens may claim the discount as a tax deduction.

The law is a legitimate exercise of police power which, similar to the power of eminent domain, has general welfare for its
object. Police power is not capable of an exact definition, but has been purposely veiled in general terms to underscore its
comprehensiveness to meet all exigencies and provide enough room for an efficient and flexible response to conditions
and circumstances, thus assuring the greatest benefits. Accordingly, it has been described as "the most essential, insistent
and the least limitable of powers, extending as it does to all the great public needs." It is "[t]he power vested in the
legislature by the constitution to make, ordain, and establish all manner of wholesome and reasonable laws, statutes, and
ordinances, either with penalties or without, not repugnant to the constitution, as they shall judge to be for the good and
welfare of the commonwealth, and of the subjects of the same."

For this reason, when the conditions so demand as determined by the legislature, property rights must bow to the primacy
of police power because proper rights, though sheltered by due process, must yield to general welfare. 31 (Citations
omitted and emphasis in the original)

Verily, it is the bounden duty of the State to care for the elderly as they reach the point in their lives when the vigor of
their youth has diminished and resources have become scarce. Not much because of choice, they become needing of
support from the society for whom they presumably spent their productive days and for whose betterment they'
exhausted their energy, know-how and experience to make our days better to live.

In the same way, providing aid for the disabled persons is an equally important State responsibility. Thus, the State is
obliged to give full support to the improvement of the total well-being of disabled persons and their integration into the
mainstream of society. 32This entails the creation of opportunities for them and according them privileges if only to
balance the playing field which had been unduly tilted against them because of their limitations.

The duty to care for the elderly and the disabled lies not only upon the State, but also on the community and even private
entities. As to the State, the duty emanates from its role as parens patriae which holds it under obligation to provide
protection and look after the welfare of its people especially those who cannot tend to themselves. Parens patriae means
parent of his or her country, and refers to the State in its role as "sovereign", or the State in its capacity as a provider of
protection to those unable to care for themselves. 33 In fulfilling this duty, the State may resort to the exercise of its
inherent powers: police power, eminent domain and power of taxation.

In Gerochi v. Department of Energy,34the Court passed upon one of the inherent powers of the state, the police power,
where it emphasized, thus:

[P]olice power is the power of the state to promote public welfare by restraining and regulating the use of liberty and
property. It is the most pervasive, the least limitable, and the most demanding of the three fundamental powers of the
State. The justification is found in the Latin maxim salus populi est suprema lex (the welfare of the people is the supreme
law) and sic utere tuo ut alienum non laedas (so use your property as not to injure the property of others). As an inherent
attribute of sovereignty which virtually extends to all public needs, police power grants a wide panoply of instruments
through which the State, as parens patriae, gives effect to a host of its regulatory powers. We have held that the power to
"regulate" means the power to protect, foster, promote, preserve, and control, with due regard for the interests, first and
foremost, of the public, then of the utility and of its patrons. 35 (Citations omitted)

It is in the exercise of its police power that the Congress enacted R.A. Nos. 9257 and 9442, the laws mandating a 20%
discount on purchases of medicines made by senior citizens and PWDs. It is also in further exercise of this power that the
legislature opted that the said discount be claimed as tax deduction, rather than tax credit, by covered establishments.

The petitioner, however, claims that the change in the tax treatment of the discount is illegal as it constitutes taking
without just compensation. It even submitted financial statements for the years 2006 and 2007 to support its claim of
declining profits when the change in the policy was implemented.

The Court is not swayed.

To begin with, the issue of just compensation finds no relevance in the instant case as it had already been made clear
in Carlos Superdrug that the power being exercised by the State in the imposition of senior citizen discount was its police
power. Unlike in the exercise of the power of eminent domain, just compensation is not required in wielding police power.
This is precisely because there is no taking involved, but only an imposition of burden.

In Manila Memorial Park, Inc., et al. v. Secretary of the DSWD, et al., 36 the Court ruled that by examining the nature and
the effects of R.A. No. 9257, it becomes apparent that the challenged governmental act was an exercise of police power. It
was held, thus:

[W]e now look at the nature and effects of the 20% discount to determine if it constitutes an exercise of police power or
eminent domain.

The 20% discount is intended to improve the welfare of senior citizens who, at their age, are less likely to be gainfully
employed, more prone to illnesses and other disabilities, and, thus, in need of subsidy in purchasing basic commodities. It
may not be amiss to mention also that the discount serves to honor senior citizens who presumably spent the productive
years of their lives on contributing to the development and progress of the nation. This distinct cultural Filipino practice of
honoring the elderly is an integral part of this law.

As to its nature and effects, the 20% discount is a regulation affecting the ability of private establishments to price their
products and services relative to a special class of individuals, senior citizens, for which the Constitution affords
preferential concern. In turn, this affects the amount of profits or income/gross sales that a private establishment can
derive from senior citizens. In other words, the subject regulation affects the pricing, and, hence, the profitability of a
private establishment. However, it does not purport to appropriate or burden specific properties, used in the operation or
conduct of the business of private establishments, for the use or benefit of the public, or senior citizens for that matter,
but merely regulates the pricing of goods and services relative to, and the amount of profits or income/gross sales that
such private establishments may derive from, senior citizens.

The subject regulation may be said to be similar to, but with substantial distinctions from, price control or rate of 'return
on investment control laws which are traditionally regarded as police power measures. x x x.37 (Citations omitted)
In the exercise of police power, "property rights of private individuals are subjected to restraints and burdens in order to
secure the general comfort, health, and prosperity of the State."38 Even then, the State's claim of police power cannot be
arbitrary or unreasonable. After all, the overriding purpose of the exercise of the power is to promote general welfare,
public health and safety, among others. It is a measure, which by sheer necessity, the State exercises, even to the point of
interfering with personal liberties or property rights in order to advance common good. To warrant such interference, two
requisites must concur: (a) the interests of the public generally, as distinguished from those of a particular class, require
the interference of the! State; and (b) the means employed are reasonably necessary to the: attainment of the object
sought to be accomplished and not unduly oppressive upon individuals. In other words, the proper exercise of the police
power requires the concurrence of a lawful subject and a lawful method.39

The subjects of R.A. Nos. 9257 and 9442, i.e., senior citizens and PWDs, are individuals whose well-being is a recognized
public duty. As a public duty, the responsibility for their care devolves upon the concerted efforts of the State, the family
and the community. In Article XIII, Section 1 of the Constitution, the State is mandated to give highest priority to the
enactment of measures that protect and enhance the right of all the people to human dignity, reduce social, economic,
and political inequalities, and remove cultural inequities by equitably diffusing wealth and political power1 for the
common good. The more apparent manifestation of these social inequities is the unequal distribution or access to
healthcare services. To: abet in alleviating this concern, the State is committed to adopt an integrated! and comprehensive
approach to health development which shall endeavor to make essential goods, health and other social services available
to all the people at affordable cost, with priority for the needs of the underprivileged sick, elderly, disabled, women, and
children.40

In the same manner, the family and the community have equally significant duties to perform in reducing social inequality.
The family as the basic social institution has the foremost duty to care for its elderly members.41 On the other hand, the
community, which include the private sector, is recognized as an active partner of the State in pursuing greater causes.
The private sector, being recipients of the privilege to engage business in our land, utilize our goods as well as the services
of our people for proprietary purposes, it is only fitting to expect their support in measures that contribute to common
good. Moreover, their right to own, establish and operate economic enterprises is always subject to the duty of the State
to promote distributive justice and to intervene when the common good so demands.42

The Court also entertains no doubt on the legality of the method taken by the legislature to implement the declared
policies of the subject laws, that is, to impose discounts on the medical services and purchases of senior citizens and PWDs
and to treat the said discounts as tax deduction rather than tax credit. The measure is fair and reasonable and no credible
proof was presented to prove the claim that it was confiscatory. To be considered confiscatory, there must be taking of
property without just compensation.

Illuminating on this point is the discussion of the Court on the concept of taking in City of Manila v. Hon. Laguio, Jr.,43viz.:

There are two different types of taking that can be identified. A "possessory" taking occurs when the government
confiscates or physically occupies property. A "regulatory" taking occurs when the government's regulation leaves no
reasonable economically viable use of the property.

xxxx

No formula or rule can be devised to answer the questions of what is too far and when regulation becomes a taking.
In Mahon, Justice Holmes recognized that it was "a question of degree and therefore cannot be disposed of by general
propositions." On many other occasions as well, the U.S. Supreme Court has said that the issue of when regulation
constitutes a taking is a matter of considering the facts in each case. x x x.

What is crucial in judicial consideration of regulatory takings is that government regulation is a taking if it leaves no
reasonable economically viable use of property in a manner that interferes with reasonable expectations for use. A
regulation that permanently denies all economically beneficial or productive use of land is, from the owner's point of view,
equivalent to a "taking" unless principles of nuisance or property law that existed when the owner acquired the land make
the use prohibitable. When the owner of real property has been called upon to sacrifice all economically beneficial uses in
the name of the common good, that is, to leave his property economically idle, he has suffered a taking.
 xxxx

A restriction on use of property may also constitute a "taking" if not reasonably necessary to the effectuation of a
substantial public purpose or if it has an unduly harsh impact on the distinct investment-backed expectations of the
owner.44 (Citations omitted)

The petitioner herein attempts to prove its claim that the pertinent provisions of R.A. Nos. 9257 and 9442 amount to
taking by presenting financial statements purportedly showing financial losses incurred by them due to the adoption of
the tax deduction scheme.

For the petitioner's clarification, the presentation of the financial statement is not of compelling significance in justifying
its claim for just compensation. What is imperative is for it to establish that there was taking in the constitutional sense or
that, in the imposition of the mandatory discount, the power exercised by the state was eminent domain.

According to Republic of the Philippines v. Vda. de Castellvi,45five circumstances must be present in order to qualify
"taking" as an exercise of eminent domain. First, the expropriator must enter a private property. Second, the entrance into
private property must be for more than a momentary period. Third, the entry into the property should be under warrant
or color of legal authority. Fourth, the property must be devoted to a public use or otherwise informally appropriated or
injuriously affected. Fifth, the utilization of the property for public use must be in such a way as to oust the owner and
deprive him of all beneficial enjoyment of the property. 46

The first requirement speaks of entry into a private property which clearly does not obtain in this case. There is no private
property that is; invaded or appropriated by the State. As it is, the petitioner precipitately deemed future profits as private
property and then proceeded to argue that the State took it away without full compensation. This seemed preposterous
considering that the subject of what the petitioner supposed as taking was not even earned profits but merely an
expectation of profits, which may not even occur. For obvious reasons, there cannot be taking of a contingency or of a
mere possibility because it lacks physical existence that is necessary before there could be any taking. Further, it is
impossible to quantify the compensation for the loss of supposed profits before it is earned.

The supposed taking also lacked the characteristics of permanence 47 and consistency.1âwphi1 The presence of these
characteristics is significant because they can establish that the effect of the questioned provisions is the same on all
establishments and those losses are indeed its unavoidable consequence. But apparently these indications are wanting in
this case. The reason is that the impact on the establishments varies depending on their response to the changes brought
about by the subject provisions. To be clear, establishments, are not prevented from adjusting their prices to
accommodate the effects of the granting of the discount and retain their profitability while being fully compliant to the
laws. It follows that losses are not inevitable because establishments are free to take business measures to accommodate
the contingency. Lacking in permanence and consistency, there can be no taking in the constitutional sense. There cannot
be taking in one establishment and none in another, such that the former can claim compensation but the other may not.
Simply told, there is no taking to justify compensation; there is only poor business decision to blame.

There is also no ousting of the owner or deprivation of ownership. Establishments are neither divested of ownership of
any of their properties nor is anything forcibly taken from them. They remain the owner of their goods and their profit or
loss still depends on the performance of their sales.

Apart from the foregoing, covered establishments are also provided with a mechanism to recoup the amount of discounts
they grant the senior citizens and PWDs. It is provided in Section 4(a) of R.A. No. 9257 and Section 32 of R.A. No. 9442 that
establishments may claim the discounts as "tax deduction based on the net cost of the goods sold or services rendered."
Basically, whatever amount was given as discount, covered establishments may claim an equal amount as an expense or
tax deduction. The trouble is that the petitioner, in protesting the change in the tax treatment of the discounts, apparently
seeks tax incentive and not merely a return of the amount given as discounts. It premised its interpretation of financial
losses in terms of the effect of the change in the tax treatment of the discount on its tax liability; hence, the claim that the
measure was confiscatory. However, as mentioned earlier in the discussion, loss of profits is not the inevitable result of
the change in tax treatment of the discounts; it is more appropriately a consequence of poor business decision.
It bears emphasizing that the law does not place a cap on the amount of mark up that covered establishments may impose
on their items. This rests on the discretion of the establishment which, of course, is expected to put in the price of the
overhead costs, expectation of profits and other considerations into the selling price of an item. In a simple illustration,
here is Drug A, with acquisition cost of ₱8.00, and selling price of ₱10.00. Then comes a law that imposes 20% on senior
citizens and PWDs, which affected Establishments 1, 2 and 3. Let us suppose that the approximate number of patrons who
purchases Drug A is 100, half of which are senior citizens and PWDs. Before the passage of the law, all of the
establishments are earning the same amount from profit from the sale of Drug A, viz.:

Before the passage of the law:

Drug A

Acquisition cost ₱8.00

Selling price ₱10.00

Number of patrons 100

Sales:

100 x ₱10.00 = ₱1,000.00

Profit: ₱200

After the passage of the law, the three establishments reacted differently. Establishment 1 was passive and maintained
the price of Drug A at ₱8.00 which understandably resulted in diminution of profits.

Establishment 1

Drug A

Acquisition cost ₱8.00

Selling price ;₱10.00

Number of patrons 100

Senior Citizens/PWD 50

Sales

100 x ₱10.00 = ₱1,000.00

Deduction: ₱100.00

Profit: ₱100.00

On the other hand, Establishment 2, mindful that the new law will affect the profitability of the business, made a
calculated decision by increasing the mark up of Drug A to ₱3.20, instead of only ₱2.00. This brought a positive result to
the earnings of the company.
 Establishment 2

Drug A

Acquisition cost ;₱8.00

Selling price ₱11.20

Number of patron 100

Senior Citizens/PWDs 50

Sales

100 x ₱10.00 = ₱1,000.00

Deduction: ₱112.00

Profit: ₱208.00

For its part, Establishment 3 raised the mark up on Drug A to only ₱3.00 just to even out the effect of the law. This
measure left a negligible effect on its profit, but Establishment 3 took it as a social duty: to share in the cause being
promoted by the government while still maintaining profitability.

Establishment 3

Drug A

Acquisition cost ₱8.00

Selling price ₱11.20

Number of patrons 100

Senior Citizens/PWD 50

Sales

100 x ₱10.00 = ₱1,000.00

Deduction: ₱110.00

Profit: ₱190.00

The foregoing demonstrates that it is not the law per se which occasioned the losses in the covered establishments but
bad business I judgment. One of the main considerations in making business decisions is the law because its effect is
widespread and inevitable. Literally, anything can be a subject of legislation. It is therefore incumbent upon business
managers to cover this contingency and consider it in making business strategies. As shown in the illustration, the better
responses were exemplified by Establishments 2 and 3 which promptly put in the additional costs brought about by the
law into the price of Drug A. In doing so, they were able to maintain the profitability of the business, even earning some
more, while at the same time being fully compliant with the law. This is not to mention that the illustration is even too
simplistic and not' the most ideal since it dealt only with a single drug being purchased by both regular patrons and senior
citizens and PWDs. It did not consider the accumulated profits from the other medical and non-medical products being
sold by the establishments which are expected to further curb the effect of the granting of the discounts in the business.

It is therefore unthinkable how the petitioner could have suffered losses due to the mandated discounts in R.A. Nos. 9257
and 9442, when a fractional increase in the prices of items could bring the business standing at a balance even with the
introduction of the subject laws. A level adjustment in the pricing of items is a reasonable business measure to take in
order to adapt to the contingency. This could even make establishments earn more, as shown in the illustration, since
every fractional increase in the price of covered items translates to a wider cushion to taper off the effect of the granting
of discounts and ultimately results to additional profits gained from the purchases of the same items by regular patrons
who are not entitled to the discount. Clearly, the effect of the subject laws in the financial standing of covered companies
depends largely on how they respond and forge a balance between profitability and their sense of social responsibility.
The adaptation is entirely up to them and they are not powerless to make adjustments to accommodate the subject
legislations.

Still, the petitioner argues that the law is confiscatory in the sense that the State takes away a portion of its supposed
profits which could have gone into its coffers and utilizes it for public purpose. The petitioner claims that the action of the
State amounts to taking for which it should be compensated.

To reiterate, the subject provisions only affect the petitioner's right to profit, and not earned profits. Unfortunately for the
petitioner, the right to profit is not a vested right or an entitlement that has accrued on the person or entity such that its
invasion or deprivation warrants compensation. Vested rights are "fixed, unalterable, or irrevocable."48 More extensively,
they are depicted as follows:

Rights which have so completely and definitely accrued to or settled in a person that they are not subject to be defeated
or cancelled by the act of any other private person, and which it is right and equitable that the government should
recognize and protect, as being lawful in themselves, and settled according to the then current rules of law, and of which
the individual could not be deprived arbitrarily without injustice, or of which he could not justly be deprived otherwise
than by the established methods of procedure and for the public welfare. x x x A right is not 'vested' unless it is more than
a mere expectation based on the anticipated continuance of present laws; it must be an established interest in property,
not open to doubt. x x x To be vested in its accurate legal sense, a right must be complete and consummated, and one of
which the person to whom it belongs cannot be divested without his consent.x x x.49 (Emphasis ours)

Right to profits does not give the petitioner the cause of action to ask for just compensation, it being only an inchoate
right or one that has not fully developed50 and therefore cannot be claimed as one's own. An inchoate right is a mere
expectation, which may or may not come into existence. It is contingent as it only comes "into existence on an event or
condition which may not happen or be performed until some other event may prevent their vesting."51Certainly, the
petitioner cannot claim confiscation or taking of something that has yet to exist. It cannot claim deprivation of profit
before the consummation of a sale and the purchase by a senior citizen or PWD.

Right to profit is not an accrued right; it is not fixed, absolute nor indefeasible. It does not come into being until the
occurrence or realization of a condition precedent. It is a mere "contingency that might never eventuate into a right. It
stands for a mere possibility of profit but nothing might ever be payable under it."52

The inchoate nature of the right to profit precludes the possibility of compensation because it lacks the quality or
characteristic which is necessary before any act of taking or expropriation can be effected. Moreover, there is no yardstick
fitting to quantify a contingency or to determine compensation for a mere possibility. Certainly, "taking" presupposes the
existence of a subject that has a quantifiable or determinable value, characteristics which a mere contingency does not
possess.

Anent the question regarding the shift from tax credit to tax deduction, suffice it is to say that it is within the province of
Congress to do so in the exercise of its legislative power. It has the authority to choose the subject of legislation, outline
the effective measures to achieve its declared policies and even impose penalties in case of non-compliance. It has the
sole discretion to decide which policies to pursue and devise means to achieve them, and courts often do not interfere in
this exercise for as long as it does not transcend constitutional limitations. "In performing this duty, the legislature has no
guide but its judgment and discretion and the wisdom of experience."53 In Carter v. Carter Coal Co.,54legislative discretion
has been described as follows:

Legislative congressional discretion begins with the choice of means, and ends with the adoption of methods and details
to carry the delegated powers into effect. x x x [W]hile the powers are rigidly limited to the enumerations of the
Constitution, the means which may be employed to carry the powers into effect are not restricted, save that they must be
appropriate, plainly adapted to the end, and not prohibited by, but consistent with, the letter and spirit of the
Constitution. x x x. 55 (Emphasis ours)
Corollary, whether to treat the discount as a tax deduction or tax credit is a matter addressed to the wisdom of the
legislature. After all, it is within its prerogative to enact laws which it deems sufficient to address a specific public concern.
And, in the process of legislation, a bill goes through rigorous tests of validity, necessity and sufficiency in both houses of
Congress before enrolment. It undergoes close scrutiny of the members of Congress and necessarily had to surpass the
arguments hurled against its passage. Thus, the presumption of validity that goes with every law as a form of deference to
the process it had gone through and also to the legislature's exercise of discretion. Thus, in lchong, etc., et
al. v. Hernandez) etc., and Sarmiento,56the Court emphasized, thus:

It must not be overlooked, in the first place, that the legislature, which is the constitutional repository of police power and
exercises the prerogative of determining the policy of the State, is by force of circumstances primarily the judge of
necessity, adequacy or reasonableness and wisdom, of any law promulgated in the exercise of the police power, or of
the measures adopted to implement the public policy or to achieve public interest.x x x.57 (Emphasis ours)

The legislature may also grant rights and impose additional burdens: It may also regulate industries, in the exercise of
police power, for the protection of the public. R.A. Nos. 9257 and 9442 are akin to regulatory laws, the issuance of which is
within the ambit of police power. The minimum wage law, zoning ordinances, price control laws, laws regulating the
operation of motels and hotels, laws limiting the working hours to eight, and the like fall under this category. 58

Indeed, regulatory laws are within the category of police power measures from which affected persons or entities cannot
claim exclusion or compensation. For instance, private establishments cannot protest that the imposition of the minimum
wage is confiscatory since it eats up a considerable chunk of its profits or that the mandated remuneration is not
commensurate for the work done. The compulsory nature of the provision for minimum wages underlies the effort of the
State; as R.A. No. 672759 expresses it, to promote productivity-improvement and gain-sharing measures to ensure a
decent standard of living for the workers and their families; to guarantee the rights of labor to its just share in the fruits of
production; to enhance employment generation in the countryside through industry dispersal; and to allow business and
industry reasonable returns on investment, expansion and growth, and as the Constitution expresses it, to affirm labor as
a primary social economic force. 60

Similarly, the imposition of price control on staple goods in R.A. No. 758161 is likewise a valid exercise of police power and
affected establishments cannot argue that the law was depriving them of supposed gains. The law seeks to ensure the
availability of basic necessities and prime commodities at reasonable prices at all times without denying legitimate
business a fair return on investment. It likewise aims to provide effective and sufficient protection to consumers against
hoarding, profiteering and cartels with respect to the supply, distribution, marketing and pricing of said goods, especially
during periods of calamity, emergency, widespread illegal price manipulation and other similar situations.62

More relevantly, in Manila Memorial Park, Inc.,63it was ruled that it is within the bounds of the police power of the state to
impose burden on private entities, even if it may affect their profits, such as in the imposition of price control measures.
There is no compensable taking but only a recognition of the fact that they are subject to the regulation of the State and
that all personal or private interests must bow down to the more paramount interest of the State.

This notwithstanding, the regulatory power of the State does not authorize the destruction of the business. While a
business may be regulated, such regulation must be within the bounds of reason, i.e., the regulatory ordinance must be
reasonable, and its provision cannot be oppressive amounting to an arbitrary interference with the business or calling
subject of regulation. A lawful business or calling may not, under the guise of regulation, be unreasonably interfered with
even by the exercise of police power. 64 After all, regulation only signifies control or restraint, it does not mean
suppression or absolute prohibition. Thus, in Philippine Communications Satellite Corporation v. Alcuaz, 65the Court
emphasized:

The power to regulate is not the power to destroy useful and harmless enterprises, but is the power to protect, foster,
promote, preserve, and control with due regard for the interest, first and foremost, of the public, then of the utility and of
its patrons. Any regulation, therefore, which operates as an effective confiscation of private property or constitutes an
arbitrary or unreasonable infringement of property rights is void, because it is repugnant to the constitutional guaranties
of due process and equal protection of the laws. 66 (Citation omitted)
Here, the petitioner failed to show that R.A. Nos. 9257 and 9442, under the guise of regulation, allow undue interference
in an otherwise legitimate business.1avvphi1 On the contrary, it was shown that the questioned laws do not meddle in the
business or take anything from it but only regulate its realization of profits.

The subject laws do not violate the equal protection clause

The petitioner argues that R.A. Nos. 9257 and 9442 are violative of the equal protection clause in that it failed to
distinguish between those who have the capacity to pay and those who do not, in granting the 20% discount. R.A. No.
9257, in particular, removed the income qualification in R.A. No. 7432 of'₱60,000.00 per annum before a senior citizen
may be entitled to the 20o/o discount.

The contention lacks merit.

The petitioner's argument is dismissive of the reasonable qualification on which the subject laws were based. In City of
Manila v. Hon. Laguio, Jr., 67 the Court emphasized:

Equal protection requires that all persons or things similarly situated should be treated alike, both as to rights conferred
and responsibilities imposed. Similar subjects, in other words, should not be treated differently, so as to give undue favor
to some and unjustly discriminate against others. The guarantee means that no person or class of persons shall be denied
the same protection of laws which is enjoyed by other persons or other classes in like circumstances.68 (Citations omitted)

"The equal protection clause is not infringed by legislation which applies only to those persons falling within a specified
class. If the groupings are characterized by substantial distinctions that make real differences, one class may be treated
and regulated differently from another."69 For a classification to be valid, (1) it must be based upon substantial
distinctions, (2) it must be germane to the purposes of the law, (3) it must not be limited to existing conditions only, and
(4) it must apply equally to all members of the same class. 70

To recognize all senior citizens as a group, without distinction as to income, is a valid classification. The Constitution itself
considered the elderly as a class of their own and deemed it a priority to address their needs. When the Constitution
declared its intention to prioritize the predicament of the underprivileged sick, elderly, disabled, women, and children,71 it
did not make any reservation as to income, race, religion or any other personal circumstances. It was a blanket privilege
afforded the group of citizens in the enumeration in view of the vulnerability of their class.

R.A. No. 9257 is an implementation of the avowed policy of the Constitution to enact measures that protect and enhance
the right of all the people to human dignity, reduce social, economic, and political inequalities. 72 Specifically, it caters to
the welfare of all senior citizens. The classification is based on age and therefore qualifies all who have attained the age of
60. Senior citizens are a class of their own, who are in need and should be entitled to government support, and the fact
that they may still be earning for their own sustenance should not disqualify them from the privilege.

It is well to consider that our senior citizens have already reached the age when work opportunities have dwindled
concurrently as their physical health.1âwphi1 They are no longer expected to work, but there are still those who continue
to work and contribute what they can to the country. Thus, to single them out and take them out of the privileges of the
law for continuing to strive and earn income to fend for themselves is inimical to a welfare state that the Constitution
envisions. It is tantamount to penalizing them for their persistence. It is commending indolence rather than rewarding
diligence. It encourages them to become wards of the State rather than productive partners.

Our senior citizens were the laborers, professionals and overseas contract workers of the past. While some may be well to
do or may have the capacity to support their sustenance, the discretion to avail of the privileges of the law is up to them.
But to instantly tag them. as undeserving of the privilege would be the height of ingratitude; it is an outright
discrimination.

The same ratiocination may be said of the recognition of PWDs as a class in R.A. No. 9442 and in granting them
discounts.1âwphi1 It needs no further explanation that PWDs have special needs which, for most,' last their entire
lifetime. They constitute a class of their own, equally deserving of government support as our elderlies. While some of
them maybe willing to work and earn income for themselves, their disability deters them from living their full potential.
Thus, the need for assistance from the government to augment the reduced income or productivity brought about by their
physical or intellectual limitations.

There is also no question that the grant of mandatory discount is germane to the purpose of R.A. Nos. 9257 and 9442, that
is, to adopt an integrated and comprehensive approach to health development and make essential goods and other social
services available to all the people at affordable cost, with special priority given to the elderlies and the disabled, among
others. The privileges granted by the laws ease their concerns and allow them to live more comfortably.

The subject laws also address a continuing concern of the government for the welfare of the senior citizens and PWDs. It is
not some random predicament but an actual, continuing and pressing concern that requires preferential attention. Also,
the laws apply to all senior citizens and PWDs, respectively, without further distinction or reservation. Without a doubt, all
the elements for a valid classification were met.

The definitions of "disabilities" and

"PWDs" are clear and unequivocal

Undeterred, the petitioner claims that R.A. No. 9442 is ambiguous particularly in defining the terms "disability" and
"PWDs," such that it lack comprehensible standards that men of common intelligence must guess at its meaning. It
likewise bewails the futility of the given safeguards to prevent abuse since government officials who are neither experts
nor practitioners of medicine are given the authority to issue identification cards that authorizes the granting of the
privileges under the law.

The Court disagrees.

Section 4(a) of R.A. No. 7277, the precursor of R.A. No. 94421 defines "disabled persons" as follows:

(a) Disabled persons are those suffering from restriction or different abilities, as a result of a mental, physical or sensory
impairment, to perform an activity in the manner or within the range considered normal for a human being[.]

On the other hand, the term "PWDs" is defined in Section 5.1 of the IRR of R.A. No. 9442 as follows:

5.1. PersonswithDisability are those individuals defined under Section 4 of [R.A. No.] 7277 [or] An Act Providing for the
Rehabilitation, Self-Development and Self-Reliance of Persons with Disability as amended and their integration into the
Mainstream of Society and for Other Purposes. This is defined as a person suffering from restriction or different abilities,
as a result of a mental, physical or sensory impairment, to perform an activity in a manner or within the range considered
normal for human being. Disability shall mean (1) a physical 1or mental impairment that substantially limits one or more
psychological, physiological or anatomical function of an individual or activities of such individual; (2) a record of such an
impairment; or (3) being regarded as having such an impairment.

The foregoing definitions have a striking conformity with the definition of "PWDs" in Article 1 of the United Nations
Convention on the Rights of Persons with Disabilities which reads:

Persons with disabilities include those who have long-term physical, mental, intellectual or sensory impairments which in
interaction with various barriers may hinder their full and effective participation in society on an equal basis with others.
(Emphasis and italics ours)

The seemingly broad definition of the terms was not without good reasons. It recognizes that "disability is an evolving
concept"73 and appreciates the "diversity of PWDs."74 The terms were given comprehensive definitions so as to
accommodate the various forms of disabilities, and not confine it to a particular case as this would effectively exclude
other forms of physical, intellectual or psychological impairments.

Moreover, in Estrada v. Sandiganbayan, 75 it was declared, thus:

A statute is not rendered uncertain and void merely because general terms are used therein, or because of the
employment of terms without defining them; much less do we have to define every word we use. Besides, there is no
positive constitutional or statutory command requiring the legislature to define each and every word in an enactment.
Congress is not restricted in the form of expression of its will, and its inability to so define the words employed in a statute
will not necessarily result in the vagueness or ambiguity of the law so long as the legislative will is clear, or at least, can be
gathered from the whole act x x x.76 (Citation omitted)

At any rate, the Court gathers no ambiguity in the provisions of R.A. No. 9442. As regards the petitioner's claim that the
law lacked reasonable standards in determining the persons entitled to the discount, Section 32 thereof is on point as it
identifies who may avail of the privilege and the manner of its availment. It states:

Sec. 32. x x x

The abovementioned privileges are available only to persons with disability who are Filipino citizens upon submission of
any of the following as proof of his/her entitlement thereto:

(I) An identification card issued by the city or municipal mayor or the barangay captain of the place where
the persons with disability resides;

(II) The passport of the persons with disability concerned; or

(III) Transportation discount fare Identification Card (ID) issued by the National Council for the Welfare of
Disabled Persons (NCWDP).

It is, however, the petitioner's contention that the foregoing authorizes government officials who had no medical
background to exercise discretion in issuing identification cards to those claiming to be PWDs. It argues that the provision
lends to the indiscriminate availment of the privileges even by those who are not qualified.

The petitioner's apprehension demonstrates a superficial understanding of the law and its implementing rules. To be clear,
the issuance of identification cards to PWDs does not depend on the authority of the city or municipal mayor, the DSWD
or officials of the NCDA (formerly NCWDP). It is well to remember that what entitles a person to the privileges of the law is
his disability, the fact of which he must prove to qualify. Thus, in NCDA Administrative Order (A.O.) No. 001, series of
2008, 77 it is required that the person claiming disability must submit the following requirements before he shall be issued
a PWD Identification Card:

1. Two "1 x l" recent ID pictures with the names, and signatures or thumb marks at the back of the picture.

2. One (1) Valid ID

3. Document to confirm the medical or disability condition 78

To confirm his disability, the person must obtain a medical certificate or assessment, as the case maybe, issued by a
licensed private or government physician, licensed teacher or head of a business establishment attesting to his
impairment. The issuing entity depends on whether the disability is apparent or non-apparent. NCDAA.O. No. 001 further
provides:79

DISABILITY DOCUMENT ISSUING ENTITY

 Apparent Medical Licensed Private or
Disability Certificate Government Physician

School Licensed Teacher duly

Assessment signed by the School
Principal
Certificate of  Head of the Business
Disability

Establishment

 Head of Non-
Government
Organization

Non-Apparent Medical Licensed Private or

Disability Certificate Government Physician

To provide further safeguard, the Department of Health issued A.O. No. 2009-0011, providing guidelines for the availment
of the 20% discount on the purchase of medicines by PWDs. In making a purchase, the individual must present the
documents enumerated in Section VI(4)(b ), to wit:

i. PWD identification card x x x

ii. Doctor's prescription stating the name of the PWD, age, sex, address, date, generic name of the medicine,
dosage form, dosage strength, quantity, signature over printed name of physician, physician's address, contact
number of physician or dentist, professional license number, professional tax receipt number and narcotic license
number, if applicable. To safeguard the health of PWDs and to prevent abuse of [R.A. No.] 9257, a doctor's
prescription is required in the purchase of over-the-counter medicines. x x x.

iii. Purchase booklet issued by the local social/health office to PWDs for free containing the following basic
information:

a) PWD ID number

b) Booklet control number

c) Name of PWD

d) Sex

e) Address

f) Date of Birth

g) Picture

h) Signature of PWD

i) Information of medicine purchased:

 i.1 Name of medicine

i.2 Quantity

i.3 Attending Physician

i.4 License Number

i.5 Servicing drug store name

i.6 Name of dispensing pharmacist

j) Authorization letter of the PWD x x x in case the medicine is bought by the representative or
caregiver of the PWD.

The PWD identification card also has a validity period of only three years which facilitate in the monitoring of those who
may need continued support and who have been relieved of their disability, and therefore may be taken out of the
coverage of the law.

At any rate, the law has penal provisions which give concerned establishments the option to file a case against those
abusing the privilege Section 46(b) of R.A. No. 9442 provides that "[a]ny person who abuses the privileges granted herein
shall be punished with imprisonment of not less than six months or a fine of not less than Five Thousand pesos
(₱5,000.00), but not more than Fifty Thousand pesos (₱50,000.00), or both, at the discretion of the court." Thus,
concerned establishments, together with the proper government agencies, must actively participate in monitoring
compliance with the law so that only the intended beneficiaries of the law can avail of the privileges.

Indubitably, the law is clear and unequivocal, and the petitioner claim of vagueness to cast uncertainty in the validity of
the law does not stand.

WHEREFORE, in view of the foregoing disquisition, Section 4(a) of Republic Act No. 9257 and Section 32 of Republic Act
No. 9442 are hereby declared CONSTITUTIONAL.

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SO ORDERED.