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.
* in his capacity as the OIC Commissioner of the Bureau of Internal
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
_______________
*
 EN BANC.
15
VOL. 469, SEPTEMBER 1, 2005
Abakada Guro Party List vs. Ermita
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
16
16 SUPREME COURT REPORTS ANNOTATED
Abakada Guro Party List vs. Ermita
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,
Revenue; and HON. ALEXANDER AREVALO, in his capacity as
the OIC Commissioner of the Bureau of Customs, respondents.
Taxation;  Value-Added Tax (VAT);  Words and Phrases; The VAT
is a tax on spending or consumption—it is levied on the sale, barter,
exchange or lease of goods or properties and services; Being an indirect
tax on expenditure, the seller of goods or services may pass on the amount
of tax paid to the buyer; In contrast, a direct tax is a tax for which a
taxpayer is directly liable on the transaction or business it engages in,
without transferring the burden to someone else.—As a prelude, the Court
deems it apt to restate the general principles and
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VOL. 469, SEPTEMBER 1, 2005
Abakada Guro Party List vs. Ermita
concepts of value-added tax (VAT), as the confusion and
inevitably, litigation, breeds from a fallacious notion of its nature. The
VAT is a tax on spending or consumption. It is levied on the sale, barter,
exchange or lease of goods or properties and services. Being an indirect
tax on expenditure, the seller of goods or services may pass on the amount
of tax paid to the buyer, with the seller acting merely as a tax collector.
The burden of VAT is intended to fall on the immediate buyers and
ultimately, the end-consumers. In contrast, a direct tax is a tax for which a
taxpayer is directly liable on the transaction or business it engages in,
without transferring the burden to someone else. Examples are individual
and corporate income taxes, transfer taxes, and residence taxes.
Same; Same; Same; In the Philippines, the value-added system of
sales taxation has long been in existence, albeit in a different mode—prior
to 1978, the system was a single-stage tax computed under the “cost
deduction method” and was payable only by the original sellers, then the
single-stage system was subsequently modified, and a mixture of the “cost
deduction method” and “tax credit method” was used to determine the
value-added tax payable; Under the “tax credit method,” an entity can
credit against or subtract from the VAT charged on its sales or outputs the
VAT paid on its purchases, inputs and imports.—In the Philippines, the
value-added system of sales taxation has long been in existence, albeit in a
different mode. Prior to 1978, the system was a single-stage tax computed
under the “cost deduction method” and was payable only by the original
sellers. The single-stage system was subsequently modified, and a mixture
of the “cost deduction method” and “tax credit method” was used to
determine the value-added tax payable. Under the “tax credit method,” an
entity can credit against or subtract from the VAT charged on its sales or
outputs the VAT paid on its purchases, inputs and imports. It was only in
1987, when President Corazon C. Aquino issued Ex-ecutive Order No.
273, that the VAT system was rationalized by imposing a multi-stage tax
rate of 0% or 10% on all sales using the “tax credit method.” E.O. No. 273
was followed by R.A. No. 7716 or the Expanded VAT Law, R.A. No.
8241 or the Improved VAT Law, R.A. No. 8424 or the Tax Reform Act of
1997, and finally, the presently beleaguered R.A. No. 9337, also referred
to by respondents as the VAT Reform Act.
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18 SUPREME COURT REPORTS ANNOTATE
Abakada Guro Party List vs. Ermita
Congress;  Bicameral Conference Committee;  Legislative Rules; It
should be borne in mind that the power of internal regulation and
discipline are intrinsic in any legislative body, and pursuant to this
inherent constitutional power to promulgate and implement its own rules
of procedure, the respective rules of each house of Congress provided for
the creation of a Bicameral Conference Committee.— Petitioners now
beseech the Court to define the powers of the Bi-cameral Conference
Committee. It should be borne in mind that the power of internal
regulation and discipline are intrinsic in any legislative body for, as
unerringly elucidated by Justice Story, “[i]f the power did not exist, it
would be utterly impracticable to transact the business of the nation,
either at all, or at least with decency, deliberation, and order.” Thus,
Article VI, Section 16 (3) of the Constitution provides that “each House
may determine the rules of its proceed-ings.” Pursuant to this inherent
constitutional power to promulgate and implement its own rules of
procedure, the respective rules of each house of Congress provided for the
creation of a Bicameral Conference Committee.
Same; Same; Same;  Separation of Powers; Judicial
Review; Congress is the best judge of how it should conduct its own
business expeditiously and in the most orderly manner; If a change is
desired in the practice [of the Bicameral Conference Committee] it must
be sought in Congress since this question is not covered by any
constitutional provision but is only an internal rule of each house; Even
the expanded jurisdiction of the Supreme Court cannot apply to questions
regarding only the internal operation of Congress, thus, the Court is wont
to deny a review of the internal proceedings of a co-equal branch of
government.—Akin to the Fariñas case, the present petitions also raise an
issue regarding the actions taken by the conference committee on matters
regarding Congress’ compliance with its own internal rules. As stated
earlier, one of the most basic and inherent power of the legislature is the
power to formulate rules for its proceedings and the discipline of its
members. Congress is the best judge of how it should conduct its own
business expeditiously and in the most orderly manner. It is also the sole
concern of Congress to instill discipline among the members of its
conference committee if it believes that said members violated any of its
rules of proceedings. Even the expanded jurisdiction of this Court cannot
apply to questions regarding only the internal operation of Congress, thus,
the Court is wont to deny a review of the internal proceedings of a co-
equal branch of
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VOL. 469, SEPTEMBER 1, 2005
Abakada Guro Party List vs. Ermita
government. Moreover, as far back as 1994 or more than ten years
ago, in the case of Tolentino vs. Secretary of Finance, the Court already
made the pronouncement that “[i]f a change is desired in the practice [of
the Bicameral Conference Committee] it must be sought in Congress since
this question is not covered by any constitutional provision but is only an
internal rule of each house.”To date, Congress has not seen it fit to make
such changes adverted to by the Court. It seems, therefore, that Congress
finds the practices of the bicameral conference committee to be very useful
for purposes of prompt and efficient legislative action.
Same; Same; Same;  Words and Phrases; The term “settle” is
synonymous to “reconcile” and “harmonize”; To reconcile or harmonize
disagreeing provisions, the Bicameral Conference Committee may then (a)
adopt the specific provisions of either the House bill or Senate bill, (b)
decide that neither provisions in the House bill or the provisions in the
Senate bill would be carried into the final form of the bill, and/or (c) try to
arrive at a compromise between the disagreeing provisions.—Under the
provisions of both the Rules of the House of Representatives and Senate
Rules, the Bicameral Conference Committee is mandated to settle the
differences between the disagreeing provisions in the House bill and the
Senate bill. The term “settle” is synonymous to “reconcile” and
“harmonize.” To reconcile or harmonize disagreeing provisions, the
Bicameral Conference Committee may then (a) adopt the specific
provisions of either the House bill or Senate bill, (b) decide that neither
provisions in the House bill or the provisions in the Senate bill would be
carried into the final form of the bill, and/or (c) try to arrive at a
compromise between the disagreeing provisions.
Same; Same; Same;  It is within the power of a conference
committee to include in its report an entirely new provision that is not
found either in the House bill or in the Senate bill—if the committee can
propose an amendment consisting of one or two provisions, there is no
reason why it cannot propose several provisions, collectively considered
as an “amendment in the nature of a substitute,” so long as such
amendment is germane to the subject of the bills before the committee.—
All the changes or modifications made by the Bicameral Conference
Committee were germane to subjects of the provisions referred to it for
reconciliation. Such being the case, the Court does not see any grave abuse
of discretion amounting to lack or excess of
20
20 SUPREME COURT REPORTS ANNOTATED Same; Same; Same; Germaneness Rule; The amendments made
Abakada Guro Party List vs. Ermita
jurisdiction committed by the Bicameral Conference Committee.
In the earlier cases of Philippine Judges Association vs. germane to the reforms to the VAT system, as these sections would cushion
Prado and Tolentino vs. Secretary of Finance, the Court recognized the
longstanding legislative practice of giving said conference committee
ample latitude for compromising differences between the Senate and the
House. Thus, in the Tolentino case, it was held that: . . . it is within the
power of a conference committee to include in its report an entirely new
provision that is not found either in the House bill or in the Senate bill. If the reforms to the VAT system, as these sections would cushion the effects
the committee can propose an amendment consisting of one or two
provisions, there is no reason why it cannot propose several provisions,
collectively considered as an “amendment in the nature of a substitute,” so
long as such amendment is germane to the subject of the bills before the
committee. After all, its report was not final but needed the approval of
both houses of Congress to become valid as an act of the legislative
department. The charge that in this case the Conference Committee
acted as a third legislative chamber is thus without any basis.
Same; Same; Same;  “No Amendment” Rule; The “no-amend-ment
rule” refers only to the procedure to be followed by each house of
Congress with regard to bills initiated in each of said respective houses,
before said bill is transmitted to the other house for its concurrence or
amendment—Art. VI, Sec. 26 (2) of the Constitution cannot be taken to
mean that the introduction by the Bicameral Conference Committee of
amendments and modifications to disagreeing provisions in bills that have
been acted upon by both houses of Congress is prohibited.—The Court
reiterates here that the “no-amendment rule” refers only to the procedure
to be followed by each house of Congress with regard to bills initiated in
each of said respective houses, before said bill is transmitted to the other
house for its concurrence or amendment. Verily, to construe said provision
in a way as to proscribe any further changes to a bill after one house has
voted on it would lead to absurdity as this would mean that the other house
of Congress would be deprived of its constitutional power to amend or
introduce changes to said bill. Thus, Art. VI, Sec. 26 (2) of the
Constitution cannot be taken to mean that the introduction by the
Bicameral Conference Committee of amendments and modifications to
disagreeing provisions in bills that have been acted upon by both houses of
Congress is prohibited.
21
VOL. 469, SEPTEMBER 1, 2005
Abakada Guro Party List vs. Ermita
Same; Origin of Bills; Revenue Bills; Since there is no question
that the revenue bill originated in the House of Representatives, the Senate
was acting within its constitutional power to introduce amendments to the
House bill when it included provisions in Senate Bill No. 1950 amending
corporate income taxes, percentage, excise and franchise taxes—Article
VI, Section 24 of the Constitution does not contain any prohibition or
limitation on the extent of the amendments that may be introduced by the
Senate to the House revenue bill.—In the present cases, petitioners admit
that it was indeed House Bill Nos. 3555 and 3705 that initiated the move
for amending provisions of the NIRC dealing mainly with the value-added
tax. Upon transmittal of said House bills to the Senate, the Senate came out
with Senate Bill No. 1950 proposing amendments not only to NIRC
provisions on the value-added tax but also amendments to NIRC
provisions on other kinds of taxes. Is the introduction by the Senate of
provisions not dealing directly with the value-added tax, which is the only
kind of tax being amended in the House bills, still within the purview of
the constitutional provision authorizing the Senate to propose or concur
with amendments to a revenue bill that originated from the House? * * *
Since there is no question that the revenue bill exclusively originated in the
House of Representatives, the Senate was acting within its constitutional
power to introduce amendments to the House bill when it included
provisions in Senate Bill No. 1950 amending corporate income taxes,
percentage, excise and franchise taxes. Verily, Article VI, Section 24 of the
Constitution does not contain any prohibition or limitation on the extent of
the amendments that may be introduced by the Senate to the House
revenue bill.
Same; Same; Same; The main purpose of the bills emanating from
the House of Representatives is to bring in sizeable revenues for the
government to supplement our country’s serious financial problems, and
improve tax administration and control of the leakages in revenues from
income taxes and value-added taxes, and the Senate, approaching the
measures from the point of national perspective, can introduce
amendments within the purposes of those bills, like providing ways that
would soften the impact of the VAT measure on the consumer.—The main
purpose of the bills emanating from the House of Representatives is to
bring in sizeable revenues for the government to supplement our country’s
serious financial problems, and improve tax administration and control of
the leakages in revenues
22
22 SUPREME COURT REPORTS ANNOTATE
Abakada Guro Party List vs. Ermita
from income taxes and value-added taxes. As these house bills
were transmitted to the Senate, the latter, approaching the measures from
the point of national perspective, can introduce amendments within the
purposes of those bills. It can provide for ways that would soften the
impact of the VAT measure on the consumer, i.e., by distributing the
burden across all sectors instead of putting it entirely on the shoulders of
the consumers.
on provisions in the tax on income of corporations are germane to the
purpose of the house bills which is to raise revenues for the government,
and the sections referring to other percentage and excise taxes are
the effects of VAT on consumers.—As the Court has said, the Senate can
propose amendments and in fact, the amendments made on provisions in
the tax on income of corporations are germane to the purpose of the house
bills which is to raise revenues for the government. Likewise, the Court
finds the sections referring to other percentage and excise taxes germane to
of VAT on consumers. Considering that certain goods and services which
were subject to percentage tax and excise tax would no longer be VAT-
exempt, the consumer would be burdened more as they would be paying
the VAT in addition to these taxes. Thus, there is a need to amend these
sections to soften the impact of VAT.
Separation of Powers; Delegation of Powers;  A logical corollary
to the doctrine of separation of powers is the principle of non-delegation
of powers, a doctrine based on the ethical principle that such as delegated
power constitutes not only a right but a duty to be performed by the
delegate through the instrumentality of his own judgment and not through
the intervening mind of another.—The principle of separation of powers
ordains that each of the three great branches of government has exclusive
cognizance of and is supreme in matters falling within its own
constitutionally allocated sphere. A logical corollary to the doctrine of
separation of powers is the principle of non-delegation of powers, as
expressed in the Latin maxim: potestas delegata non delegari potest which
means “what has been delegated, cannot be delegated.” This doctrine is
based on the ethical principle that such as delegated power constitutes not
only a right but a duty to be performed by the delegate through the
instrumen-
23
VOL. 469, SEPTEMBER 1, 2005
Abakada Guro Party List vs. Ermita
tality of his own judgment and not through the intervening mind of
another.
Same; Same; Exception to the Non-Delegation of Legislative
Powers; Words and Phrases; The powers which Congress is prohibited
from delegating are those which are strictly, or inherently and exclusively,
legislative—appertaining exclusively to the legislative department; Purely
legislative power has been described as the authority to make a complete
law—complete as to the time when it shall take effect and as to whom it
shall be applicable—and to determine the expediency of its enactment; It
is the nature of the power, and not the liability of its use or the manner of
its exercise, which determines the validity of its delegation.—With respect
to the Legislature, Section 1 of Article VI of the Constitution provides that
“the Legislative power shall be vested in the Congress of the Philippines
which shall consist of a Senate and a House of Representatives.” The
powers which Congress is prohibited from delegating are those which are
strictly, or inherently and exclusively, legislative. Purely legislative power,
which can never be delegated, has been described as the authority to make
a complete law—complete as to the time when it shall take effect and as to
whom it shall be applicable—and to determine the expediency of its
enactment. Thus, the rule is that in order that a court may be justified in
holding a statute unconstitutional as a delegation of legislative power, it
must appear that the power involved is purely legislative in nature—that is,
one appertaining exclusively to the legislative department. It is the nature
of the power, and not the liability of its use or the manner of its exercise,
which determines the validity of its delegation. Nonetheless, the general
rule barring delegation of legislative powers is subject to the following
recognized limitations or exceptions: (1) Delegation of tariff powers to the
President under Section 28 (2) of Article VI of the Constitution; (2)
Delegation of emergency powers to the President under Section 23 (2) of
Article VI of the Constitution; (3) Delegation to the people at large; (4)
Delegation to local governments; and (5) Delegation to administrative
bodies.
Same; Same; Same;  Tests of Valid Delegation; A delegation is
valid only if the law (a) is complete in itself, setting forth therein the policy
to be executed, carried out, or implemented by the delegate, and (b) fixes a
standard—the limits of which are sufficiently determinate and
determinable—to which the delegate must conform in the per-
24
24 SUPREME COURT REPORTS ANNOTATED
Abakada Guro Party List vs. Ermita
formance of his functions; A sufficient standard is one which
defines legislative policy, marks its limits, maps out its boundaries and
specifies the public agency to apply it.—In every case of permissible
delegation, there must be a showing that the delegation itself is valid. It is
valid only if the law (a) is complete in itself, setting forth therein the policy Chief Executive are performed by and through the executive departments,
to be executed, carried out, or implemented by the delegate; and (b) fixes a
standard—the limits of which are sufficiently determinate and
determinable—to which the delegate must conform in the performance of
his functions. A sufficient standard is one which defines legislative policy,
marks its limits, maps out its boundaries and specifies the public agency to
apply it. It indicates the circumstances under which the legislative
command is to be effected. Both tests are intended to prevent a total
transference of legislative authority to the delegate, who is not allowed to
step into the shoes of the legislature and exercise a power essentially
legislative.
Same; Same; Taxation; While the power to tax cannot be
delegated to executive agencies, details as to the enforcement and
administration of an exercise of such power may be left to them, including
the power to determine the existence of facts on which its operation
depends, the rationale being that the preliminary ascertainment of facts as
basis for the enactment of legislation is not of itself a legislative function
but is simply ancillary to legislation; The Constitution as a continuously
operative charter of government does not require that Congress find for
itself every fact upon which it desires to base legislative action or that it
make for itself detailed determinations which it has declared to be
prerequisite to application of legislative policy to particular facts and
circumstances impossible for Congress itself properly to investigate.—The
legislature may delegate to execu-tive officers or bodies the power to
determine certain facts or conditions, or the happening of contingencies, on
which the operation of a statute is, by its terms, made to depend, but the
legislature must prescribe sufficient standards, policies or limitations on
their authority. While the power to tax cannot be delegated to executive
agencies, details as to the enforcement and administration of an exercise of
such power may be left to them, including the power to determine the
existence of facts on which its operation depends. The rationale for this is
that the preliminary ascertainment of facts as basis for the enactment of
legislation is not of itself a legislative function, but is simply ancillary to
legislation. Thus, the duty of correlating informa-
25
VOL. 469, SEPTEMBER 1, 2005
Abakada Guro Party List vs. Ermita
tion and making recommendations is the kind of subsidiary activity
which the legislature may perform through its members, or which it may
delegate to others to perform. Intelligent legislation on the complicated
problems of modern society is impossible in the absence of accurate
information on the part of the legislators, and any reasonable method of
securing such information is proper. The Constitution as a continuously
operative charter of government does not require that Congress find for
itself every fact upon which it desires to base legislative action or that it
make for itself detailed determinations which it has declared to be
prerequisite to application of legislative policy to particular facts and
circumstances impossible for Congress itself properly to investigate.
Same; Same; Same; Statutory Construction;  The case before the
Court is not a delegation of legislative power—it is simply a delegation of
ascertainment of facts upon which enforcement and administration of the
increase rate under the law is contingent; No discretion would be
exercised by the President; The use of the word “shall” connotes a
mandatory order.—The case before the Court is not a delegation of
legislative power. It is simply a delegation of ascertainment of facts upon
which enforcement and administration of the increase rate under the law is
contingent. The legislature has made the operation of the 12% rate
effective January 1, 2006, contingent upon a specified fact or condition. It
leaves the entire operation or non-operation of the 12% rate upon factual
matters outside of the control of the executive. No discretion would be
exercised by the President. Highlighting the absence of discretion is the
fact that the word shall is used in the common proviso. The use of the
word shall connotes a mandatory order. Its use in a statute denotes an
imperative obligation and is inconsistent with the idea of discretion. Where
the law is clear and unambiguous, it must be taken to mean exactly what it
says, and courts have no choice but to see to it that the mandate is obeyed.
Thus, it is the ministerial duty of the President to immediately impose the
12% rate upon the existence of any of the conditions specified by
Congress. This is a duty which cannot be evaded by the President.
Inasmuch as the law specifically uses the word shall, the exercise of
discretion by the President does not come into play. It is a clear directive to
impose the 12% VAT rate when the specified conditions are present. The
time of taking into effect of the 12% VAT rate is based on the happening
of a certain specified contingency, or upon
26
26 SUPREME COURT REPORTS ANNOTATE
Abakada Guro Party List vs. Ermita
the ascertainment of certain facts or conditions by a person or body
other than the legislature itself.
Same; Same; Presidency;  Control Power; Doctrine of Qualified
Political Agency; When one speaks of the Secretary of Finance as the alter
ego of the President, it simply means that as head of the Department of
Finance he is the assistant and agent of the Chief Executive—as such, he
occupies a political position and holds office in an advisory capacity, and,
in the language of Thomas Jefferson, “should be of the President's bosom
confidence” and, in the language of Attorney-General Cushing, is “subject
to the direction of the President.”— When one speaks of the Secretary of
Finance as the alter ego of the President, it simply means that as head of
the Department of Finance he is the assistant and agent of the Chief
Executive. The multifarious executive and administrative functions of the
and the acts of the secretaries of such departments, such as the Department
of Finance, performed and promulgated in the regular course of business,
are, unless disapproved or reprobated by the Chief Executive,
presumptively the acts of the Chief Executive. The Secretary of Finance, as
such, occupies a political position and holds office in an advisory capacity,
and, in the language of Thomas Jefferson, “should be of the President’s
bosom confidence” and, in the language of Attorney-General Cushing, is
“subject to the direction of the President.”
Same; Same; Same; Same; Same; In the present case, in making
his recommendation to the President on the existence of either of the two
conditions, the Secretary of Finance is not acting as the alter ego of the
President or even her subordinate, and he is not subject to the power of
control and direction of the President—he is acting as the agent of the
legislative department, to determine and declare the event upon which its
expressed will is to take effect, becoming the means or tool by which
legislative policy is determined and implemented.—In the present case, in
making his recommendation to the President on the existence of either of
the two conditions, the Secretary of Finance is not acting as the alter ego of
the President or even her subordinate. In such instance, he is not subject to
the power of control and direction of the President. He is acting as the
agent of the legislative department, to determine and declare the event
upon which its expressed will is to take effect. The Secretary of Finance
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VOL. 469, SEPTEMBER 1, 2005
Abakada Guro Party List vs. Ermita
becomes the means or tool by which legislative policy is
determined and implemented, considering that he possesses all the
facilities to gather data and information and has a much broader
perspective to properly evaluate them. His function is to gather and collate
statistical data and other pertinent information and verify if any of the two
conditions laid out by Congress is present. His personality in such instance
is in reality but a projection of that of Congress. Thus, being the agent of
Congress and not of the President, the President cannot alter or modify or
nullify, or set aside the findings of the Secretary of Finance and to
substitute the judgment of the former for that of the latter.
Same; Same; Congress does not abdicate its functions or unduly
delegate power when it describes what job must be done, who must do it,
and what is the scope of his authority—in our complex economy that is
frequently the only way in which the legislative process can go forward.—
Congress simply granted the Secretary of Finance the authority to ascertain
the existence of a fact, namely, whether by December 31, 2005, the value-
added tax collection as a percentage of Gross Domestic Product (GDP) of
the previous year exceeds two and four-fifth percent (2 4/5%) or the
national government deficit as a percentage of GDP of the previous year
exceeds one and one-half percent (1 1/2%). If either of these two instances
has occurred, the Secretary of Finance, by legislative mandate, must
submit such information to the President. Then the 12% VAT rate must be
imposed by the President effective January 1, 2006. There is no undue
delegation of legislative power but only of the discretion  as to the
execution of a law. This is constitutionally permissible. Congress does not
abdicate its functions or unduly delegate power when it describes what job
must be done, who must do it, and what is the scope of his authority; in our
complex economy that is frequently the only way in which the legislative
process can go forward.
Same; Same; Taxation; Value-Added Tax; The intent and will to
increase the VAT rate to 12% came from Congress and the task of the
President is to simply execute the legislative policy.—As to the argument
of petitioners ABAKADA GURO Party List, et al. that delegating to the
President the legislative power to tax is contrary to the principle of
republicanism, the same deserves scant consideration. Congress did not
delegate the power to tax but the mere im-
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28 SUPREME COURT REPORTS ANNOTATED
Abakada Guro Party List vs. Ermita
plementation of the law. The intent and will to increase the VAT
rate to 12% came from Congress and the task of the President is to simply
execute the legislative policy. That Congress chose to do so in such a
manner is not within the province of the Court to inquire into, its task
being to interpret the law.
Judicial Review; The Court does not rule on allegations which are
manifestly conjectural, as these may not exist at all—the Court deals with
facts, not fancies, on realities, not appearances.—The insinuation by
petitioners Pimentel, et al. that the President has ample powers to cause,
influence or create the conditions to bring about either or both the
conditions precedent does not deserve any merit as this argument is highly
speculative. The Court does not rule on allegations which are manifestly
conjectural, as these may not exist at all. The Court deals with facts, not
fancies; on realities, not appearances. When the Court acts on appearances
instead of realities, justice and law will be short-lived.
Same; Separation of Powers; Statutory Construction; Rewriting
the law is a forbidden ground that only Congress may tread upon.
— Under the common provisos of Sections 4, 5 and 6 of R.A. No. 9337, if
any of the two conditions set forth therein are satisfied, the President shall Congress admitted that the spread-out of the creditable input tax in this
increase the VAT rate to 12%. The provisions of the law are clear. It does
not provide for a return to the 10% rate nor does it empower the President
to so revert if, after the rate is increased to 12%, the VAT collection goes
below the 2 4/5 of the GDP of the previous year or that the national
government deficit as a percentage of GDP of the previous year does not
exceed 1 1/2%. Therefore, no statutory construction or interpretation is
needed. Neither can conditions or limitations be introduced where none is
provided for. Rewriting the law is a forbidden ground that only Congress
may tread upon.
Taxation; Value-Added Tax; Fiscal Adequacy; Words and
Phrases; The principle of fiscal adequacy as a characteristic of a sound
tax system, which was originally stated by Adam Smith in his Canons of
Taxation, simply means that sources of revenues must be adequate to meet
government expenditures and their variations.— That the first condition
amounts to an incentive to the President to increase the VAT collection
does not render it unconstitutional so long as there is a public purpose for
which the law was passed,
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Abakada Guro Party List vs. Ermita
which in this case, is mainly to raise revenue. In fact, fiscal
adequacy dictated the need for a raise in revenue. The principle of fiscal
adequacy as a characteristic of a sound tax system was originally stated by
Adam Smith in his Canons of Taxation (1776), as: IV. Every tax ought to
be so contrived as both to take out and to keep out of the pockets of the
people as little as possible over and above what it brings into the public
treasury of the state. It simply means that sources of revenues must be
adequate to meet government expenditures and their variations.
Same; Same; Due Process;  Equal Protection; 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.—The
doctrine is that where the due process and equal protection clauses are
invoked, considering that they are not fixed rules but rather broad
standards, there is a need for proof of such persuasive character as would
lead to such a conclusion. Absent such a showing, the presumption of
validity must prevail.
Same; Same; Words and Phrases; Input Tax is defined under
Section 110(A) of the NIRC, as amended, as the value-added tax due from
or paid by a VAT-registered person on the importation of goods or local
purchase of good and services, including lease or use of property, in the
course of trade or business, from a VAT-registered person, and Output
Tax is the value-added tax due on the sale or lease of taxable goods or
properties or services by any person registered or required to register
under the law.—Section 8 of R.A. No. 9337, amending Section 110(B) of
the NIRC imposes a limitation on the amount of input tax that may be
credited against the output tax. It states, in part: “[P]rovided, that the input
tax inclusive of the input VAT carried over from the previous quarter that
may be credited in every quarter shall not exceed seventy percent (70%) of
the output VAT: …”” Input Tax is defined under Section 110(A) of the
NIRC, as amended, as the value-added tax due from or paid by a VAT-
registered person on the importation of goods or local purchase of good
and services, including lease or use of property, in the course of trade or
business, from a VAT-registered person, and Output Tax is the value-
added tax due on the sale or lease of taxable goods or properties or services
by any person registered or required to register under the law.
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30 SUPREME COURT REPORTS ANNOTATE
Abakada Guro Party List vs. Ermita
Same; Same; Due Process; Vested Rights; The input tax is not a
property or a property right within the constitutional purview of the due
process clause—a VAT-registered person’s entitlement to the creditable
input tax is a mere statutory privilege; The right to credit input tax as
against the output tax is clearly a privilege created by law, a privilege that
also the law can remove or limit; The distinction between statutory
privileges and vested rights must be borne in mind for persons have no
vested rights in statutory privileges.—The input tax is not a property or a
property right within the constitutional purview of the due process clause.
A VAT-registered person’s entitlement to the creditable input tax is a mere
statutory privilege. The distinction between statutory privileges and vested
rights must be borne in mind for persons have no vested rights in statutory
privileges. The state may change or take away rights, which were created
by the law of the state, although it may not take away property, which was
vested by virtue of such rights. Under the previous system of single-stage
taxation, taxes paid at every level of distribution are not recoverable from
the taxes payable, although it becomes part of the cost, which is deductible
from the gross revenue. When Pres. Aquino issued E.O. No. 273 imposing
a 10% multi-stage tax on all sales, it was then that the crediting of the input
tax paid on purchase or importation of goods and services by VAT-
registered persons against the output tax was introduced. This was adopted
by the Expanded VAT Law (R.A. No. 7716), and The Tax Reform Act of
1997 (R.A. No. 8424). The right to credit input tax as against the output
tax is clearly a privilege created by law, a privilege that also the law can
remove, or in this case, limit.
Same; Same; Congress admitted that the spread-out of the
creditable input tax in this case amounts to a 4-year interest-free loan to
the government; For whatever is the purpose of the 60-month
amortization, this involves executive economic policy and legislative
wisdom in which the Court cannot intervene.—It is worth mentioning that
case amounts to a 4-year interest-free loan to the government. In the same
breath, Congress also justified its move by saying that the provision was
designed to raise an annual revenue of 22.6 billion. The legislature also
dispelled the fear that the provision will fend off foreign investments,
saying that foreign investors have other tax incentives provided by law,
and citing the case of China, where despite a 17.5% non-creditable VAT,
foreign investments were not
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Abakada Guro Party List vs. Ermita
deterred. Again, for whatever is the purpose of the 60-month
amortization, this involves executive economic policy and legislative
wisdom in which the Court cannot intervene.
Same; Same; With regard to the 5% creditable withholding tax
imposed on payments made by the government for taxable transactions,
Section 114 (C) of the National Internal Revenue Code merely provides a
method of collection, or as stated by respondents, a more simplified VAT
withholding system—the government in this case is constituted as a
withholding agent with respect to their payments for goods and services.—
With regard to the 5% creditable withholding tax imposed on payments
made by the government for taxable transactions, Section 12 of R.A. No.
9337, which amended Section 114 of the NIRC, reads: * * * Section
114(C) merely provides a method of collection, or as stated by
respondents, a more simplified VAT withholding system. The government
in this case is constituted as a withholding agent with respect to their
payments for goods and services. Prior to its amendment, Section 114(C)
provided for different rates of value-added taxes to be withheld—3% on
gross payments for purchases of goods; 6% on gross payments for services
supplied by contractors other than by public works contractors; 8.5% on
gross payments for services supplied by public work contractors; or 10%
on payment for the lease or use of properties or property rights to
nonresident owners. Under the present Section 114(C), these different
rates, except for the 10% on lease or property rights payment to
nonresidents, were deleted, and a uniform rate of 5% is applied.
Same; Same; Words and Phrases;  In tax usage, “final,” as
opposed to creditable, means full; As applied to value-added tax, taxable
transactions with the government are subject to a 5% tax rate, which
constitutes as full payment of the tax payable on the transaction.—The
Court observes, however, that the law used the word final. In tax
usage, final, as opposed to creditable, means full. Thus, it is provided in
Section 114(C): “final value-added tax at the rate of five percent (5%).” In
Revenue Regulations No. 02-98, implementing R.A. No. 8424 (The Tax
Reform Act of 1997), the concept of final withholding tax on income was
explained, to wit: SECTION 2.57. Withholding of Tax at Source. (A) Final
Withholding Tax.—Under the final withholding tax system the amount of
income tax withheld by the withholding agent is constituted as full and
final payment
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32 SUPREME COURT REPORTS ANNOTATED
Abakada Guro Party List vs. Ermita
of the income tax due from the payee on the said income. The
liability for payment of the tax rests primarily on the payor as a
withholding agent. Thus, in case of his failure to withhold the tax or in
case of underwithholding, the deficiency tax shall be collected from the
payor/withholding agent. . . . (B) Creditable Withholding Tax.—Under the
creditable withholding tax system, taxes withheld on certain income
payments are intended to equal or at least approximate the tax due of the
payee on said income. . . . Taxes withheld on income payments covered by
the expanded withholding tax (referred to in Sec. 2.57.2 of these
regulations) and compensation income (referred to in Sec. 2.78 also of
these regulations) are creditable in nature. As applied to value-added tax,
this means that taxable transactions with the government are subject to a
5% rate, which constitutes as full payment of the tax payable on the
transaction. This represents the net VAT payable of the seller. The other
5% effectively accounts for the standard input VAT (deemed input VAT),
in lieu of the actual input VAT directly or attributable to the taxable
transaction.
Same; Same; It is clear that Congress intended to treat differently
transactions with the government; Since it has not been shown that the
class subject to the final 5% final withholding tax has been unreasonably
narrowed, there is no reason to invalidate the provision.—The Court need
not explore the rationale behind the provision. It is clear that Congress
intended to treat differently taxable transactions with the government. This
is supported by the fact that under the old provision, the 5% tax withheld
by the government remains creditable against the tax liability of the seller
or contractor, to wit: SEC. 114. Return and Payment of Value-added Tax.
—(C) Withholding of Creditable Value-added Tax.—The Government
or any of its political subdivisions, instrumentalities or agencies, including
government-owned or controlled corporations (GOCCs) shall, before
making payment on account of each purchase of goods from sellers and
services rendered by contractors which are subject to the value-added tax
imposed in Sections 106 and 108 of this Code, deduct and withhold the
value-added tax due at the rate of three percent (3%) of the gross payment
for the purchase of goods and six percent (6%) on gross receipts for
services rendered by contractors on every sale or installment payment
which shall be creditable  against the value-added tax liability of the
seller or contractor: Provided, however, That in the case of government
public works
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VOL. 469, SEPTEMBER 1, 2005
Abakada Guro Party List vs. Ermita
contractors, the withholding rate shall be eight and one-half percent withholding tax by the government. It must be stressed that the rule of
(8.5%): Provided, further, That the payment for lease or use of properties
or property rights to nonresident owners shall be subject to ten percent
(10%) withholding tax at the time of payment. For this purpose, the payor
or person in control of the payment shall be considered as the withholding
agent. The valued-added tax withheld under this Section shall be remitted
within ten (10) days following the end of the month the withholding was
made. (Emphasis supplied) As amended, the use of the word final and the
deletion of the word creditable exhibits Congress’s intention to treat
transactions with the government differently. Since it has not been shown
that the class subject to the 5% final withholding tax has been
unreasonably narrowed, there is no reason to invalidate the provision.
Petitioners, as petroleum dealers, are not the only ones subjected to the 5%
final withholding tax. It applies to all those who deal with the government.
Same; Same; Judicial Review;  The Court will not engage in a
legal joust where premises are what ifs, arguments, theoretical and facts,
uncertain—any disquisition by the Court on this point will only be, as
Shakespeare describes life in Macbeth, “full of sound and fury, signifying
nothing”; It need not take an astute businessman to know that it is a
matter of exception that a business will sell goods or services without
profit or value-added.—Petitioners also argue that by imposing a
limitation on the creditable input tax, the government gets to tax a profit or when its rate goes up depending on the resources of the person affected.—
value-added even if there is no profit or value-added. Petitioners’ stance is Petitioners contend that the limitation on the creditable input tax is
purely hypothetical, argumentative, and again, one-sided. The Court will
not engage in a legal joust where premises are what ifs, arguments,
theoretical and facts, uncertain. Any disquisition by the Court on this point built on the principle of the taxpayer’s ability
will only be, as Shake-speare describes life in Macbeth, “full of sound and
fury, signifying nothing.” What’s more, petitioners’ contention assumes
the proposition that there is no profit or value-added. It need not take an
astute businessman to know that it is a matter of exception that a business
will sell goods or services without profit or value-added. It cannot be
overstressed that a business is created precisely for profit.
Same; Same; Equal Protection; The power of the State to make
reasonable and natural classifications for the purposes of taxation has
long been established.—The equal protection clause under the Constitution
means that “no person or class of persons shall be de-
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34 SUPREME COURT REPORTS ANNOTATE
Abakada Guro Party List vs. Ermita
prived of the same protection of laws which is enjoyed by other
persons or other classes in the same place and in like circumstances.” The
power of the State to make reasonable and natural classifications for the
purposes of taxation has long been established. Whether it relates to the
subject of taxation, the kind of property, the rates to be levied, or the
amounts to be raised, the methods of assessment, valuation and collection,
the State’s power is entitled to presumption of validity. As a rule, the
judiciary will not interfere with such power absent a clear showing of
unreasonableness, discrimination, or arbitrariness.
Same; Same; Same; The equal protection clause does not require
the universal application of the laws on all persons or things without
distinction; While the implementation of the law may yield varying end
results depending on one’s profit margin and value-added, the Court
cannot go beyond what the legislature has laid down and interfere with the
affairs of business.—Petitioners point out that the limitation on the
creditable input tax if the entity has a high ratio of input tax, or invests in
capital equipment, or has several transactions with the government, is not
based on real and substantial differences to meet a valid classification. The
argument is pedantic, if not outright baseless. The law does not make any
classification in the subject of taxation, the kind of property, the rates to be
levied or the amounts to be raised, the methods of assessment, valuation
and collection. Petitioners’ alleged distinctions are based on variables that
bear different consequences. While the implementation of the law may
yield varying end results depending on one’s profit margin and value-
added, the Court cannot go beyond what the legislature has laid down and
interfere with the affairs of business. The equal protection clause does not
require the universal application of the laws on all persons or things
without distinction. This might in fact sometimes result in unequal
protection. What the clause requires is equality among equals as
determined according to a valid classification. By classification is meant
the grouping of persons or things similar to each other in certain particulars
and different from all others in these same particulars.
Same; Same; Same; Uniformity of Taxation; The rule of uniform
taxation does not deprive Congress of the power to classify subjects of
taxation, and only demands uniformity within the particular class.—
Uniformity in taxation means that all taxable articles or
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VOL. 469, SEPTEMBER 1, 2005
Abakada Guro Party List vs. Ermita
kinds of property of the same class shall be taxed at the same rate.
Different articles may be taxed at different amounts provided that the rate
is uniform on the same class everywhere with all people at all times. In this
case, the tax law is uniform as it provides a standard rate of 0% or 10% (or
12%) on all goods and services. Sections 4, 5 and 6 of R.A. No. 9337,
amending Sections 106, 107 and 108, respectively, of the NIRC, provide
for a rate of 10% (or 12%) on sale of goods and properties, importation of
goods, and sale of services and use or lease of properties. These same
sections also provide for a 0% rate on certain sales and transaction. Neither
does the law make any distinction as to the type of industry or trade that
will bear the 70% limitation on the creditable input tax, 5-year
amortization of input tax paid on purchase of capital goods or the 5% final
uniform taxation does not deprive Congress of the power to classify
subjects of taxation, and only demands uniformity within the particular
class.
Same; Same; Equitable Taxation; R.A. No. 9337 is equitable.
— R.A. No. 9337 is also equitable. The law is equipped with a threshold
margin. The VAT rate of 0% or 10% (or 12%) does not apply to sales of
goods or services with gross annual sales or receipts not exceeding
P1,500,000.00. Also, basic marine and agricultural food products in their
original state are still not subject to the tax, thus ensuring that prices at the
grassroots level will remain accessible. As was stated in Kapatiran ng mga
Naglilingkod sa Pamahalaan ng Pilipinas, Inc. vs. Tan: The disputed sales
tax is also equitable. It is imposed only on sales of goods or services by
persons engaged in business with an aggregate gross annual sales
exceeding P200,000.00. Small corner sari-sari stores are consequently
exempt from its application. Likewise exempt from the tax are sales of
farm and marine products, so that the costs of basic food and other
necessities, spared as they are from the incidence of the VAT, are expected
to be relatively lower and within the reach of the general public.
Same; Same; Progressive Taxation; Progressive taxation is built
on the principle of the taxpayer’s ability to pay—taxation is progressive
anything but regressive. It is the smaller business with higher input tax-
output tax ratio that will suffer the consequences. Progressive taxation is
36
36 SUPREME COURT REPORTS ANNOTATE
Abakada Guro Party List vs. Ermita
to pay. This principle was also lifted from Adam Smith’s Canons
of Taxation, and it states: I. The subjects of every state ought to contribute
towards the support of the government, as nearly as possible, in proportion
to their respective abilities; that is, in proportion to the revenue which they
respectively enjoy under the protection of the state. Taxation is progressive
when its rate goes up depending on the resources of the person affected.
 Same; Same; Same;  The VAT is an antithesis of progressive
taxation—by its very nature, it is regressive; The principle of progressive
taxation has no relation with the VAT system inasmuch as the VAT paid by
the consumer or business for every goods bought or services enjoyed is the
same regardless of income.—The VAT is an antithesis of progressive
taxation. By its very nature, it is regressive. The principle of progressive
taxation has no relation with the VAT system inasmuch as the VAT paid
by the consumer or business for every goods bought or services enjoyed is
the same regardless of income. In other words, the VAT paid eats the same
portion of an income, whether big or small. The disparity lies in the
income earned by a person or profit margin marked by a business, such
that the higher the income or profit margin, the smaller the portion of the
income or profit that is eaten by VAT. A converso, the lower the income or
profit margin, the bigger the part that the VAT eats away. At the end of the
day, it is really the lower income group or businesses with low-profit
margins that is always hardest hit.
Same; Same; Same;  The Constitution does not really prohibit the
imposition of indirect taxes, like the VAT.—The Constitution does not
really prohibit the imposition of indirect taxes, like the VAT. What it
simply provides is that Congress shall “evolve a progressive system of
taxation.” The Court stated in the Tolentino case, thus: The Constitution
does not really prohibit the imposition of indirect taxes which, like the
VAT, are regressive. What it simply provides is that Congress shall
‘evolve a progressive system of taxation.’ The constitutional provision has
been interpreted to mean simply that ‘direct taxes are . . . to be preferred
[and] as much as possible, indirect taxes should be minimized.’ (E.
FERNANDO, THE CONSTITUTION OF THE PHILIPPINES 221
[Second ed. 1977]) Indeed, the mandate to Congress is not to prescribe, but
to evolve, a progressive tax system. Otherwise, sales taxes, which perhaps
are the oldest form of indirect taxes, would have been prohibited with the
procla-
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VOL. 469, SEPTEMBER 1, 2005
Abakada Guro Party List vs. Ermita
mation of Art. VIII, §17 (1) of the 1973 Constitution from which
the present Art. VI, §28 (1) was taken. Sales taxes are also regressive.
Resort to indirect taxes should be minimized but not avoided entirely
because it is difficult, if not impossible, to avoid them by imposing such
taxes according to the taxpayers' ability to pay. In the case of the VAT, the
law minimizes the regressive effects of this imposition by providing for
zero rating of certain transactions (R.A. No. 7716, §3, amending §102 (b)
of the NIRC), while granting exemptions to other transactions. (R.A. No.
7716, §4 amending §103 of the NIRC)
Same; Same; Judicial Review; The Court cannot strike down a
law as unconstitutional simply because of its yokes.—It has been said that
taxes are the lifeblood of the government. In this case, it is just an enema, a
first-aid measure to resuscitate an economy in distress. The Court is neither
blind nor is it turning a deaf ear on the plight of the masses. But it does not
have the panacea for the malady that the law seeks to remedy. As in other
cases, the Court cannot strike down a law as unconstitutional simply
because of its yokes. Let us not be overly influenced by the plea that for
every wrong there is a remedy, and that the judiciary should stand ready to
afford relief. There are undoubtedly many wrongs the judicature may not
correct, for instance, those involving political questions. . . . Let us
likewise disabuse our minds from the notion that the judiciary is the
repository of remedies for all political or social ills; We should not forget
that the Constitution has judiciously allocated the powers of government to
three distinct and separate compartments; and that judicial interpretation
has tended to the preservation of the independence of the three, and a
zealous regard of the prerogatives of each, knowing full well that one is
not the guardian of the others and that, for official wrong-doing, each may
be brought to account, either by impeachment, trial or by the ballot box.
DAVIDE, JR., C.J., Separate Concurring and Dissenting Opinion:
Congress; Origin of Bills; Revenue Bills; Taxation; Value-Added Tax; It
was beyond the ambit of the authority of the Senate to propose amendments to
provisions not covered by the House Bills or not related to the subject matter of the
House Bills, which is VAT.— Obviously, these provisions do not deal with VAT. It
must be noted that the House Bills initiated amendments to provisions pertaining to
VAT only. Doubtless, the Senate has the constitutional power to
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38 SUPREME COURT REPORTS ANNOTATED
Abakada Guro Party List vs. Ermita
concur with the amendments to the VAT provisions introduced in the House
Bills or even to propose its own version of VAT measure. But that power does not
extend to initiation of other tax measures, such as introducing amendments to
provisions on corporate income taxes, percentage taxes, franchise taxes, and excise
taxes like what the Senate did in these cases. It was beyond the ambit of the authority
of the Senate to propose amendments to provisions not covered by the House Bills or
not related to the subject matter of the House Bills, which is VAT. To allow the
Senate to do so would be tantamount to vesting in it the power to initiate revenue bills
—a power that exclusively pertains to the House of Representatives under Section 24,
Article VI of the Constitution, which provides: Sec. 24. All appropriation, revenue or
tariff bills, bills authorizing increase of the public debt, bills of local application, and
private bills shall originate exclusively in the House of Representatives but the Senate
may propose or concur with amendments.
PUNO, J., Concurring and Dissenting Opinion:
Judicial Review; Requisites; Ripeness Doctrine; The power of judicial
review under Article VIII, Section 5(2) of the 1987 Constitution is limited to the
review of “actual cases and controversies;” The basic rationale of the doctrine of
ripeness is “to prevent the courts, through premature adjudication, from entangling
themselves in abstract disagreements.”—The power of judicial review under Article
VIII, section 5(2) of the 1987 Constitution is limited to the review of “ actual cases
and controversies.” As rightly stressed by retired Justice Vicente V. Mendoza, this
requirement gives the judiciary “the opportunity, denied to the legislature, of seeing
the actual operation of the statute as it is applied to actual facts and thus enables it to
reach sounder judgment” and “enhances public acceptance of its role in our system of
government.” It also assures that the judiciary does not intrude on areas committed to
the other branches of government and is confined to its role as defined by the
Constitution. Apposite thereto is the doctrine of ripeness whose basic rationale is “to
prevent the courts, through premature adjudication, from entangling themselves in
abstract disagreements.” Central to the doctrine is the determination of “whether the
case involves uncertain or contingent future events that may not occur as anticipated,
or indeed may not occur at all.” The ripeness requirement must be satisfied for each
challenged legal provision and parts of a statute so that those which
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VOL. 469, SEPTEMBER 1, 2005
Abakada Guro Party List vs. Ermita
are “not immediately involved are not thereby thrown open for a judicial
determination of constitutionality.”
Same; Same; Same; Taxation; The power to adjust the tax rate given to the
President is futuristic and may or may not be exercised—the Court is therefore
beseeched to render a conjectural judgment based on hypothetical facts.—It is
manifest that the constitutional challenge to sections 4 to 6 of R.A. No. 9337 cannot
hurdle the requirement of ripeness. These sections give the President the power to
raise the VAT rate to 12% on January 1, 2006 upon satisfaction of certain fact-based
conditions. We are not endowed with the infallible gift of prophesy to know whether
these conditions are certain to happen. The power to adjust the tax rate given to the
President is futuristic and may or may not be exercised. The Court is therefore
beseeched to render a conjectural judgment based on hypothetical facts. Such a
supplication has to be rejected.
Congress; Bicameral Conference Committee; A Bicameral Conference
Committee has limited powers and cannot be allowed to act as if it were a “third
house” of Congress.—With due respect, I submit that the most important
constitutional issue posed by the petitions at bar relates to the parameters of power of
a Bicameral Conference Committee. Most of the issues in the petitions at bar arose
because the Bicameral Conference Committee concerned exercised powers that went
beyond reconciling the differences between Senate Bill No. 1950 and House Bill Nos.
3705 and 3555. In Tolentino v. Secretary of Finance, I ventured the view that a
Bicameral Conference Committee has limited powers and cannot be allowed to act as
if it were a “third house” of Congress. I further warned that unless its roving
powers are reigned in, a Bicameral Conference Committee can wreck the lawmaking
process which is a cornerstone of the democratic, republican regime established in
our Constitution. The passage of time fortifies my faith that there ought to be no legal
u-turn on this preeminent principle.
Same; Same; It is only by strictly following the contours of powers of a
Bicameral Conference Committee, as delineated by the rules of the House and the
Senate, that we can prevent said Committee from acting as a “third” chamber of
Congress.—I respectfully submit that it is only by strictly following the contours of
powers of a Bicameral Conference Committee, as delineated by the rules of the
House and the Senate, that we can prevent said Committee from acting as a
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40 SUPREME COURT REPORTS ANNOTATE
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“third” chamber of Congress. Under the clear rules of both the Senate and
House, its power can go no further than settling differences in their bills or joint
resolutions. Sections 88 and 89, Rule XIV of the Rules of the House of
Representatives provide as follows: * * * Under both rules, it is obvious that a
Bicameral Conference Committee is a mere agent of the House or the Senate with
limited powers. The House contingent in the Committee cannot, on its own, settle
differences which are substantial in character. If it is confronted with substantial
differences, it has to go back to the chamber that created it “for the latter’s
appropriate action.” In other words, it must take the proper instructions from the
chambers that created it. It cannot exercise its unbridled discretion. Where there is no
difference between the bills, it cannot make any change. Where the difference is
substantial, it has to return to the chamber of its origin and ask for appropriate
instructions. It ought to be indubitable that it cannot create a new law, i.e., that which
has never been discussed in either chamber of Congress. Its parameters of power are
not porous, for they are hedged by the clear limitation that its only power is to settle
differences in bills and joint resolutions of the two chambers of Congress.
Same; Same; Amendments which did not harmonize conflicting provisions
between the constituent bills of R.A. No. 9337 but are entirely new and extraneous
concepts which fall beyond the median thereof transgress the limits of the Bicameral
Conference Committee’s authority and must be struck down.—These
amendments did not harmonize conflicting provisions between the constituent bills of
R.A. No. 9337 but are entirely new and extraneous concepts which fall beyond the
median thereof. They transgress the limits of the Bicameral Conference Committee’s
authority and must be struck down. I cannot therefore subscribe to the thesis of the
majority that “the changes introduced by the Bicameral Conference Committee on
disagreeing provisions were meant only to reconcile and harmonize the disagreeing
provisions for it did not inject any idea or intent that is wholly foreign to the subject
embraced by the original provisions.” Same; Same; Germaneness Rule; It is high
time to re-examine the test of germaneness proffered in Tolentino v. Secretary of
Finance, 235 SCRA 630 (1994)—the test of germaneness is overly broad and is the
fountainhead of mischief for it allows the Bicameral Conference Committee to
change provisions in the bills of the House and the
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Senate when they are not even in disagreement; The Constitution did not
establish a Bicameral Conference Committee that can act as a “third house” of
Congress with super veto power over bills passed by the Senate and the House.—The
majority further defends the constitutionality of the above provisions by holding that
“all the changes or modifications were germane to subjects of the provisions referred
to it for reconciliation.” With due respect, it is high time to re-examine the test of
germaneness proffered in Tolentino. The test of germaneness is overly broad and is
the fountainhead of mischief for it allows the Bicameral Conference Committee to
change provisions in the bills of the House and the Senate when they are not even in
disagreement. Worse still, it enables the Committee to introduce amendments which
are entirely new and have not previously passed through the coils of scrutiny of the
members of both houses. The Constitution did not establish a Bicameral Conference
Committee that can act as a “third house” of Congress with super veto power over
bills passed by the Senate and the House. We cannot concede that super veto
power without wrecking the delicate architecture of legislative power so carefully laid
down in our Constitution. The clear intent of our fundamental law is to install a
lawmaking structure composed only of two houses whose members
would thoroughly debate proposed legislations in representation of the will of their
respective constituents. The institution of this lawmaking structure
is unmistakable from the following provisions: (1) requiring that legislative power
shall be vested in a bicameral legislature; (2) providing for quorum requirements; (3)
requiring that appropriation, revenue or tariff bills, bills authorizing increase of public
debt, bills of local application, and private bills originate exclusively in the House of should be construed to be merely asking the President, with a recommendation from
Representatives; (4) requiring that bills embrace one subject expressed in the title
thereof; and (5) mandating that bills undergo three readings on separate days in each
House prior to passage into law and prohibiting amendments on the last reading
thereof. A Bicameral Conference Committee with untrammeled powers will destroy
this lawmaking structure. At the very least, it will diminish the free and open debate
of proposed legislations and facilitate the smuggling of what purports to be laws.
Same; Same; Republicanism; It cannot be overemphasized that in a
republican form of government, laws can only be enacted by all the duly elected
representatives of the people—it cuts against conventional wisdom in democracy to
lodge this power in the hands of a few
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42 SUPREME COURT REPORTS ANNOTATED Taxation; Value-Added Tax (VAT); It was Maurice Lauré, a French
Abakada Guro Party List vs. Ermita
or in the claws of a committee.—It cannot be overemphasized that in a
republican form of government, laws can only be enacted by all the duly elected
representatives of the people. It cuts against conventional wisdom in democracy to
lodge this power in the hands of a few or in the claws of a committee.  It is for these
reasons that the argument that we should overlook the excesses of the Bicameral
Conference Committee because its report is anyway approved by both houses is a
futile attempt to square the circle for an unconstitutional act is void and cannot be
redeemed by any subsequent ratification.
Same; Same; Same; No doomsday scenario will ever justify the thrashing of
the Constitution—the Constitution is meant to be our rule both in good times as in
bad times.—In conclusion, I wish to stress that this is not the first time nor will it be for the tax themselves.
last that arguments will be foisted for the Court to merely wink at assaults on the
Constitution on the ground of some national interest, sometimes clear and at other
times inchoate. To be sure, it cannot be gainsaid that the country is in the vortex of a withdraw, being merely an asset granted by operation of law.—There is no vested
financial crisis. The broadsheets scream the disconcerting news that our debt
payments for the year 2006 will exceed Pph1 billion daily for interest alone. Experts
underscore some factors that will further drive up the debt service expenses such as
the devaluation of the peso, credit downgrades and a spike in interest rates. But no
doomsday scenario will ever justify the thrashing of the Constitution. The
Constitution is meant to be our rule both in good times as in bad times. It is the
Court’s uncompromising obligation to defend the Constitution at all times lest it be
condemned as an irrelevant relic.
PANGANIBAN, J., Separate Opinion:
Congress; Enrolled Bill Doctrine; The enrolled bill doctrine may be all-
encompassing in some countries like Great Britain, but as applied to our jurisdiction,
it must yield to mandatory provisions of our 1987 Constitution.—I believe, however,
that the enrolled bill doctrine is not absolute. It may be all-encompassing in some
countries like Great Britain, but as applied to our jurisdiction, it must yield to
mandatory provisions of our 1987 Constitution. The Court can take judicial notice of
the form of government in Great Britain. It is unlike that in our country and,
therefore, the doctrine from which it originated could be modified accordingly by our
Constitution. In fine, the enrolled bill doctrine applies mainly to the internal
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rules and processes followed by Congress in its principal duty of lawmaking.
However, when the Constitution imposes certain conditions, restrictions or limitations
on the exercise of congressional prerogatives, the judiciary has both the power and
the duty to strike down congressional actions that are done in plain contravention of
such conditions, restrictions or limitations. Insofar as the present case is concerned,
the three most important restrictions or limitations to the enrolled bill doctrine are the
“origination,” “no-amend-ment” and “three-reading” rules which I will discuss later.
Same; Bicameral Conference Committee (BCC); The Bicameral Conference
Committee created by Congress to iron out differences between the Senate and the
House of Representatives versions of the E-VAT bills is one such “branch or
instrumentality of the govern-ment,” over which this Court may exercise certiorari
review to determine whether or not grave abuse of discretion has been committed;
and, specifically, to find out whether the constitutional conditions, restrictions and
limitations on law-making have been violated.—The Bicameral Conference
Committee (BCC) created by Congress to iron out differences between the Senate and
the House of Representatives versions of the E-VAT bills is one such “branch or
instrumentality of the government,” over which this Court may exercise certiorari
review to determine whether or not grave abuse of discretion has been committed;
and, specifically, to find out whether the constitutional conditions, restrictions and
limitations on law-making have been violated. In general, the BCC has at least five
options in performing its functions: (1) adopt the House version in part or in toto, (2)
adopt the Senate version in part or in toto, (3) consolidate the two versions, (4)
reject non-conflicting provisions, and (5) adopt completely new provisions not found
in either version. This, therefore, is the simple question: In the performance of its
function of reconciling conflicting provisions, has the Committee blatantly violated
the Constitution?
Same; Presidency; Separation of Powers; Control Power; Doctrine of
Qualified Political Agency; I respectfully disagree with the statements that, first, the
Secretary of Finance is “acting as the agent of the legislative department” or an
“agent of Congress” in determining and declaring the event upon which its
expressed will is to take effect; and, second, that the Secretary’s personality “is in
reality but a projection of that of Congress”—the Secretary of Finance is not an
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44 SUPREME COURT REPORTS ANNOTATE
Abakada Guro Party List vs. Ermita
alter ego of Congress, but of the President.—I concur with the ponencia in
that there was no undue delegation of legislative power in the increase from 10
percent to 12 percent of the VAT rate. I respectfully disagree, however, with the
statements therein that, first, the secretary of finance is “acting as the agent of the
legislative department” or an “agent of Congress” in determining and declaring the
event upon which its expressed will is to take effect; and, second, that the secretary’s
personality “is in reality but a projection of that of Con-gress.” The secretary of
finance is not an alter ego of Congress, but of the President. The mandate given by
RA 9337 to the secretary is not equipollent to an authority to make laws. In passing
this law, Congress did not restrict or curtail the constitutional power of the President
to retain control and supervision over the entire Executive Department. The law
the President’s alter ego in finance matters, to determine the factual bases for making
the increase in VAT rate operative. Indeed, as I have mentioned earlier, the fact-
finding condition is a mere administrative, not legislative, function.
Same; Bicameral Conference Committee; I respectfully submit that the
amendments made by the BCC (that were culled from the Senate version) regarding
income taxes are not legally germane to the subject matter of the House bills.—I
respectfully submit that the amendments made by the BCC (that were culled from the
Senate version) regarding income taxes are not legally germane to the subject matter
of the House bills. Revising the income tax rates on domestic, resident foreign and
nonresident foreign corporations; increasing the tax credit against taxes due from
nonresident foreign corporations on intercorporate dividends; and reducing the
allowable deduction for interest expense are legally unrelated and not germane to the
subject matter contained in the House bills; they violate the origination principle.
engineer, who invented the VAT.—It was Maurice Lauré, a French engineer, who
invented the VAT. In 1954, he had the idea of imposing an indirect tax on
consumption, called taxe sur la valeur ajoutée, which was quickly adopted by
the Direction Générale des Impost, the new French tax authority of which he became
joint director. Consequently, taxpayers at all levels in the production process,
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Abakada Guro Party List vs. Ermita
rather than retailers or tax authorities, were forced to administer and account
Same; Same; Due Process; Vested Rights; There is no vested right in a
deferred input tax—it is a mere statutory privilege which the State may modify or
right in a deferred input tax account; it is a mere statutory privilege. The State may
modify or withdraw such privilege, which is merely an asset granted by operation of
law. Moreover, there is no vested right in generally accepted accounting principles.
These refer to accounting concepts, measurement techniques, and standards of
presentation in a company’s financial statements, and are not rooted in laws of nature,
as are the laws of physical science, for these are merely developed and continually
modified by local and international regulatory accounting bodies. To state otherwise
and recognize such asset account as a vested right is to limit the taxing power of the
State. Unlimited, plenary, comprehensive and supreme, this power cannot be unduly
restricted by mere creations of the State.
Same; Same; Same; Same; In the exercise of its inherent power to tax, the
State validly interferes with the right to property of persons, natural or artificial; The
reduction of tax credits is a question of economic policy, not of legal perlustration.—
Petitioners have not been denied due process or, as I have illustrated earlier, equal
protection. In the exercise of its inherent power to tax, the State validly interferes with
the right to property of persons, natural or artificial. Those similarly situated are
affected in the same way and treated alike, “both as to privileges conferred and
liabilities enforced.” RA 9337 was enacted precisely to achieve the objective of
raising revenues to defray the necessary expenses of government. The means that this
law employs are reasonably related to the accomplishment of such objective, and not
unduly oppressive. The reduction of tax credits is a question of economic policy, not
of legal perlustration. Its determination is vested in Congress, not in this Court. Since
the purpose of the law is to raise revenues, it cannot be denied that the means
employed is reasonably related to the achievement of that purpose. Moreover, the
proper congressional procedure for its enactment was followed; neither public notice
nor public hearings were denied.
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Same; Same; Unlike the laws of physical science, the VAT system can
always be modified to suit modern fiscal demands.—It is contended that the VAT
should be proportional in nature. I submit that this proportionality pertains to
the rate imposable, not the credit allowable. Private enterprises are subjected to a
proportional VAT rate, but VAT credits need not be. The VAT is, after all, a human
concept that is neither immutable nor invariable. In fact, it has changed after it was
adopted as a system of indirect taxation by other countries. Again unlike the laws of
physical science, the VAT system can always be modified to suit modern fiscal
demands. The State, through the Legislative Department, may even choose to do
away with it and revert to our previous system of turnover taxes, sales taxes and
compensating taxes, in which credits may be disallowed altogether.
YNARES-SANTIAGO, J., Concurring and Dissenting Opinion:
Congress; Bicameral Conference Committee; Judicial Review; If in the
exercise of this rule-making power, Congress failed to set parameters in the functions
of the Bicameral Conference Committee and allowed the latter unbridled authority to
perform acts which Congress itself is prohibited, like the passage of a law without
undergoing the requisite three-reading and the so-called no-amendment rule, then
the same amount to grave abuse of discretion which this Court is empowered to
correct under its expanded certiorari jurisdiction.— Section 16(3), Article VI of the
1987 Constitution explicitly allows each House to determine the rules of its
proceedings. However, the rules must not contravene constitutional provisions. The
rule-making power of Congress should take its bearings from the Constitution. If in
the exercise of this rule-making power, Congress failed to set parameters in the
functions of the committee and allowed the latter unbridled authority to perform acts
which Congress itself is prohibited, like the passage of a law without undergoing the
requisite three-reading and the so-called no-amendment rule, then the same amount to
grave abuse of discretion which this Court is empowered to correct under its
expanded certiorari jurisdiction. Notwithstanding the doctrine of separation of
powers, therefore, it is the duty of the Court to declare as void a legislative
enactment, either from want of constitutional power to enact or because the
constitutional forms or conditions have not been observed.
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Same; Same; I fully subscribe to the theory advanced in the Dissenting
Opinion of Chief Justice Hilario G. Davide, Jr. in Tolentino v. Secretary of Finance
that the authority of the bicameral conference committee was limited to the
reconciliation of disagreeing provisions or the resolution of differences or
inconsistencies—the Bicameral Conference Committee is authorized only to adopt
either the version of the House bill or the Senate bill, or adopt neither. —The Rules of
the House of Representatives and the Rules of the Senate provide that in the event
there is disagreement between the provisions of the House and Senate bills, the
differences shall be settled by a bicameral conference committee. By this, I fully
subscribe to the theory advanced in the Dissenting Opinion of Chief Justice Hilario G.
Davide, Jr. in Tolentino v. Secretary of Finance that the authority of the bicameral
conference committee was limited to the reconciliation of disagreeing provisions or
the resolution of differences or inconsistencies. Thus, it could only either (a) restore,
wholly or partly, the specific provisions of the House bill amended by the Senate bill,
(b) sustain, wholly or partly, the Senate’s amendments, or (c) by way of a
compromise, to agree that neither provisions in the House bill amended by the Senate
nor the latter’s amendments thereto be carried into the final form of the
former. Otherwise stated, the Bicameral Conference Committee is authorized only to
adopt either the version of the House bill or the Senate bill, or adopt neither. It
cannot, as the ponencia proposed, “try to arrive at a compromise,” such as
introducing provisions not included in either the House or Senate bill, as it would
allow a mere ad hoc committee to substitute the will of the entire Congress and
without undergoing the requisite three-reading, which are both constitutionally
proscribed. To allow the committee unbridled discretion to overturn the collective
will of the whole Congress defies logic considering that the bills are passed
presumably after study, deliberation and debate in both houses. A lesser body like the
Bicameral Conference Committee should not be allowed to substitute its judgment for
that of the entire Congress, whose will is expressed collectively through the passed
bills.
Same; Same; No-Amendment Rule; The ponencia’s submission that despite
its limited authority, the Bicameral Conference Committee could “compromise the
disagreeing provisions” by substituting it with its own version clearly violates the
three-reading requirement, as the committee’s version would no longer undergo the
same since it would be immediately put into vote by the respective houses.—Before
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Abakada Guro Party List vs. Ermita
a bill becomes a law, it must pass three readings. Hence,
the ponencia’s submission that despite its limited authority, the Bicameral
Conference Committee could “compromise the disagreeing provisions” by
substituting it with its own version—clearly violate the three-reading requirement, as
the committee’s version would no longer undergo the same since it would be
immediately put into vote by the respective houses. In effect, it is not a bill that was
passed by the entire Congress but by the members of the ad hoc committee only,
which of course is constitutionally infirm. I disagree that the no-amendment rule
referred only to “the procedure to be followed by each house of Congress with regard
to bills initiated in each of said respective houses” because it would relegate the no-
amendment rule to a mere rule of procedure. To my mind, the no-amendment rule
should be construed as prohibiting the Bicameral Conference Committee from
introducing amendments and modifications to non-disagreeing provisions of the
House and Senate bills. In sum, the committee could only either adopt the version of
the House bill or the Senate bill, or adopt neither. As Justice Reynato S. Puno said in
his Dissenting Opinion in Tolentino v. Secretary of Finance, there is absolutely no
legal warrant for the bold submission that a Bicameral Conference Committee
possesses the power to add/delete provisions in bills already approved on third
reading by both Houses or an ex post veto power.
SANDOVAL-GUTIERREZ, J., Concurring and Dissenting
Opinion:
Congress; Taxation; Separation of Powers; Delegation of grant of additional allowance to a studious son is highly inappropriate. Our Senators
Powers; Taxation is a power that is purely legislative and which the central
legislative body cannot delegate either to the executive or judicial department of
government without infringing upon the theory of separation of powers.—Taxation is
an inherent attribute of sovereignty. It is a power that is purely legislative and which shouldered by the masses. Indeed, mandating them to pay the increased rate as an
the central legislative body cannot delegate either to the executive or judicial
department of government without infringing upon the theory of separation of
powers. The rationale of this doctrine may be traced from the democratic principle of
“no taxation without representation.” The power of taxation being so pervasive, it is
in the best interest of the people that such power be lodged only in the Legislature.
Composed of the people’s representatives, it is “closer to the pulse of the people and . any revenue statute must begin or start solely and only in the House.—The adverb
. . are therefore in a better position to determine both the extent of the legal burden
the people are capable of
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bearing and the benefits they need.” Also, this set-up provides security
against the abuse of power. As Chief Justice Marshall said: “In imposing a tax, the
legislature acts upon its constituents. The power may be abused; but the interest,
wisdom, and justice of the representative body, and its relations with its constituents,
furnish a sufficient security.” Consequently, Section 24, Article VI of our
Constitution enshrined the principle of “no taxation without representation” by
providing that “all . . . revenue bills . . . shall originate exclusively in the House of
Representatives, but the Senate may propose or concur with amendments.” This
provision generally confines the power of taxation to the Legislature.
Same; Same; Same; Same; Value-Added Tax; R.A. No. 9337, in granting to
the President the stand-by authority to increase the VAT rate from 10% to 12%, the
Legislature abdicated its power by delegating it to the President.—R.A. No. 9337, in
granting to the President the stand-by authority to increase the VAT rate from 10% to
12%, the Legislature abdicated its power by delegating it to the President. This is
constitutionally impermissible. The Legislature may not escape its duties and
responsibilities by delegating its power to any other body or authority. Any attempt to
abdicate the power is unconstitutional and void, on the principle that potestas
delegata non delegare potest. As Judge Cooley enunciated: “One of the settled
maxims in constitutional law is, that the power conferred upon the legislature to make
laws cannot be delegated by that department to any other body or authority. Where
the sovereign power of the state has located the authority, there it must remain; and
by the constitutional agency alone the laws must be made until the Constitution itself
is changed. The power to whose judgment, wisdom, and patriotism this high
prerogative has been entrusted cannot relieve itself of the responsibility by choosing
other agencies upon which the power shall be devolved, nor can it substitute the
judgment, wisdom, and patriotism of any other body for those to which alone the
people have seen fit to confide this sovereign trust.”
Same; Same; Same; Same; Same; Tariff Powers; If the intention of the
Framers of the Constitution is to permit the delegation of the power to fix tax rates or
VAT rates to the President, such could have been easily achieved by the mere
inclusion of the term “tax rates” or “VAT rates” in the enumeration.—Noteworthy is
the absence of tax rates or VAT rates in the enumeration. If the intention of the Fram-
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Abakada Guro Party List vs. Ermita
ers of the Constitution is to permit the delegation of the power to fix  tax
rates or VAT rates to the President, such could have been easily achieved by the mere
inclusion of the term “tax rates” or “VAT rates” in the enumeration. It is a dictum in
statutory construction that what is expressed puts an end to what is
implied. Expressium facit cessare tacitum. This is a derivative of the more familiar
maxim express mention is implied exclusion or expressio unius est exclusio
alterius. Considering that Section 28 (2), Article VI expressly speaks only of “tariff
rates, import and export quotas, tonnage and wharfage dues and other duties and
imposts,” by no stretch of imagination can this enumeration be extended to include
the VAT.
Same; Same; Same; Same; Same; Control Power; The two conditions set
forth by law would have been sufficient had it not been for the fact that the President,
being at the helm of the entire officialdom, has more than enough power of control to
bring about the existence of such conditions—that the President’s exercise of an
authority is practically within her control is tantamount to giving no conditions at all.
—At first glance, the two conditions may appear to be definite standards sufficient to
guide the President. However, to my mind, they are ineffectual and malleable as they
give the President ample opportunity to exercise her authority in arbitrary and
discretionary fashion. The two conditions set forth by law would have been sufficient
had it not been for the fact that the President, being at the helm of the entire
officialdom, has more than enough power of control to bring about the existence of
such conditions. Obviously, R.A. No. 9337 allows the President to determine for
herself whether the VAT rate shall be increased or not at all. The fulfillment of the
conditions is entirely placed in her hands. If she wishes to increase the VAT rate, all
she has to do is to strictly enforce the VAT collection so as to exceed the 2 4/5%
ceiling. The same holds true with the national government deficit. She will just limit
government expenses so as not to exceed the 1 1/2% ceiling. On the other hand, if she
does not wish to increase the VAT rate, she may discourage the Secretary of Finance
from making the recommendation. That the President’s exercise of an authority is
practically within her control is tantamount to giving no conditions at all. I believe
this amounts to a virtual surrender of legislative power to her. It must be stressed that
the validity of a law is not tested by what has been done but by what may be done
under its provisions.
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Same; Taxation; One of the principles of sound taxation is fiscal adequacy
—neither an excess nor a deficiency of revenue vis-à-vis the needs of government
would be in keeping with the principle; Our Senators must have forgotten that for
every increase of taxes, the burden always redounds to the people; Taxation is not a
power to be exercised at one’s whim.—Why authorize the President to increase the
VAT rate on the premise alone that she deserves an “incentive” or “reward”? Indeed,
why should she be rewarded for performing a duty reposed upon her by law? The
rationale stated by Senator Recto is flawed. One of the principles of sound taxation is
fiscal adequacy. The proceeds of tax revenue should coincide with, and approximate
the needs of, government expenditures. Neither an excess nor a deficiency of
revenue vis-à–-vis the needs of government would be in keeping with the principle.
Equating the grant of authority to the President to increase the VAT rate with the
must have forgotten that for every increase of taxes, the burden always redounds to
the people. Unlike the additional allowance given to a studious son that comes from
the pocket of the granting parent alone, the increase in the VAT rate would be
award to the President is arbitrary and unduly oppressive. Taxation is not a power to
be exercised at one’s whim.
Same; Origination Rule; Words and Phrases; It can be reasonably
concluded that when Section 24, Article VI provides that revenue bills shall originate
exclusively from the House of Representatives, what the Constitution mandates is that
“exclusively” means “in an exclusive manner.” The term “exclusive” is defined as
“excluding or having power to exclude; limiting to or limited to; single, sole,
undivided, whole.” In one case, this Court define the term “exclusive” as “possessed
to the exclusion of others; appertaining to the subject alone, not including, admitting,
or pertaining to another or others.” As for the term “originate,” its meaning are “to
cause the beginning of; to give rise to; to initiate; to start on a course or journey; to
take or have origin; to be deprived; arise; begin or start.” With the foregoing
definitions in mind, it can be reasonably concluded that when Section 24, Article VI
provides that revenue bills shall originate exclusively from the House of
Representatives, what the Constitution mandates is that any revenue statute must
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52 SUPREME COURT REPORTS ANNOTATE
Abakada Guro Party List vs. Ermita
begin or start solely and only in the House. Not the Senate. Not both
Chambers of Congress. But there is more to it than that. It also means that “an act
for taxation must pass the House first.” It is no consequence what amendments the
Senate adds. A perusal of the legislative history of R.A. No. 9337 shows that it did
not “exclusively originate” from the House of Representatives.
Same; Same; The Senate in passing Senate Bill No. 1950, a tax measure,
merely took into account House Bills No. 3555 and 3705, but did not concur with or
amend either or both bills.—Senate Bill No. 1950 is not based on any bill passed by
the House of Representatives. It has a legislative identity and existence separate and
apart from House Bills No. 3555 and 3705. Instead of concurring or proposing
amendments, Senate Bill No. 1950 merely “takes into consideration” the two House
Bills. To take into consideration means “to take into account.” Consideration, in this
sense, means “deliberation, attention, observation or contemplation. Simply put, the
Senate in passing Senate Bill No. 1950, a tax measure, merely took into account
House Bills No. 3555 and 3705, but did not concur with or amend either or both bills.
As a matter of fact, it did not even take these two House Bills as a frame of reference.
In Tolentino, the majority subscribed to the view that Senate may amend the House
revenue bill by substitution or by presenting its own version of the bill. In either case,
the result is “two bills on the same subject.” This is the source of the “germaneness”
rule which states that the Senate bill must be germane to the bill originally passed by
the House of Representatives. In Tolentino, this was not really an issue as both the
House and Senate Bills in question had one subject—the VAT.
Same; Same; Germaneness Rule; The Senate could not, without violating
the germaneness rule and the principle of “exclusive origination,” propose tax
matters not included in the House Bills.—The facts obtaining here is very much
different from Tolentino. It is very apparent that House Bills No. 3555 and 3705
merely intended to amend Sections 106, 107, 108, 109, 110, 111 and 114 of the NIRC
of 1997, pertaining to the VAT provisions. On the other hand, Senate Bill No. 1950
intended to amend Sections 27, 28, 34, 106, 108, 109, 110, 112, 113, 114, 116, 117,
119, 121, 125, 148, 151, 236, 237 and 288 of the NIRC, pertaining to matters outside
of VAT, such as income tax, percentage tax, franchise tax, taxes on banks and other
financial intermediaries, excise taxes, etc. Thus, I am of the position
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that the Senate could not, without violating the germaneness rule and the
principle of “exclusive origination,” propose tax matters not included in the House
Bills.
CALLEJO, SR., J., Concurring and Dissenting Opinion:
Congress; Bicameral Conference Committee; Foreign Jurisprudence; There
are significant textual differences between the US Federal Constitution’s and our
Constitution’s prescribed congressional procedure for enacting laws—the degree of
freedom accorded by the US Federal Constitution to the US Congress markedly differ
from that accorded by our Constitution to the Philippine Congress.—To my mind,
this unqualified adherence by the majority opinion in Tolentino, and now by
the ponencia, to the practice of the US Congress and its conference committee system
ought to be re-examined. There are significant textual differences between the US
Federal Constitution’s and our Constitution’s prescribed congressional procedure for
enacting laws. Accordingly, the degree of freedom accorded by the US Federal
Constitution to the US Congress markedly differ from that accorded by our
Constitution to the Philippine Congress.
Same; Three-Reading Rule; No-Amendment Rule; The “three-reading” and
“no-amendment” rules, absent in the US Federal Constitution, but expressly
mandated by Article VI, Section 26(2) of our Constitution are mechanisms instituted
to remedy the “evils” inherent in a bicameral system of legislature, including the
conference committee system.—The “three-reading” and “no-amendment” rules,
absent in the US Federal Constitution, but expressly mandated by Article VI, Section
26(2) of our Constitution are mechanisms instituted to remedy the “evils” inherent in
a bicameral system of legislature, including the conference committee system. Sadly,
the ponencia’s refusal to apply Article VI, Section 26(2) of the Constitution on the
Bicameral Conference Committee and the amendments it introduced to R.A. No.
9337 has “effectively dismantled” the “three-reading rule” and “no-amendment rule.”
Same; Same; Same; The proscription on amendments upon the last reading
is intended to subject all bills and their amendments to intensive deliberation by the
legislators and the ample ventilation of issues to afford the public an opportunity to
express their opinions or objections thereon; Analogously, it is said that the “three-
reading rule” operates “as a self-binding mechanism that allows the legisla-
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54 SUPREME COURT REPORTS ANNOTATED
Abakada Guro Party List vs. Ermita
ture to guard against the consequences of its own future passions, myopia,
or herd behavior.—It is well to recall the rationale for the “no-amendment rule” and
the “three-reading rule” in Article VI, Section 26(2) of the Constitution. The
proscription on amendments upon the last reading is intended to subject all bills and
their amendments to intensive deliberation by the legislators and the ample
ventilation of issues to afford the public an opportunity to express their opinions or
objections thereon. Analogously, it is said that the “three-reading rule” operates “as a state legislatures, until the adoption of the Seventeenth Amendment in 1913. Hence,
self-binding mechanism that allows the legislature to guard against the consequences
of its own future passions, myopia, or herd behavior. By requiring that bills be read
and debated on successive days, legislature may anticipate and forestall future
occasions on which it will be seized by deliberative pathologies.” As Jeremy
Bentham, a noted political analyst, put it: “[t]he more susceptible a people are of
excitement and being led astray, so much the more ought they to place themselves
under the protection of forms which impose the necessity of reflection, and prevent
surprises.”
AZCUNA, J., Concurring and Dissenting Opinion:
Congress; Separation of Powers; Delegation of Powers; There is here no
abdication by Congress of its power to fix the rate of the tax since the rate increase
provided under the law, from 10% to 12%, is definite and certain to occur, effective 1
January 2006.—The Gross Domestic Product for 2005 is estimated at P5.3 Trillion
pesos. The tax effort of the present VAT is now at 1.5%. The national budgetary
deficit against the GDP is now at 3%. So to reduce the deficit to 1.5% from 3%, one
has to increase the tax effort from VAT, now at 1.5%, to at least 3%, thereby
exceeding the 2 4/5 percent ceiling in condition (i), making condition (i) happen. If,
on the other hand, this is not done, then condition (ii) happens—the budget deficit
remains over 1.5%. What is the result of this? The result is that in reality, the law
does not impose any condition, or the rate increase thereunder, from 10% to 12%,
effective January 1, 2006, is unconditional. For a condition is an event that may or
may not happen, or one whose occurrence is uncertain. Now while condition (i) is
indeed uncertain and condition (ii) is likewise uncertain, the combination of both
makes the occurrence of one of them certain. Accordingly, there is here no abdication
by Congress of its power to fix the rate of the tax since the rate increase provided
under the law, from 10% to 12%, is definite
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Abakada Guro Party List vs. Ermita
and certain to occur, effective January 1, 2006. All that the President will do
is state which of the two conditions occurred and thereupon implement the rate
increase.
Same; Germaneness Rule; I would rather give the necessary leeway to
Congress, as long as the changes are germane to the bill being changed, the bill
which originated from the House of Representatives, and these are so, since these
were precisely the mitigating measures that go hand-on-hand with E-VAT, and are,
therefore, essential—and hopefully sufficient—means to enable our people to bear
the sacrifices they are being asked to make; The provisions on corporate income
taxes, which are not germane to the E-VAT law, are not found in the Senate and
House bills.—The introduction of the mitigating or cushioning measures through the
Senate or through the Bicameral Conference Committee, is also being questioned by
petitioners as unconstitutional for violating the rule against amendments after third
reading and the rule that tax measures must originate exclusively in the House of
Representatives (Art. VI, Secs. 24 and 26 [2], Constitution). For my part, I would
rather give the necessary leeway to Congress, as long as the changes are germane to
the bill being changed, the bill which originated from the House of Representatives,
and these are so, since these were precisely the mitigating measures that go hand-on-
hand with the E-VAT, and are, therefore, essential—and hopefully sufficient—means
to enable our people to bear the sacrifices they are being asked to make. Such an
approach is in accordance with the Enrolled Bill Doctrine that is the prevailing rule in
this jurisdiction. (Tolentino v. Secretary of Finance, 249 SCRA 628 [1994]). The
exceptions I find are the provisions on corporate income taxes, which are not germane
to the E-VAT law, and are not found in the Senate and House bills.
TINGA, J., Dissenting and Concurring Opinion:
Taxation; Value-Added Tax; Judicial Review; Due Process; Taxes may be
inherently punitive, but when the fine line between damage and destruction is
crossed, the courts must step forth and cut the hangman’s noose.—The E-VAT
Law, as it stands, will exterminate our country’s small to medium enterprises. This
will be the net effect of affirming Section 8 of the law, which amends Sections 110 of
the National Internal Revenue Code (NIRC) by imposing a seventy percent (70%) cap
on the creditable input tax a VAT-registered person may apply every quarter and a
mandatory sixty (60)-month
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56 SUPREME COURT REPORTS ANNOTATE
Abakada Guro Party List vs. Ermita
amortization period on the input tax on goods purchased or imported in a
calendar month if the acquisition cost of such goods exceeds One Million Pesos
(P1,000,000.00). Taxes may be inherently punitive, but when the fine line between
damage and destruction is crossed, the courts must step forth and cut the hangman’s
noose. Justice Holmes once confidently asserted that “the power to tax is not the
power to destroy while this Court sits,” and we should very well live up to this
expectation not only of the revered Holmes, but of the Filipino people who rely on
this Court as the guardian of their rights. At stake is the right to exist and subsist
despite taxes, which is encompassed in the due process clause.
Same; Same; Origination Rule; Article VI, Section 24 of the Constitution,
also known as the origination clause, derives origin from British practice—from the
assertion that the power to tax the public at large must reside in the representatives
of the people, the principle evolved that money bills must originate in the House of
Commons and may not be amended by the House of Lords; In our country though,
both members of the House and Senate are directly elected by the people, hence the
vitality of the original conception of the rule has somewhat lost luster.—Section 24 is
also known as the origination clause, which derives origin from British practice. From
the assertion that the power to tax the public at large must reside in the
representatives of the people, the principle evolved that money bills must originate in
the House of Commons and may not be amended by the House of Lords. The
principle was adopted across the shores in the United States, and was famously
described by James Madison in The Federalist Papers as follows: This power over
the purse, may in fact be regarded as the most complete and effectual weapon with
which any constitution can arm the immediate representatives of the people, for
obtaining a redress of every grievance, and for carrying into effect every just and
salutary measure. There is an eminent difference from the British system from which
the principle emerged, and from our own polity. To this day, only members of the
British House of Commons are directly elected by the people, with the members of
the House of Lords deriving their seats from hereditary peerage. Even in the United
States, members of the Senate were not directly elected by the people, but chosen by
the rule assured the British and American people that tax legislation arises with the
consent of the sovereign people,
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Abakada Guro Party List vs. Ermita
through their directly elected representatives. In our country though, both
members of the House and Senate are directly elected by the people, hence the
vitality of the original conception of the rule has somewhat lost luster.
Same; Same; Bicameral Conference Committee; Germaneness Rule; I
agree that any amendment made by the Bicameral Conference Committee that is not
germane to the subject matter of the House or Senate Bills is not valid. —
Tolentino adduced the principle, adopted from American practice, that the version as
approved by the Bicameral Conference Committee need only be germane to the
subject of the House and Senate bills in order to be valid. The majority, in applying
the test of germaneness, upholds the contested provisions of the E-VAT Law. Even
the members of the Court who prepared to strike down provisions of the law applying
germaneness nonetheless accept the basic premise that such test is controlling. I agree
that any amendment made by the Bicameral Conference Committee that is not
germane to the subject matter of the House or Senate Bills is not valid. It is the only
valid ground by which an amendment introduced by the Bicameral Conference
Committee may be judicially stricken.
Same; Same; Same; Same; I deem it unduly restrictive on the plenary
powers of Congress to legislate, to coerce the body to adhere to judge-made
standards, such as a standard of “legal germaneness.”— The germaneness standard
which should guide Congress or the Bicameral Conference Committee should be
appreciated in its normal but total sense. In that regard, my views contrast with that
of Justice Panganiban, who asserts that provisions that are not “legally germane” Same; Same; Due Process; It is difficult though to put into quantifiable
should be stricken down. The legal notion of germaneness is just but one component, terms how onerous a taxation statute must be before it contravenes the due process
along with other factors such as economics and politics, which guides the Bicameral clause.—Sison pronounces more concretely how a tax statute may contravene the due
Conference Committee, or the legislature for that matter, in the enactment of process clause. Arbitrariness, confiscation, overstepping the state’s jurisdiction, and
laws. After all, factors such as economics or politics are expected to cast a pervasivelack of a public purpose are all grounds for nullity encompassed under the due
influence on the legislative process in the first place, and it is essential as well toprocess invocation. Yet even these more particular standards as enunciated
allow such “non-legal” elements to be considered in ascertaining whether Congress in Sison are quite exacting, and difficult to reach. Even the constitutional challenge
has complied with the criteria of germaneness. Congress is a political body, and its posed in Sison failed to pass muster. The majority cites Sison in asserting that due
rationale for legislating may be guided by factors other than established legal process and equal protection are broad standards which need proof of such persuasive
standards. I deem it unduly restrictive on the plenary powers of Congress to legislate,character to lead to such a conclusion. It is difficult though to put into quantifiable
to coerce the body to adhere to judge-made standards, terms how onerous a taxation statute must be before it contravenes the due process
58 clause. After all, the inherent nature of taxation is to cause pain and injury to the
taxpayer, albeit for the greater good of society. Perhaps whatever collective notion
there may be of what constitutes an arbitrary, confiscatory, and unreasonable tax
58 SUPREME COURT REPORTS ANNOTATED might draw more from the fairy tale/legend traditions of absolute monarchs and the
Abakada Guro Party List vs. Ermita oppressed peasants they tax. Indeed, it is easier to jump to the conclusion that a tax is
oppressive and unfair if it is imposed by a tyrant or an authoritarian state.
such as a standard of “legal germaneness.” The Constitution is the only 61
legal standard that Congress is required to abide by in its enactment of laws.
Same; Same; Same; Same; It would be myopic to consider that the subject
matter of the House Bill is solely the VAT system, rather than the generation of VOL. 469, SEPTEMBER 1, 2005
revenue—the mere fact that the law is popularly known as the E-VAT Law, or that
most of its provisions pertain to the VAT, or indirect taxes, does not mean that any Abakada Guro Party List vs. Ermita
and all amendments which are introduced by the Bicameral Conference Committee Same; Same; Same; In testing the validity of a tax statute as against the due
must pertain to the VAT system.—I cannot agree with the position maintained by the process clause, the Court should go beyond a facial examination of the statute, and
Chief Justice, Justices Panganiban and Azcuna that the provisions of the law that do seek to understand how exactly it would operate.—Could an arbitrary, confiscatory or
not pertain to VAT should be stricken as unconstitutional. These would include, for unreasonable tax actually be enacted by a democratic state such as ours? Of course it
example, the provisions raising corporate income taxes. The Bicameral Conference could, but these would exist in more palatable guises. In a democratic society wherein
Committee, in evaluating the proposed amendments, necessarily takes into account statutes are enacted by a representative legislature only after debate and deliberation,
not just the provisions relating to the VAT, but the entire revenue generating tax statutes will most likely, on their face, seem fair and even-handed. After all, if
mechanism in place. If, for example, amendments to non-VAT related provisions of Congress passes a tax law that on facial examination is obviously harsh and unfair, it
the NIRC were intended to offset the expanded coverage for the VAT, then such faces the wrath of the voting public, to say nothing of the media. In testing the
amendments are germane to the purpose of the House and Senate Bills. Moreover, it validity of a tax statute as against the due process clause, I think that the Court should
would be myopic to consider that the subject matter of the House Bill is solely the go beyond a facial examination of the statute, and seek to understand how exactly it
VAT system, rather than the generation of revenue. The majority has sufficiently would operate. The express terms of a statute, especially tax laws, are usually
demonstrated that the legislative intent behind the bills that led to the E-VAT Law inadequate in spelling out the practical effects of its implementation. The devil is
was the generation of revenue to counter the country’s dire fiscal situation. The mere usually in the details.
fact that the law is popularly known as the E-VAT Law, or that most of its provisions Same; Same; Same; We should not cede ground to those transgressions of
pertain to the VAT, or indirect taxes, does not mean that any and all amendments the people’s fundamental rights simply because the mechanism employed to violate
which are introduced by the Bicameral Conference Committee must pertain to the constitutional guarantees is steeped in disciplines not normally associated with the
VAT system. legal profession.—The degree of difficulty involved of judicial review of tax laws has
Same; Same; Same; Same; Municipal Corporations; Local Government increased with the growing complexities of business, economic and accounting
Units; Section 21 of the law, which was not contained in either the House or Senate practices. These are sciences which laymen are not normally equipped by their
Bills, imposes restrictions on the use by local government units of their incremental general education to fully grasp, hence the possible insecurity on their part when
revenue from the VAT—these restrictions are alien to the principal purposes of confronted with such questions on these fields. However, we should not cede ground
revenue generation, or the purposes of restructuring the VAT system.—I do believe to those transgressions of the people’s fundamental rights simply because the
that the test of germaneness was violated by the E-VAT Law in one regard. Section mechanism employed to violate constitutional guarantees is steeped in disciplines not
21 of the law, which was not contained in either the House or Senate Bills, imposes normally associated with the legal profession. Venality cannot be allowed to triumph
restrictions on the use by local simply due to its sophistication. This petition imputes in the E-VAT Law
59 unconstitutional oppression of the fatal variety, but in order to comprehend exactly
how and why that is so, one has to delve into the complex milieu of the VAT system.
The party alleging the law’s unconstitutionality of course has the burden to
VOL. 469, SEPTEMBER 1, 2005 demonstrate the violations in understandable terms, but if such proof is presented, the
Abakada Guro Party List vs. Ermita Court’s duty is to engage accordingly.
62
government units of their incremental revenue from the VAT. These
restrictions are alien to the principal purposes of revenue generation, or the purposes
of restructuring the VAT system. I could not see how the provision, which relates to 62 SUPREME COURT REPORTS ANNOTATE
budgetary allocations, is germane to the E-VAT Law. Since it was introduced only in
the Bicam-eral Conference Committee, the test of germaneness is essential, and the Abakada Guro Party List vs. Ermita
provision does not pass muster. I join Justice Puno and the Chief Justice in voting to
Same; Same; Same; Judicial Review; I do not see as an impediment to the
declare Section 21 as unconstitutional. annulment of a tax law the fact that it has yet to be implemented, or the fear that
Same; Same; Same; The deletion of the two disparate “no pass on”
doing so constitutes an undue attack on the wisdom, rather than the legality of a
provisions which were approved by the House in one instance, and only by the Senate
statute.—I do not see as an impediment to the annulment of a tax law the fact that it
in the other, remains in the sphere of compromise that ultimately guides the approval
has yet to be implemented, or the fear that doing so constitutes an undue attack on the
of the final version.—I also offer this brief comment regarding the deletion of the so-
wisdom, rather than the legality of a statute. However, my position in this petition has
called “no pass on” provisions, which several of my colleagues deem been challenged on those grounds, and I see it fit to refute these preemptive
unconstitutional. Both the House and Senate Bills contained these provisions that
allegations before delving into the operative aspect of the E-VAT Law. If there is
would prohibit the seller/producer from passing on the cost of the VAT payments to
cause to characterize my arguments as speculative, it is only because the E-VAT Law
the consumers. However, an examination of the said bills reveal that the “no pass on”
has yet to be implemented. No person as of yet can claim to have sustained actual
provisions in the House Bill affects a different subject of taxation from that of the
injury by reason of the implementation of the assailed provisions in G.R. No. 168461.
Senate Bill. In the House Bill No. 3705, the taxpayers who are prohibited from
Yet this should not mean that the Court is impotent from declaring a provision of law
passing on the VAT payments are the sellers of petroleum products and
as violative of the due process clause if it is clear that its implementation will cause
electricity/power generation companies. In Senate Bill No. 1950, no prohibition was
the illegal deprivation of life, liberty or property without due process of law. This is
adopted as to sellers of petroleum products, but enjoined therein are electricity/power
especially so if, as in this case, the injury is of mathematical certainty, and the extent
generation companies but also transmission and distribution companies. I consider
of the loss quantifiable through easy reference to the most basic of business
such deletions as valid, for the same reason that I deem the amendments valid. The
practices. These arguments are conjectural for the same reason that the bare
deletion of the two disparate “no pass on” provisions which were approved by the
statement “firing a gunshot into the head will cause a fatal wound” would be
House in one instance, and only by the Senate in the other, remains in the sphere of
conjectural. Some people are lucky enough to survive gunshot wounds to the head,
compromise that ultimately guides the approval of the final version. Again, I point
while many others are not. Yet just because the fear of mortality would be merely
out that even while the two provisions may have been originally approved by the
speculative, it does not mean that there should be less compulsion to avoid a situation
House and Senate respectively, their subsequent deletion by the Bicameral
of getting shot in the head.
Conference Committee is still subject to approval by both chambers of Congress
Same; Same; Same; Clear and Present Danger Doctrine; One of the most
when the final version is submitted for deliberation and voting. significant legal principles of the last century, the “clear and present danger”
Same; Same; Same; An outright declaration that the deletion of the two
doctrine in free speech cases, in fact emanates from the prospectivity, and not the
elementally different “no-pass on” provisions is unconstitutional, is of dubious
actuality of danger.—The Court has long responded to strike down prospective
efficacy in this case.—An outright declaration that the deletion of the two elementally
actions, even if the injury has not yet even occurred. One of the most significant legal
different “no-pass on” provi- principles of the last century, the “clear and present danger” doctrine in free speech
60 cases, in fact emanates from the prospectivity, and not the actuality of danger. The
Court has not been hesitant to nullify acts which might cause injury, owing to the
presence of a clear and present danger of a substantive evil which the State has the
60 SUPREME COURT REPORTS ANNOTATED right to prevent. It has even extended the “clear and present danger rule” beyond the
Abakada Guro Party List vs. Ermita confines of freedom of expression to the realm of freedom
63
sions is unconstitutional, is of dubious efficacy in this case. Had such
pronouncement gained endorsement of a majority of the Court, it could not result in
the ipso facto restoration of the provision, the omission of which was ultimately VOL. 469, SEPTEMBER 1, 2005
approved in both the House and Senate. Moreover, since the House version of the “no
pass on” is quite different from that of the Senate, there would be a question as to Abakada Guro Party List vs. Ermita
whether the House version, the Senate version, or both versions would be reinstated. of religion, as noted by Justice Puno in his ponencia in Estrada v. Escritor.
And of course, if it were the Court which would be called upon to choose, such would Same; Same; Same; Same; Not every unwise law is unconstitutional, but
be way beyond the bounds of judicial power. Indeed, to intimate that the Court may every unconstitutional law is unwise, for an unconstitutional law contravenes a
require Congress to reinstate a provision that failed to meet legislative approval primordial principle or guarantee on which our polity is founded.—In the same vein,
would result in a blatant violation of the principle of separation of powers, with the the claim that my arguments strike at the wisdom, rather than the constitutionality of
Court effectively dictating to Congress the content of its legislation. The Court cannot the law are misplaced. Concededly, the assailed provisions of the E-VAT law are
simply decree to Congress what laws or provisions to enact, but is limited to basically unwise. But any provision of law that directly contradicts the Constitution,
reviewing those enactments which are actually ratified by the legislature. especially the Bill of Rights, are similarly unwise, as they run inconsistent with the
fundamental law of the land, the enunciated state policies and the elemental
guarantees assured by the State to its people. Not every unwise law is
unconstitutional, but every unconstitutional law is unwise, for an unconstitutional
law contravenes a primordial principle or guarantee on which our polity is founded.
Same; Same; Same; Same; If our society can take cold comfort in the ability
of the legislature to amend its enactments as the defense against unconstitutional
laws, what remains then as the function of judicial review? The long-standing
tradition has been reliance on the judicial branch, and not the legislative branch, for
salvation from unconstitutional laws.—It is also asserted that if the implementation of
the 70% cap imposes an unequal effect on different types of businesses with varying
profit margins and capital requirements, then the remedy would be an amendment of
the law. Of course, the remedy of legislative amendment applies to even the most
unconstitutional of laws. But if our society can take cold comfort in the ability of the collection. But to do so by depriving low profit enterprises of whatever meager
legislature to amend its enactments as the defense against unconstitutional laws, what
remains then as the function of judicial review? This legislative capacity to amend
unconstitutional laws runs concurrently with the judicial capacity to strike down
unconstitutional laws. In fact, the long-standing tradition has been reliance on the
judicial branch, and not the legislative branch, for salvation from unconstitutional
laws.
Same; Same; VAT is distinguishable from the standard excise or percentage
taxes in that it is imposable not only on the final transaction involving the end user,
but on previous stages as well so long as there was a sale involved. —VAT is
distinguishable from the standard excise or percentage taxes in that it is imposable not distribution sectors typically amount to less than 1% of the gross revenues. A
only on
64
64 SUPREME COURT REPORTS ANNOTATED
Abakada Guro Party List vs. Ermita
the final transaction involving the end user, but on previous stages as well so
long as there was a sale involved. Thus, VAT does not simply pertain to the extra
percentage paid by the buyer of a fast-food meal, but also that paid by restaurant itself
to its suppliers of raw food products. This multi-stage system is more acclimated to
the vagaries of the modern industrial climate, which has long surpassed the stage
when there was only one level of transfer between the farmer who harvests the crop
and the person who eats the crop. Indeed, from the extraction or production of the raw
material to its final consumption by a user, several transactions or sales materialize.
The VAT system assures that the government shall reap income for every transaction
that is had, and not just on the final sale or transfer.
Same; Same; There is another key characteristic of the VAT—that no matter
how many the taxable transactions that precede the final purchase or sale, it is the
end-user, or the consumer, that ultimately shoulders the tax—despite its name, VAT
is generally not intended to be a tax on value added, but rather as a tax on
consumption.—There is another key characteristic of the VAT—that no matter how
many the taxable transactions that precede the final purchase or sale, it is the end-
user, or the consumer, that ultimately shoulders the tax. Despite its name, VAT is
generally not intended to be a tax on value added, but rather as a tax on consumption.
Hence, there is a mechanism in the VAT system that enables firms to offset the tax
they have paid on their own purchases of goods and services against the tax they
charge on their sales of goods and services. Section 105 of the NIRC assures that “the
amount of tax may be shifted or passed on to the buyer, transferee or lessee of the
goods, properties or services.” The assailed provisions of the E-VAT law strike at the
heart of this accepted principle.
Same; Same; In theory, VAT is not supposed to affect the profit margin—if
such margin is affected, it is only because of the prepayment of the input taxes, and
this should be remedied by the immediate recovery through the crediting system of
the settled input taxes; The new E-VAT law changes all that, and puts in jeopardy the
survival of small to medium enterprises.—Profit is a chancy matter, and in cases of
small to medium enterprises, usually small if any. It is quite common for retail and
distribution enterprises to incur profits of less than 1% of their gross revenues. Low
profitability is not an
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automatic badge of poor business skills, but a reality dictated by the laws of
the marketplace. The probability of profit is lower than that of capital expenditures,
and ultimately, many business establishments end up with a higher input tax than
output tax in a given quarter. This would be especially true for small to medium
enterprises who do not reap sufficient profits from its business in the first place, and
for those firms that opt to also invest in capital expenses in addition to the overhead.
Whatever miniscule profit margins that can be obtained usually spell the difference
between life and death of the business. The possibility of profit is further diminished
by the fact that businesses have to shoulder the input VAT in the purchase of their
capital expenses. Yet the erstwhile VAT system was not tainted by the label of
oppressiveness and neither did it bear the confiscatory mode. This was because of the
immediate relief afforded from the input taxes paid by the crediting system. In theory,
VAT is not supposed to affect the profit margin. If such margin is affected, it is only
because of the prepayment of the input taxes, and this should be remedied by the
immediate recovery through the crediting system of the settled input taxes. The new
E-VAT law changes all that, and puts in jeopardy the survival of small to medium
enterprises.
Same; Same; The majority fails to consider one of the most important
concepts in finance, time value for money—the longer the amount remains unutilized,
the higher the degree of its depreciation in value, in accordance with the concept of
time value of money.—The majority fails to consider one of the most important
concepts in finance, time value for money. Simply put, the value of one peso is worth
more today than in 2006. Money that you hold today is worth more because you can
invest it and earn interest. By reason of the 70% cap, the amount of input VAT credit
that remains unutilized would continue accumulate for months and years. The longer
the amount remains unutilized, the higher the degree of its depreciation in value, in
accordance with the concept of time value of money. Even assuming that the business
eventually recovers the input VAT credit, the sum recovered would have decreased in
practical value.
Same; Same; The raison d’etre of this 70% cap is to make it appear on
paper that the government is more solvent than it actually is; If the 70% cap was
designed in order to enhance revenue collection, then I submit that the means
employed stand beyond reason.—It would be sad, but fair, if a business ceases
because of its inability to
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compete with other businesses. It would be utter malevolence to condemn an
enterprise to death solely through the employment of a deceptive accounting
wizardry. For the raison d’etre of this 70% cap is to make it appear on paper that the
government is more solvent than it actually is. Conceding for the nonce, there is a
temporary advantage gained by the government by this 70% cap, as the steady
remittance by businesses of the 30% output VAT would assure a cash flow. Such
collection may only momentarily resolve an endemic problem in our local tax system,
the problem of collection itself. If the 70% cap was designed in order to enhance
revenue collection, then I submit that the means employed stand beyond reason. If
sheer will proves insufficient in assuring that the State all taxes due it, there should be
allowable discretion for the government to formulate creative means to enhance
income earned and consequently assuring the death of these industries goes beyond
any valid State purpose.
Same; Same; The effect of the 70% cap is to effectively impose a tax
amounting to 3% of gross revenue.—Only stable businesses with substantial cash
flows, or extraordinarily successful enterprises will be able to remain in operation
should the 70% cap be retained. The effect of the 70% cap is to effectively impose a
tax amounting to 3% of gross revenue. The amount may seem insignificant to those
without working knowledge of the ways of business, but anybody who is actually
familiar with business would be well aware the profit margins of the retailing and
taxpayer has to earn a margin of at least 3% on gross revenue in order to recoup the
losses sustained due to the 70% cap. But as stated earlier, profits are chancy, and the
entrepreneur does not have full control of the conditions that lead to profit.
Same; Same; Due Process; The standard of “deprivation of life” of
juridical persons employs different variables than that of natural persons.—In
analyzing the effects of the 70% cap, and appreciating how it violates the due process
clause, we should not focus solely on the end consumers. Undoubtedly, consumers
will face hardships due to the increased prices, but their threshold of physical
survival, as individual people, is significantly less than that of enterprises. Somehow,
I do not think the new E-VAT would generally deprive
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consumers of the bare necessities such as food, water, shelter and clothing.
There may be significant deprivation of comfort as a result, but not of life. The same
does not hold true for businesses. The standard of “deprivation of life” of juridical
persons employs different variables than that of natural persons. What food and water
may be for persons, profit is for an enterprise—the bare necessity for survival. For
businesses, the implementation of the same law, with the 70% cap and 60-month
amortization period, would mean the deprivation of profit, which is the determinative
necessity for the survival of a business.
Same; Same; Same; Catch-22; This is your basic Catch-22 situation—no
matter which means the enterprise employs to recover from the E-VAT Law, it will
still go down in flames.—Reduction of expenditures is not the exclusive antidote to
these impositions under the E-VAT Law, as there must also be a corresponding
increase in the amount of gross sales. To do so though, would require an increase in
the selling price, dampening consumer enthusiasm, and further impairing the ability
of the enterprise to recover from the E-VAT Law. This is your basic Catch-22
situation—no matter which means the enterprise employs to recover from the E-VAT
Law, it will still go down in flames.
Same; Same; In essentially prohibiting the recovery of small profit margins,
the E-VAT law effectively sends the message that only high margin businesses are
welcome to do business in the Philip-pines—it stifles any entrepreneurial ambitions
of Filipinos unfortunate enough to have been born poor yet seek a better life by
sacrificing all to start a small business.—Section 8 of the E-VAT law, while
ostensibly even-handed in application, fails to appreciate valid substantial distinctions
between large scale enterprises and small and medium enterprises. The latter group,
owing to the limited capability for capital investment, subsists on modest profit
margins, whereas the former expects, by reason of its substantial capital investments,
a high margin. In essentially prohibiting the recovery of small profit margins, the E-
VAT law effectively sends the message that only high margin businesses are welcome
to do business in the Philippines. It stifles any entrepreneurial ambitions of Filipinos
unfortunate enough to have been born poor yet seek a better life by sacrificing all to
start a small business.
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Same; Same; Sadly, the majority refuses to confront the figures or engage in
a meaningful demonstration of how these assailed provisions truly operate—instead,
it counters with platitudes and bromides that do not intellectually satisfy. —The
burden of proof was on the Pilipinas Shell Dealers’ to prove their allegations, and
accordingly, these figures have been duly presented to the Court for appreciation and
evaluation. Instead, the majority has shunted aside these presentations as being
merely theoretical, despite the fact that they present a clear and present danger to the
very life of our nation’s enterprises. The majority’s position would have been more
credible had it faced the issue squarely, and endeavored to demonstrate in like
numerical fashion why the 70% cap is not oppressive, confiscatory, or otherwise
violative of the due process clause. Sadly, the majority refuses to confront the figures
or engage in a meaningful demonstration of how these assailed provisions truly
operate. Instead, it counters with platitudes and bromides that do not intellectually
satisfy. Considering that the very vitality, if not life of our domestic economy is at
stake, I think it derelict to our duty to block out these urgent concerns presented to the
Court with blind faith tinged with irrational Panglossian optimism.
Same; Same; The 70% cap is not merely an unwise imposition—it is a
burden designed, either through sheer heedlessness or cruel calculation, to kill off
the small and medium enterprises that are the soul, if not the heart, of our economy,
and it is not merely an undue taking of property, but constitutes an unjustified taking
of life as well; The illusion of wealth is hardly a legitimate state purpose, especially if
projected at the expense of the very business life of the country.— The 70% cap is not
merely an unwise imposition. It is a burden designed, either through sheer
heedlessness or cruel calculation, to kill off the small and medium enterprises that are
the soul, if not the heart, of our economy. It is not merely an undue taking of
property, but constitutes an unjustified taking of life as well. And what legitimate,
germane purposes does this lethal 70% cap serve? It certainly does not increase the
government’s revenue since the unutilized creditable input VAT should be entered in
the government books as a debt payable as it is supposed to be eventually repaid to
the taxpayer, and so on the contrary it increases the government’s debts. I do see that
the 70% cap temporarily allows the government to brag to the world of an increased
cash flow. But this situation would be akin to the provincial man who borrows from
everybody in the barrio
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in order to show off money and maintain the pretense of prosperity to
visiting city relatives. The illusion of wealth is hardly a legitimate state purpose,
especially if projected at the expense of the very business life of the country.
Same; Same; What the majority fails to mention is that under Section 10 of
the E-VAT Law, which amends Section 112 of the NIRC, the tax credit or refund may
not be done while the enterprise remains operational.—Nonetheless, the majority
notes that the excess creditable input tax may be the subject of a tax credit certificate,
which then could be used in payment of internal revenue taxes, or a refund to the
extent that such input taxes have not been applied against output taxes. What the
majority fails to mention is that under Section 10 of the E-VAT Law, which amends
Section 112 of the NIRC, such credit or refund may not be done while the enterprise
remains operational.
Same; Same; The inability to immediately credit or otherwise recover the
unutilized input VAT could cause such prepaid amount to actually be recognized in
the accounting books as a loss; What heretofore was recognized as an asset would
now, with the imposition of the 70% cap, be now considered as a loss, enhancing the
view that the 70% cap is ultimately confiscatory in nature.—The inability to
immediately credit or otherwise recover the unutilized input VAT could cause such
prepaid amount to actually be recognized in the accounting books as a loss. Under
international accounting practices, the unutilized input VAT due to the 70% cap
would not even be recognized as a deferred asset. The same would not hold true if the
70% cap were eliminated. Under the International Accounting Standards, the
unutilized input VAT credit is recognized as an asset “to the extent that it is probable
that future taxable profit will be available against which the unused tax losses and
unused tax credits can be utili[z]ed” Thus, if the immediate accreditation of the input
VAT credit can be obtained, as it would without the 70% cap, the asset could be
recognized. However, the same Standards hold that “[t]o the extent that it is not
probable that taxable profit will be available against which the unused tax losses or
unused tax credits can be utilised, the deferred tax asset is not recognised.” As
demonstrated, the continuous operation of the 70% cap precludes the recovery of
input VAT prepaid months or years prior. Moreover, the inability to claim a refund or
tax credit certificate until after the business has
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already ceased virtually renders it improbable for the input VAT to be
recovered. As such, under the International Accounting Standards, it is with all
likelihood that the prepaid input VAT, ostensibly creditable, would actually be
reflected as a loss. What heretofore was recognized as an asset would now, with the
imposition of the 70% cap, be now considered as a loss, enhancing the view that the
70% cap is ultimately confiscatory in nature.
Same; Same; Due Process; Assets would fall under the purview of property
under the due process clause, and if the taxing arm of the State recognizes that such
property belongs to the taxpayer and not to the State, then due respect should be
given to such expert opinion.— The BIR itself has recognized that unutilized input
VAT is one of those assets, corporate attributes or property rights that, in the event of power to impose new taxes on business income, this amendment to Section 114(C) of
a merger, are transferred to the surviving corporation by operation of law. Assets
would fall under the purview of property under the due process clause, and if the
taxing arm of the State recognizes that such property belongs to the taxpayer and not
to the State, then due respect should be given to such expert opinion. Even under the
International Accounting Standards I adverted to above, the unutilized input VAT
credit may be recognized as an asset “to the extent that it is probable that future
taxable profit will be available against which the unused tax losses and unused tax
credits can be utilised” If not probable, it would be recognized as a loss. Since these
international standards, duly recognized by the Securities and Exchange Commission
as controlling in this jurisdiction, attribute tangible gain or loss to the VAT credit, it law retains this benefit to the government, at the same time it burdens the private
necessarily follows that there is proprietary value attached to such gain or loss.
Same; Same; Same; To assert that the input VAT is merely a privilege is to
correspondingly claim that the business profit is similarly a mere privilege. —The
prepaid input tax represents unutilized profit, which can only be utilized if it is
refunded or credited to output taxes. To assert that the input VAT is merely a
privilege is to correspondingly claim that the business profit is similarly a mere
privilege. The Constitution itself recognizes the right to profit by private enterprises. Constitution as it vacuously discourages private enterprise, and provides
As I stated earlier, one of the enunciated State policies under the Constitution is the
recognition of the indispensable role of the private sector, the encouragement of
private enterprise, and the provision of incentives to needed investments.
Moreover, the Constitution also requires the State to recognize the right of
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enterprises to reasonable returns on investments, and to expansion and
growth. This, I believe, encompasses profit.
Same; Same; The amortization over a five-year period of the input VAT on
these capital goods would definitely eat up into the profit margin of enterprises.—
Again, this provision unreasonably severely limits the ability of an enterprise to
recover its prepaid input VAT. On its face, it might appear injurious primarily to high
margin enterprises, whose purchase of capital goods in a given quarter would
routinely exceed P1,000,000.00. The amortization over a five-year period of the input
VAT on these capital goods would definitely eat up into their profit margin. But it is
still possible for such big businesses to survive despite this new restriction, and their
financial pain alone may not be sufficient to cause the invalidity of a taxing
statute. However, this amortization plan will prove especially fatal to start-ups and
other new businesses, which need to purchase capital goods in order to start up their
new businesses. It is a known fact in the financial community that a majority of
businesses start earning profit only after the second or third year, and many
enterprises do not even get to survive that long. The first few years of a business are
the most crucial to its survival, and any financial benefits it can obtain in those years, government.
no matter how miniscule, may spell the difference between life and death. For such
emerging businesses, it is already difficult under the present system to recover the
prepaid input VAT from the output VAT collected from customers because initial
sales volumes are usually low. With this further limitation, diminishing as it does any
opportunity to have a sustainable cash flow, the ability of new businesses to survive
the first three years becomes even more endangered.
Same; Same; For some lucky enterprises who may be able to survive the
injury brought about by the 70% cap, this 60 month amortization period might
instead provide the mortal head wound.—Even existing small to medium enterprises
are imperiled by this 60 month amortization restriction, especially considering the
application of the 70% cap. The additional purchase of capital goods bears as a means
of adding value to the consumer good, as a means to justify the increased selling
price. However, the purchase of capital goods in excess of P1,000,000.00 would
impose another burden on the small to medium enterprise by further restricting their
ability to immediately recover the entire prepaid input VAT (which would exceed at
least
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P100,000.00), as they would be compelled to wait for at least five years
before they can do so. Another hurdle is imposed for such small to medium enterprise
to obtain the profit margin critical to survival. For some lucky enterprises who may
be able to survive the injury brought about by the 70% cap, this 60 month
amortization period might instead provide the mortal head wound.
Same; Same; The deletion of the credit apparatus—where tax withheld
would also be creditable against the VAT liability of the seller or contractor—
effectively compels the private enterprise transacting with the government to
shoulder the output VAT that should have been paid by the government in excess of
5% of the gross selling price, and at the same time unduly burdens the private
enterprise by precluding it from applying any creditable input VAT on the same
transaction.—The principle that the Government and its subsidiaries may deduct and
withhold a final value-added tax on its purchase of goods and services is not new, as
the NIRC had allowed such deduction and withholding at the rate of 3% of the gross
payment for the purchase of goods, and 6% of the gross receipts for
services. However, the NIRC had also provided that this tax withheld would also be
creditable against the VAT liability of the seller or contractor, a mechanism that was
deleted by the E-VAT law. The deletion of this credit apparatus effectively compels
the private enterprise transacting with the government to shoulder the output VAT
that should have been paid by the government in excess of 5% of the gross selling
price, and at the same time unduly burdens the private enterprise by precluding it
from applying any creditable input VAT on the same transaction. Notably, the
removal of the credit mechanism runs contrary to the essence of the VAT system,
which characteristically allows the crediting of input taxes against output
taxes. Without such crediting mechanism, which allows the shifting of the VAT to
only the final end user, the tax becomes a straightforward tax on business or income.
The effect on the enterprise doing business with the government would be that two
taxes would be imposed on the income by the business derived on such transaction:
the regular personal or corporate income tax on such income, and this final
withholding tax of 5%.
Same; Same; It is a legitimate purpose of a tax law to devise a manner by
which the government could save money on its own transactions, but it is another
matter if a private enterprise is punished for doing business with the government.—
Granted that Congress is not
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bound to adopt with strict conformity the VAT system, and that it has to
the NIRC still remains unconstitutional. It unfairly discriminates against entities
which contract with the government by imposing an additional tax on the income
derived from such transactions. The end result of such discrimination is double
taxation on income that is both oppressive and confiscatory. It is a legitimate purpose
of a tax law to devise a manner by which the government could save money on its
own transactions, but it is another matter if a private enterprise is punished for doing
business with the government. The erstwhile NIRC worked towards such advantage,
by allowing the government to reduce its cash outlay on purchases of goods and
services by withholding the payment of a percentage thereof. While the new E-VAT
enterprise with an additional tax by refusing to allow the crediting of this tax withheld
to the business’s input VAT.
Same; Same; Section 114(C) of the NIRC squarely contradicts Section 20,
Article II of the Constitution as it vacuously discourages private enterprise, and
provides disincentives to needed investments such as those expected by the State from
private businesses.—The provision squarely contradicts Section 20, Article II of the
disincentives to needed investments such as those expected by the State from private
businesses. Whatever advantages may be gained by the temporary increase in the
government coffers would be overturned by the disadvantages of having a reduced
pool of private enterprises willing to do business with the government. Moreover,
since government contracts with private enterprises will still remain a necessary fact
of life, the amendment to Section 114(C) of the NIRC introduced by the E-VAT Law.
Same; Same; Double Taxation; Words and Phrases; Double taxation means
taxing for the same tax period the same thing or activity twice, when it should be
taxed but once, for the same purpose and with the same kind of character of tax;
Double taxation is not expressly forbidden in our constitution, but the Court has
recognized it as obnoxious “where the taxpayer is taxed twice for the benefit of the
same governmental entity or by the same jurisdiction for the same purpose.”—
Double taxation means taxing for the same tax period the
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same thing or activity twice, when it should be taxed but once, for the same
purpose and with the same kind of character of tax. Double taxation is not expressly
forbidden in our constitution, but the Court has recognized it as obnoxious “where the
taxpayer is taxed twice for the benefit of the same governmental entity or by the same
jurisdiction for the same purpose.” Certainly, both the 5% final tax withheld and the
general corporate income tax are both paid for the benefit of the national government,
and for the same incidence of taxation, the sale/lease of goods and services to the
Same; Same; Intelligent tax policy should extend beyond the singular-
minded goal of raising State funds—the old-time philosophy behind the taxing
schemes of war-mongering monarchs and totalitarian states—and should sincerely
explore the concept of taxation as a means of providing genuine incentives to private
enterprise to spur economic growth, of promoting egalitarian social justice that
would allow everyone to their fair share of the nation’s wealth.—The VAT system, in
itself, is intelligently designed, and stands as a fair means to raise revenue. It has been
adopted worldwide by countries hoping to employ an efficient means of taxation. The
concerns I have raised do not detract from my general approval of the VAT system. I
do lament though that our government’s wholehearted adoption of the VAT system is
endemic of what I deem a flaw in our national tax policy in the last few decades. The
power of taxation, inherent in the State and ever so powerful, has been generally
employed by our financial planners for a solitary purpose: the raising of revenue.
Revenue generation is a legitimate purpose of taxation, but standing alone, it is a
woefully unsophisticated design. Intelligent tax policy should extend beyond the
singular-minded goal of raising State funds—the old-time philosophy behind the
taxing schemes of war-mongering monarchs and totalitarian states—and should
sincerely explore the concept of taxation as a means of providing genuine incentives
to private enterprise to spur economic growth; of promoting egalitarian social justice
that would allow everyone to their fair share of the nation’s wealth. Instead, we are
condemned by a national policy driven by the monomania for State revenue. It may
be beyond my oath as a Justice to compel the government to adopt an economic
policy in consonance with my personal views, but I offer these observations since
they lie at the very heart of the noxiousness of the assailed provisions of the E-VAT
law. The 70% cap, the 60-month amortization period and the 5% withholding tax on
govern-
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ment transactions were selfishly designed to increase government revenue at
the expense of the survival of local industries.
Same; Same; Under the device employed in the E-VAT law, the price to be
paid for a more sustainable liquidity of the government’s finances will be the death of
local business, and correspondingly, the demise of our society.—I am not insensitive
to the concerns raised by the respondents as to the dire consequences to the economy
should the E-VAT law be struck down. I am aware that the granting of the petition in
G.R. No. 168461 will negatively affect the cash flow of the government. If that were
the only relevant concern at stake, I would have no problems denying the
petition. Unfortunately, under the device employed in the E-VAT law, the price to be
paid for a more sustainable liquidity of the government’s finances will be the death of
local business, and correspondingly, the demise of our society. It is a measure just as
draconian as the standard issue taxes of medieval tyrants.
Same; Same; Taxes may be the lifeblood of the state, but never at the
expense of the life of its subjects.—I am not normally inclined towards the language
of the overwrought, yet if the sky were indeed truly falling, how else could that fact
be communicated. The E-VAT Law is of multiple fatal consequences. How are we to
survive as a nation without the bulwark of private industries? Perhaps the larger scale, may totally withdraw the privilege.
established businesses may ultimately remain standing, but they will be unable to
sustain the void left by the demise of small to medium enterprises. Or worse,
domestic industry would be left in the absolute control of monopolies, combines or
cartels, whether dominated by foreigners or local oligarchs. The destruction of
subsisting industries would be bad enough, the destruction of opportunity and the
entrepreneurial spirit would be even more grievous and tragic, as it would mark as
well the end of hope. Taxes may be the lifeblood of the state, but never at the expense
of the life of its subjects.
CHICO-NAZARIO, J., Concurring Opinion:
Congress; Enrolled Bill Doctrine; I believe that it is more prudent for this
Court to remain conservative and to continue its adherence to the enrolled bill
doctrine, for to abandon the said doctrine would be to open a Pandora’s Box, giving
rise to a situation more fraught with evil and mischief.—Petitioners’ arguments failed
to
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Abakada Guro Party List vs. Ermita
convince me of the wisdom of abandoning the enrolled bill doctrine. I
believe that it is more prudent for this Court to remain conservative and to continue
its adherence to the enrolled bill doctrine, for to abandon the said doctrine would be
to open a Pandora’s Box, giving rise to a situation more fraught with evil and
mischief. Statutes enacted by Congress may not attain finality or conclusiveness
unless declared so by this Court. This would undermine the authority of our statutes
because despite having been signed and certified by the designated officers of
Congress, their validity would still be in doubt and their implementation would be
greatly hampered by allegations of irregularities in their passage by the Legislature.
Such an uncertainty in the statutes would indubitably result in confusion and disorder.
In all probability, it is the contemplation of such a scenario that led an American
judge to proclaim, thus—. . . Better, far better, that a provision should occasionally
find its way into the statute through mistake, or even fraud, than, that every Act, state acquire vested rights to the use of such input VAT credits when they were never
and national, should at any and all times be liable to put in issue and impeached by
the journals, loose papers of the Legislature, and parol evidence. Such a state of
uncertainty in the statute laws of the land would lead to mischiefs absolutely
intolerable. . . .
Same; Bicameral Conference Committee; It does perplex me that members
of both Houses would again ask the Court to define and limit the powers of the
Bicameral Conference Committee when such committee is of their own creation;
That the majority of the members of both Houses refuses to amend the Rules on the
Bicameral Conference Committee is an indication that it is still satisfied therewith. —
It does perplex me that members of both Houses would again ask the Court to define
and limit the powers of the Bicameral Conference Committee when such committee
is of their own creation. In a number of cases, this Court already made a
determination of the extent of the powers of the Bicameral Conference Committee
after taking into account the existing Rules of both Houses of Congress. In gist, the
power of the Bicameral Conference Committee to reconcile or settle the differences
in the two Houses’ respective bills is not limited to the conflicting provisions of the
bills; but may include matters not found in the original bills but germane to the
purpose thereof. If both Houses viewed the pronouncement made by this Court in
such cases as extreme or beyond what they intended, they had the power to amend
their respective Rules to clarify or limit even further the scope of the authority which (3%) tax on his gross receipts in lieu of the VAT. If a taxpayer with presumably a
they grant to the Bicameral Conference
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Committee. Petitioners’ grievance that, unfortunately, they cannot bring
about such an amendment of the Rules on the Bicameral Conference Committee
because they are members of the minority, deserves scant consideration. That the
majority of the members of both Houses refuses to amend the Rules on the Bicameral
Conference Committee is an indication that it is still satisfied therewith. At any rate,
this is how democracy works—the will of the majority shall be controlling.
Taxation; Germaneness Rule; If we have one Code for all our national
internal revenue taxes, then there is no reason why we cannot have a single statute
amending provisions thereof even if they involve different taxes under separate titles.
—Although House Bills No. 3555 and 3705 were limited to the amendments of the
provisions on VAT of the National Internal Revenue Code of 1997, Senate Bill No.
1950 had a much wider scope and included amendments of other provisions of the
said Code, such as those on income, percentage, and excise taxes. It should be borne
in mind that the very purpose of these three Bills and, subsequently, of Rep. Act No.
9337, was to raise additional revenues for the government to address the dire
economic situation of the country. The National Internal Revenue Code of 1997, as
its title suggests, is the single Code that governs all our national internal revenue
taxes. While it does cover different taxes, all of them are imposed and collected by
the national government to raise revenues. If we have one Code for all our national
internal revenue taxes, then there is no reason why we cannot have a single statute
amending provisions thereof even if they involve different taxes under separate titles.
I hereby submit that the amendments introduced by the Bicameral Conference
Committee to non-VAT provisions of the National Internal Revenue Code of 1997
are not unconstitutional for they are germane to the purpose of House Bills No. 3555
and 3705 and Senate Bill No. 1950, which is to raise national revenues.
Same; Value-Added Tax; Since the privilege of an input VAT credit is
granted by law, then an amendment of such law may limit the exercise of or may
totally withdraw the privilege.—The crediting of the input VAT against the output
VAT is a statutory privilege, granted by Section 110 of the National Internal Revenue
Code of 1997. It gives the VAT-registered person the opportunity to recover the input
VAT he had paid, so that, in effect, the input VAT does not
78
78 SUPREME COURT REPORTS ANNOTATE
Abakada Guro Party List vs. Ermita
constitute an additional cost for him. While it is true that input VAT credits
are reported as assets in a VAT-registered person’s financial statements and books of
account, this accounting treatment is still based on the statutory provision recognizing
the input VAT as a credit. Without Section 110 of the National Internal Revenue
Code of 1997, then the accounting treatment of any input VAT will also change and
may no longer be booked outright as an asset. Since the privilege of an input VAT
credit is granted by law, then an amendment of such law may limit the exercise of or
Same; Same; To say that Congress may not trifle with Section 110 of the
National Internal Revenue Code of 1997 would be to violate a basic precept of
constitutional law—that no law is irrepealable; There can be no vested right to the
continued existence of a statute, which precludes its change or repeal. —The
amendment of Section 110 of the National Internal Revenue Code of 1997 by Rep.
Act No. 9337, which imposed the 70% cap on input VAT credits, is a legitimate
exercise by Congress of its law-making power. To say that Congress may not trifle
with Section 110 of the National Internal Revenue Code of 1997 would be to violate a
basic precept of constitutional law—that no law is irrepealable. There can be no
vested right to the continued existence of a statute, which precludes its change or
repeal.
Same; Same; It should be remembered that prior to Rep. Act No. 9337, the
petroleum dealers’ input VAT credits were inexistent—they were unrecognized and
disallowed by law—the petroleum dealers had no such property called input VAT
credits.—Under the National Internal Revenue Code of 1997, before it was amended
by Rep. Act No. 9337, the sale or importation of petroleum products were exempt
from VAT, and instead, were subject to excise tax. Petroleum dealers did not impose
any output VAT on their sales to consumers. Since they had no output VAT against
which they could credit their input VAT, they shouldered the costs of the input VAT
that they paid on their purchases of goods, properties, and services. Their sales not
being subject to VAT, the petroleum dealers had no input VAT credits to speak of. It
is only under Rep. Act No. 9337 that the sales by the petroleum dealers have become
subject to VAT and only in its implementation may they use their input VAT as credit
against their output VAT. While eager to use their input VAT credit
79
VOL. 469, SEPTEMBER 1, 2005
Abakada Guro Party List vs. Ermita
accorded to it by Rep. Act No. 9337, the petroleum dealers reject the
limitation imposed by the very same law on such use. It should be remembered that
prior to Rep. Act No. 9337, the petroleum dealers’ input VAT credits were inexistent
—they were unrecognized and disallowed by law. The petroleum dealers had no such
property called input VAT credits. It is only rational, therefore, that they cannot
entitled to such credits in the first place, at least, not until Rep. Act No. 9337. My
view, at this point, when Rep. Act No. 9337 has not yet even been implemented, is
that petroleum dealers’ right to use their input VAT as credit against their output
VAT unlimitedly has not vested, being a mere expectancy of a future benefit and
being contingent on the continuance of Section 110 of the National Internal Revenue
Code of 1997, prior to its amendment by Rep. Act No. 9337.
Same; Same; The 70% cap on input VAT credits was not imposed by
Congress arbitrarily—members of the Bicameral Conference Committee settled on
the said percentage so as to ensure that the government can collect a minimum of
30% output VAT per taxpayer, to put a VAT-taxpayer, at least, on equal footing with
a VAT-exempt taxpayer under Section 109(V) of the National Internal Revenue Code,
as amended by Rep. Act No. 9337.—I find that the 70% cap on input VAT credits was
not imposed by Congress arbitrarily. Members of the Bicameral Conference
Committee settled on the said percentage so as to ensure that the government can
collect a minimum of 30% output VAT per taxpayer. This is to put a VAT-taxpayer,
at least, on equal footing with a VAT-exempt taxpayer under Section 109(V) of the
National Internal Revenue Code, as amended by Rep. Act No. 9337. The latter
taxpayer is exempt from VAT on the basis that his sale or lease of goods or properties
or services do not exceed P1,500,000; instead, he is subject to pay a three percent
smaller business is required to pay three percent (3%) gross receipts tax, a type of tax
which does not even allow for any crediting, a VAT-taxpayer with a bigger business
should be obligated, likewise, to pay a minimum of 30% output VAT (which should
be equivalent to 3% of the gross selling price per good or property or service sold).
The cap assures the government a collection of at least 30% output VAT, contributing
to an improved cash flow for the government.
80
80 SUPREME COURT REPORTS ANNOTATE

Abakada Guro Party List vs. Ermita
SPECIAL CIVIL ACTION in the Supreme Court.
The facts are stated in the opinion 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.
Before long, the Conference Committee on the Disagreeing
Provisions of House Bill No. 3555, House Bill No. 3705, and
Senate Bill No. 1950, “after having met and discussed in full free
and conference,” recommended the approval of its report, which
the Senate did on May 10, 2005, and with the House of
Representatives agreeing thereto the next day, May 11, 2005.
On May 23, 2005, the enrolled copy of the consolidated
House and Senate version was transmitted to the President, who
signed the same into law on May 24, 2005. Thus, came R.A. No.
9337.
July 1, 2005 is the effectivity date of R.A. No. 9337.  When 5

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.
AUSTRIA-MARTINEZ, J.:
The expenses of government, having for their object the interest of all,
should be borne by everyone, and the more man enjoys the advantages of society, the
more he ought to hold himself honored in contributing to those expenses.
—Anne Robert Jacques Turgot (1727-1781)
French statesman and economist
Mounting budget deficit, revenue generation, inadequate fiscal
allocation for education, increased emoluments for health workers, and
wider coverage for full value-added tax benefits . . . these are the reasons
why Republic Act No. 9337 (R.A. No. 9337)  was enacted. Reasons, the
1
said date came, the Court issued a temporary restraining order,
effective immediately and continuing until further orders,
enjoining respondents from enforcing and implementing the law.
Oral arguments were held on July 14, 2005. Significantly,
during the hearing, the Court speaking through Mr. Justice
_______________
4
 Entitled, “An Act Amending Sections 27, 28, 34, 106, 108, 109, 110, 112, 113,
114, 116, 117, 119, 121, 125, 148, 151, 236, 237 and 288 of the National Internal
Revenue Code of 1997, As Amended, and For Other Purposes.”
5
 Section 26, R.A. No. 9337.
83
VOL. 469, SEPTEMBER 1, 2005
Abakada Guro Party List vs. Ermita

wisdom of which, the Court even with its extensive constitutional power of
review, cannot probe. The petitioners in these cases, however, question not Artemio V. Panganiban, voiced the rationale for its issuance of the
only the wisdom of the law, but also perceived constitutional infirmities in temporary restraining order on July 1, 2005, to wit:
its passage. J. PANGANIBAN: . . . But before I go into the details of your
_______________
presentation, let me just tell you a little backg
 Entitled “An Act Amending Sections 27, 28, 34, 106, 107, 108, 109, 110, 111, 112, 113,
You know when the law took effect on July 1
1

114, 116, 117, 119, 121, 148, 151, 236, 237, and 288 of the National Internal Revenue Code of
1997, As Amended and For Other Purposes.”
the Court issued a TRO at about 5 o’clock in
81
afternoon. But before that, there was a lot of
VOL. 469, SEPTEMBER 1, 2005 complaints aired on television and on radio. S
Abakada Guro Party List vs. Ermita people in a gas station were complaining that
Every law enjoys in its favor the presumption of constitutionality. prices went up by 10%. Some people were
Their arguments notwithstanding, petitioners failed to justify their call for
the invalidity of the law. Hence, R.A. No. 9337 is not unconstitutional. complaining that their electric bill will go up
10%. Other times people riding in domestic a
LEGISLATIVE HISTORY carrier were complaining that the prices that t
R.A. No. 9337 is a consolidation of three legislative bills namely,
House Bill Nos. 3555 and 3705, and Senate Bill No. 1950. have to pay would have to go up by 10%. Wh
House Bill No. 3555  was introduced on first reading on
2
that was being aired, per your presentation an
January 7, 2005. The House Committee on Ways and Means
approved the bill, in substitution of House Bill No. 1468, which our own understanding of the law, that’s not t
Representative (Rep.) Eric D. Singson introduced on August 8, It’s not true that the e-vat law necessarily incr
2004. The President certified the bill on January 7, 2005 for prices by 10% uniformly isn’t it?
immediate enactment. On January 27, 2005, the House of
Representatives approved the bill on second and third reading. ATTY. No, Your Honor.
House Bill No. 3705  on the other hand, substituted House Bill
3
BANIQUED:
No. 3105 introduced by Rep. Salacnib F. Baterina, and House Bill
No. 3381 introduced by Rep. Jacinto V. Paras. Its “mother bill” is
J. PANGANIBAN: It is not?
House Bill No. 3555. The House Committee on Ways and Means ATTY. It’s not, because, Your Honor, there isan Exec
approved the bill on February 2, 2005. The President also certified BANIQUED: Order that granted the Petroleum companies s
it as urgent on February 8, 2005. The House of Representatives
approved the bill on second and third reading on February 28, subsidy . . .interrupted
2005. J. PANGANIBAN: That’s correct . . .
_______________
ATTY. . . . and therefore that was meant to temper th
 Entitled, “An Act Restructuring the Value-Added Tax, Amending for the
2
BANIQUED: impact . . . interrupted
Purpose Sections 106, 107, 108, 110 and 114 of the National Internal Revenue Code
of 1997, As Amended, and For Other Purposes.” J. PANGANIBAN: . . . mitigating measures . . .
 Entitled, “An Act Amending Sections 106, 107, 108, 109, 110 and 111 of the
3

National Internal Revenue Code of 1997, As Amended, and For Other Purposes.” ATTY. Yes, Your Honor.
82
BANIQUED:
82 SUPREME COURT REPORTS ANNOTATED J. PANGANIBAN: As a matter of fact a part of the mitigating me
Abakada Guro Party List vs. Ermita would be the eliminationof the Excise Tax an
Meanwhile, the Senate Committee on Ways and Means import duties.That is why, it is not correct to
approved Senate Bill No. 1950  on March 7, 2005, “in substitution
4
84
of Senate Bill Nos. 1337, 1838 and 1873, taking into consideration 84 SUPREME COURT REPORTS ANNOTAT
House Bill Nos. 3555 and 3705.” Senator Ralph G. Recto
sponsored Senate Bill No. 1337, while Senate Bill Nos. 1838 and
Abakada Guro Party List vs. Ermita
1873 were both sponsored by Sens. Franklin M. Drilon, Juan M.   the VAT as to petroleum dealers increased price
Flavier and Francis N. Pangilinan. The President certified the bill 10%.
on March 11, 2005, and was approved by the Senate on second
and third reading on April 13, 2005. ATTY. Yes, Your Honor.
On the same date, April 13, 2005, the Senate agreed to the BANIQUED:      
request of the House of Representatives for a committee
conference on the disagreeing provisions of the proposed bills. J. And therefore, there is no justification for increa
PANGANIBAN: the retail price by 10% to cover the E-Vat tax. If
  TSN, July 14, 2005.
consider the excise tax and the import duties, the Net
6

Tax would probably be in the neighborhood of 7%?86 We

are not going into exact figures I am just trying to86 SUPREME COURT REPORTS ANNOTATED
deliver a point that different industries, different Abakada Guro Party List vs. Ermita
products, different services are hit differently. So it’s
1. (i)Value-added tax collection as a percentage of Gross
not correct to say that all prices must go up by 10%. Domestic Product (GDP) of the previous year exceeds
ATTY. You’re right, Your Honor. two and four-fifth percent (2 4/5%); or
2. (ii)National government deficit as a percentage of GDP
BANIQUED:
of the previous year exceeds one and one-half percent
J. Now. For instance, Domestic Airline companies, Mr. (1 1/2%).
PANGANIBAN: Counsel, are at present imposed a Sales Tax of 3%.
When this E-Vat law took effect the Sales Tax was Petitioners
also argue that the law is unconstitutional, as it constitutes
abandonment by Congress of its exclusive authority to fix the rate
removed as a mitigating measure. So, therefore, of there is under Article VI, Section 28(2) of the 1987 Philippine
taxes
no justification to increase the fares by 10% at best 7%,
Constitution.
correct? G.R. No. 168207
On June 9, 2005, Sen. Aquilino Q. Pimentel, Jr., et al., filed a
ATTY. I guess so, Your Honor, yes.
petition for certiorari likewise assailing the constitutionality of
BANIQUED: Sections 4, 5 and 6 of R.A. No. 9337.
J. There are other products that the people were Aside from questioning the so-called stand-by authority of the
President to increase the VAT rate to 12%, on the ground that it
PANGANIBAN: complaining on that first day, were being increased amounts to an undue delegation of legislative power, petitioners
arbitrarily by 10%. And that’s one reason amongalso manycontend that the increase in the VAT rate to 12% contingent
others this Court had to issue TRO because of the on any of the two conditions being satisfied violates the due
process clause embodied in Article III, Section 1 of the
confusion in the implementation. That’s why weConstitution,
added as it imposes an unfair and additional tax burden on
the people,
as an issue in this case, even if it’s tangentially taken up in that: (1) the 12% increase is ambiguous because it
does not state if the rate would be returned to the original 10% if
by the pleadings of the parties, the confusion in thethe conditions are no longer satisfied; (2) the rate is unfair and
implementation of the E-vat. Our people were unreasonable, as the people are unsure of the applicable VAT rate
subjected to the mercy of that confusion of an acrossfrom year to year; and (3) the increase in the VAT rate, which is
supposed to be an incentive to the President to raise the VAT
the board increase of 10%, which you yourself now collection to at least 2 4/5 of the GDP of the previous year, should
admit and I think even the Government will admit only
is be based on fiscal adequacy.
Petitioners further claim that the inclusion of a stand-by
incorrect. In some cases, it should be authority granted to the President by the Bicameral Conference
85
Committee is a violation of the “no-amendment rule” upon last
VOL. 469, reading of a bill laid down in Article VI, Section 26(2) of the
SEPTEMBER 1, Constitution.
87
2005
VOL. 469, SEPTEMBER 1, 2005
Abakada Guro Party List vs. Ermita
Abakada Guro Party List vs. Ermita
  3% only, in some cases it should be 6% depending on
G.R. No. 168461
these mitigating measures and the location andThereafter, a petition for prohibition was filed on June 29, 2005,
by the Association of Pilipinas Shell Dealers, Inc., et al., assailing
situation of each product, of each service, of each
the following provisions of R.A. No. 9337:
company, isn’t it?
ATTY. Yes, Your Honor. 1. 1)Section 8, amending Section 110 (A)(2) of the NIRC,
BANIQUED:       requiring that the input tax on depreciable goods shall
J. PANGANIBAN: Alright. So that’s one reason why we had to issue a be amortized over a 60-month period, if the
acquisition, excluding the VAT components, exceeds
TRO pending the clarification of all these and we One Million Pesos (P1, 000,000.00);
wish the government will take time to clarify all these 2. 2)Section 8, amending Section 110 (B) of the NIRC,
imposing a 70% limit on the amount of input tax to be
by means of a more detailed implementing rules, in
credited against the output tax; and
case the law is upheld by this Court. . . .  The Court 3. 3)Section 12, amending Section 114 (c) of the NIRC,
6

also directed the parties to file their respective
Memoranda.
G.R. No. 168056
Before R.A. No. 9337 took effect, petitioners ABAKADA
GURO Party List, et al., filed a petition for prohibition on May 27,
2005. They question the constitutionality of Sections 4, 5 and 6 of
R.A. No. 9337, amending Sections 106, 107 and 108, respectively,
of the National Internal Revenue Code (NIRC). Section 4 imposes
a 10% VAT on sale of goods and properties, Section 5 imposes a
10% VAT on importation of goods, and Section 6 imposes a 10%
VAT on sale of services and use or lease of properties. These
questioned provisions contain a uniform proviso authorizing the
President, upon recommendation of the Secretary of Finance, to
raise the VAT rate to 12%, effective January 1, 2006, after any of
the following conditions have been satisfied, to wit:
. . . That the President, upon the recommendation of the Secretary of
Finance, shall, effective January 1, 2006, raise the rate of value-added tax
to twelve percent (12%), after any of the following conditions has been
satisfied:
_______________
authorizing the Government or any of its political
subdivisions, instrumentalities or agencies, including
GOCCs, to deduct a 5% final withholding tax on gross
payments of goods and services, which are subject to
10% VAT under Sections 106 (sale of goods and
properties) and 108 (sale of services and use or lease of
properties) of the NIRC.
Petitioners contend that these provisions are unconstitutional for
being arbitrary, oppressive, excessive, and confisca-tory.
Petitioners’ argument is premised on the constitutional right
of non-deprivation of life, liberty or property without due process
of law under Article III, Section 1 of the Constitution. According
to petitioners, the contested sections impose limitations on the
amount of input tax that may be claimed. Petitioners also argue
that the input tax partakes the nature of a property that may not be
confiscated, appropriated, or limited without due process of law.
Petitioners further contend that like any other property or property
right, the input tax credit may be transferred or disposed of, and
that by limiting the same, the government gets to tax a profit or
value-added even if there is no profit or value-added.
 Petitioners also believe that these provisions violate the 90 SUPREME COURT REPORTS ANNOTATED
constitutional guarantee of equal protection of the law under
Article III, Section 1 of the Constitution, as the limitation on Abakada Guro Party List vs. Ermita
88 that will tilt the balance towards a sustainable macroeconomic
88 SUPREME COURT REPORTS ANNOTATED environment necessary for economic growth.
Abakada Guro Party List vs. Ermita ISSUES
The Court defined the issues, as follows:
the creditable input tax if: (1) the entity has a high ratio of input
tax; or (2) invests in capital equipment; or (3) has several PROCEDURAL ISSUE
transactions with the government, is not based on real and Whether R.A. No. 9337 violates the following provisions of the
substantial differences to meet a valid classification. Constitution:
Lastly, petitioners contend that the 70% limit is anything but
progressive, violative of Article VI, Section 28(1) of the 1. a.Article VI, Section 24, and
Constitution, and that it is the smaller businesses with higher input 2. b.Article VI, Section 26(2)
tax to output tax ratio that will suffer the consequences thereof for
it wipes out whatever meager margins the petitioners make.
G.R. No. 168463 SUBSTANTIVE ISSUES
Several members of the House of Representatives led by Rep.
Francis Joseph G. Escudero filed this petition for certiorari on 1. 1.Whether Sections 4, 5 and 6 of R.A. No. 9337,
June 30, 2005. They question the constitutionality of R.A. No. amending Sections 106, 107 and 108 of the NIRC,
9337 on the following grounds: violate the following provisions of the Constitution:

1. 1)Sections 4, 5, and 6 of R.A. No. 9337 constitute an
undue delegation of legislative power, in violation of
Article VI, Section 28(2) of the Constitution;
2. 2)The Bicameral Conference Committee acted without
jurisdiction in deleting the no pass on provisions
present in Senate Bill No. 1950 and House Bill No.
3705; and
3. 3)Insertion by the Bicameral Conference Committee of
Sections 27, 28, 34, 116, 117, 119, 121, 125,  148, 151,
7
1. a.Article VI, Section 28(1), and
2. b.Article VI, Section 28(2)
1. 2.Whether Section 8 of R.A. No. 9337, amending
Sections 110(A)(2) and 110(B) of the NIRC; and
Section 12 of R.A. No. 9337, amending Section
114(C) of the NIRC, violate the following provisions
of the Constitution:

236, 237 and 288, which were present in Senate Bill
No. 1950, violates Article VI, Section 24(1) of the
Constitution, which provides that all appropriation,
revenue or tariff bills shall originate exclusively in the
House of Representatives
G.R. No. 168730
On the eleventh hour, Governor Enrique T. Garcia filed a petition
for certiorari and prohibition on July 20, 2005, alleg-
_______________
 Section 125 of the National Internal Revenue Code, as amended, was not
7
1. a.Article VI, Section 28(1), and
2. b.Article III, Section 1
RULING OF THE COURT
As a prelude, the Court deems it apt to restate the general
principles and concepts of value-added tax (VAT), as the
confusion and inevitably, litigation, breeds from a fallacious
notion of its nature.
The VAT is a tax on spending or consumption. It is levied on
the sale, barter, exchange or lease of goods or properties
91

amended by R.A. No. 9337, as can be gleaned from the title and body of the law. VOL. 469, SEPTEMBER 1, 2005
89 Abakada Guro Party List vs. Ermita
VOL. 469, SEPTEMBER 1, 2005 and services.  Being an indirect tax on expenditure, the seller of
8

goods or services may pass on the amount of tax paid to the

Abakada Guro Party List vs. Ermita buyer,  with the seller acting merely as a tax collector.  The burden
9 10

ing unconstitutionality of the law on the ground that the limitation
on the creditable input tax in effect allows VAT-registered
establishments to retain a portion of the taxes they collect, thus
violating the principle that tax collection and revenue should be
solely allocated for public purposes and expenditures. Petitioner
of VAT is intended to fall on the immediate buyers and ultimately,
the end-consumers.
In contrast, a direct tax is a tax for which a taxpayer is directly
liable on the transaction or business it engages in, without
transferring the burden to someone else.  Examples are individual
11

Garcia further claims that allowing these establishments to pass on and corporate income taxes, transfer taxes, and residence taxes. 12

the tax to the consumers is inequitable, in violation of Article VI,
Section 28(1) of the Constitution.
RESPONDENTS’ COMMENT
The Office of the Solicitor General (OSG) filed a Comment in
behalf of respondents. Preliminarily, respondents contend that
R.A. No. 9337 enjoys the presumption of constitutionality and
petitioners failed to cast doubt on its validity.
In the Philippines, the value-added system of sales taxation
has long been in existence, albeit in a different mode. Prior to
1978, the system was a single-stage tax computed under the “cost
deduction method” and was payable only by the original sellers.
The single-stage system was subsequently modified, and a mixture
of the “cost deduction method” and “tax credit method” was used
to determine the value-added tax payable.  Under the “tax credit
13

Relying on the case of Tolentino vs. Secretary of Finance, 235 method,” an entity can credit against or subtract from the VAT
SCRA 630 (1994), respondents argue that the procedural issues charged on its sales or outputs the VAT paid on its purchases,
raised by petitioners, i.e., legality of the bicameral proceedings, inputs and imports. 14

exclusive origination of revenue measures and the power of the
Senate concomitant thereto, have already been settled. With regard
to the issue of undue delegation of legislative power to the
President, respondents contend that the law is complete and leaves
no discretion to the President but to increase the rate to 12% once
It was only in 1987, when President Corazon C. Aquino
issued Executive Order No. 273, that the VAT system was ra-
_______________
 Section 105, National Internal Revenue of the Philippines, as amended.
8

9
 Ibid.
any of the two conditions provided therein arise. 10
 Deoferio, Jr., V.A. and Mamalateo, V.C., The Value Added Tax in the
Respondents also refute petitioners’ argument that the Philippines (First Edition 2000).
 Maceda vs. Macaraig, Jr., G.R. No. 88291, May 31, 1991, 197 SCRA 771.
increase to 12%, as well as the 70% limitation on the creditable
11

12
 Maceda vs. Macaraig, Jr., G.R. No. 88291, June 8, 1993, 223 SCRA 217.
input tax, the 60-month amortization on the purchase or 13
 Id., Deoferio, Jr., V.A. and Mamalateo, V.C., The Value Added Tax in the
importation of capital goods exceeding P1,000,000.00, and the 5% Philippines (First Edition 2000).
final withholding tax by government agencies, is arbitrary, 14
 Commissioner of Internal Revenue vs. Seagate Technology (Phils.), G.R. No.
153866, February 11, 2005, 451 SCRA 132.
oppressive, and confiscatory, and that it violates the constitutional
principle on progressive taxation, among others. 92
Finally, respondents manifest that R.A. No. 9337 is the anchor
92 SUPREME COURT REPORTS ANNOTATED
of the government’s fiscal reform agenda. A reform in the value-
added system of taxation is the core revenue measure Abakada Guro Party List vs. Ermita
90
tionalized by imposing a multi-stage tax rate of 0% or 10% on all
sales using the “tax credit method.” 15
E.O. No. 273 was followed by R.A. No. 7716 or the Expanded
VAT Law,  R.A. No. 8241 or the Improved VAT Law,   R.A. No.
16 17
8424 or the Tax Reform Act of 1997,  and finally, the presently
18
beleaguered R.A. No. 9337, also referred to by respondents as the
VAT Reform Act.
The Court will now discuss the issues in logical sequence.
PROCEDURAL ISSUE
I.
Whether R.A. No. 9337 violates the following provisions of the
Constitution:
1. a.Article VI, Section 24, and
2. b.Article VI, Section 26(2)
A. The Bicameral Conference Committee
Petitioners Escudero, et al., and Pimentel, et al., allege that the
Bicameral Conference Committee exceeded its authority by:
1. 1)Inserting the stand-by authority in favor of the
President in Sections 4, 5, and 6 of R.A. No. 9337;
_______________
 Kapatiran ng mga Naglilingkod sa Pamahalaan ng Pilipi-nas, Inc. vs.
15
Tan, G.R. Nos. L-81311, L-81820, L-81921, L-82152, June 30, 1988, 163 SCRA
371.
 Entitled, “An Act Restructuring the Value-Added Tax (VAT) System,
16
Widening its Tax Base and Enhancing its Administration, And for these Purposes
Amending and Repealing the Relevant Provisions of the National Internal Revenue
Code, as amended, and for other Purposes.”
 Entitled, “An Act Amending Republic Act No. 7716, otherwise known as the
17
Value-Added Tax Law and Other Pertinent Provisions of the National Internal
Revenue Code, as Amended.”
 Entitled, “An Act Amending the National Internal Revenue Code, as
18
Amended, and for other Purposes.”
93
VOL. 469, SEPTEMBER 1, 2005
Abakada Guro Party List vs. Ermita
1. 2)Deleting entirely the no pass-on provisions found in
both the House and Senate bills;
2. 3)Inserting the provision imposing a 70% limit on the
amount of input tax to be credited against the output
tax; and
3. 4)Including the amendments introduced only by Senate
Bill No. 1950 regarding other kinds of taxes in
addition to the value-added tax.
Petitioners now beseech the Court to define the powers of the
Bicameral Conference Committee.
It should be borne in mind that the power of internal
regulation and discipline are intrinsic in any legislative body for,
as unerringly elucidated by Justice Story, “[i]f the power did not
exist, it would be utterly impracticable to transact the business of
the nation, either at all, or at least with decency, deliberation, and
order.”  Thus, Article VI, Section 16 (3) of the Constitution
19
provides that “each House may determine the rules of its
proceedings.” Pursuant to this inherent constitutional power to
promulgate and implement its own rules of procedure, the
respective rules of each house of Congress provided for the
creation of a Bicameral Conference Committee.
Thus, Rule XIV, Sections 88 and 89 of the Rules of House of
Representatives provides as follows:
Sec. 88. Conference Committee.—In the event that the House does not
agree with the Senate on the amendment to any bill or joint resolution, the
differences may be settled by the conference committees of both chambers.
In resolving the differences with the Senate, the House panel shall, as
much as possible, adhere to and support the House Bill. If the differences
with the Senate are so substantial that they materially impair the House
Bill, the panel shall report such fact to the House for the latter’s
appropriate action.
_______________
19
 Story, Commentaries 835 (1833).
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Abakada Guro Party List vs. Ermita
Sec. 89. Conference Committee Reports.—. . . Each report shall contain a
detailed, sufficiently explicit statement of the changes in or amendments to
the subject measure.
...
The Chairman of the House panel may be interpellated on the
Conference Committee Report prior to the voting thereon. The House shall
vote on the Conference Committee Report in the same manner and
procedure as it votes on a bill on third and final reading.
Rule XII, Section 35 of the Rules of the Senate states:
Sec. 35. In the event that the Senate does not agree with the House of
Representatives on the provision of any bill or joint resolution, the
differences shall be settled by a conference committee of both Houses
which shall meet within ten (10) days after their composition. The
President shall designate the members of the Senate Panel in the
conference committee with the approval of the Senate.
Each Conference Committee Report shall contain a detailed and
sufficiently explicit statement of the changes in, or amendments to the
subject measure, and shall be signed by a majority of the members of each
House panel, voting separately.
A comparative presentation of the conflicting House and Senate
provisions and a reconciled version thereof with the explanatory statement
of the conference committee shall be attached to the report.
...
The creation of such conference committee was apparently in
response to a problem, not addressed by any constitutional
provision, where the two houses of Congress find themselves in
disagreement over changes or amendments introduced by the other
house in a legislative bill. Given that one of the most basic powers
of the legislative branch is to formulate and implement its own
rules of proceedings and to discipline its members, may the Court
then delve into the details of how Congress complies with its
internal rules or how it conducts its business of passing
legislation? Note that in the present petitions, the issue is not
whether provisions of the rules of both houses creating the
bicameral conference committee are
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unconstitutional, but whether the bicameral conference committee
has strictly complied with the rules of both houses, thereby
remaining within the jurisdiction conferred upon it by Congress.
In the recent case of Fariñas vs. The Executive Secretary,   the
20
Court En Banc, unanimously reiterated and emphasized its
adherence to the “enrolled bill doctrine,” thus, declining therein
petitioners’ plea for the Court to go behind the enrolled copy of
the bill. Assailed in said case was Congress’s creation of two sets
of bicameral conference committees, the lack of records of said
committees’ proceedings, the alleged violation of said committees
of the rules of both houses, and the disappearance or deletion of
one of the provisions in the compromise bill submitted by the
bicameral conference committee. It was argued that such
irregularities in the passage of the law nullified R.A. No. 9006, or
the Fair Election Act.
Striking down such argument, the Court held thus:
Under the “enrolled bill doctrine,” the signing of a bill by the Speaker of
the House and the Senate President and the certification of the Secretaries
of both Houses of Congress that it was passed are conclusive of its due
enactment. A review of cases reveals the Court’s consistent adherence to
the rule. The Court finds no reason to deviate from the salutary rule in
this case where the irregularities alleged by the petitioners mostly
involved the internal rules of Congress, e.g., creation of the 2nd or 3rd
Bicameral Conference Committee by the House. This Court is not the
proper forum for the enforcement of these internal rules of Congress,
whether House or Senate. Parliamentary rules are merely procedural
and with their observance the courts have no concern. Whatever
doubts there may be as to the formal validity of Rep. Act No. 9006
must be resolved in its favor. The Court reiterates its ruling in Arroyo vs.
De Venecia, viz.:
But the cases, both here and abroad, in varying forms of expression, all deny to
the courts the power to inquire into allegations that, in enacting a law, a House
_______________
20
 G.R. No. 147387, December 10, 2003, 417 SCRA 503.
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Abakada Guro Party List vs. Ermita
of Congress failed to comply with its own rules, in the absence of showing that
there was a violation of a constitutional provision or the rights of private
individuals. In Osmeña v. Pendatun, it was held: “At any rate, courts have declared
that ‘the rules adopted by deliberative bodies are subject to revocation, modification
or waiver at the pleasure of the body adopting them.’ And it has been said that
“Parliamentary rules are merely procedural, and with their observance, the
courts have no concern. They may be waived or disregarded by the legislative
body.” Consequently, “mere failure to conform to parliamentary usage will not
invalidate the action (taken by a deliberative body) when the requisite number of
members have agreed to a particular measure.”  (Emphasis supplied)
21
reduced rate for certain services NIRC)
including power generation
The foregoing declaration is exactly in point with the present
cases, where petitioners allege irregularities committed by the (amending Sec. 108 of NIRC)
conference committee in introducing changes or deleting With regard to the “no pass-on” provision
provisions in the House and Senate bills. Akin to
the Fariñas case,  the present petitions also raise an issue
22
No similar Provides that the VAT Provides that the VA
regarding the actions taken by the conference committee on provision       imposed on power imposed onsales of
matters regarding Congress’ compliance with its own internal
generation and on the sale electricity bygenerati
rules. As stated earlier, one of the most basic and inherent power
of the legislature is the power to formulate rules for its of petroleum products companies and servic
proceedings and the discipline of its members. Congress is the best shall be absorbed by transmission compan
judge of how it should conduct its own business expeditiously and
in the most orderly manner. It is also the sole concern of Congress generation companies or distribution companie
to instill discipline among the members of its conference sellers, respectively, and well as those of franc
committee if it believes that said members violated any of its rules shall not be passed on to grantees of electric ut
of proceedings. Even the expanded jurisdiction of this Court
cannot apply to questions regarding only the internal operation of consumers       shall not apply to resi
Congress, thus, the Court is wont to deny a review of the internal end-users. VAT shall
proceedings of a co-equal branch of government.
_______________ absorbed by generatio
transmission, and
21
 Id., pp. 529-530.
22
 Supra., Note 20. distribution companie
99
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With regard to 70% limit on input tax credit
Moreover, as far back as 1994 or more than ten years ago, in the
case of Tolentino vs. Secretary of Finance,  the Court already
23 Provides that the input tax No similar Provides that the in
made the pronouncement that “[i]f a change is desired in the credit for capital goods on provision       credit for capital go
practice [of the Bicameral Conference Committee] it must be
sought in Congress since this question is not covered by any which a VAT has been paid which a VAT has b
constitutional provision but is only an internal rule of each shall be equally distributed paid shall be equall
house.”  To date, Congress has not seen it fit to make such changes
over 5 years or the distributed over 5 y
24

adverted to by the Court. It seems, therefore, that Congress finds

the practices of the bicameral conference committee to be very depreciable life of such the depreciable life
useful for purposes of prompt and efficient legislative action. capital goods; the input tax such capital goods;
Nevertheless, just to put minds at ease that no blatant
irregularities tainted the proceedings of the bicameral conference credit for goods and input tax credit for
committees, the Court deems it necessary to dwell on the issue. services other than capital and services other t
The Court observes that there was a necessity for a conference goods shall not exceed 5% capital goods shall
committee because a comparison of the provisions of House Bill
Nos. 3555 and 3705 on one hand, and Senate Bill No. 1950 on the of the total amount of such exceed 90% of the
other, reveals that there were indeed disagreements. As pointed goods and services; and for VAT.
out in the petitions, said disagreements were as follows:
persons engaged in retail
House Bill No. 3555 House Bill No. 3705 Senate Bill No. 1950
trading of goods, the
With regard to “Stand-By Authority” in favor of President
allowable input tax credit
Provides for 12% VAT Provides for 12% VAT Provides for a single
shall not exceed 11% of the
on every sale of goods in general on sales of rate of 10% VAT on
total amount of goods
or properties (amending goods or properties and sale of goods or
purchased.
Sec. 106 of NIRC); reduced rates for sale of properties (amending
With regard to amendments to be made to NIRC provisions regard
12% VAT on certain locally Sec. 106 of NIRC),
income and excise taxes
importation of goods manufactured goods and 10% VAT on sale of
No similar No similar Provided for amendments t
(amending Sec. 107 of petroleum products and services including sale
provision       provision       several NIRC provisions
NIRC); and 12% VAT raw materials to be used of electricity by
regarding corporate income
on sale of services and in generation companies,
percentage, franchise and e
use trans-
_______________ taxes
The disagreements between the provisions in the House bills and
23
 G.R. No. 115455, August 25, 1994, 235 SCRA 630. the Senate bill were with regard to (1) what rate of VAT is to be
24
 Id., p. 670. imposed; (2) whether only the VAT imposed on
100
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98 SUPREME COURT REPORTS ANNOTATED
Abakada Guro Party List vs. Ermita
Abakada Guro Party List vs. Ermita electricity generation, transmission and distribution companies
or lease of the manufacturethereof (amending missionshouldand not be passed on to consumers, as proposed in the Senate
properties(amending Sec. 106 of NIRC);12% VAT on distribution or both the VAT imposed on electricity generation,
bill,
transmission and distribution companies and the VAT imposed on
Sec. 108 of NIRC) importation of goods and reduced companies, sale of petroleum products should not be passed on to consumers,
rates for certain imported products and useasorproposed in the House bill; (3) in what manner input tax credits
should be limited; (4) and whether the NIRC provisions on
including petroleum products lease ofcorporate income taxes, percentage, franchise and excise taxes
(amending Sec. 107 of NIRC); and properties should be amended.
12% VAT on sale of services and (amending There being differences and/or disagreements on the
foregoing provisions of the House and Senate bills, the Bicameral
use or lease of properties and a Sec. 108 of
Conference Committee was mandated by the rules of both houses
of Congress to act on the same by settling said differences and/or
disagreements. The Bicameral Conference Committee acted on the
disagreeing provisions by making the following changes:
1. 1.With regard to the disagreement on the rate of VAT to
be imposed, it would appear from the Conference
Committee Report that the Bicameral Conference
Committee tried to bridge the gap in the difference
between the 10% VAT rate proposed by the Senate,
and the various rates with 12% as the highest VAT rate
proposed by the House, by striking a compromise
whereby the present 10% VAT rate would be retained
until certain conditions arise, i.e., the value-added tax
collection as a percentage of gross domestic product
(GDP) of the previous year exceeds 2 4/5%, or
National Government deficit as a percentage of GDP
of the previous year exceeds 1 1/2%, when the
President, upon recommendation of the Secretary of
Finance shall raise the rate of VAT to 12% effective
January 1, 2006.
2. 2.With regard to the disagreement on whether only the
VAT imposed on electricity generation, transmission
and distribution companies should not be passed on to
consumers or whether both the VAT imposed on
electricity generation, transmission and distribution
companies and the VAT imposed on sale of petroleum
products may be passed on to con-
of either th e House bill or Senate bill, (b) decide that neither
provisions in the House bill or the provisions in the Senate bill
would be carried into the final form of the bill, and/or (c) try to
arrive at a compromise between the disagreeing provisions.
In the present case, the changes introduced by the Bicam-eral
Conference Committee on disagreeing provisions were meant only
to reconcile and harmonize the disagreeing provisions for it did
not inject any idea or intent that is wholly foreign to the subject
embraced by the original provisions.
The so-called stand-by authority in favor of the President,
whereby the rate of 10% VAT wanted by the Senate is retained
until such time that certain conditions arise when the 12% VAT
wanted by the House shall be imposed, appears to be a
compromise to try to bridge the difference in the rate of VAT
proposed by the two houses of Congress. Nevertheless, such
compromise is still totally within the subject of what rate of VAT
should be imposed on taxpayers.
The no pass-on provision was deleted altogether. In the
transcripts of the proceedings of the Bicameral Conference
Committee held on May 10, 2005, Sen. Ralph Recto, Chairman of
the Senate Panel, explained the reason for deleting the no pass-
on provision in this wise:
. . . the thinking was just to keep the VAT law or the VAT bill simple. And
we were thinking that no sector should be a beneficiary of legislative
grace, neither should any sector be discriminated on. The VAT is an
indirect tax. It is a pass on-tax. And let’s keep it
_______________

25
 Webster’s Third New International Dictionary, p. 1897.
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Abakada Guro Party List vs. Ermita
1. sumers, the Bicameral Conference Committee chose to
settle such disagreement by altogether deleting from its
Report any no pass-on provision.
2. 3.With regard to the disagreement on whether input tax
VOL. 469, SEPTEMBER 1, 2005
Abakada Guro Party List vs. Ermita
plain and simple. Let’s not confuse the bill and put a no pass-on provision.
Two-thirds of the world have a VAT system and in this two-thirds of the
globe, I have yet to see a VAT with a no pass-though provision. So, the
thinking of the Senate is basically simple, let’s keep the VAT
simple.  (Emphasis supplied)
26

credits should be limited or not, the Bicameral

Conference Committee decided to adopt the position Rep. Teodoro Locsin further made the manifestation that the no
of the House by putting a limitation on the amount of pass-on provision “never really enjoyed the support of either
input tax that may be credited against the output tax, House.” 27

although it crafted its own language as to the amount
of the limitation on input tax credits and the manner of
computing the same by providing thus:
(A) Creditable Input Tax.—. . .
...
Provided, The input tax on goods purchased or imported in a calendar
month for use in trade or business for which deduction for depreciation is
allowed under this Code, shall be spread evenly over the month of
acquisition and the fifty-nine (59) succeeding months if the aggregate
acquisition cost for such goods, excluding the VAT component thereof,
exceeds one million Pesos (P1,000,000.00): PROVIDED, however, that if
the estimated useful life of the capital good is less than five (5) years, as
used for depreciation purposes, then the input VAT shall be spread over
With regard to the amount of input tax to be credited against
output tax, the Bicameral Conference Committee came to a
compromise on the percentage rate of the limitation or cap on such
input tax credit, but again, the change introduced by the Bicameral
Conference Committee was totally within the intent of both houses
to put a cap on input tax that may be credited against the output
tax. From the inception of the subject revenue bill in the House of
Representatives, one of the major objectives was to “plug a glaring
loophole in the tax policy and administration by creating vital
restrictions on the claiming of input VAT tax credits . . .” and
“[b]y introducing limitations on the claiming of tax credit, we are
capping a major leakage that has placed our collection efforts at an
apparent disadvantage.” 28

such shorter period: . . .
(B) Excess Output or Input Tax.—If at the end of any taxable quarter
the output tax exceeds the input tax, the excess shall be paid by the VAT-
registered person. If the input tax exceeds the output tax, the excess shall
be carried over to the succeeding quarter or quarters: PROVIDED that the
input tax inclusive of input VAT carried over from the previous quarter
that may be credited in every quarter shall not exceed seventy percent
(70%) of the output VAT: PROVIDED, HOWEVER, THAT any input tax
attributable to zero-rated sales by a VAT-registered person may at his
option be refunded or credited against other internal revenue taxes, . . .
As to the amendments to NIRC provisions on taxes other than
the value-added tax proposed in Senate Bill No. 1950, since said
provisions were among those referred to it, the conference
committee had to act on the same and it basically adopted the
version of the Senate.
Thus, all the changes or modifications made by the Bicameral
Conference Committee were germane to subjects of the
_______________
 TSN, Bicameral Conference Committee on the Disagreeing Provisions of
26

Senate Bill No. 1950 and House Bill Nos. 3705 and 3555, May 10, 2005, p. 4.
1. 4.With regard to the amendments to other provisions of  Id., p. 3.
27

 Sponsorship Speech of Representative Teves, in behalf of Representative Jesli

the NIRC on corporate income tax, franchise,
28

Lapus, TSN, January 7, 2005, pp. 34-35.

percentage and excise taxes, the conference committee
decided to include such amendments and basically
adopted the provisions found in Senate Bill No. 1950,
with some changes as to the rate of the tax to be
imposed.
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102 SUPREME COURT REPORTS ANNOTATED Conference Committee. In the earlier cases of Philippine Judges
Abakada Guro Party List vs. Ermita
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Abakada Guro Party List vs. Ermita
provisions referred to it for reconciliation. Such being the case, the
Court does not see any grave abuse of discretion amounting to
lack or excess of jurisdiction committed by the Bicameral
Association vs. Prado  and Tolentino vs. Secretary of Finance,  the
29 30

Under the provisions of both the Rules of the House of Court recognized the long-standing legislative practice of giving
Representatives and Senate Rules, the Bicameral Conference said conference committee ample latitude for compromising
Committee is mandated to settle the differences between the differences between the Senate and the House. Thus, in
disagreeing provisions in the House bill and the Senate bill. The the Tolentino case, it was held that:
term “settle” is synonymous to “reconcile” and “harmonize.”  To . . . it is within the power of a conference committee to include in its report
25

an entirely new provision that is not found either in the House bill or in the
reconcile or harmonize disagreeing provisions, the Bicameral Senate bill. If the committee can propose an amendment consisting of one
Conference Committee may then (a) adopt the specific provisions
or two provisions, there is no reason why it cannot propose several
provisions, collectively considered as an “amendment in the nature of a
substitute,” so long as such amendment is germane to the subject of the
bills before the committee. After all, its report was not final but needed the
approval of both houses of Congress to become valid as an act of the
legislative department. The charge that in this case the Conference
Committee acted as a third legislative chamber is thus without any
basis.  (Emphasis supplied)
31
B. R.A. No. 9337 Does Not Violate Article VI,
     Section 26(2) of the Constitution on the
     “No-Amendment Rule”
Article VI, Sec. 26 (2) of the Constitution, states:
No bill passed by either House shall become a law unless it has passed
three readings on separate days, and printed copies thereof in its final form
have been distributed to its Members three days before its passage, except
when the President certifies to the necessity of its immediate enactment to
meet a public calamity or emergency. Upon the last reading of a bill, no
amendment thereto shall be
_______________
29
 G.R. No. 105371, November 11, 1993, 227 SCRA 703.
30
 Supra, Note 23.
31
 Id., p. 668.
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Abakada Guro Party List vs. Ermita
allowed, and the vote thereon shall be taken immediately thereafter, and
the yeas and nays entered in the Journal.
Petitioners’ argument that the practice where a bicameral
conference committee is allowed to add or delete provisions in the
House bill and the Senate bill after these had passed three readings
is in effect a circumvention of the “no amendment rule” (Sec. 26
(2), Art. VI of the 1987 Constitution), fails to convince the Court
to deviate from its ruling in the Tolentino case that:
Nor is there any reason for requiring that the Committee’s Report in these
cases must have undergone three readings in each of the two houses. If that
be the case, there would be no end to negotiation since each house may
seek modification of the compromise bill . . . .
Art. VI. § 26 (2) must, therefore, be construed as referring only to
bills introduced for the first time in either house of Congress, not to
the conference committee report.  (Emphasis supplied)
32
The Court reiterates here that the “no-amendment rule” refers
only to the procedure to be followed by each house of Congress
with regard to bills initiated in each of said respective houses,
before said bill is transmitted to the other house for its
concurrence or amendment. Verily, to construe said provision in a
way as to proscribe any further changes to a bill after one house
has voted on it would lead to absurdity as this would mean that the
other house of Congress would be deprived of its constitutional
power to amend or introduce changes to said bill. Thus, Art. VI,
Sec. 26 (2) of the Constitution cannot be taken to mean that the
introduction by the Bicameral Conference Committee of
amendments and modifications to disagreeing provisions in bills
that have been acted upon by both houses of Congress is
prohibited.
_______________
32
 Id., p. 671.
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C. R.A. No. 9337 Does Not Violate Article VI,
     Section 24 of the Constitution on Exclusive
     Origination of Revenue Bills
Coming to the issue of the validity of the amendments made
regarding the NIRC provisions on corporate income taxes and
percentage, excise taxes. Petitioners refer to the following
provisions, to wit:
Section
27 Rates of Income Tax on Domestic Corporation
28(A)(1) Tax on Resident Foreign Corporation
28(B)(1) Inter-corporate Dividends
34(B)(1) Inter-corporate Dividends
116 Tax on Persons Exempt from VAT
117 Percentage Tax on domestic carriers and keepers ofGarage
119 Tax on franchises
121 Tax on banks and Non-Bank Financial Intermediaries
148 Excise Tax on manufactured oils and other fuels
151 Excise Tax on mineral products
236 Registration requirements
237 Issuance of receipts or sales or commercial invoices
288 Disposition of Incremental Revenue
Petitioners claim that the amendments to these provisions of the
NIRC did not at all originate from the House. They aver that
House Bill No. 3555 proposed amendments only regarding
Sections 106, 107, 108, 110 and 114 of the NIRC, while House
Bill No. 3705 proposed amendments only to Sections 106, 107,
108, 109, 110 and 111 of the NIRC; thus, the other sections of the
NIRC which the Senate amended but which amendments were not
found in the House bills are not intended to be amended by the
House of Representatives. Hence, they argue that since the
proposed amendments did
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Abakada Guro Party List vs. Ermita
not originate from the House, such amendments are a violation of
Article VI, Section 24 of the Constitution.
The argument does not hold water.
Article VI, Section 24 of the Constitution reads:
Sec. 24. All appropriation, revenue or tariff bills, bills authorizing increase
of the public debt, bills of local application, and private bills shall originate
exclusively in the House of Representatives but the Senate may propose or
concur with amendments.
In the present cases, petitioners admit that it was indeed House
Bill Nos. 3555 and 3705 that initiated the move for amending
provisions of the NIRC dealing mainly with the value-added tax.
Upon transmittal of said House bills to the Senate, the Senate
came out with Senate Bill No. 1950 proposing amendments not
only to NIRC provisions on the value-added tax but also
amendments to NIRC provisions on other kinds of taxes. Is the
introduction by the Senate of provisions not dealing directly with
the value- added tax, which is the only kind of tax being amended
in the House bills, still within the purview of the constitutional
provision authorizing the Senate to propose or concur with
amendments to a revenue bill that originated from the House?
The foregoing question had been squarely answered in
the Tolentino case, wherein the Court held, thus:
. . . To begin with, it is not the law—but the revenue bill—which is
required by the Constitution to “originate exclusively” in the House of
Representatives. It is important to emphasize this, because a bill
originating in the House may undergo such extensive changes in the
Senate that the result may be a rewriting of the whole. . . . At this point,
what is important to note is that, as a result of the Senate action, a distinct
bill may be produced. To insist that a revenue statute—and not only the
bill which initiated the legislative process culminating in the
enactment of the law—must substantially be the same as the House
bill would be to deny the Senate’s power not only to “concur with
amendments” but also to “propose amendments.” It would be to violate
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the coequality of legislative power of the two houses of Congress and in
fact make the House superior to the Senate.
...
. . . Given, then, the power of the Senate to propose amendments,
the Senate can propose its own version even with respect to bills which
are required by the Constitution to originate in the House.
...
Indeed, what the Constitution simply means is that the initiative for
filing revenue, tariff or tax bills, bills authorizing an increase of the public
debt, private bills and bills of local application must come from the House
of Representatives on the theory that, elected as they are from the
districts, the members of the House can be expected to be more
sensitive to the local needs and problems. On the other hand, the
senators, who are elected at large, are expected to approach the same
problems from the national perspective. Both views are thereby made
to bear on the enactment of such laws.  (Emphasis supplied)
33
Since there is no question that the revenue bill exclusively
originated in the House of Representatives, the Senate was acting
within its constitutional power to introduce amendments to the
House bill when it included provisions in Senate Bill No. 1950
amending corporate income taxes, percentage, excise and
franchise taxes. Verily, Article VI, Section 24 of the Constitution
does not contain any prohibition or limitation on the extent of the
amendments that may be introduced by the Senate to the House
revenue bill.
Furthermore, the amendments introduced by the Senate to the
NIRC provisions that had not been touched in the House bills are
still in furtherance of the intent of the House in initiating the
subject revenue bills. The Explanatory Note of House Bill No.
1468, the very first House bill introduced on the floor, which was
later substituted by House Bill No. 3555, stated:
_______________
33
 Id., pp. 661-663.
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One of the challenges faced by the present administration is the urgent and
daunting task of solving the country’s serious financial problems. To do
this, government expenditures must be strictly monitored and controlled
and revenues must be significantly increased. This may be easier said than
done, but our fiscal authorities are still optimistic the government will be
operating on a balanced budget by the year 2009. In fact, several measures
that will result to significant expenditure savings have been identified by
the administration. It is supported with a credible package of revenue
measures that include measures to improve tax administration and
control the leakages in revenues from income taxes and the value-
added tax (VAT). (Emphasis supplied)
Rep. Eric D. Singson, in his sponsorship speech for House Bill
No. 3555, declared that:
In the budget message of our President in the year 2005, she reiterated that
we all acknowledged that on top of our agenda must be the restoration of
the health of our fiscal system.
In order to considerably lower the consolidated public sector deficit
and eventually achieve a balanced budget by the year 2009, we need to
seize windows of opportunities which might seem poignant in the
beginning, but in the long run prove effective and beneficial to the
overall status of our economy. One such opportunity is a review of
existing tax rates, evaluating the relevance given our present
conditions.  (Emphasis supplied)
34
Notably therefore, the main purpose of the bills emanating from
the House of Representatives is to bring in sizeable revenues for
the government to supplement our country’s serious financial
problems, and improve tax administration and control of the
leakages in revenues from income taxes and value-added taxes. As
these house bills were transmitted to the Senate, the latter,
approaching the measures from the point of national perspective,
can introduce amendments within the purposes of those bills. It
can provide for ways that
_______________
34
 Transcript of Session Proceedings, January 7, 2005, pp. 19-20.
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110 SUPREME COURT REPORTS ANNOTATED
Abakada Guro Party List vs. Ermita
would soften the impact of the VAT measure on the
consumer, i.e., by distributing the burden across all sectors instead
of putting it entirely on the shoulders of the consumers. The
sponsorship speech of Sen. Ralph Recto on why the provisions on
income tax on corporation were included is worth quoting:
All in all, the proposal of the Senate Committee on Ways and Means will
raise P64.3 billion in additional revenues annually even while by
mitigating prices of power, services and petroleum products.
However, not all of this will be wrung out of VAT. In fact, only P48.7
billion amount is from the VAT on twelve goods and services. The rest of
the tab—P10.5 billion- will be picked by corporations. What we therefore
prescribe is a burden sharing between corporate Philippines and the
consumer. Why should the latter bear all the pain? Why should the fiscal
salvation be only on the burden of the consumer?
The corporate world’s equity is in form of the increase in the
corporate income tax from 32 to 35 percent, but up to 2008 only. This will
raise P10.5 billion a year. After that, the rate will slide back, not to its old
rate of 32 percent, but two notches lower, to 30 percent.
Clearly, we are telling those with the capacity to pay, corporations, to
bear with this emergency provision that will be in effect for 1,200 days,
while we put our fiscal house in order. This fiscal medicine will have an
expiry date.
For their assistance, a reward of tax reduction awaits them. We intend
to keep the length of their sacrifice brief. We would like to assure them
that not because there is a light at the end of the tunnel, this government
will keep on making the tunnel long.
The responsibility will not rest solely on the weary shoulders of the
small man. Big business will be there to share the burden.
35
As the Court has said, the Senate can propose amendments and in
fact, the amendments made on provisions in the tax on
_______________
35
 Journal of the Senate, Session No. 67, March 7, 2005, pp. 727-728.
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Abakada Guro Party List vs. Ermita
income of corporations are germane to the purpose of the house
bills which is to raise revenues for the government.
Likewise, the Court finds the sections referring to other
percentage and excise taxes germane to the reforms to the VAT
system, as these sections would cushion the effects of VAT on
consumers. Considering that certain goods and services which
were subject to percentage tax and excise tax would no longer be
VAT-exempt, the consumer would be burdened more as they
would be paying the VAT in addition to these taxes. Thus, there is
a need to amend these sections to soften the impact of VAT.
Again, in his sponsorship speech, Sen. Recto said:
However, for power plants that run on oil, we will reduce to zero the
present excise tax on bunker fuel, to lessen the effect of a VAT on this
product.
For electric utilities like Meralco, we will wipe out the franchise tax
in exchange for a VAT.
And in the case of petroleum, while we will levy the VAT on oil
products, so as not to destroy the VAT chain, we will however bring down
the excise tax on socially sensitive products such as diesel, bunker, fuel
and kerosene.
...
What do all these exercises point to? These are not contortions of
giving to the left hand what was taken from the right. Rather, these sprang
from our concern of softening the impact of VAT, so that the people can
cushion the blow of higher prices they will have to pay as a result of VAT. 36
The other sections amended by the Senate pertained to matters of
tax administration which are necessary for the implementation of
the changes in the VAT system.
To reiterate, the sections introduced by the Senate are
germane to the subject matter and purposes of the house bills,
which is to supplement our country’s fiscal deficit, among
_______________
36
 Id., p. 726.
112
112 SUPREME COURT REPORTS ANNOTATED
Abakada Guro Party List vs. Ermita
others. Thus, the Senate acted within its power to propose those
amendments.
SUBSTANTIVE ISSUES
I.
Whether Sections 4, 5 and 6 of R.A. No. 9337, amending Sections 106,
107 and 108 of the NIRC, violate the following provisions of the
Constitution:
1. a.Article VI, Section 28(1), and
2. b.Article VI, Section 28(2)
A. No Undue Delegation of Legislative
     Power
Petitioners ABAKADA GURO Party List, et al., Pimentel, Jr., et
al., and Escudero, et al. contend in common that Sections 4, 5 and
6 of R.A. No. 9337, amending Sections 106, 107 and 108,
respectively, of the NIRC giving the President the stand-by
authority to raise the VAT rate from 10% to 12% when a certain
condition is met, constitutes undue delegation of the legislative
power to tax.
The assailed provisions read as follows:
SEC. 4. Sec. 106 of the same Code, as amended, is hereby further amended
to read as follows:
SEC. 106. Value-Added Tax on Sale of Goods or Properties.—
(A) Rate and Base of Tax.—There shall be levied, assessed and collected on every
sale, barter or exchange of goods or properties, a value-added tax equivalent to ten
percent (10%) of the gross selling price or gross value in money of the goods or
properties sold, bartered or exchanged, such tax to be paid by the seller or
transferor: provided, that the President, upon the recommendation of the
Secretary of Finance, shall, effective January 1, 2006, raise the rate of value-
added tax to twelve percent (12%), after any of the following conditions has been
satisfied.
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Abakada Guro Party List vs. Ermita
 1. (i)value-added tax collection as a percentage of Gross
Domestic Product (GDP) of the previous year exceeds two
and four-fifth percent (2 4/5%) or
2. (ii)national government deficit as a percentage of GDP of
the previous year exceeds one and one-half percent (1 ½
%).
SEC. 5. Section 107 of the same Code, as amended, is hereby further
amended to read as follows:
SEC. 107. Value-Added Tax on Importation of Goods.—
(A) In General.—There shall be levied, assessed and collected on every
importation of goods a value-added tax equivalent to ten percent (10%) based on the
total value used by the Bureau of Customs in determining tariff and customs duties,
plus customs duties, excise taxes, if any, and other charges, such tax to be paid by the
importer prior to the release of such goods from customs custody: Provided, That
where the customs duties are determined on the basis of the quantity or volume of the
goods, the value-added tax shall be based on the landed cost plus excise taxes, if
any: provided, further, that the President, upon the recommendation of the
Secretary of Finance, shall, effective January 1, 2006, raise the rate of value-
added tax to twelve percent (12%) after any of the following conditions has been
satisfied.
1. (i)value-added tax collection as a percentage of Gross Domestic
Product (GDP) of the previous year exceeds two and four-fifth
percent (2 4/5%) or
2. (ii)national government deficit as a percentage of GDP of the
previous year exceeds one and one-half percent (1 ½%).
SEC. 6. Section 108 of the same Code, as amended, is hereby further
amended to read as follows:
SEC. 108. Value-added Tax on Sale of Services and Use or Lease of Properties—
(A) Rate and Base of Tax.—There shall be levied, assessed and collected, a
value-added tax equivalent to ten percent (10%) of gross receipts derived from the
sale or exchange
114
114 SUPREME COURT REPORTS ANNOTATED Constitution provides that “the Legislative power shall be vested
Abakada Guro Party List vs. Ermita
of services: provided, that the President, upon the recommendation of the
Secretary of Finance, shall, effective January 1, 2006, raise the rate of value-
added tax to twelve percent (12%), after any of the following conditions has been inherently and exclusively, legislative. Purely legislative power,
satisfied.
1. (i)value-added tax collection as a percentage of Gross Domestic
Product (GDP) of the previous year exceeds two and four-fifth
percent (2 4/5%) or
2. (ii)national government deficit as a percentage of GDP of the
previous year exceeds one and one-half percent (1
1/2%). (Emphasis supplied)
Petitioners allege that the grant of the stand-by authority to the
President to increase the VAT rate is a virtual abdication by
Congress of its exclusive power to tax because such delegation is
not within the purview of Section 28 (2), Article VI of the
Constitution, which provides:
The Congress may, by law, authorize the President to fix within specified
limits, and may impose, tariff rates, import and export quotas, tonnage and
wharfage dues, and other duties or imposts within the framework of the
national development program of the government.
They argue that the VAT is a tax levied on the sale, barter or
exchange of goods and properties as well as on the sale or
exchange of services, which cannot be included within the
purview of tariffs under the exempted delegation as the latter
refers to customs duties, tolls or tribute payable upon merchandise
to the government and usually imposed on goods or merchandise
imported or exported.
Petitioners ABAKADA GURO Party List, et al., further
contend that delegating to the President the legislative power to
tax is contrary to republicanism. They insist that accountability,
responsibility and transparency should dictate the actions of
Congress and they should not pass to the President the decision to
impose taxes. They also argue that the law
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Abakada Guro Party List vs. Ermita
also effectively nullified the President’s power of control, which
includes the authority to set aside and nullify the acts of her
subordinates like the Secretary of Finance, by mandating the
fixing of the tax rate by the President upon the recommendation of
the Secretary of Finance.
Petitioners Pimentel, et al. aver that the President has ample
powers to cause, influence or create the conditions provided by the
law to bring about either or both the conditions precedent.
On the other hand, petitioners Escudero, et al. find bizarre and
revolting the situation that the imposition of the 12% rate would
be subject to the whim of the Secretary of Finance, an unelected
bureaucrat, contrary to the principle of no taxation without
representation. They submit that the Secretary of Finance is not
mandated to give a favorable recommendation and he may not
even give his recommendation. Moreover, they allege that no
guiding standards are provided in the law on what basis and as to
how he will make his recommendation. They claim, nonetheless,
that any recommendation of the Secretary of Finance can easily be
brushed aside by the President since the former is a mere alter ego
of the latter, such that, ultimately, it is the President who decides
whether to impose the increased tax rate or not.
A brief discourse on the principle of non-delegation of powers
is instructive.
The principle of separation of powers ordains that each of the
three great branches of government has exclusive cognizance of
and is supreme in matters falling within its own constitutionally
allocated sphere.  A logical corollary to the doctrine of separation
37
of powers is the principle of non-delegation of powers, as
expressed in the Latin maxim: potestas delegata non delegari
potest which means “what has been
_______________
37
 See Angara vs. Electoral Commission, No. 45081, July 15, 1936, 63 Phil. 139,
156.
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116 SUPREME COURT REPORTS ANNOTATED
Abakada Guro Party List vs. Ermita
delegated, cannot be delegated.”  This doctrine is based on the
38
ethical principle that such as delegated power constitutes not only
a right but a duty to be performed by the delegate through the
instrumentality of his own judgment and not through the
intervening mind of another. 39
With respect to the Legislature, Section 1 of Article VI of the
in the Congress of the Philippines which shall consist of a Senate
and a House of Representatives.” The powers which Congress is
prohibited from delegating are those which are strictly, or
which can never be delegated, has been described as the authority
to make a complete law—complete as to the time when it shall
take effect and as to whom it shall be applicable—and to
determine the expediency of its enactment.  Thus, the rule is that in
40
order that a court may be justified in holding a statute
unconstitutional as a delegation
_______________
 Defensor-Santiago vs. Commission on Elections, G.R. No. 127325, March 19,
38
1997, 270 SCRA 106, 153; People vs. Rosenthal, Nos. 46076 & 46077, June 12,
1939, 68 Phil. 328; ISAGANI A. CRUZ, Philippine Political Law 86 (1996). Judge
Cooley enunciates the doctrine in the following oft-quoted language: “One of the
settled maxims in constitutional law is, that the power conferred upon the legislature
to make laws cannot be delegated by that department to any other body or authority.
Where the sovereign power of the state has located the authority, there it must
remain; and by the constitutional agency alone the laws must be made until the
Constitution itself is changed. The power to whose judgment, wisdom, and patriotism
this high prerogative has been intrusted cannot relieve itself of the responsibility by
choosing other agencies upon which the power shall be devolved, nor can it
substitute the judgment, wisdom, and patriotism of any other body for those to which
alone the people have seen fit to confide this sovereign trust.” (Cooley
on Constitutional Limitations, 8th ed., Vol. I, p. 224)
 United States vs. Barrias, No. 4349, September 24, 1908, 11 Phil. 327, 330.
39
 16 Am Jur 2d, Constitutional Law, § 337.
40
117
VOL. 469, SEPTEMBER 1, 2005
Abakada Guro Party List vs. Ermita
of legislative power, it must appear that the power involved is
purely legislative in nature—that is, one appertaining exclusively
to the legislative department. It is the nature of the power, and not
the liability of its use or the manner of its exercise, which
determines the validity of its delegation.
Nonetheless, the general rule barring delegation of legislative
powers is subject to the following recognized limitations or
exceptions:
1. (1)Delegation of tariff powers to the President under
Section 28 (2) of Article VI of the Constitution;
2. (2)Delegation of emergency powers to the President
under Section 23 (2) of Article VI of the Constitution;
3. (3)Delegation to the people at large;
4. (4)Delegation to local governments; and
5. (5)Delegation to administrative bodies.
In every case of permissible delegation, there must be a showing
that the delegation itself is valid. It is valid only if the law (a) is
complete in itself, setting forth therein the policy to be executed,
carried out, or implemented by the delegate;  and (b) fixes a 41
standard—the limits of which are sufficiently determinate and
determinable—to which the delegate must conform in the
performance of his functions.  A suffi- 42
_______________
 Pelaez vs. Auditor General, No. L-23825, December 24, 1965, 122 Phil. 965,
41
974; 15 SCRA 569, 577, citing Calalang vs. Williams, No. 47800, December 2,
1940, 70 Phil. 726; Pangasinan Transp. Co. vs. Public Service Commission, No.
47065, June 26, 1940, 70 Phil. 221; Cruz vs. Youngberg, No. 34674, October 26,
1931, 56 Phil. 234; Alegre vs. Collector of Customs, No. 30783, August 27, 1929, 53
Phil. 394 et seq.
 Pelaez vs. Auditor General, supra, citing People vs. Lim Ho, No. L-12091-2,
42
January 28, 1960, 106 Phil. 887; People vs. Jolliffee, No. L-9553, May 13, 1959, 105
Phil 677; People vs. Vera, No. 45685, November 16, 1937, 65 Phil. 56; U.S. vs. Nag
Tang Ho, No. L-17122, February 27, 1922, 43 Phil. 1; Compañia General de
Tabacos vs.
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118 SUPREME COURT REPORTS ANNOTATED
Abakada Guro Party List vs. Ermita
cient standard is one which defines legislative policy, marks its
limits, maps out its boundaries and specifies the public agency to
apply it. It indicates the circumstances under which the legislative
command is to be effected.  Both tests are intended to prevent a
43
total transference of legislative authority to the delegate, who is
not allowed to step into the shoes of the legislature and exercise a
power essentially legislative. 44
In People vs. Vera,  the Court, through eminent Justice Jose P.
45
Laurel, expounded on the concept and extent of delegation of
power in this wise:
In testing whether a statute constitutes an undue delegation of legislative
power or not, it is usual to inquire whether the statute was complete in all
its terms and provisions when it left the hands of the legislature so that
nothing was left to the judgment of any other appointee or delegate of the
legislature.
...
‘The true distinction,’ says Judge Ranney, ‘is between the
delegation of power to make the law, which necessarily involves a
discretion as to what it shall be, and conferring an authority or
discretion as to its execution, to be exercised under and in pursuance
of the law. The first cannot be done; to the latter no valid objection
can be made.’
...
It is contended, however, that a legislative act may be made to the
effect as law after it leaves the hands of the legislature. It is true that laws
may be made effective on certain contingencies, as by proclamation of the
executive or the adoption by the people of a particular community.
In Wayman vs. Southard, the Supreme Court
_______________
Board of Public Utility, No. 11216, March 6, 1916, 34 Phil. 136 et seq.
 Edu vs. Ericta, No. L-32096, October 24, 1970, 35 SCRA 481, 497.
43
 Eastern Shipping Lines, Inc. vs. Philippine Overseas Employment Administration, No. L-
44
76633, October 18, 1988, 166 SCRA 533, 543-544.
 No. 45685, November 16, 1937, 65 Phil. 56.
45
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Abakada Guro Party List vs. Ermita
of the United States ruled that the legislature may delegate a power not
legislative which it may itself rightfully exercise. The power to ascertain
facts is such a power which may be delegated. There is nothing
essentially legislative in ascertaining the existence of facts or
conditions as the basis of the taking into effect of a law. That is a
mental process common to all branches of the
government. Notwithstanding the apparent tendency, however, to relax
the rule prohibiting delegation of legislative authority on account of the
complexity arising from social and economic forces at work in this modern
industrial age, the orthodox pronouncement of Judge Cooley in his work
on Constitutional Limitations finds restatement in Prof. Willoughby's
treatise on the Constitution of the United States in the following language
—speaking of declaration of legislative power to administrative
agencies: The principle which permits the legislature to provide that
the administrative agent may determine when the circumstances are
such as require the application of a law is defended upon the ground
that at the time this authority is granted, the rule of public policy,
which is the essence of the legislative act, is determined by the
legislature. In other words, the legislature, as it is its duty to do,
determines that, under given circumstances, certain executive or
administrative action is to be taken, and that, under other
circumstances, different or no action at all is to be taken. What is thus
left to the administrative official is not the legislative determination of
what public policy demands, but simply the ascertainment of what the
facts of the case require to be done according to the terms of the law
by which he is governed. The efficiency of an Act as a declaration of
legislative will must, of course, come from Congress, but the
ascertainment of the contingency upon which the Act shall take effect
may be left to such agencies as it may designate. The legislature, then,
may provide that a law shall take effect upon the happening of future
specified contingencies leaving to some other person or body the
power to determine when the specified contingency has
arisen. (Emphasis supplied). 46
_______________
46
 Id., pp. 115-120.
120
120 SUPREME COURT REPORTS ANNOTATED
Abakada Guro Party List vs. Ermita
In Edu vs. Ericta,  the Court reiterated:
47
What cannot be delegated is the authority under the Constitution to make
laws and to alter and repeal them; the test is the completeness of the statute
in all its terms and provisions when it leaves the hands of the legislature.
To determine whether or not there is an undue delegation of legislative
power, the inquiry must be directed to the scope and definiteness of the
measure enacted. The legislative does not abdicate its functions when it
describes what job must be done, who is to do it, and what is the scope
of his authority. For a complex economy, that may be the only way in
which the legislative process can go forward. A distinction has rightfully
been made between delegation of power to make the laws which
necessarily involves a discretion as to what it shall be, which
constitutionally may not be done, and delegation of authority or
discretion as to its execution to be exercised under and in pursuance of
the law, to which no valid objection can be made. The Constitution is
thus not to be regarded as denying the legislature the necessary resources
of flexibility and practicability. (Emphasis supplied).
48
Clearly, the legislature may delegate to executive officers or
bodies the power to determine certain facts or conditions, or the
happening of contingencies, on which the operation of a statute is,
by its terms, made to depend, but the legislature must prescribe
sufficient standards, policies or limitations on their
authority.  While the power to tax cannot be delegated to executive
49
agencies, details as to the enforcement and administration of an
exercise of such power may be left to them, including the power to
determine the existence of facts on which its operation depends. 50
The rationale for this is that the preliminary ascertainment of
facts as basis for the enactment of legislation is not of itself a
legislative function, but is simply ancillary to legisla-
_______________
47
 Supra, note 43.
48
 Id., pp. 496-497.
49
 16 C.J.S., Constitutional Law, § 138.
50
 Ibid.
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Abakada Guro Party List vs. Ermita
tion. Thus, the duty of correlating information and making
recommendations is the kind of subsidiary activity which the
legislature may perform through its members, or which it may
delegate to others to perform. Intelligent legislation on the
complicated problems of modern society is impossible in the
absence of accurate information on the part of the legislators, and
any reasonable method of securing such information is
proper.  The Constitution as a continuously operative charter of
51
government does not require that Congress find for itself every
fact upon which it desires to base legislative action or that it make
for itself detailed determinations which it has declared to be
prerequisite to application of legislative policy to particular facts
and circumstances impossible for Congress itself properly to
investigate. 52
In the present case, the challenged section of R.A. No. 9337 is
the common proviso in Sections 4, 5 and 6 which reads as follows:
That the President, upon the recommendation of the Secretary of Finance,
shall, effective January 1, 2006, raise the rate of value-added tax to twelve
percent (12%), after any of the following conditions has been satisfied:
1. (i)Value-added tax collection as a percentage of Gross
Domestic Product (GDP) of the previous year exceeds two
and four-fifth percent (2 4/5%); or
2. (ii)National government deficit as a percentage of GDP of the
previous year exceeds one and one-half percent (1 1/2%).
The case before the Court is not a delegation of legislative power.
It is simply a delegation of ascertainment of facts upon which
enforcement and administration of the increase rate under the law
is contingent. The legislature has made the
_______________
 16 Am. Jur. 2d, Constitutional Law § 340.
51
52
 Yajus vs. United States, 321 US 414, 88 L.Ed. 834, 64 S Ct. 660, 28 Ohio Ops
220.
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122 SUPREME COURT REPORTS ANNOTATED
Abakada Guro Party List vs. Ermita
operation of the 12% rate effective January 1, 2006, contingent
upon a specified fact or condition. It leaves the entire operation or
non-operation of the 12% rate upon factual matters outside of the
control of the executive.
No discretion would be exercised by the President.
Highlighting the absence of discretion is the fact that the
word shall is used in the common proviso. The use of the
word shall connotes a mandatory order. Its use in a statute denotes
an imperative obligation and is inconsistent with the idea of
discretion.  Where the law is clear and unambiguous, it must be
53
taken to mean exactly what it says, and courts have no choice but
to see to it that the mandate is obeyed. 54
Thus, it is the ministerial duty of the President to immediately
impose the 12% rate upon the existence of any of the conditions
specified by Congress. This is a duty which cannot be evaded by
the President. Inasmuch as the law specifically uses the
word shall, the exercise of discretion by the President does not
come into play. It is a clear directive to impose the 12% VAT rate
when the specified conditions are present. The time of taking into
effect of the 12% VAT rate is based on the happening of a certain
specified contingency, or upon the ascertainment of certain facts
or conditions by a person or body other than the legislature itself.
The Court finds no merit to the contention of
petitioners ABAKADA GURO Party List, et al. that the law
effectively nullified the President’s power of control over the
Secretary of Finance by mandating the fixing of the tax rate by the
President upon the recommendation of the Secretary of Finance.
The Court cannot also subscribe to the position of petitioners
_______________
 Province of Batangas vs. Romulo, G.R. No. 152774, May 27, 2004, 429 SCRA
53
736; Enriquez vs. Court of Appeals, G.R. No. 140473, January 28, 2003, 396 SCRA
377; Codoy vs. Calugay, G.R. No. 123486, August 12, 1999, 312 SCRA 333.
 Province of Batangas vs. Romulo, supra; Quisumbing vs. Meralco, G.R. No.
54
142943, April 3, 2002, 380 SCRA 195; Agpalo, Statutory Construction, 1990 ed., p.
45.
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Abakada Guro Party List vs. Ermita
Pimentel, et al. that the word shall should be interpreted to
mean may in view of the phrase “upon the recommendation of the
Secretary of Finance.” Neither does the Court find persuasive the
submission of petitioners Escudero, et al. that any
recommendation by the Secretary of Finance can easily be brushed
aside by the President since the former is a mere alter ego of the
latter.
When one speaks of the Secretary of Finance as the alter ego
of the President, it simply means that as head of the Department of
Finance he is the assistant and agent of the Chief Executive. The
multifarious executive and administrative functions of the Chief
Executive are performed by and through the executive
departments, and the acts of the secre-taries of such departments,
such as the Department of Finance, performed and promulgated in
the regular course of business, are, unless disapproved or
reprobated by the Chief Executive, presumptively the acts of the
Chief Executive. The Secretary of Finance, as such, occupies a
political position and holds office in an advisory capacity, and, in
the language of Thomas Jefferson, “should be of the President’s
bosom confidence” and, in the language of Attorney-General
Cushing, is “subject to the direction of the President.”
In the present case, in making his recommendation to the
President on the existence of either of the two conditions, the
Secretary of Finance is not acting as the alter ego of the President
or even her subordinate. In such instance, he is not subject to the
power of control and direction of the President. He is acting as the
agent of the legislative department, to determine and declare the
event upon which its expressed will is to take effect.  The
Secretary of Finance becomes the means or tool by which
legislative policy is determined and
_______________
55
 Villena vs. Secretary of Interior, No. 46570, April 21, 1939, 67 Phil 451, 463-
464.
 Alunan vs. Mirasol, G.R. No. 108399, July 31, 1997, 276 SCRA 501, 513-514,
56
citing Panama Refining Co. vs. Ryan, 293 U.S. 388, 79 L.Ed. 469 (1935).
124
124 SUPREME COURT REPORTS ANNOTATED longer satisfied. Petitioners also argue that such rate is unfair and
Abakada Guro Party List vs. Ermita
implemented, considering that he possesses all the facilities to
gather data and information and has a much broader perspective to
properly evaluate them. His function is to gather and collate
statistical data and other pertinent information and verify if any of provisions of the law are clear. It does not provide for a return to
the two conditions laid out by Congress is present. His personality
in such instance is in reality but a projection of that of Congress.
Thus, being the agent of Congress and not of the President, the
President cannot alter or modify or nullify, or set aside the
findings of the Secretary of Finance and to substitute the judgment
of the former for that of the latter.
Congress simply granted the Secretary of Finance the
authority to ascertain the existence of a fact, namely, whether by
December 31, 2005, the value-added tax collection as a percentage
of Gross Domestic Product (GDP) of the previous year exceeds
two and four-fifth percent (2 4/5%) or the national government
deficit as a percentage of GDP of the previous year exceeds one
and one-half percent (1 1/2%). If either of these two instances has
occurred, the Secretary of Finance, by legislative mandate, must
submit such information to the President. Then the 12% VAT rate
must be imposed by the President effective January 1,
2006. There is no undue delegation of legislative power but only
of the discretion as to the execution of a law. This is
constitutionally permissible.  Congress does not abdicate its
57
functions or unduly delegate power when it describes what job
must be done, who must do it, and what is the scope of his
authority;
_______________
 Compañia General de Tabacos de Filipinas vs. The Board of Public Utility
57
Commissioners, No. 11216, 34 Phil. 136; Cruz vs. Youngberg, No. 34674, October
26, 1931, 56 Phil. 234; People vs. Vera, No. 45685, November 16, 1937, 65 Phil. 56,
113; Edu vs. Ericta, No. L-32096, October 24, 1970, 35 SCRA 481; Tatad vs.
Secretary of the Department of Energy, G.R. No. 124360, November 5, 1997, 281
SCRA 330; Alunan vs. Mirasol, supra.
125
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Abakada Guro Party List vs. Ermita
in our complex economy that is frequently the only way in which
the legislative process can go forward. 58
As to the argument of petitioners ABAKADA GURO Party
List, et al. that delegating to the President the legislative power to
tax is contrary to the principle of republicanism, the same deserves
scant consideration. Congress did not delegate the power to tax but
the mere implementation of the law. The intent and will to
increase the VAT rate to 12% came from Congress and the task of
the President is to simply execute the legislative policy. That
Congress chose to do so in such a manner is not within the
province of the Court to inquire into, its task being to interpret the
law. 59
The insinuation by petitioners Pimentel, et al. that the
President has ample powers to cause, influence or create the
conditions to bring about either or both the conditions precedent
does not deserve any merit as this argument is highly speculative.
The Court does not rule on allegations which are manifestly
conjectural, as these may not exist at all. The Court deals with
facts, not fancies; on realities, not appearances. When the Court
acts on appearances instead of realities, justice and law will be
short-lived.
B. The 12% Increase VAT Rate Does Not
     Impose an Unfair and Unnecessary
     Additional Tax Burden
55
Petitioners Pimentel, et al. argue that the 12% increase in the VAT
rate imposes an unfair and additional tax burden on the people.
Petitioners also argue that the 12% increase, dependent on any of
the 2 conditions set forth in the contested provisions, is ambiguous
because it does not state if the VAT
_______________
56 58
 Bowles vs. Willinghan, 321 US 503, 88 l Ed 892, 64 S Ct 641, 28 Ohio Ops
180.
 United Residents of Dominican Hill, Inc. vs. Commission on the Settlement of
59
Land Problems, G.R. No. 135945, March 7, 2001, 353 SCRA 782; Commissioner of
Internal Revenue vs. Santos, G.R. No. 119252, August 18, 1997, 277 SCRA 617, 630.
126
126 SUPREME COURT REPORTS ANNOTATED
Abakada Guro Party List vs. Ermita
rate would be returned to the original 10% if the rates are no
unreasonable, as the people are unsure of the applicable VAT rate
from year to year.
Under the common provisos of Sections 4, 5 and 6 of R.A.
No. 9337, if any of the two conditions set forth therein are
satisfied, the President shall increase the VAT rate to 12%. The
the 10% rate nor does it empower the President to so revert if,
after the rate is increased to 12%, the VAT collection goes below
the 2 4/5 of the GDP of the previous year or that the national
government deficit as a percentage of GDP of the previous year
does not exceed 1 1/2%.
Therefore, no statutory construction or interpretation is
needed. Neither can conditions or limitations be introduced where
none is provided for. Rewriting the law is a forbidden ground that
only Congress may tread upon.  60
Thus, in the absence of any provision providing for a return to
the 10% rate, which in this case the Court finds none, petitioners’
argument is, at best, purely speculative. There is no basis for
petitioners’ fear of a fluctuating VAT rate because the law itself
does not provide that the rate should go back to 10% if the
conditions provided in Sections 4, 5 and 6 are no longer present.
The rule is that where the provision of the law is clear and
unambiguous, so that there is no occasion for the court’s seeking
the legislative intent, the law must be taken as it is, devoid of
judicial addition or subtraction.
61
Petitioners also contend that the increase in the VAT rate,
which was allegedly an incentive to the President to raise the
_______________
 Commissioner of Internal Revenue vs. American Express International, Inc.
60
(Philippine Branch), G.R. No. 152609, June 29, 2005, 462 SCRA 197.
 Acting Commissioner of Customs vs. MERALCO, No. L-23623, June 30,
61
1977, 77 SCRA 469, 473.
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Abakada Guro Party List vs. Ermita
VAT collection to at least 2 4/5 of the GDP of the previous year,
should be based on fiscal adequacy.
Petitioners obviously overlooked that increase in VAT
collection is not the only condition. There is another
condition, i.e., the national government deficit as a percentage of
GDP of the previous year exceeds one and one-half percent (1
1/2%).
Respondents explained the philosophy behind these
alternative conditions:
1. VAT/GDP Ratio > 2.8%
The condition set for increasing VAT rate to 12% have economic or fiscal
meaning. If VAT/GDP is less than 2.8%, it means that government has
weak or no capability of implementing the VAT or that VAT is not
effective in the function of the tax collection. Therefore, there is no value
to increase it to 12% because such action will also be ineffectual.
2. Nat’l Gov’t Deficit/GDP >1.5%
The condition set for increasing VAT when deficit/GDP is 1.5% or
less means the fiscal condition of government has reached a relatively
sound position or is towards the direction of a balanced budget position.
Therefore, there is no need to increase the VAT rate since the fiscal house
is in a relatively healthy position. Otherwise stated, if the ratio is more than
1.5%, there is indeed a need to increase the VAT rate. 62
That the first condition amounts to an incentive to the President to
increase the VAT collection does not render it unconstitutional so
long as there is a public purpose for which the law was passed,
which in this case, is mainly to raise revenue. In fact, fiscal
adequacy dictated the need for a raise in revenue.
The principle of fiscal adequacy as a characteristic of a sound
tax system was originally stated by Adam Smith in his Canons of
Taxation (1776), as:
_______________
62
 Respondents’ Memorandum, pp. 168-169. In the same vein, the Court in this case will not dawdle on the
purpose of Congress or the executive policy, given that it is not for
128 the judiciary to “pass upon questions of wisdom, justice or
128 SUPREME COURT REPORTS ANNOTATED expediency of legislation.”
Abakada Guro Party List vs. Ermita
IV. Every tax ought to be so contrived as both to take out and to keep out
of the pockets of the people as little as possible over and above what it
brings into the public treasury of the state.
63
It simply means that sources of revenues must be adequate to meet
government expenditures and their variations. 64
The dire need for revenue cannot be ignored. Our country is in
a quagmire of financial woe. During the Bicameral Conference
Committee hearing, then Finance Secretary Purisima bluntly
depicted the country’s gloomy state of economic affairs, thus:
First, let me explain the position that the Philippines finds itself in right
now. We are in a position where 90 percent of our revenue is used for debt
service. So, for every peso of revenue that we currently raise, 90 goes to
debt service. That’s interest plus amortization of our debt. So clearly, this
is not a sustainable situation. That’s the first fact.
The second fact is that our debt to GDP level is way out of line
compared to other peer countries that borrow money from that
international financial markets. Our debt to GDP is approximately equal to
our GDP. Again, that shows you that this is not a sustainable situation.
The third thing that I’d like to point out is the environment that we are
presently operating in is not as benign as what it used to be the past five
years.
What do I mean by that?
In the past five years, we’ve been lucky because we were operating in
a period of basically global growth and low interest rates. The past few
months, we have seen an inching up, in fact, a rapid increase in the interest
rates in the leading economies of the world. And, therefore, our ability to
borrow at reasonable prices is going to be challenged. In fact, ultimately,
the question is our ability to access the financial markets.
_______________
63
 The Wealth of Nations, Book V, Chapter II.
 Chavez vs. Ongpin, G.R. No. 76778, June 6, 1990, 186 SCRA 331, 338.
64
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Abakada Guro Party List vs. Ermita
When the President made her speech in July last year, the environment was
not as bad as it is now, at least based on the forecast of most financial
institutions. So, we were assuming that raising 80 billion would put us in a
position where we can then convince them to improve our ability to
borrow at lower rates. But conditions have changed on us because the
interest rates have gone up. In fact, just within this room, we tried to access
the market for a billion dollars because for this year alone, the Philippines
will have to borrow 4 billion dollars. Of that amount, we have borrowed
1.5 billion. We issued last January a 25-year bond at 9.7 percent cost. We
were trying to access last week and the market was not as favorable and up
to now we have not accessed and we might pull back because the
conditions are not very good.
So given this situation, we at the Department of Finance believe that
we really need to front-end our deficit reduction. Because it is deficit that
is causing the increase of the debt and we are in what we call a debt spiral.
The more debt you have, the more deficit you have because interest and
debt service eats and eats more of your revenue. We need to get out of this
debt spiral. And the only way, I think, we can get out of this debt spiral is
really have a front-end adjustment in our revenue base. 65
The image portrayed is chilling. Congress passed the law hoping
for rescue from an inevitable catastrophe. Whether the law is
indeed sufficient to answer the state’s economic dilemma is not for
the Court to judge. In the Fariñas case, the Court refused to
consider the various arguments raised therein that dwelt on the
wisdom of Section 14 of R.A. No. 9006 (The Fair Election Act),
pronouncing that:
. . . policy matters are not the concern of the Court. Government policy is
within the exclusive dominion of the political branches of the government.
It is not for this Court to look into the wisdom or propriety of legislative
determination. Indeed, whether an enactment is wise or unwise, whether it
is based on sound economic theory, whether it is the best means to achieve
the desired results,
_______________
 TSN, Bicameral Conference Committee on the Disagreeing Provisions of Senate Bill No.
65
1950 and House Bill Nos. 3705 and 3555, April 25, 2005, pp. 5-6.
130
130 SUPREME COURT REPORTS ANNOTATED
Abakada Guro Party List vs. Ermita
whether, in short, the legislative discretion within its prescribed limits
should be exercised in a particular manner are matters for the judgment of
the legislature, and the serious conflict of opinions does not suffice to
bring them within the range of judicial cognizance. 66
67
II.
Whether Section 8 of R.A. No. 9337, amending Sections 110(A)(2) and
110(B) of the NIRC; and Section 12 of R.A. No. 9337, amending Section
114(C) of the NIRC, violate the following provisions of the Constitution:
1. a.Article VI, Section 28(1), and
2. b.Article III, Section 1
A. Due Process and Equal Protection Clauses
Petitioners Association of Pilipinas Shell Dealers, Inc., et al. argue
that Section 8 of R.A. No. 9337, amending Sections 110 (A)(2),
110 (B), and Section 12 of R.A. No. 9337, amending Section 114
(C) of the NIRC are arbitrary, oppressive, excessive and
confiscatory. Their argument is premised on the constitutional
right against deprivation of life, liberty of property without due
process of law, as embodied in Article III, Section 1 of the
Constitution.
Petitioners also contend that these provisions violate the
constitutional guarantee of equal protection of the law.
The doctrine is that where the due process and equal
protection clauses are invoked, considering that they are not
_______________
 G.R. No. 147387, December 10, 2003, 417 SCRA 503, 524.
66
 National Housing Authority vs. Reyes, G.R. No. L-49439, June 29, 1983, 123
67
SCRA 245, 249.
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Abakada Guro Party List vs. Ermita
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.
Section 8 of R.A. No. 9337, amending Section 110(B) of the
NIRC imposes a limitation on the amount of input tax that may be
credited against the output tax. It states, in part: “[P]rovided, that
the input tax inclusive of the input VAT carried over from the
previous quarter that may be credited in every quarter shall not
exceed seventy percent (70%) of the output VAT: . . .”
Input Tax is defined under Section 110(A) of the NIRC, as
amended, as the value-added tax due from or paid by a VAT-
registered person on the importation of goods or local purchase of
good and services, including lease or use of property, in the course
of trade or business, from a VAT-registered person, and Output
Tax is the value-added tax due on the sale or lease of taxable
goods or properties or services by any person registered or
required to register under the law.
Petitioners claim that the contested sections impose
limitations on the amount of input tax that may be claimed. In
effect, a portion of the input tax that has already been paid cannot
now be credited against the output tax.
Petitioners’ argument is not absolute. It assumes that the input
tax exceeds 70% of the output tax, and therefore, the input tax in
excess of 70% remains uncredited. However, to the extent that the
input tax is less than 70% of the output tax, then 100% of such
input tax is still creditable.
More importantly, the excess input tax, if any, is retained in a
business’s books of accounts and remains creditable in the
succeeding quarter/s. This is explicitly allowed by Section 110(B),
which provides that “if the input tax exceeds the output tax, the
excess shall be carried over to the succeeding
_______________
 Sison vs. Ancheta, G.R. No. L-59431, July 25, 1984, 130 SCRA 654, 661.
68
132
132 SUPREME COURT REPORTS ANNOTATED from the gross revenue. When Pres. Aquino issued E.O. No. 273
Abakada Guro Party List vs. Ermita
quarter or quarters.” In addition, Section 112(B) allows a VAT-
registered person to apply for the issuance of a tax credit
certificate or refund for any unused input taxes, to the extent that
such input taxes have not been applied against the output taxes.
Such unused input tax may be used in payment of his other
internal revenue taxes.
The non-application of the unutilized input tax in a given
quarter is not ad infinitum, as petitioners exaggeratedly contend.
Their analysis of the effect of the 70% limitation is incomplete and
one-sided. It ends at the net effect that there will be
unapplied/unutilized inputs VAT for a given quarter. It does not
proceed further to the fact that such unapplied/unutilized input tax
may be credited in the subsequent periods as allowed by the carry-
over provision of Section 110(B) or that it may later on be
refunded through a tax credit certificate under Section 112(B).
Therefore, petitioners’ argument must be rejected.
On the other hand, it appears that petitioner Garcia failed to
comprehend the operation of the 70% limitation on the input tax.
According to petitioner, the limitation on the creditable input tax
in effect allows VAT-registered establishments to retain a portion
of the taxes they collect, which violates the principle that tax
collection and revenue should be for public purposes and
expenditures
As earlier stated, the input tax is the tax paid by a person,
passed on to him by the seller, when he buys goods. Output tax
meanwhile is the tax due to the person when he sells goods. In
computing the VAT payable, three possible scenarios may arise:
First, if at the end of a taxable quarter the output taxes
charged by the seller are equal to the input taxes that he paid and
passed on by the suppliers, then no payment is required;
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Abakada Guro Party List vs. Ermita
Second, when the output taxes exceed the input taxes, the person
shall be liable for the excess, which has to be paid to the Bureau of
Internal Revenue (BIR);  and 69
Third, if the input taxes exceed the output taxes, the excess
shall be carried over to the succeeding quarter or quarters. Should
the input taxes result from zero-rated or effectively zero-rated
transactions, any excess over the output taxes shall instead be
refunded to the taxpayer or credited against other internal revenue
taxes, at the taxpayer’s option.
70
Section 8 of R.A. No. 9337 however, imposed a 70%
limitation on the input tax. Thus, a person can credit his input tax
only up to the extent of 70% of the output tax. In layman’s term,
the value-added taxes that a person/taxpayer paid and passed on to
68 him by a seller can only be credited up to 70% of the value-added
taxes that is due to him on a taxable transaction. There is no
retention of any tax collection because the person/taxpayer has
already previously paid the input tax to a seller, and the seller will
subsequently remit such input tax to the BIR. The party directly
liable for the payment of the tax is the seller.  What only needs to
71
be done is for the person/taxpayer to apply or credit these input
taxes, as evidenced by receipts, against his output taxes.
Petitioners Association of Pilipinas Shell Dealers, Inc., et
al. also argue that the input tax partakes the nature of a property
that may not be confiscated, appropriated, or limited without due
process of law.
The input tax is not a property or a property right within the
constitutional purview of the due process clause. A VAT-
registered person’s entitlement to the creditable input tax is a mere
statutory privilege.
_______________
 Section 8, R.A. No. 9337, amending Section 110(A)(B),NIRC.
69
 Ibid.
70
 Commissioner of Internal Revenue vs. Benguet Corp., G.R. Nos. 134587 &
71
134588, July 8, 2005, 463 SCRA 28.
134
134 SUPREME COURT REPORTS ANNOTATED
Abakada Guro Party List vs. Ermita
The distinction between statutory privileges and vested rights must
be borne in mind for persons have no vested rights in statutory
privileges. The state may change or take away rights, which were
created by the law of the state, although it may not take away
property, which was vested by virtue of such rights. 72
Under the previous system of single-stage taxation, taxes paid
at every level of distribution are not recoverable from the taxes
payable, although it becomes part of the cost, which is deductible
imposing a 10% multi-stage tax on all sales, it was then that the
crediting of the input tax paid on purchase or importation of goods
and services by VAT-registered persons against the output tax was
introduced.  This was adopted by the Expanded VAT Law (R.A.
73
No. 7716),  and The Tax Reform Act of 1997 (R.A. No.
74
8424).  The right to credit input tax as against the output tax is
75
clearly a privilege created by law, a privilege that also the law can
remove, or in this case, limit.
Petitioners also contest as arbitrary, oppressive, excessive and
confiscatory, Section 8 of R.A. No. 9337, amending Section
110(A) of the NIRC, which provides:
SEC. 110. Tax Credits.—
(A) Creditable Input Tax.—. . .
Provided, That the input tax on goods purchased or imported in a
calendar month for use in trade or business for which deduction for
depreciation is allowed under this Code, shall be spread evenly over the
month of acquisition and the fifty-nine (59) succeeding months if the
aggregate acquisition cost for such goods, excluding the VAT component
thereof, exceeds One million pesos (P1,000,000.00):
_______________
 United Paracale Mining Co. vs. Dela Rosa, G.R. Nos. 63786-87, April 7, 1993, 221 SCRA
72
108, 115.
 E.O. No. 273, Section 1.
73
 Section 5. 74
 Section 110(B).
75
135
VOL. 469, SEPTEMBER 1, 2005
Abakada Guro Party List vs. Ermita
Provided, however, That if the estimated useful life of the capital goods is
less than five (5) years, as used for depreciation purposes, then the input
VAT shall be spread over such a shorter period: Provided, finally, That in
the case of purchase of services, lease or use of properties, the input tax
shall be creditable to the purchaser, lessee or license upon payment of the
compensation, rental, royalty or fee.
The foregoing section imposes a 60-month period within which to
amortize the creditable input tax on purchase or importation of
capital goods with acquisition cost of P1 Million pesos, exclusive
of the VAT component. Such spread out only poses a delay in the
crediting of the input tax. Petitioners’ argument is without basis
because the taxpayer is not permanently deprived of his privilege
to credit the input tax.
It is worth mentioning that Congress admitted that the spread-
out of the creditable input tax in this case amounts to a 4-year
interest-free loan to the government.  In the same breath, Congress
76
also justified its move by saying that the provision was designed to
raise an annual revenue of 22.6 billion.  The legislature also
77
dispelled the fear that the provision will fend off foreign
investments, saying that foreign investors have other tax
incentives provided by law, and citing the case of China, where
despite a 17.5% non-creditable VAT, foreign investments were not
deterred.  Again, for whatever is the purpose of the 60-month
78
amortization, this involves executive economic policy and
legislative wisdom in which the Court cannot intervene.
With regard to the 5% creditable withholding tax imposed on
payments made by the government for taxable transactions,
Section 12 of R.A. No. 9337, which amended Section 114 of the
NIRC, reads:
_______________
76
 Journal of the Senate, Session No. 71, March 15, 2005, p. 803.
77
 Id., Session No. 67, March 7, 2005, p. 726.
78
 Id., Session No. 71, March 15, 2005, p. 803.
136
136 SUPREME COURT REPORTS ANNOTATED
Abakada Guro Party List vs. Ermita
SEC. 114. Return and Payment of Value-added Tax.—
(C) Withholding of Value-added Tax.—The Government or any of its
political subdivisions, instrumentalities or agencies, including government-
owned or controlled corporations (GOCCs) shall, before making payment
on account of each purchase of goods and services which are subject to the
value-added tax imposed in Sections 106 and 108 of this Code, deduct and
withhold a final value-added tax at the rate of five percent (5%) of the
gross payment thereof: Provided, That the payment for lease or use of
properties or property rights to nonresident owners shall be subject to ten
percent (10%) withholding tax at the time of payment. For purposes of this
Section, the payor or person in control of the payment shall be considered
as the withholding agent.
The value-added tax withheld under this Section shall be remitted
within ten (10) days following the end of the month the withholding was
made.
Section 114(C) merely provides a method of collection, or as
stated by respondents, a more simplified VAT withholding system.
The government in this case is constituted as a withholding agent
with respect to their payments for goods and services.
Prior to its amendment, Section 114(C) provided for different
rates of value-added taxes to be withheld—3% on gross payments
for purchases of goods; 6% on gross payments for services
supplied by contractors other than by public works contractors;
8.5% on gross payments for services supplied by public work
contractors; or 10% on payment for the lease or use of properties
or property rights to nonresident owners. Under the present
Section 114(C), these different rates, except for the 10% on lease
or property rights payment to non-residents, were deleted, and a
uniform rate of 5% is applied.
The Court observes, however, that the law the used the
word final. In tax usage, final, as opposed to creditable, means
full. Thus, it is provided in Section 114(C): “final value-added tax
at the rate of five percent (5%).”
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Abakada Guro Party List vs. Ermita
In Revenue Regulations No. 02-98, implementing R.A. No. 8424
(The Tax Reform Act of 1997), the concept of final withholding
tax on income was explained, to wit:
SECTION 2.57. Withholding of Tax at Source
(A) Final Withholding Tax.—Under the final withholding tax system
the amount of income tax withheld by the withholding agent is constituted
as full and final payment of the income tax due from the payee on the said
income. The liability for payment of the tax rests primarily on the payor as
a withholding agent. Thus, in case of his failure to withhold the tax or in
case of underwithholding, the deficiency tax shall be collected from the
payor/withholding agent. . . .
(B) Creditable Withholding Tax.—Under the creditable withholding
tax system, taxes withheld on certain income payments are intended to
equal or at least approximate the tax due of the payee on said income. . . .
Taxes withheld on income payments covered by the expanded withholding
tax (referred to in Sec. 2.57.2 of these regulations) and compensation
income (referred to in Sec. 2.78 also of these regulations) are creditable in
nature.
As applied to value-added tax, this means that taxable transactions
with the government are subject to a 5% rate, which constitutes as
full payment of the tax payable on the transaction. This represents
the net VAT payable of the seller. The other 5% effectively
accounts for the standard input VAT (deemed input VAT), in lieu
of the actual input VAT directly or attributable to the taxable
transaction. 79
The Court need not explore the rationale behind the provision.
It is clear that Congress intended to treat differently taxable
transactions with the government.  This is supported by the fact
80
that under the old provision, the 5% tax withheld
_______________
 Revenue Regulations No. 14-2005, 4.114-2(a).
79
 Commissioner of Internal Revenue vs. Philipine American Accident Insurance
80
Company, Inc., G.R. No. 141658, March 18, 2005, 453 SCRA 668.
138
138 SUPREME COURT REPORTS ANNOTATED
Abakada Guro Party List vs. Ermita
by the government remains creditable against the tax liability of
the seller or contractor, to wit:
SEC. 114. Return and Payment of Value-added Tax.—
(C) Withholding of Creditable Value-added Tax.—The Government
or any of its political subdivisions, instrumentalities or agencies, including
government-owned or controlled corporations (GOCCs) shall, before
making payment on account of each purchase of goods from sellers and
services rendered by contractors which are subject to the value-added tax
imposed in Sections 106 and 108 of this Code, deduct and withhold the
value-added tax due at the rate of three percent (3%) of the gross payment
for the purchase of goods and six percent (6%) on gross receipts for
services rendered by contractors on every sale or installment payment
which shall be creditable against the value-added tax liability of the seller
or  contractor: Provided, however, That in the case of government public
works contractors, the withholding rate shall be eight and one-half percent
(8.5%): Provided, further, That the payment for lease or use of properties
or property rights to nonresident owners shall be subject to ten percent
(10%) withholding tax at the time of payment. For this purpose, the payor
or person in control of the payment shall be considered as the withholding
agent.
The valued-added tax withheld under this Section shall be remitted
within ten (10) days following the end of the month the withholding was
made. (Emphasis supplied)
As amended, the use of the word final and the deletion of the
word creditable exhibits Congress’s intention to treat transactions
with the government differently. Since it has not been shown that
the class subject to the 5% final withholding tax has been
unreasonably narrowed, there is no reason to invalidate the
provision. Petitioners, as petroleum dealers, are not the only ones
subjected to the 5% final withholding tax. It applies to all those
who deal with the government.
Moreover, the actual input tax is not totally lost or
uncreditable, as petitioners believe. Revenue Regulations No. 14-
2005 or the Consolidated Value-Added Tax Regulations 2005
issued by the BIR, provides that should the actual input tax exceed
5% of gross payments, the excess may form part of
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Abakada Guro Party List vs. Ermita
the cost. Equally, should the actual input tax be less than 5%, the
difference is treated as income. 81
Petitioners also argue that by imposing a limitation on the
creditable input tax, the government gets to tax a profit or value-
added even if there is no profit or value-added.
Petitioners’ stance is purely hypothetical, argumentative, and
again, one-sided. The Court will not engage in a legal joust where
premises are what ifs, arguments, theoretical and facts, uncertain.
Any disquisition by the Court on this point will only be, as
Shakespeare describes life in Macbeth,  “full of sound and fury,
82
signifying nothing.”
What’s more, petitioners’ contention assumes the proposition
that there is no profit or value-added. It need not take an astute
businessman to know that it is a matter of exception that a
business will sell goods or services without profit or value-added.
It cannot be overstressed that a business is created precisely for
profit.
The equal protection clause under the Constitution means that
“no person or class of persons shall be deprived of the same
protection of laws which is enjoyed by other persons or other
classes in the same place and in like circumstances.” 83
The power of the State to make reasonable and natural
classifications for the purposes of taxation has long been
established. Whether it relates to the subject of taxation, the kind
of property, the rates to be levied, or the amounts to be raised, the
methods of assessment, valuation and collection, the State’s power
is entitled to presumption of validity. As a rule, the judiciary will
not interfere with such power absent a
_______________
81
 Revenue Regulations No. 14-2005, Sec. 4. 114-2.
 Act V, Scene V.
82
83
 Philippine Rural Electric Cooperatives Association, Inc. vs. Department of
Interior and Local Government, G.R. No. 143076, June 10, 2003, 403 SCRA 558,
565.
140
140 SUPREME COURT REPORTS ANNOTATED apply to sales of goods or services with gross annual sales or
Abakada Guro Party List vs. Ermita
clear showing of unreasonableness, discrimination, or
arbitrariness. 84
Petitioners point out that the limitation on the creditable input Naglilingkod sa Pamahalaan ng Pilipinas, Inc. vs. Tan:
tax if the entity has a high ratio of input tax, or invests in capital “The disputed sales tax is also equitable. It is imposed only on sales of
equipment, or has several transactions with the government, is not
based on real and substantial differences to meet a valid
classification.
The argument is pedantic, if not outright baseless. The law
does not make any classification in the subject of taxation, the
kind of property, the rates to be levied or the amounts to be raised,
the methods of assessment, valuation and collection. Petitioners’
alleged distinctions are based on variables that bear different
consequences. While the implementation of the law may yield
varying end results depending on one’s profit margin and value-
added, the Court cannot go beyond what the legislature has laid
down and interfere with the affairs of business.
The equal protection clause does not require the universal
application of the laws on all persons or things without distinction. because in effect, bigger businesses that qualify for VAT coverage
This might in fact sometimes result in unequal protection. What
the clause requires is equality among equals as determined
according to a valid classification. By classification is meant the
grouping of persons or things similar to each other in certain
particulars and different from all others in these same particulars.
Petitioners brought to the Court’s attention the introduction of
Senate Bill No. 2038 by Sens. S.R. Osmeña III and Ma. Ana
Consuelo A.S. Madrigal on June 6, 2005, and House Bill No. 4493
by Rep. Eric D. Singson. The proposed legislation seeks to amend
the 70% limitation by increasing the same to 90%. This, according
to petitioners, supports their stance that the 70% limitation is
arbitrary and confiscatory. On this
_______________
 Aban, Benjamin, Law of Basic Taxation in the Philippines (First Edition
84
1994).
 Philippine Judges Association case, supra., note 29.
85
141
VOL. 469, SEPTEMBER 1, 2005
Abakada Guro Party List vs. Ermita
score, suffice it to say that these are still proposed legislations.
Until Congress amends the law, and absent any unequivocal basis
for its unconstitutionality, the 70% limitation stays.
B. Uniformity and Equitability of Taxation
Article VI, Section 28(1) of the Constitution reads:
The rule of taxation shall be uniform and equitable. The Congress shall
evolve a progressive system of taxation.
Uniformity in taxation means that all taxable articles or kinds of
property of the same class shall be taxed at the same rate.
Different articles may be taxed at different amounts provided that
the rate is uniform on the same class everywhere with all people at
all times.
86
In this case, the tax law is uniform as it provides a standard
rate of 0% or 10% (or 12%) on all goods and services. Sections 4,
5 and 6 of R.A. No. 9337, amending Sections 106, 107 and 108,
respectively, of the NIRC, provide for a rate of 10% (or 12%) on
sale of goods and properties, importation of goods, and sale of
services and use or lease of properties. These same sections also
provide for a 0% rate on certain sales and transaction.
Neither does the law make any distinction as to the type of
industry or trade that will bear the 70% limitation on the creditable
input tax, 5-year amortization of input tax paid on purchase of
capital goods or the 5% final withholding tax by the government.
It must be stressed that the rule of uniform taxation does not
deprive Congress of the power to classify subjects of taxation, and
only demands uniformity within the particular class. 87
_______________
 Commissioner of Internal Revenue vs. Court of Appeals, G.R. No. 119761,
86
August 29, 1996, 261 SCRA 236, 249.
 Kee vs. Court of Tax Appeals, No. L-18080, April 22, 1963, 117 Phil. 682,
87
688; 7 SCRA 670, 676.
142
142 SUPREME COURT REPORTS ANNOTATED
Abakada Guro Party List vs. Ermita
R.A. No. 9337 is also equitable. The law is equipped with a
threshold margin. The VAT rate of 0% or 10% (or 12%) does not
receipts not exceeding P1,500,000.00.  Also, basic marine and 88
agricultural food products in their original state are still not subject
to the tax,  thus ensuring that prices at the grassroots level will
89
remain accessible. As was stated in Kapatiran ng mga
90
goods or services by persons engaged in business with an aggregate gross
annual sales exceeding P200,000.00. Small corner sari-sari stores are
consequently exempt from its application. Likewise exempt from the tax
are sales of farm and marine products, so that the costs of basic food and
other necessities, spared as they are from the incidence of the VAT, are
expected to be relatively lower and within the reach of the general public.”
It is admitted that R.A. No. 9337 puts a premium on businesses
with low profit margins, and unduly favors those with high profit
margins. Congress was not oblivious to this. Thus, to equalize the
weighty burden the law entails, the law, under Section 116,
imposed a 3% percentage tax on VAT-exempt persons under
Section 109(v), i.e., transactions with gross annual sales and/or
receipts not exceeding P1.5 Million. This acts as a equalizer
and VAT-exempt taxpayers stand on equal-footing.
Moreover, Congress provided mitigating measures to cushion
the impact of the imposition of the tax on those previously exempt.
Excise taxes on petroleum products  and natural 91
_______________
85
 Section 7, R.A. No. 9337.
88
 Ibid. 89
 No. L-81311, June 30, 1988, 163 SCRA 371, 383.
90
 Section 17, R.A. No. 9337, amending Section 148, NIRC.
91
143
VOL. 469, SEPTEMBER 1, 2005
Abakada Guro Party List vs. Ermita
gas  were reduced. Percentage tax on domestic carriers was
92
removed.  Power producers are now exempt from paying franchise
93
tax.94
Aside from these, Congress also increased the income tax
rates of corporations, in order to distribute the burden of taxation.
Domestic, foreign, and non-resident corporations are now subject
to a 35% income tax rate, from a previous 32%.   Intercorporate 95
dividends of non-resident foreign corporations are still subject to
15% final withholding tax but the tax credit allowed on the
corporation’s domicile was increased to 20%.  The Philippine
96
Amusement and Gaming Corporation (PAGCOR) is not exempt
from income taxes anymore.  Even the sale by an artist of his
97
works or services performed for the production of such works was
not spared.
All these were designed to ease, as well as spread out, the
burden of taxation, which would otherwise rest largely on the
consumers. It cannot therefore be gainsaid that R.A. No. 9337 is
equitable.
C. Progressivity of Taxation
Lastly, petitioners contend that the limitation on the creditable
input tax is anything but regressive. It is the smaller business with
higher input tax-output tax ratio that will suffer the consequences.
Progressive taxation is built on the principle of the tax-payer’s
ability to pay. This principle was also lifted from Adam
Smith’s Canons of Taxation, and it states:
_______________
 92
 Section 18, amending Section 151, NIRC.
93
 Section 14, amending Section 117, NIRC.
94
 Section 15, amending Section 119, NIRC.
 Sections 1 and 2, amending Sections 27 and 28, NIRC.
95
96
 Section 2, amending Section 28, NIRC.
97
 Section 1, amending Section 27(C), NIRC.
144
144 SUPREME COURT REPORTS ANNOTATED unconstitutional, the petitions in G.R. Nos. 168056, 168207,
Abakada Guro Party List vs. Ermita
I. The subjects of every state ought to contribute towards the support of the
government, as nearly as possible, in proportion to their respective
abilities; that is, in proportion to the revenue which they respectively enjoy issued by the Court on July 1, 2005 is LIFTED upon finality of
under the protection of the state.
Taxation is progressive when its rate goes up depending on the
resources of the person affected. 98
The VAT is an antithesis of progressive taxation. By its very
nature, it is regressive. The principle of progressive taxation has
no relation with the VAT system inasmuch as the VAT paid by the
consumer or business for every goods bought or services enjoyed
is the same regardless of income. In other words, the VAT paid
eats the same portion of an income, whether big or small. The
disparity lies in the income earned by a person or profit margin
marked by a business, such that the higher the income or profit
margin, the smaller the portion of the income or profit that is eaten
by VAT. A converso, the lower the income or profit margin, the
bigger the part that the VAT eats away. At the end of the day, it is
really the lower income group or businesses with low-profit
margins that is always hardest hit.
Nevertheless, the Constitution does not really prohibit the
imposition of indirect taxes, like the VAT. What it simply
provides is that Congress shall “evolve a progressive system of
taxation.” The Court stated in the Tolentino case, thus:
“The Constitution does not really prohibit the imposition of indirect taxes
which, like the VAT, are regressive. What it simply provides is that
Congress shall ‘evolve a progressive system of taxa-tion.’ The
constitutional provision has been interpreted to mean simply that ‘direct
taxes are . . . to be preferred [and] as much as possible, indirect taxes
should be minimized.’ (E. FERNANDO, THE CONSTITUTION OF THE
PHILIPPINES 221 [Second ed. 1977]) Indeed, the mandate to Congress is
not to prescribe, but to evolve, a progressive tax system. Otherwise, sales
taxes, which perhaps are
_______________
98
 Reyes vs. Almanzor, G.R. Nos. 49839-46, April 26, 1991, 196 SCRA 322, 327.
145
VOL. 469, SEPTEMBER 1, 2005
Abakada Guro Party List vs. Ermita
the oldest form of indirect taxes, would have been prohibited with the
proclamation of Art. VIII, §17 (1) of the 1973 Constitution from which the
present Art. VI, §28 (1) was taken. Sales taxes are also regressive.
Resort to indirect taxes should be minimized but not avoided entirely
because it is difficult, if not impossible, to avoid them by imposing such
taxes according to the taxpayers’ ability to pay. In the case of the VAT, the
law minimizes the regressive effects of this imposition by providing for
zero rating of certain transactions (R.A. No. 7716, §3, amending §102 (b)
of the NIRC), while granting exemptions to other transactions. (R.A. No.
7716, §4 amending §103 of the NIRC)” 99
CONCLUSION
It has been said that taxes are the lifeblood of the government. In
this case, it is just an enema, a first-aid measure to resuscitate an
economy in distress. The Court is neither blind nor is it turning a
deaf ear on the plight of the masses. But it does not have the
panacea for the malady that the law seeks to remedy. As in other
cases, the Court cannot strike down a law as unconstitutional
simply because of its yokes.
Let us not be overly influenced by the plea that for every wrong there is a
remedy, and that the judiciary should stand ready to afford relief. There are
undoubtedly many wrongs the judicature may not correct, for instance,
those involving political questions. . . .
Let us likewise disabuse our minds from the notion that the judiciary
is the repository of remedies for all political or social ills; We should not
forget that the Constitution has judiciously allocated the powers of
government to three distinct and separate compartments; and that judicial
interpretation has tended to the preservation of the independence of the
three, and a zealous regard of the prerogatives of each, knowing full well
that one is not the guardian
_______________
 Tolentino vs. Secretary of Finance, G.R. No. 115455, October 30, 1995, 249 SCRA 628,
99
659.
146
146 SUPREME COURT REPORTS ANNOTATED indubitably, these bills are revenue bills in that they are intended
Abakada Guro Party List vs. Ermita
of the others and that, for official wrong-doing, each may be brought to
account, either by impeachment, trial or by the ballot box. 100
The words of the Court in Vera vs. Avelino  holds true then, as it
101
still holds true now. All things considered, there is no raison
d'être for the unconstitutionality of R.A. No. 9337.
WHEREFORE, Republic Act No. 9337 not being
168461, 168463, and 168730, are hereby DISMISSED. There
being no constitutional impediment to the full enforcement and
implementation of R.A. No. 9337, the temporary restraining order
herein decision.
SO ORDERED.
     Carpio, J., concur.
     Davide, Jr. (C.J.), Please see Separate Concurring and
Dissenting Opinion.
     Puno, J., Please see Concurring and Dissenting Opinion.
     Panganiban, J., Please see Separate Opinion.
     Quisumbing, J., In the result.
     Ynares-Santiago, J., I certify that she participated in the
oral arguments and initial deliberations and allows to vote and
submit for separate opinion. Davide, Jr. (C.J.)
     Sandoval-Gutierrez, J., Please see my Concurring and
Dissenting Opinion.
     Corona, J., I join Mme. Justice Sandoval-Gutierrez in
her concurring and dissenting opinion.
_______________
 Vera vs. Avelino, G.R. No. L-543, August 31, 1946, 77 Phil. 365.
100
 Ibid.
101
147
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Abakada Guro Party List vs. Ermita
     Carpio-Morales, J., I concur. I also concur with the
dissent of J. Tinga on Section 8 of the law.
     Callejo, Sr., J., Please See My Concurring and
Dissenting Opinion.
     Azcuna, J., Please see Separate Concurring and
Dissenting opinion.
     Tinga, J., See Dissenting and Concurring Opinion.
     Chico-Nazario, J., Please see Separate Concurring
Opinion.
     Garcia, J., I also concur with J. Puno insofar as the
deletion of no pass on provision is concerned, including Sec. 21.
SEPARATE CONCURRING
AND DISSENTING OPINION
DAVIDE, JR., C.J.:
While I still hold on to my position expressed in my dissenting
opinion in the first VAT cases,  I partly yield to the application to
1
the cases at bar of the rule on “germaneness” therein enunciated.
Thus, I concur with the ponencia of my highly-esteemed colleague
Mme. Justice Ma. Alicia Austria-Martinez except as regards its
ruling on the issue of whether Republic Act No. 9337 violates
Section 24, Article VI of the Constitution.
R.A. No. 9337 primarily aims to restructure the value-added
tax (VAT) system by broadening its base and raising the rate so as
to generate more revenues for the government that can assuage the
economic predicament that our country is now facing. This
recently enacted law stemmed from three legislative bills: House
Bill (HB) No. 3555, HB No. 3705, and Senate Bill (SB) 1950. The
first (HB No. 3555) called for the
_______________
 Tolentino v. Secretary of Finance, G.R. No. 115455, 25 August 1994, 235
1
SCRA 630, and companion cases.
148
148 SUPREME COURT REPORTS ANNOTATED
Abakada Guro Party List vs. Ermita
amendment of Sections 106, 107, 108, 109, 110, and 111 of the
National Internal Revenue Code (NIRC) as amended; while the
second (HB No. 3705) proposed amendments to Sections 106,
107, 108, 110, and 114 of the NIRC, as amended. It is significant
to note that all these Sections specifically deal with VAT. And
to levy taxes and raise funds for the government. 2
 On the other hand, SB No. 1950 introduced amendments to
“Sections 27, 28, 34, 106, 108, 109, 110, 111, 112, 113, 114, 116,
117, 118, 119, 125, 148, 236, 237, and 288” of the NIRC, as
amended. Among the provisions sought to be amended, only
Sections 106, 108, 109, 110, 111, 112, 113, 114, and 116 pertain
to VAT. And while Sections 236, 237, and 288 are administrative
provisions pertaining to registration requirements and issuance of
receipts commercial invoices, the proposed amendments thereto
are related to VAT. Hence, the proposed amendments to these
Sections were validly taken cognizance of and properly considered
by the Bicameral Conference Committee (BCC).
However, I am of the opinion that the inclusion into the law of
the amendments proposed in SB No. 1950 to the following
provisions (with modifications on the rates of taxes) is invalid.
Provision Subject matter
Section 27 Rate of income tax on domestic corporations were covered in the House bill. Although the new provisions
Section 28(A)(1)
Rate of income tax on resident foreign corporation
Section 28(B)(1) Rate of income tax on non-resident foreign
corporation
_______________
2
 ISAGANI A. CRUZ, POLITICAL LAW 154 (2002 ed.) citing U.S. v.
Nortorn, 91 U.S. 566.
149
VOL. 469, SEPTEMBER 1, 2005
Abakada Guro Party List vs. Ermita
Section 28(B) Rate of income tax on intracorporate dividends receivednamely, Sections 121 (Percentage Tax on Banks and Non-Bank
(5-b) by non-resident foreign corporation
Section 34(B) Deductions from gross income
(1)
Section 117 Percentage tax on domestic carriers and keepers of3705, which dealt with VAT only. Since the proposed
garages
Section 119 Tax on franchises
Section 148 Excise tax on manufactured oils and other fuels and 3555, in violation of Section 24, Article VI of the
Obviously, these provisions do not deal with VAT. It must be
noted that the House Bills initiated amendments to provisions
pertaining to VAT only. Doubtless, the Senate has the
constitutional power to concur with the amendments to the VAT
provisions introduced in the House Bills or even to propose its
own version of VAT measure. But that power does not extend to
initiation of other tax measures, such as introducing amendments
to provisions on corporate income taxes, percentage taxes,
franchise taxes, and excise taxes like what the Senate did in these
cases. It was beyond the ambit of the authority of the Senate to
propose amendments to provisions not covered by the House Bills
or not related to the subject matter of the House Bills, which is
VAT. To allow the Senate to do so would be tantamount to vesting
in it the power to initiate revenue bills—a power that exclusively
pertains to the House of Representatives under Section 24, Article
VI of the Constitution, which provides:
Sec. 24. All appropriation, revenue or tariff bills, bills authorizing increase
of the public debt, bills of local application, and private bills shall originate 3, 14, 15, 16, 17, and 18 thereof which, respectively, amend
exclusively in the House of Representatives but the Senate may propose or
concur with amendments.
Moreover, Sections 121 (Percentage Tax on Banks and Non-Bank
Financial Intermediaries) and 151 (Excise Tax on Mineral
Products) of the NIRC, as amended, have been included by the
BCC in R.A. No. 9337 even though they were not found in the
Senate and House Bills.
150
150 SUPREME COURT REPORTS ANNOTATED VI of the Constitution.
Abakada Guro Party List vs. Ermita
In Philippine Judges Association v. Prado,  the Court described the
3
function of a conference committee in this wise: “A conference
committee may deal generally with the subject matter or it may be
limited to resolving the precise differences between the two
houses. Even where the conference committee is not by rule
limited in its jurisdiction, legislative custom severely limits the
freedom with which new subject matter can be inserted into the
conference bill.”
The limitation on the power of a conference committee to
insert new provisions was laid down in Tolentino v. Secretary of
Finance.  There, the Court, while recognizing the power of a
4
conference committee to include in its report an entirely new
provision that is not found either in the House bill or in the Senate
bill, held that the exercise of that power is subject to the condition
that the said provision is “germane to the subject of the House and
Senate bills.”
As pointed out by the petitioners, Tolentino differs from the
present cases in the sense that in that case the amendments
introduced in the Senate bill were on the same subject
matter treated in the House bill, which was VAT, and the new
provision inserted by the conference committee had relation to that
subject matter. Specifically, HB No. 11197 called for the (1)
amendment of Sections 99, 100, 102, 103, 104, 105, 106, 107,
108, 110, 112, 115, 116, 236, 237, and 238 of the NIRC, as
amended; and (2) repeal of Sections 113 and 114 of the NIRC, as
amended. SB No. 1630, on the other hand, proposed the (1)
amendment of Sections 99, 100, 102, 103, 104, 105, 107, 108,
110, 112, 236, 237, and 238 of the NIRC, as amended; and (2)
repeal of Sections 113, 114, and 116 of the NIRC, as amended. In
short, all the provisions sought to be changed in the Senate bill
inserted by the conference committee were not found in
_______________
3
 G.R. No. 105371, 11 November 1993, 27 SCRA 703, 708, citing
Davies, Legislative Law and Process: In a Nutshell 81 (1986 ed.)
4
 Supra note 1.
151
VOL. 469, SEPTEMBER 1, 2005
Abakada Guro Party List vs. Ermita
either the House or Senate bills, they were germane to the general
subject of the bills.
In the present cases, the provisions inserted by the BCC,
Financial Intermediaries) and 151 (Excise Tax on Mineral
Products) of the NIRC, as amended, are undoubtedly germane to
SB No. 1950, which introduced amendments to the provisions on
percentage and excise taxes—but foreign to HB Nos. 3555 and
amendments in the Senate bill relating to percentage and excise
taxes cannot themselves be sustained because they did not take
their root from, or are not related to the subject of, HB Nos. 3705
Constitution, the new provisions inserted by the BCC on
percentage and excise taxes would have no leg to stand on.
I understand very well that the amendments of the Senate and
the BCC relating to corporate income, percentage, franchise, and
excise taxes were designed to “soften the impact of VAT measure
on the consumer, i.e., by distributing the burden across all sectors
instead of putting it entirely on the shoulders of the consumers”
and to alleviate the country’s financial problems by bringing more
revenues for the government. However, these commendable
intentions do not justify a deviation from the Constitution, which
mandates that the initiative for filing revenue bills should come
from the House of Representatives, not from the Senate. After all,
these aims may still be realized by means of another bill that may
later be initiated by the House of Representatives.
Therefore, I vote to declare R.A. No. 9337
as constitutional insofar as it amends provisions pertaining to
VAT. However, I vote to declare as unconstitutional Sections 1, 2,
Sections 27, 28, 34, 117, 119, 121, 148, and 151 of the NIRC, as
amended because these amendments deal with subject matters
which were not touched or covered by the bills emanating from
the
152
152 SUPREME COURT REPORTS ANNOTATED
Abakada Guro Party List vs. Ermita
House of Representatives, thereby violating Section 24 of Article
CONCURRING AND DISSENTING OPINION
PUNO, J.:
The main opinion of Madam Justice Martinez exhaustively
discusses the numerous constitutional and legal issues raised by
the petitioners. Be that as it may, I wish to raise the following
points, viz.:
First. Petitioners assail sections 4 to 6 of Republic Act No.
9337 as violative of the principle of non-delegation of legislative
power. These sections authorize the President, upon
recommendation of the Secretary of Finance, to raise the value-
added tax (VAT) rate to 12% effective January 1, 2006, upon
satisfaction of the following conditions: viz.:
 1. (i)Value-added tax collection as a percentage of Gross
Domestic Product (GDP) of the previous year exceeds
two and four-fifth percent (2 4/5%); or
2. (ii)National government deficit as a percentage of GDP
of the previous year exceeds one and one-half percent
(1 1/2%).
The power of judicial review under Article VIII, section 5(2) of
the 1987 Constitution is limited to the review of “actual cases and
controversies.”  As rightly stressed by retired Justice Vicente V.
1
Mendoza, this requirement gives the judiciary “the opportunity,
denied to the legislature, of seeing the actual operation of the
statute as it is applied to actual facts and thus enables it to reach
sounder judgment” and “enhances public acceptance of its role in
our system of government.”  It also assures that the judiciary does
2
not intrude on areas
_______________
 Angara v. Electoral Commission, 63 Phil. 139 (1936); See also
1
Tribe, American Constitutional Law, pp. 311-314 (3rd ed.).
 Mendoza, Judicial Review of Constitutional Questions: Cases and Materials,
2
p. 86 (2004).
153
VOL. 469, SEPTEMBER 1, 2005
Abakada Guro Party List vs. Ermita
committed to the other branches of government and is confined to
its role as defined by the Constitution.  Apposite thereto is the
3
doctrine of ripeness whose basic rationale is “to prevent the
courts, through premature adjudication, from entangling
themselves in abstract disagreements.”  Central to the doctrine is
4 either Houses within the limits of the disagreement. Conferees are limited to the
the determination of “whether the case involves uncertain or
contingent future events that may not occur as anticipated, or
indeed may not occur at all.”  The ripeness requirement must be
5
satisfied for each challenged legal provision and parts of a statute
so that those which are “not immediately involved are not thereby
thrown open for a judicial determination of constitutionality.” 6
It is manifest that the constitutional challenge to sections 4 to
6 of R.A. No. 9337 cannot hurdle the requirement of
ripeness. These sections give the President the power to raise the
VAT rate to 12% on January 1, 2006 upon satisfaction of certain
fact-based conditions. We are not endowed with the infallible gift
of prophesy to know whether these conditions are certain to
happen. The power to adjust the tax rate given to the President is
futuristic and may or may not be exercised. The Court is therefore
beseeched to render a conjectural judgment based on hypothetical
facts. Such a supplication has to be rejected.
Second. With due respect, I submit that the most important
constitutional issue posed by the petitions at bar relates to
the parameters of power of a Bicameral Conference Com-
_______________
 Id., at p. 87.
3
 Abbott Laboratories v. Gardner, 387 U.S. 136 (1967); I Tribe, American
4
Constitutional Law, p. 334 (3rd ed.).
 Texas v. United States, 523 U.S. 296 (1998); Thomas v. Union Carbide
5 provide for a Congress composed of three chambers. On the contrary,
Agricultural Products Co., 473 U.S. 568 (1985); I Tribe, American Constitutional
Law, pp. 335-336 (3rd ed.).
 Communist Party of the United States v. Subversive Activities Control Bd., 367
6
U.S. 1, 71 (1961); I Tribe, American Constitutional Law, p. 336 (3rd ed.); See
also concurring opinion of Justice Brandeis in Ashwander v. Tennessee Valley
Authority, 297 U.S. 288 (1936).
154
154 SUPREME COURT REPORTS ANNOTATED
Abakada Guro Party List vs. Ermita
mittee. Most of the issues in the petitions at bar arose because the
Bicameral Conference Committee concerned exercised powers
that went beyond reconciling the differences between Senate Bill
No. 1950 and House Bill Nos. 3705 and 3555. In Tolentino v.
Secretary of Finance,  I ventured the view that a Bicameral
7
Conference Committee has limited powers and cannot be allowed
to act as if it were a “third house” of Congress. I further warned
that unless its roving powers are reigned in, a Bicameral
Conference Committee can wreck the lawmaking process which is
a cornerstone of the democratic, republican regime established in
our Constitution. The passage of time fortifies my faith that there
ought to be no legal u-turn on this preeminent principle. I wish,
therefore, to reiterate my reasons for this unbending view, viz.:
Section 209, Rule XII of the Rules of the Senate provides:
In the event that the Senate does not agree with the House of Representatives on the
provision of any bill or joint resolution, the differences shall be settled by a
conference committee of both Houses which shall meet within ten days after their
composition.
Each Conference Committee Report shall contain a detailed and sufficiently
explicit statement of the changes in or amendments to the subject measure, and shall
be signed by the conferees. (Emphasis supplied)
The counterpart rule of the House of Representatives is cast in near
identical language. Section 85 of the Rules of the House of Representatives
pertinently provides:
In the event that the House does not agree with the Senate on the amendments to any
bill or joint resolution, the differences may be settled by a conference committee of
both chambers.
_______________
7
 235 SCRA 630 (1994).
8
 See Opinion in 235 SCRA 630, 805-825.
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x x x. Each report shall contain a detailed, sufficiently explicit statement of the
changes in or amendments to the subject measure. (Emphasis supplied)
The Jefferson’s Manual has been adopted as a supplement to our
parliamentary rules and practice. Section 456 of Jefferson’s Manual
similarly confines the powers of a conference committee, viz.:
The managers of a conference must confine themselves to the differences committed
to them …a and may not include subjects not within the disagreements, even though
germane to a question in issue.
This rule of antiquity has been honed and honored in practice by the
Congress of the United States. Thus, it is chronicled by Floyd Biddick,
Parliamentarian Emeritus of the United States Senate, viz.:
Committees of conference are appointed for the sole purpose of compromising and
adjusting the differing and conflicting opinions of the two Houses and the
committees of conference alone can grant compromises and modify propositions of
consideration of differences between the two Houses.
Congress shall not insert in their report matters not committed to them by
either House, nor shall they strike from the bill matters agreed to by both
Houses. No matter on which there is nothing in either the Senate or House passed
versions of a bill may be included in the conference report and actions to the contrary
would subject the report to a point of order. (Emphasis ours)
In fine, there is neither a sound nor a syllable in the Rules of the
Senate and the House of Representatives to support the thesis of the
respondents that a bicameral conference committee is clothed with an ex
post veto power.
But the thesis that a Bicameral Conference Committee can wield ex
post veto power does not only contravene the rules of both the Senate and
the House. It wages war against our settled ideals of representative
democracy. For the inevitable, catastrophic effect of the thesis is to install
a Bicameral Conference Committee as the Third Chamber of our
Congress, similarly vested with the power to make laws but with
the dissimilarity that its laws are not the sub-
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156 SUPREME COURT REPORTS ANNOTATED
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ject of a free and full discussion of both Houses of Congress. With such a
vagrant power, a Bicameral Conference Committee acting as a Third
Chamber will be a constitutional monstrosity.
It needs no omniscience to perceive that our Constitution did not
section 1, Article VI of the Constitution provides in clear and certain
language: “The legislative power shall be vested in the Congress of the
Philippines which shall consist of a Senate and a House of Representatives
. . .” Note that in vesting legislative power exclusively to the Senate and
the House, the Constitution used the word “shall.” Its command for a
Congress of two houses is mandatory. It is not mandatory sometimes.
In vesting legislative power to the Senate, the Constitution means the
Senate “. . . composed of twenty-four Senators x x x elected at large by the
qualified voters of the Philippines . . .” Similarly, when the Constitution
vested the legislative power to the House, it means the House “. . .
composed of not more than two hundred and fifty members x x x who shall
be elected from legislative districts x x x and those who x x x shall be
elected through a party-list system of registered national, regional, and
sectoral parties or organizations.” The Constitution thus, did not vest on a
Bicameral Conference Committee with an ad hoc membership the power
to legislate for it exclusively vested legislative power to the Senate and the
House as co-equal bodies. To be sure, the Constitution does not mention
the Bicameral Conference Committees of Congress. No constitutional
status is accorded to them. They are not even statutory creations. They owe
their existence from the internal rules of the two Houses of Congress. Yet,
respondents peddle the disconcerting idea that they should be recognized
as a Third Chamber of Congress and with ex post veto power at that.
The thesis that a Bicameral Conference Committee can exercise law
making power with ex post veto power is freighted with mischief. Law
8
making is a power that can be used for good or for ill, hence, our
Constitution carefully laid out a plan and a procedure for its
exercise. Firstly, it vouchsafed that the power to make laws should be
exercised by no other body except the Senate and the House. It ought to be
indubitable that what is contemplated is the Senate acting as a full Senate
and the House acting as a full House. It is only when the Senate and the
House act as whole bodies that they truly represent the people. And it is
only when they represent
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the people that they can legitimately pass laws. Laws that are not enacted
by the people’s rightful representatives subvert the people’s sovereignty.
Bicameral Conference Committees, with their ad hoc character and limited
membership, cannot pass laws for they do not represent the people. The
Constitution does not allow the tyranny of the majority. Yet, the
respondents will impose the worst kind of tyranny—the tyranny of the
minority over the majority. Secondly, the Constitution delineated in deft
strokes the steps to be followed in making laws. The overriding purpose of
these procedural rules is to assure that only bills that successfully survive
the searching scrutiny of the proper committees of Congress and the full
and unfettered deliberations of both Houses can become laws. For this
reason, a bill has to undergo three (3) mandatory separate readings in each
House. In the case at bench, the additions and deletions made by the
Bicameral Conference Committee did not enjoy the enlightened studies of
appropriate committees. It is meet to note that the complexities of modern
day legislations have made our committee system a significant part of the
legislative process. Thomas Reed called the committee system as “the eye,
the ear, the hand, and very often the brain of the house.” President
Woodrow Wilson of the United States once referred to the government of
the United States as “a government by the Chairmen of the Standing
Committees of Congress …”” Neither did these additions and deletions of
the Bicameral Conference Committee pass through the coils of collective
deliberation of the members of the two Houses acting separately. Due to
this short-circuiting of the constitutional procedure of making laws,
confusion shrouds the enactment of R.A. No. 7716. Who inserted the
additions and deletions remains a mystery. Why they were inserted is a
riddle. To use a Churchillian phrase, lawmaking should not be a riddle
wrapped in an enigma. It cannot be, for Article II, section 28 of the
Constitution mandates the State to adopt and implement a “policy of full
public disclosure of all its transactions involving public interest.” The
Constitution could not have contemplated a Congress of invisible and
unaccountable John and Mary Does. A law whose rationale is a riddle and
whose authorship is obscure cannot bind the people.
All these notwithstanding, respondents resort to the legal cosmetology
that these additions and deletions should govern the people as laws
because the Bicameral Conference Committee Report was anyway
submitted to and approved by the Senate and the House of Representatives.
The submission may have some merit with respect
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158 SUPREME COURT REPORTS ANNOTATED
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to provisions agreed upon by the Committee in the process of reconciling
conflicts between S.B. No. 1630 and H.B. No. 11197. In these instances,
the conflicting provisions had been previously screened by the proper
committees, deliberated upon by both Houses and approved by them. It is,
however, a different matter with respect to additions and deletions which
were entirely new and which were made not to reconcile inconsistencies
between S.B. No. 1630 and H.B. No. 11197. The members of the
Bicameral Conference Committee did not have any authority to add new
provisions or delete provisions already approved by both Houses as it was
not necessary to discharge their limited task of reconciling differences in
bills. At that late stage of law making, the Conference Committee cannot
add/delete provisions which can become laws without undergoing the
study and deliberation of both chambers given to bills on 1st, 2nd, and 3rd
readings. Even the Senate and the House cannot enact a law which will not
undergo these mandatory three (3) readings required by the Constitution. If
the Senate and the House cannot enact such a law, neither can the lesser
Bicameral Conference Committee.
Moreover, the so-called choice given to the members of both Houses
to either approve or disapprove the said additions and deletions is more of
an optical illusion. These additions and deletions are not submitted
separately for approval. They are tucked to the entire bill. The vote is on
the bill as a package, i.e., together with the insertions and deletions. And
the vote is either “aye” or “nay,” without any further debate and
deliberation. Quite often, legislators vote “yes” because they approve of
the bill as a whole although they may object to its amendments by the
Conference Committee. This lack of real choice is well observed by Robert
Luce:
Their power lies chiefly in the fact that reports of conference committees must be
accepted without amendment or else rejected in toto. The impulse is to get done with
the matter and so the motion to accept has undue advantage, for some members are
sure to prefer swallowing unpalatable provisions rather than prolong controversy.
This is the more likely if the report comes in the rush of business toward the end of a
session, when to seek further conference might result in the loss of the measure
altogether. At any time in the session there is some risk of such a result following the
rejection of a conference report, for it may not be possible to secure a second con-
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ference, or delay may give opposition to the main proposal chance to develop more
strength.
In a similar vein, Prof. Jack Davies commented that “conference
reports are returned to assembly and Senate on a take-it or leave-it-basis,
and the bodies are generally placed in the position that to leave-it is a
practical impossibility.” Thus, he concludes that “conference committee
action is the most undemocratic procedure in the legislative process.”
The respondents also contend that the additions and deletions made by
the Bicameral Conference Committee were in accord with legislative
customs and usages. The argument does not persuade for it misappreciates
the value of customs and usages in the hierarchy of sources of legislative
rules of procedure. To be sure, every legislative assembly has the inherent
right to promulgate its own internal rules. In our jurisdiction, Article VI,
section 16(3) of the Constitution provides that “Each House may determine
the rules of its proceedings x x x.” But it is hornbook law that the sources
of Rules of Procedure are many and hierarchical in character. Mason laid
them down as follows:
xxx
1. 1.Rules of Procedure are derived from several sources. The principal
sources are as follows:
1. a.Constitutional rules.
2. b.Statutory rules or charter provisions.
3. c.Adopted rules.
4. d.Judicial decisions.
5. e.Adopted parliamentary authority.
6. f.Parliamentary law.
7. g.Customs and usages.
2. The rules from the different sources take precedence in the order listed
above except that judicial decisions, since they are interpretations of rules from one
of the other sources, take the same precedence as the source interpreted. Thus, for
example, an interpretation of a constitutional provision takes precedence over a
statute.
3. Whenever there is conflict between rules from these sources the rule
from the source listed earlier
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160 SUPREME COURT REPORTS ANNOTATED
Abakada Guro Party List vs. Ermita
prevails over the rule from the source listed later. Thus, where the Constitution
requires three readings of bills, this provision controls over any provision of statute,
adopted rules, adopted manual, or of parliamentary law, and a rule of parliamentary
law controls over a local usage but must give way to any rule from a higher source of
authority. (Emphasis ours)
As discussed above, the unauthorized additions and deletions made by
the Bicameral Conference Committee violated the procedure fixed by the
Constitution in the making of laws. It is reasonless for respondents
therefore to justify these insertions as sanctioned by customs and usages.
Finally, respondents seek sanctuary in the conclusiveness of an
enrolled bill to bar any judicial inquiry on whether Congress observed our
constitutional procedure in the passage of R.A. No. 7716. The enrolled bill
theory is a historical relic that should not continuously rule us from the
fossilized past. It should be immediately emphasized that the enrolled bill
theory originated in England where there is no written constitution and
where Parliament is supreme. In this jurisdiction, we have a written
constitution and the legislature is a body of limited powers. Likewise, it
must be pointed out that starting from the decade of the 40s, even
American courts have veered away from the rigidity and unrealism of the
conclusiveness of an enrolled bill. Prof. Sutherland observed:
xxx
Where the failure of constitutional compliance in the enactment of statutes is not
discoverable from the face of the act itself but may be demonstrated by recourse to
the legislative journals, debates, committee reports or papers of the governor, courts
have used several conflicting theories with which to dispose of the issue. They have
held: (1) that the enrolled bill is conclusive and like the sheriff’s return cannot be
attacked; (2) that the enrolled bill is prima facie correct and only in case the
legislative journal shows affirmative contradiction of the constitutional requirement
will the bill be held invalid; (3) that although the enrolled bill is prima facie correct,
evidence from the journals, or other extrinsic sources is admissible to strike the bill
down; (4) that the legislative journal is conclusive and the enrolled bills is valid only
if it accords with the recital in the journal and the constitutional procedure.
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Various jurisdictions have adopted these alternative approaches in view of
strong dissent and dissatisfaction against the philosophical underpinnings
of the conclusiveness of an enrolled bill. Prof. Sutherland further observed:
x x x. Numerous reasons have been given for this rule. Traditionally, an enrolled bill
was “a record” and as such was not subject to attack at common law. Likewise, the
rule of conclusiveness was similar to the common law rule of the inviolability of the
sheriff’s return. Indeed, they had the same origin, that is, the sheriff was an officer of
the king and likewise the parliamentary act was a regal act and no official might
dispute the king’s word. Transposed to our democratic system of government, courts
held that as the legislature was an official branch of government the court must
indulge every presumption that the legislative act was valid. The doctrine of
separation of powers was advanced as a strong reason why the court should treat the
acts of a co-ordinate branch of government with the same respect as it treats the
action of its own officers; indeed, it was thought that it was entitled to even greater
respect, else the court might be in the position of reviewing the work of a supposedly
equal branch of government. When these arguments failed, as they frequently did, the
doctrine of convenience was advanced, that is, that it was not only an undue burden
upon the legislature to preserve its records to meet the attack of persons not affected
by the procedure of enactment, but also that it unnecessarily complicated litigation
and confused the trial of substantive issues.
Although many of these arguments are persuasive and are indeed the basis for
the rule in many states today, they are not invulnerable to attack. The rule most relied
on—the sheriff’s return or sworn official rule—did not in civil litigation deprive the
injured party of an action, for always he could sue the sheriff upon his official bond.
Likewise, although collateral attack was not permitted, direct attack permitted raisingaction.” In other words, it must take the proper instructions from
the issue of fraud, and at a later date attack in equity was also available; and that the
evidence of the sheriff was not of unusual weight was demonstrated by the fact that in
the chambers that created it. It cannot exercise its unbridled
an action against the sheriff no presumption of its authenticity prevailed. discretion. Where there is no difference between the bills, it cannot
make any change. Where the difference is substantial, it has to
162 return to the chamber of its origin and ask for appropriate
162 SUPREME COURT REPORTS ANNOTATED instructions. It ought to be indubitable that it cannot create a new
law, i.e., that which has never been discussed in either chamber of
Abakada Guro Party List vs. Ermita Congress. Its parameters of power are not porous, for they are
The argument that the enrolled bill is a “record” and therefore unimpeachable is
likewise misleading, for the correction of records is a matter of established judicial hedged by the clear limitation that its only power is to settle
procedure. Apparently, the justification is either the historical one that the king’s differences in bills and joint resolutions of the two chambers of
word could not be questioned or the separation of powers principle that one branch of Congress.
the government must treat as valid the acts of another.
Persuasive as these arguments are, the tendency today is to avoid reaching Fourth. Prescinding from these premises, I respectfully submit
results by artificial presumptions and thus it would seem desirable to insist that that the following acts of the Bicameral Conference Committee
the enrolled bill stand or fall on the basis of the relevant evidence which may be constitute grave abuse of discretion amounting to lack or excess of
submitted for or against it. (Emphasis ours) jurisdiction and should be struck down as unconstitutional
Thus, as far back as the 1940s, Prof. Sutherland confirmed that “x x x nullities, viz.:
the tendency seems to be toward the abandonment of the conclusive a. Its deletion of the pro poor “no pass on provision” which
presumption rule and the adoption of the third rule leaving only a prima is common in both Senate Bill No. 1950 and House Bill No. 3705.
facie presumption of validity which may be attacked by any authoritative Sec. 1 of House Bill No. 3705  provides: 9

source of information.
Third. I respectfully submit that it is only by strictly following the
contours of powers of a Bicameral Conference Committee, as
delineated by the rules of the House and the Senate, that we can
prevent said Committee from acting as a “third” chamber of
Congress. Under the clear rules of both the Senate and House, its
power can go no further than settling differences in their bills or
joint resolutions. Sections 88 and 89, Rule XIV of the Rules of the
House of Representatives provide as follows:
Sec. 88. Conference Committee.—In the event that the House does not
agree with the Senate on the amendment to any bill or joint resolution, the
differences may be settled by the conference committees of both chambers.
In resolving the differences with the Senate, the House panel shall, as
much as possible, adhere to and support the House Bill. If the differences
with the Senate are so substantial that they materially impair the House
Bill, the panel shall report such fact to the House for the latter’s
appropriate action.
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Sec. 89. Conference Committee Reports.—. . . Each report shall contain a
detailed, sufficiently explicit statement of the changes in or amendments to
the subject measure.
...
The Chairman of the House panel may be interpellated on the
Conference Committee Report prior to the voting thereon. The House shall
vote on the Conference Committee Report in the same manner and
procedure as it votes a bill on third and final reading.
Section 35, Rule XII of the Rules of the Senate states:
Section 106 of the National Internal Revenue Code of 1997, as amended, is
hereby further amended to read as follows:
SEC. 106. Value-added Tax on Sale of Goods or Properties.—
xxx
Provided, further, that notwithstanding the provision of the second paragraph of
Section 105 of this Code, the Value-added Tax herein levied on the sale of petroleum
products under Subparagraph (1) hereof shall be paid and absorbed by the
_______________
9
 H.B. No. 3555 has no “no pass on provision.” House Bill No. 3705 expresses the latest
intent of the House on the matter.
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sellers of petroleum products who shall be prohibited from passing on the cost of
such tax payments, either directly or indirectly[,] to any consumer in whatever
form or manner, it being the express intent of this act that the Value-added Tax shall
be borne and absorbed exclusively by the sellers of petroleum products x x x.
Sec. 3 of the same House bill provides:
Section 108 of the National Internal Revenue Code of 1997, as amended, is
hereby further amended to read as follows:
Sec. 108. Value-added Tax on Sale of Goods or Properties.—
Provided, further, that notwithstanding the provision of the second paragraph of
Section 105 of this Code, the Value-added Tax imposed under this paragraph shall be
paid and absorbed by the subject generation companies who shall be prohibited
from passing on the cost of such tax payments, either directly or indirectly[,] to
any consumer in whatever form or manner, it being the express intent of this act
that the Value-added Tax shall be borne and absorbed exclusively [by] the power-
generating companies.
In contrast and comparison, Sec. 5 of Senate Bill No. 1950
provides:

Sec. 35. In the event that the Senate does not agree with the House of
Representatives on the provision of any bill or joint resolution, the
differences shall be settled by a conference committee of both Houses
which shall meet within ten (10) days after their composition. The
President shall designate the members of the Senate Panel in the
conference committee with the approval of the Senate.
Each Conference Committee Report shall contain a detailed and
sufficiently explicit statement of the changes in, or amendments to the
subject measure, and shall be signed by a majority of the members of each
House panel, voting separately.
Value-added Tax on sale of Services and Use or Lease of Properties.—
x x x Provided, that the VAT on sales of electricity by generation
companies, and services of transmission companies and distribution
companies, as well as those of franchise grantees of electrical utilities shall
not apply to residential end-users: Provided, that the Value-added Tax
herein levied shall be absorbed and paid by the generation, transmission
and distribution companies concerned. The said companies shall not pass
on such tax payments to NAPOCOR or ultimately to the consumers,
including but not limited to residential end users, either as costs or in any
other form whatsoever, directly or indirectly. x x x.

The House rule brightlines the following: (1) the power of the
Conference Committee is limited . . . it is only to
settle differences with the Senate; (2) if the differences
are substantial, the Committee must report to the House for the
latter’s appropriate action; and (3) the Committee report has to be
voted upon in the same manner and procedure as a bill on third
and final reading. Similarly, the Senate rule underscores in
crimson that (1) the power of the Committee is limited - - - to
settle differences with the House; (2) it can make changes or
amendments only in the discharge of this limited power to settle
differences with the House; and (3) the changes or amendments
are merely recommendatory for they still have to be approved by
the Senate.
Under both rules, it is obvious that a Bicameral Conference
Committee is a mere agent of the House or the Senate with limited
powers. The House contingent in the Committee can-
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164 SUPREME COURT REPORTS ANNOTATED House and the Senate bills both prohibited the passing on to
Abakada Guro Party List vs. Ermita
not, on its own, settle differences which are substantial in
character. If it is confronted with substantial differences, it has to of the Senate and the House. Nor is it clear that there is a conflict
go back to the chamber that created it “for the latter’s appropriate
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Even the faintest eye contact with the above provisions will reveal
that: (a) both the House bill and the Senate bill prohibited the
passing on to consumers of the VAT on sales of electricity and (b)
the House bill prohibited the passing on to consumers of the VAT
on sales of petroleum products while the Senate bill is silent on the
prohibition.
In the guise of reconciling disagreeing provisions of the
House and the Senate bills on the matter, the Bicameral
Conference Committee deleted the “no pass on provision” on
both the sales of electricity and petroleum products. This action by
the Committee is not warranted by the rules of either the Senate or
the House. As aforediscussed, the only power of a Bicameral
Conference Committee is to reconcile disagreeing provisions in
the bills or joint resolutions of the two houses of Congress. The
consumers of the VAT on sales of electricity. The Bicameral
Conference Committee cannot override this unequivocal decision
between the House and Senate versions on the “no pass on
provisions” of the VAT on sales of petroleum products. The
House version contained a “no pass on provision” but the Senate
had none. Elementary logic will tell us that while there may be a
difference in the two versions, it does not necessarily mean that
there is a disagreement or conflict between the Senate and the
House. The silence of the Senate on the issue cannot be interpreted
as an outright opposition to the House decision prohibiting the
passing on of the VAT to the consumers on sales of petroleum
products. Silence can even be conformity, albeit implicit in nature.
But granting for the nonce that there is conflict between the two
versions, the conflict cannot escape the characterization as
a substantial difference. The seismic consequence of the deletion
of the “no pass on provision” of the VAT on sales of petroleum
products on the ability of our consumers, especially on the roofless
and the shirtless of our society, to survive the onslaught of
spiraling prices ought to be beyond quibble. The rules require that
the Bicameral Conference Committee should
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not, on its own, act on this substantial conflict. It has to seek
guidance from the chamber that created it. It must receive proper
instructions from its principal, for it is the law of nature that no
spring can rise higher than its source. The records of both the
Senate and the House do not reveal that this step was taken by the
members of the Bicameral Conference Committee. They bypassed
their principal and ran riot with the exercise of powers that the
rules never bestowed on them.
b. Even more constitutionally obnoxious are the added
restrictions on local government’s use of incremental revenue
from the VAT in Section 21 of R.A. No. 9337 which were not
present in the Senate or House Bills. Section 21 of R.A. No. 9337
provides:
Fifty percent of the local government unit’s share from VAT shall be
allocated and used exclusively for the following purposes:
1. 1.Fifteen percent (15%) for public elementary and secondary
education to finance the construction of buildings, purchases
of school furniture and in-service teacher trainings;
2. 2.Ten percent (10%) for health insurance premiums of enrolled
indigents as a counterpart contribution of the local
government to sustain the universal coverage of the national
health insurance program;
3. 3.Fifteen percent (15%) for environmental conservation to fully
implement a comprehensive national reforestation program;
and
4. 4.Ten percent (10%) for agricultural modernization to finance
the construction of farm-to-market roads and irrigation
facilities.
Such allocations shall be segregated as separate trust funds by the
national treasury and shall be over and above the annual appropriation for
similar purposes.
These amendments did not harmonize conflicting
provisions between the constituent bills of R.A. No. 9337 but
are entirely new and extraneous concepts which fall beyond the
median thereof. They transgress the limits of the Bicameral
Conference Committee’s authority and must be struck down.
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168 SUPREME COURT REPORTS ANNOTATED laws.
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I cannot therefore subscribe to the thesis of the majority that “the “Their power lies chiefly in the fact that reports of conference committees
changes introduced by the Bicameral Conference Committee on
disagreeing provisions were meant only to reconcile and
harmonize the disagreeing provisions for it did not inject any idea
or intent that is wholly foreign to the subject embraced by the
original provisions.”
Fifth. The majority further defends the constitutionality of the measure altogether. At any time in the session there is some risk of such a
above provisions by holding that “all the changes or modifications
were germane to subjects of the provisions referred to it for
reconciliation.”
With due respect, it is high time to re-examine the test of
germaneness proffered in Tolentino.
The test of germaneness is overly broad and is
the fountainhead of mischief for it allows the Bicameral
Conference Committee to change provisions in the bills of the
House and the Senate when they are not even in disagreement.
Worse still, it enables the Committee to introduce amendments
which are entirely new and have not previously passed through the
coils of scrutiny of the members of both houses. The Constitution
did not establish a Bicameral Conference Committee that can act
as a “third house”of Congress with super veto power over bills
passed by the Senate and the House. We cannot concede that super
veto power without wrecking the delicate architecture of
legislative power so carefully laid down in our Constitution. The
clear intent of our fundamental law is to install a
lawmaking structure composed only of two houses whose
members would thoroughly debate proposed legislations in
representation of the will of their respective constituents. The
institution of this law making structure is unmistakable from the
following provisions: (1) requiring that legislative power shall be
vested in a bicameral legislature;  (2) providing for quorum
10
require-
_______________
 1 Sutherland Statutory Construction § 6:2 (6th ed.): The provision requiring
10
that legislative power shall be vested in a bicameral legislature seeks to “assure sound
judgment that comes from sepa-
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ments;  (3) requiring that appropriation, revenue or tariff bills, bills
11
authorizing increase of public debt, bills of local application, and
private bills originate exclusively in the House of
Representatives;  (4) requiring that bills embrace one subject
12
expressed in the title thereof;  and (5) mandating
13
_______________
rate deliberations and actions in the respective bodies that check and balance
each other.”
 Const., Article VI, Section 16(2) (1987): “(2) A majority of each House shall
11
constitute a quorum to do business, but a smaller number may adjourn from day to
day and may compel the attendance of absent Members in such manner, and under
such penalties, as such House may provide.”
 Const., Article VI, Section 24 (1987); 1 Sutherland Statutory Construction §
12
9:6 (6th ed.): The provision helps guarantee that the exercise of the taxing power is
well studied as the lower house is “presumably more representative in character.”
 Const., Article VI, Section 26(1) (1987); I Cooley, A Treatise on
13
Constitutional Limitations, p. 143; Central Capiz v. Ramirez, 40 Phil. 883 (1920): “In
the construction and application of this constitutional restriction the courts have kept
steadily in view the correction of the mischief against which it was aimed. The object
is to prevent the practice, which was common in all legislative bodies where no such
restrictions existed of embracing in the same bill incongruous matters having no
relation to each other or to the subject specified in the title, by which measures were
often adopted without attracting attention. Such distinct subjects represented diverse
interests, and were combined in order to unite the members of the legislature who
favor either in support of all. These combinations were corruptive of the legislature
and dangerous to the State. Such omnibus bills sometimes included more than a
hundred sections on as many different subjects, with a title appropriate to the first
section, and for other purposes.”
“The failure to indicate in the title of the bill the object intended to be
accomplished by the legislation often resulted in members voting ignorantly for
measures which they would not knowingly have approved; and not only were
legislators thus misled, but the public also; so that legislative provisions were steadily
pushed through in the closing hours of a session, which, having no merit to commend
them, would have been made odious by popular discussion
170
170 SUPREME COURT REPORTS ANNOTATED
Abakada Guro Party List vs. Ermita
that bills undergo three readings on separate days in each House
prior to passage into law and prohibiting amendments on the last
reading thereof.  A Bicameral Conference Committee with
14
untrammeled powers will destroy this lawmaking structure. At the
very least, it will diminish the free and open debate of proposed
legislations and facilitate the smuggling of what purports to be
On this point, Mr. Robert Luce’s disconcerting observations
are apropos:
must be accepted without amendment or else rejected in toto. The impulse
is to get done with the matters and so the motion to accept has undue
advantage, for some members are sure to prefer swallowing
unpalatable provisions rather than prolong controversy. This is more
likely if the report comes in the rush of business toward the end of the
session, when to seek further conference might result in the loss of the
result follow-
_______________
and remonstrance if their pendency had been seasonably announced. The constitutional
clause under discussion is intended to correct these evils; to prevent such corrupting aggregations of
incongruous measures, by confining each act to one subject or object; to prevent surprise and
inadvertence by requiring that subject or object to be expressed in the title.”
 Const., Article VI, Section 26(2) (1987); 1 Sutherland Statutory Construction § 10:4 (6th
14
ed.); See also IV Laurel, Journal of the (1935) Constitutional Convention, pp. 436-437, 440-441
where the 1934 Constitutional Convention noted the anomalous legislative practice of railroading
bills on the last day of the legislative year when members of Congress were eager to go home. By
this irregular procedure, legislators were able to successfully insert matters into bills which would
not otherwise stand scrutiny in leisurely debate; I Cooley, A Treatise on the Constitutional
Limitations, pp. 286-287 (8th ed.); Smith v. Mitchell, 69 W.Va 481, 72 S.E. 755 (1911): “The
purpose of this provision of the Constitution is to inform legislators and people of legislation
proposed by a bill, and to prevent hasty legislation.”
171
 VOL. 469, SEPTEMBER 1, 2005
Abakada Guro Party List vs. Ermita
ing the rejection of a conference report, for it may not be possible to secure
a second conference, or delay may give opposition to the main proposal
chance to develop more strength.
x x x      x x x      x x x
Entangled in a network of rule and custom, the Representative who
resents and would resist this theft of his rights, finds himself helpless.
Rarely can be vote, rarely can he voice his mind, in the matter of any
fraction of the bill. Usually he cannot even record himself as protesting
against some one feature while accepting the measure as whole. Worst of
all, he cannot by argument or suggested change, try to improve what the
other branch has done.
This means more than the subversion of individual rights. It means to
a degree the abandonment of whatever advantage the bicameral
system may have. By so much it in effect transfers the lawmaking
power to small group of members who work out in private a decision
that almost always prevails. What is worse, these men are not chosen in a
way to ensure the wisest choice. It has become the practice to name as
conferees the ranking members of the committee, so that the accident of
seniority determines. Exceptions are made, but in general it is not a
question of who are most competent to serve. Chance governs, sometimes
giving way to favor, rarely to merit.
x x x      x x x      x x x
Speaking broadly, the system of legislating by conference committee
is unscientific and therefore defective. Usually it forfeits the benefit of
scrutiny and judgment by all the wisdom available. Uncontrolled, it is
inferior to that process by which every amendment is secured
independent discussion and vote. . . .” 15
_______________
 235 SCRA 630, 783-784 citing Luce, Legislative Procedure, pp. 404-405, 407
15
(1922); See also Davies, Legislative Law and Process, p. 81 (2nd ed.): “conference
reports are returned to assembly and Senate on a take-it or leave-it-basis, and the
bodies are generally placed in the position that to leave-it is a practical impossibility.”
Thus, he concludes that “conference committee action is the most undemocratic
procedure in the legislative process.”
172
172 SUPREME COURT REPORTS ANNOTATED
Abakada Guro Party List vs. Ermita
It cannot be overemphasized that in a republican form of
government, laws can only be enacted by all the duly elected
representatives of the people. It cuts against conventional wisdom
in democracy to lodge this power in the hands of a few or in the
claws of a committee. It is for these reasons that the argument that
we should overlook the excesses of the Bicameral Conference
Committee because its report is anyway approved by both houses
is a futile attempt to square the circle for an unconstitutional act is
void and cannot be redeemed by any subsequent ratification.
Neither can we shut our eyes to the unconstitutional acts of
the Bicameral Conference Committee by holding that the Court
cannot interpose its checking powers over mere violations of the
internal rules of Congress. In Arroyo, et al. v. de Venecia, et
al.,  we ruled that when the violations affect private rights
16
or impair the Constitution, the Court has all the power, nay, the
duty to strike them down.
In conclusion, I wish to stress that this is not the first time nor
will it be last that arguments will be foisted for the Court to merely
wink at assaults on the Constitution on the ground of some
national interest, sometimes clear and at other times inchoate. To
be sure, it cannot be gainsaid that the country is in the vortex of a
financial crisis. The broadsheets scream the disconcerting news
that our debt payments for the year 2006 will exceed Pph1 billion
daily for interest alone. Experts underscore some factors that will
further drive up the debt service expenses such as the devaluation
of the peso, credit downgrades and a spike in interest rates.  But no 17
doomsday scenario will ever justify the thrashing of the
Constitution. The Constitution is meant to be our rule both in good
times as in bad times. It is the Court’s uncompromising obligation
to defend the Constitution at all times lest it be condemned as an
irrelevant relic.
_______________
16
 268 SCRA 269, 289 (1997).
 The Manila Standard Today, August 26, 2005, p. 1.
17
173
VOL. 469, SEPTEMBER 1, 2005
Abakada Guro Party List vs. Ermita
WHEREFORE, I concur with the majority but dissent on the
following points:
1. a)I vote to withhold judgment on the constitutionality of
the “standby authority” in Sections 4 to 6 of Republic
Act No. 9337 as this issue is not ripe for adjudication.;
2. b)I vote to declare unconstitutional the deletion by the
Bicameral Conference Committee of the pro poor “no
pass on provision” on electricity to residential
consumers as it contravened the unequivocal intent of
both Houses of Congress; and
3. c)I vote to declare Section 21 of Republic Act No. 9337
as unconstitutional as it contains extraneous provisions
not found in its constituent bills.
SEPARATE OPINION
PANGANIBAN, J.:
The ponencia written by the esteemed Madame Justice Ma. Alicia
Austria-Martinez declares that the enrolled bill doctrine has been
historically and uniformly upheld in our country. Cited as recent
reiterations of this doctrine are the two Tolentino v. Secretary of
Finance judgments  and Fariñas v. Executive Secretary.
1 2
Precedence of Mandatory
Constitutional Provisions
Over the Enrolled Bill Doctrine
I believe, however, that the enrolled bill doctrine  is not absolute. It
3
may be all-encompassing in some countries like
_______________
 235 SCRA 630, August 25, 1994; and 249 SCRA 628, October 30, 1995. The
1
second case is an en banc Resolution on the Motions for Reconsideration of the first
case.
 417 SCRA 503, December 10, 2003.
2
 “[I]t is well-settled that the enrolled bill doctrine is conclusive upon the courts
3
as regards the tenor of the measure passed by Con-
174
174 SUPREME COURT REPORTS ANNOTATED
Abakada Guro Party List vs. Ermita
Great Britain,  but as applied to our jurisdiction, it must yield to
4
mandatory provisions of our 1987 Constitution. The Court can
take judicial notice of the form of government  in Great Britain.  It
5 6
is unlike that in our country and, therefore,
_______________
gress and approved by the President.” Resins Inc. v. Auditor General, 134 Phil.
697, 700; 25 SCRA 754, 756, October 29, 1968, per Fernando, J., later C.J.;
(citing Casco Philippine Chemical Co., Inc. v. Gimenez, 117 Phil. 363, 366; 7 SCRA
347, 350, February 28, 1963, per Concepciónn, J., later C.J.). It is a doctrine that
flows as a corollary to the separation of powers, and by which due respect is given by
one branch of government to the actions of the others. See Morales v. Subido, 136
Phil. 405, 412; 27 SCRA 131, February 27, 1969.
Following Field v. Clark (143 US 649, 12 S.Ct. 495, February 29, 1892), such
conclusiveness refers not only to the provisions of the law, but also to its due
enactment. Mabanag v. Lopez Vito, 78 Phil. 1, 13-18, March 5, 1947.
“[T]he signing of a bill by the Speaker of the House and the Senate President
and the certification of the Secretaries of both [h]ouses of Congress that it was passed
are conclusive of its due enactment.” Fariñas v. Executive Secretary, supra, p. 529,
per Callejo, Sr., J.
4
 Mabanag v. Lopez Vito, supra, p. 12.
5
 §1 of Rule 129 of the Rules of Court.
6
 The United Kingdom has an uncodified Constitution, consisting of both written
and unwritten sources, capable of evolving to be responsive to political and social
change, and found partly in conventions and customs and partly in statute. Its
Parliament has the power to change or abolish any written or unwritten element of the
Constitution. There is neither separation of powers nor formal checks and balances.
Every bill drafted has to be approved by both the House of Commons and the House
of Lords, before it receives the Royal Assent and becomes an Act of Parliament. The
House of Lords is the second chamber that complements the work of the Commons,
whose members are elected to represent their constituents. The first is the House of
Commons that alone may start bills to raise taxes or authorize expenditures. Each bill
goes through several stages in each House. The first stage, called the first reading, is a
mere for-
175
VOL. 469, SEPTEMBER 1, 2005
Abakada Guro Party List vs. Ermita
the doctrine from which it originated   could be modified
accordingly by our Constitution.
In fine, the enrolled bill doctrine applies mainly to the internal
rules and processes followed by Congress in its principal duty of
lawmaking. However, when the Constitution imposes certain
conditions, restrictions or limitations on the exercise of
congressional prerogatives, the judiciary has both the power and
the duty to strike down congressional actions that are done in plain
contravention of such conditions, restrictions or
limitations.  Insofar as the present case is concerned, the three most
8
important restrictions or limitations to the enrolled bill doctrine are
the “origination,” “no-amendment” and “three-reading” rules
which I will discuss later.
Verily, these restrictions or limitations to the enrolled bill
doctrine are safeguarded by the expanded  constitutional mandate
9
of the judiciary “to determine whether or not there has been a
grave abuse of discretion amounting to lack or excess of
jurisdiction on the part of any branch or instrumentality of the
government.”  Even the ponente of Tolentino,
10 11
_______________
mality. The second—the second reading—is when general principles of the
bill are debated upon. At the second reading, the House may vote to reject
the bill. Once the House considers the bill, the third reading follows. In the
House of Commons, no further amendments may be made, and the passage
of the motion amounts to passage of the whole bill. The House of Lords,
however, may not amend a bill so as to insert a provision relating to
taxation. http://en.wikipedia.org/
wiki/Constitution_of_the_United_Kingdom; http://www.oefre.unibe.
ch/law/icl/uk00000_.html; www.parliament.uk; and
http://encyclopedia.thefreedictionary.com/British+Parliament (Last visited
August 4, 2005, 11:30am PST).
7
 See Dissenting Opinion of Puno, J. in Tolentino v. Secretary of Finance,
supra, p. 818.
8
 Cf. Francisco Jr. v. House of Representatives, 415 SCRA 44, November
10, 2003.
9
 Tolentino v. Secretary of Finance, supra.
10
 2nd paragraph, §1 of Article VIII of the 1987 Constitution.
11
 Tolentino v. Secretary of Finance, supra.
176
176 SUPREME COURT REPORTS ANNOTATED amendments complied with the “germane” principle.
Abakada Guro Party List vs. Ermita
the learned Mr. Justice Vicente V. Mendoza, concedes in another
decision that each house “may not by its rules ignore constitutional
restraints or violate fundamental rights, and there should be a
reasonable relation between the mode or method of proceeding
established by the rule and the result which is sought to be
attained.”
12
The Bicameral Conference Committee (BCC) created by
Congress to iron out differences between the Senate and the House
of Representatives versions of the E-VAT bills  is one such 13
“branch or instrumentality of the government,” over which this
Court may exercise certiorari review to determine whether or not
grave abuse of discretion has been committed; and, specifically, to
find out whether the constitutional conditions, restrictions and
limitations on law-making have been violated.
In general, the BCC has at least five options in performing its
functions: (1) adopt the House version in part or in toto, (2) adopt _______________
the Senate version in part or in toto, (3) consolidate the two
versions, (4) reject non-conflicting provisions, and (5) adopt
completely new provisions not found in either version. This,
therefore, is the simple question: In the performance of its function
of reconciling conflicting provisions, has the Committee blatantly
violated the Constitution?
My short answer is: No, except those relating to income taxes
referred to in Sections 1, 2 and 3 of Republic Act (RA) No. 9337.
Let me explain.
Adopting the House
Version in Part or In Toto
First, the BCC had the option of adopting the House bills either in
part or in toto, endorsing them without changes.
_______________
 Arroyo v. De Venecia, 343 Phil. 42, 61-62; 277 SCRA 268, 286, August 14,
12
1997, per Mendoza, J.
 These refer to House Bill Nos. 3555 & 3705; and Senate Bill No. 1950.
13
177
VOL. 469, SEPTEMBER 1, 2005
Abakada Guro Party List vs. Ermita
Since these bills had passed the three-reading requirement  under
the Constitution,  it readily becomes apparent that no procedural
15
impediment would arise. There would also be no question as to
their origination,  because the bills originated exclusively from the
16
House of Representatives itself.
In the present case, the BCC did not ignore the Senate and
adopt any of the House bills in part or in toto. Therefore, this
option was not taken by the BCC.
Adopting the Senate
Version in Part or In Toto
Second, the BCC may choose to adopt the Senate version either in
part or in toto, endorsing it also without changes. In so doing, the
question of origination arises. Under the 1987 Constitution, all
“revenue x x x bills x x x shall originate exclusively in the House
of Representatives, but the Senate may propose or concur with
amendments.” 17
If the revenue bill originates exclusively from the Senate, then
obviously the origination provision  of the Constitution
18
_______________
 §26(2) of Article VI of the 1987 Constitution.
14
 “The purpose for which three readings on separate days is required is said to
15
be two-fold: (1) to inform the members of Congress of what they must vote on and
(2) to give them notice that a measure is progressing through the enacting process,
thus enabling them and others interested in the measure to prepare their positions with
reference to it.” Tolentino v. Secretary of Finance, supra, p. 647, October 30, 1995,
per Mendoza, J.
 §24 of Article VI of the 1987 Constitution.
16
 §24 of Article VI of the 1987 Constitution. The power of the Senate to propose
17
or concur with amendments is, apparently, without restriction. By virtue of this
power, the Senate can practically rewrite a bill that is required to come from the
House and leave only a trace of the original bill. See Flint v. Stone Tracy Co., 220 US
107, 31 S.Ct. 342, March 13, 1911.
 §24 of Article VI of the 1987 Constitution.
18
178
178 SUPREME COURT REPORTS ANNOTATED
Abakada Guro Party List vs. Ermita
would be violated. If, however, it originates exclusively from the
House and presumably passes the three-reading requirement there,
then the question to contend with is whether the Senate
While in the Senate, the House version may, per Tolentino,
undergo extensive changes, such that the Senate may rewrite not
only portions of it but even all of it.  I believe that such rewriting is
19
limited by the “germane” principle: although “relevant”  or
20
“related”  to the general subject of taxation, the Senate version is
21
not necessarily “germane” all the time. The “germane” principle
requires a legal—not necessarily an economic  or political—
22
interpretation. There must be an “inherent logical
connection.”  What may be germane in an economic or political
23
sense is not necessarily germane in the legal sense. Otherwise, any
provision in the Senate version that is entirely new and extraneous,
or that is remotely or even slightly connected, to the vast and
perplexing subject of taxation, would always be germane. Under
this interpretation, the origination principle would surely be
rendered inutile.
To repeat, in Tolentino, the Court said that the Senate may
even write its own version, which in effect would be an
 Tolentino v. Secretary of Finance, supra, p. 661, August 25, 1994.
19
 Garner (ed. in chief), Black’s Law Dictionary (8th ed., 2004), p. 708.
20
 Statsky, West’s Legal Thesaurus/Dictionary (1986), p. 348.
21
 To argue that the raising of revenues makes the non-VAT provisions of a VAT
22
bill automatically germane is to bring legal analysis within the penumbra of economic
scrutiny. The burden or impact of any tax depends on the relative elasticities of
supply and demand and is chiefly a matter of policy confined within the august halls
of Congress. See Pindyck and Rubinfeld, Microeconomics (5th ed., 2003), pp. 314-
317.
 Exxon Mobil Corp. v. Allapattah Services, Inc., 125 S. Ct. 2611, 2622, June
23
23, 2005, per Kennedy, J.
179
VOL. 469, SEPTEMBER 1, 2005
Abakada Guro Party List vs. Ermita
amendment by substitution.  The Court went further by saying that
24
“the Constitution does not prohibit the filing in the Senate of a
substitute bill in anticipation of its receipt of the bill from the
House, so long as action by the Senate as a body is withheld
pending receipt of the House bill.”  After all, the initiative for
25
filing a revenue bill must come from the House  on the theory that,
26
elected as its members are from their respective districts, the
House is more sensitive to local needs and problems. By contrast,
the Senate whose members are elected at large approaches the
matter from a national perspective,  with a broader and more 27
circumspect outlook.
14
28
 Even if I have some reservations on the foregoing sweeping GDP      
pronouncements in Tolentino, I shall not comment any further,
because the BCC, in reconciling conflicting provisions, also did   or    
not take the second option of ignoring the House bills completely National Government Deficit   > 1.5
and of adopting only the Senate version in part or in toto. Instead,
the BCC used or applied the third option as will be discussed
GDP      
 A negative budget surplus, or an excess of expenditure over revenues, is a
33

below. budget deficit. Dornbusch, Fischer, and Startz, Macroeconomics (9th ed., 2005), p.

231.
 GDP refers to the value of all goods and services produced domestically; the
Compromising
34

sum of gross value added of all resident institutional units engaged in production
by Consolidating (plus any taxes, and minus any subsidies, on products not included in the values of
their outputs). www.nscb. gov.ph/sna/default.asp (Last visited July 14, 2005 10am
PST).
As a third option, the BCC may reach a compromise by
consolidating both the Senate and the House versions. It can adopt 182
some parts and reject other parts of both bills, and craft new 182 SUPREME COURT REPORTS ANNOTATED
provisions or even a substitute bill. I believe this option is viable,
provided that there is no violation of the origination and germane Abakada Guro Party List vs. Ermita
principles, as well as the three-reading rule. After all, the report been fixed.  Only the fact-finding mathematical computation for its
35

generated by the BCC will not become a implementation on January 1, 2006, is necessary.
_______________ Once either of the factual and mathematical events provided
in the law takes place, the President has no choice but to
 Tolentino v. Secretary of Finance, supra, p. 663, August 25,
24
implement the increase of the VAT rate to 12 percent. 36

1994. See Cruz, Philippine Political Law (2002), p. 154. _______________

 Tolentino v. Secretary of Finance, supra, August 25, 1994, per Mendoza, J.
25

 Cruz, Philippine Political Law (2002), p. 155.

26

 Tolentino v. Secretary of Finance, supra, August 25, 1994.

27  See Pelaez v. Auditor General, 122 Phil. 965, 974; 15 SCRA 569, 576-577,
35

 Cruz, Philippine Political Law (2002), p. 111.

28 December 24, 1965.
 The acts of retroactively implementing the 12 percent VAT rate, should the
36

180 finance secretary be able to make recommendation only weeks or months after the
end of fiscal year 2005, or reverting to 10 percent if both conditions are not met, are
180 SUPREME COURT REPORTS ANNOTATED best addressed to the political branches of government.
The following excerpts from the Transcript of the Oral Arguments in G.R. Nos.
Abakada Guro Party List vs. Ermita 168461, 168463, 168056, and 168207, held on July 14, 2005 at the Supreme Court
final valid act of the Legislative Department until the BCC obtains Session Hall, are instructive on the position of petitioners:
the approval of both houses of Congress. 29

Standby Authority. I believe that the BCC did not exceed its “Atty. Gorospe:
authority when it crafted the so-called “standby authority” of the       [It’s] supposed to be 2005, Your Honor, but apparently, it [wil
President. The originating bills from the House imposed a 12
percent VAT rate,  while the bill from the Senate retained the
30
impossible to determine GDP the first day of 2006, Your Ho
original 10 percent.  The BCC opted to initially use the 10 percent
31
(p. 57);
Senate provision and to increase this rate
_______________   xxx
“Justice Panganiban:
 Tolentino v. Secretary of Finance, supra, p. 668, August 25, 1994.
  Now [let’s see] when it is possible then to determine this formu
29

There is no allegation in any of the memoranda submitted to this Court that the
consolidated bill was not approved. In fact, both houses of Congress voted separately
and majority of each house approved it.
cannot be on the first day of January 2006, because the year [2
 On the one hand, §§1-3 of House Bill (HB) No. 3555 seek to amend §§106,
30
ended just the midnight before, isn’t it?
107 & 108 the Tax Code by increasing the VAT rate to 12% on every sale, barter or
exchange of goods or properties; importation of goods; and sale or exchange of “Atty. Gorospe:
services, including the use or lease of properties.
§§1-3 of HB 3705, on the other, seek to amend §§106, 107 & 108 the Tax Code   Yes, Your Honor.
by also increasing the VAT rate to 12% on every sale, barter or exchange of goods or
properties; importation of goods; and sale or exchange of services, including the use “Justice Panganiban:
or lease of properties, but decreasing such rate to 8% on every importation of certain   x x x if it’s only determined on March 1[,] then how can the la
goods; 6% on the sale, barter or exchange of certain locally manufactured goods; and
4% on the sale, barter or exchange, as well as importation, of petroleum products become effective January 1[.] In other words, how will the [pe
subject to excise tax and raw materials to be used in their manufacture (subject to
subsequent increases of such reduced rates), and on the gross receipts derived from be] able to pay the tax if ever that formula is exceeded x x x?”
services rendered on the sale of generated power. The Tax Code referred to in this
case is RA 8424, otherwise known as the “Tax Reform Act of 1997.” 59-60);
 §§4-5 of Senate Bill (SB) No. 1950 seek to amend §§106 & 108 of the Tax
  xxx
31

Code by retaining the VAT rate of 10% on every sale, barter or exchange of goods or
properties; and on the sale or exchange of services, including the use or lease of “Atty. Gana:
properties, and the sale of electricity by generation, transmission, and distribution
companies.   Well, x x x it would take a grace period of 6 to 8 months[,]
181 because obviously, determination could not be made on Jan
VOL. 469, SEPTEMBER 1, 2005 1, 2006. Yes, they were under the impression that at the earlies
Abakada Guro Party List vs. Ermita would take 30 days.
to the 12 percent House provision, effective January 1, 2006, upon “Justice Panganiban:
the occurrence of a predetermined factual scenario as follows:
“(i) [VAT] collection as a percentage of Gross Domestic Product (GDP) of   Historically, when [will] these figures [be] available[:] the GD
the previous year exceeds two and four-fifth percent (2 4/5%) or [VAT] collection?” (p. 192);
(ii) National Government Deficit as a percentage of GDP of the
previous year exceeds one and one-half percent (1 1/2%).” 32
  xxx
“Justice Panganiban:
In the computation of the percentage requirements in the
alternative conditions under the law, the amounts of the VAT   But certainly not on January 1. Therefore, by January 1, peop
collection, National Deficit,  and GDP —as well as the
33 34

would not know whether the rate would be increased or no

interrelationship among them—can easily be derived by the
finance secretary from the proper government bodies charged with if there is no discretion?
their determination. The law is complete and standards have “Atty. Gana:
_______________
  That’s true, Your Honor, even if there is no discretion.
 §§4-6 of the consolidated bill amending §§106-108 of the Tax Code,
32
“Justice Panganiban:
respectively. Conference Committee Report on HBs 3555 & 3705, and SB 1950, pp.
4-7.   It will take weeks, or months to be able to determine that?
The predetermined factual scenario in the above-cited sections of the
consolidated bill also appears in §§4-6 of Republic Act (RA) No. 9337, amending the It will take weeks, or months to be able to determine that?
same provisions of the Tax Code. Mathematically, it is expressed as follows:
183

VAT Collection   > VOL. 469, SEPTEMBER 1, 2005

 83,542.83, or 83 percent of revenue collections amounting to 100,654.01. Divided
Abakada Guro Party List vs. Ermita into GDP of 13,053, the
This eventuality has been predetermined by Congress. 37

_______________ 184
184 SUPREME COURT REPORTS ANNOTATED
“Atty. Gana:
Abakada Guro Party List vs. Ermita
      Well, they anticipated it, would take at most by March.” (p. The 193);taxing power has not been delegated by Congress to either or
and both the President and the finance secretary. What was delegated
was only the power to ascertain the facts in order to bring the law
  xxx into operation. In fact, there was really no “delegation’ to speak
“Justice Panganiban: of; there was merely a declaration of an administrative, not
  March, I will ask the government later on when they argue. a legislative, function. 38

I concur with the ponencia in that there was no undue

“Atty. Gana: delegation of legislative power in the increase from 10 percent to
  As early as January but not later than 60 to 90 days.” (boldface 12 percent of the VAT rate. I respectfully disagree, however, with
the statements therein that, first, the secretary of finance is “acting
supplied; p. 194). Culled from the same record, the following excerpts
as the agent of the legislative department” or an “agent of
show the position of public respondents: Congress” in determining and declaring the event upon which its
“Justice Panganiban: expressed will is to take effect; and, second, that the secretary’s
personality “is in reality but a projection of that of Congress.”
  It will be based on actual figures? The secretary of finance is not an alter ego of Congress, but of
“Usec. Bonoan: the President. The mandate given by RA 9337 to the secretary is
not equipollent to an authority to make laws. In passing this law,
  It will be based on actual figures.
Congress did not restrict or curtail the constitutional power of the
“Justice Panganiban: President to retain control and supervision over the entire
  That creates a problem[,] because where do you get the actual Executive Department. The law should be construed to be merely
asking the President, with a recommendation from the President’s
figures[?] alter ego in finance matters, to determine the factual bases for
“Usec. Bonoan: making the increase in VAT rate operative.  Indeed, as I have 39

  I understand that[,] traditionally[,] we can come in March, but mentioned earlier, the fact-
_______________
there is no impediment to speeding up the gathering.
quotient is already 6.4 percent. http://www.nscb.gov.ph/sna/2005/
“Justice Panganiban: 1stQ2005/2005per1.asp; and the 2003 Bureau of Internal Revenue (BIR) Annual
  Speed it up. February 15? Report found on www.bir.gov.ph (Last visited July 14, 2005, 10:45am PST).
 Besides, the use of the word “shall” in §§106(A), 107(A) & 108(A) of the Tax
38

“Usec. Bonoan: Code, as amended respectively by §§4, 5 & 6 of RA 9337, is mandatory, imperative
and compulsory. See Agpalo, Statutory Construction (4th ed., 1998), p. 333.
  Even within January, Your Honor, I think this can be….  See Separate Opinion (Concurring and Dissenting) of Panganiban, J.,
39

in Southern Cross Cement Corp. v. Philippine Cement

“Justice Panganiban:
  Alright at the end of January, it’s just estimate to get the figures 185in
January. VOL. 469, SEPTEMBER 1, 2005
“Usec. Bonoan: Abakada Guro Party List vs. Ermita
finding condition is a mere administrative, not legislative,
  Yes, Your Honor (pp. 661-662); and function.
  xxx The ponencia states that Congress merely delegates the
implementation of the law to the secretary of finance. How then
“Justice Panganiban:
can the latter be its agent? Making a law is different
  My only point is, I raised this earlier and I promised counsel for the
from implementing it. While the first (the making of laws) may be
petitioner whom I was questionin[g] that I will raise it with delegated under certain conditions and only in specific instances
provided under the Constitution, the second (the implementation
you, whether the date January 1, 2006 would present an of laws) may not be done by Congress. After all, the legislature
impossibility of a condition happening. does not have the power to implement laws. Therefore,
“Usec. Bonoan: congressional agency arises only in the first, not in the second.
The first is a legislative function; the second, an executive one.
  It will not, Your Honor. Petitioners’ argument is that because the GDP does not
“Justice Panganiban: account for the economic effects of so-called underground
businesses, it is an inaccurate indicator of either economic growth
  So, your position [is] it will not present an impossibility. Elaborate on
or slowdown in transitional economies.  Clearly, this matter is
40

it in your memorandum. within the confines of lawmaking. This Court is neither a

“Usec. Bonoan: substitute for the wisdom, or lack of it, in Congress,  nor an arbiter 41

of flaws within the latter’s internal rules.  Policy matters lie within
42

  Yes, Your Honor. the domain of the political

“Justice Panganiban: _______________

  Because it is important. The administrative regulations are Manufacturers Corp., G.R. No. 158540, August 3, 2005, 465 SCRA 532, 660.
 Escudero Memorandum, pp. 38-39.
important[,] because they clarify the law and it will guide
40

GDP data are far from perfect measures of either economic output or welfare.
taxpayers. So[,] by January 1[,] [taxpayers] would not be wondering.
There are three major problems: (1) some outputs are poorly measured because they
are not traded in the market, and government services are not directly priced by such
Do we charge the end consumers 10 [percent] or 12 [percent]?market;
The (2) some activities measured as additions to GDP in fact only represent the
use of resources in order to avoid crime or risks to national security; and (3) it is
regulations should be able to spell that out [i]n the same manner thatto account correctly for improvements in the quality of goods. Dornbusch,
difficult
Fischer, and Startz, Macroeconomics (9th ed., 2005), pp. 35-36.
even now the various consumers of various products and services  Fariñas v. Executive Secretary, 417 SCRA, 503, 530, December 10, 2003.
41

must be able to get from your regulations how much they [would]  “Any meaningful change in the method and procedures of Congress or its
be 42

committees must x x x be sought in that body itself.”

charged, how much should gasoline stations charge in addition to
186
their correct prices, how much carriers should charge[,] so there
186 SUPREME COURT REPORTS ANNOTATED
[would] be no confusion.
Abakada Guro Party List vs. Ermita
“Usec. Bonoan: branches of government,  outside the range of judicial
43

  Yes, Your Honor.” (boldface supplied; pp. 665-666). cognizance.  “[T]he right to select the measure and objects of
44

 Using available statistics, it is approximated that the 2 4/5 percent has been
37
taxation devolves upon the Congress, and not upon the courts, and
reached. VAT collection (in million pesos) for the first quarter alone of 2004 is
such selections are valid unless constitutional limitations are
overstepped.”  Moreover, each house of Congress has the power
45
of the payee on said payments.  The liability for the tax rests upon
54

and authority to determine the rules of its proceedings.  The 46

the payee who is mandated by law to still file a tax return, report
contention that this case is not ripe for determination because there the tax base, and pay the difference between the tax withheld and
is no violation yet of the Constitution regarding the exercise of the the tax due. 55

President’s standby authority has no basis. The question raised is
whether the BCC, in passing the law, committed grave abuse of
discretion, not whether the provision in question had been
violated. Hence, this case is not premature and is, in fact, subject
to judicial determination.
Amendments on Income Taxes. I respectfully submit that the
amendments made by the BCC (that were culled
_______________
Tolentino v. Secretary of Finance, supra, p. 650, October 30, 1995, per
Mendoza, J.
43
 The necessity, desirability or expediency of a law must be addressed to
Congress as the body that is responsible to the electorate, for “legislators are the
From this observation alone, it can already be seen that not
only are dividends alien to the tax base upon which the VAT is
imposed, but their respective methods of withholding are totally
different. VAT-registered persons may not always be nonresident
foreign corporations that declare and pay dividends, while
intercorporate dividends are certainly not goods or properties for
sale, barter, exchange, lease or importation. Certainly, input VAT
credits are different from tax credits on dividends received by
nonresident foreign corporations.
_______________
 Mamalateo, Philippine Income Tax (2004), p. 379.
52

 Vitug, Tax Law and Jurisprudence (2nd ed., 2000), p. 188.

53

ultimate guardians of the liberties and welfare of the people in quite as great a degree
[as the] courts.” Tolentino v. Secretary of Finance, supra, p. 650, October 30, 1995,  Mamalateo, Philippine Income Tax (2004), p. 380.
54

 De Leon, The Law on Transfer and Business Taxation with Illustrations,

55

per Mendoza, J.; (citing Missouri, K. & T. Ry. Co. v. May, 194 US 267, 270, 24 S. Ct.
638, 639, May 2, 1904, per Holmes, J.) Problems, and Solutions (1998), pp. 195-196 & 222-224.
44
 Fariñas v. Executive Secretary, 417 SCRA, 503, 524, December 10, 2003.
45
 Flint v. Stone Tracy Co., 220 US 107, 167, 31 S. Ct. 342, 355, March 13, 189
1911, per Day, J. VOL. 469, SEPTEMBER 1, 2005
46
 §16(3) of Article VI of the 1987 Constitution.
“Parliamentary rules are merely procedural, and with their observance, the Abakada Guro Party List vs. Ermita
courts have no concern. They may be waived or disregarded by the legislative
body.” Arroyo v. De Venecia, supra, p. 61, August 14, 1997, per Mendoza, J.; Three, itemized deductions from gross income partake of the
(citing Osmeña, Jr. v. Pendatun, 109 Phil. 863, 870-871, October 28, 1960, per nature of a tax exemption.  Interest—which is among such
56

Bengzon, J.). deductions—refers to the amount paid by a debtor to a creditor for

the use or forbearance of money.  It is an expense item that is paid
57

187
or incurred within a given taxable year on indebtedness in
VOL. 469, SEPTEMBER 1, 2005 connection with a taxpayer’s trade, business or ex ercise of
Abakada Guro Party List vs. Ermita profession.  In order to reduce revenue losses, Congress enacted
58

from the Senate version) regarding income taxes  are not legally 47
RA 8424  which reduces the amount of interest expense deductible
59

germane to the subject matter of the House bills. Revising the by a taxpayer from gross income, equal to the applicable
income tax rates on domestic, resident foreign and nonresident percentage of interest income subject to final tax.  To assert that60

foreign corporations; increasing the tax credit against taxes due
from nonresident foreign corporations on intercorporate dividends;
and reducing the allowable deduction for interest expense are
legally unrelated and not germane to the subject matter contained
in the House bills; they violate the origination principle.  The
reasons are as follows:
One, an income tax is a direct tax imposed on actual or
presumed income—gross or net—realized by a taxpayer during a
given taxable year,  while a VAT is an indirect tax not in the
49
context of who is directly and legally liable for its payment, but in
terms of its nature as “a tax on consumption.”  The former cannot
50
be passed on to the consumer, but the latter can.  It is too wide a
reducing the allowable deduction in interest expense is a matter
that is legally related to the proposed VAT amendments is too far-
fetched. Interest expenses are not allowed as credits against output
VAT. Neither are VAT-registered persons always liable for
48
interest.
Having argued on the unconstitutionality (non-germaneness)
of the BCC insertions on income taxes, let me now proceed to the
other provisions that were attacked by petitioners.
No Pass-on Provisions. I agree with the ponencia that the
BCC did not exceed its authority when it deleted the no pass-on
provisions found in the congressional bills. Its author-
_______________
51

stretch of the imagination to even relate one concept with the  Mamalateo, Philippine Income Tax (2004), p. 173.
56

other. In like manner, it is inconceivable  See §78 of Revenue Regulations No. 2-1940, recommended by Bibiano L.
57

_______________ Meer, then Collector of Internal Revenue, and promulgated by Manuel Roxas, then
Secretary of Finance, later President of the Republic of the Philippines, on February
47
 HBs 3555 & 3705 do not contain any provision that seeks to revise non-VAT 11, 1941, XXXIX OG 18, 325.
provisions of the Tax Code, but SB 1950 has §§1-3 that seek to amend the rates of  Mamalateo, Philippine Income Tax (2004), p. 196.
58

income tax on domestic, resident foreign and nonresident foreign corporations at 35%  RA 8424 refers to the Tax Reform Act of 1997.
59

(30% in 2009), with a tax credit on intercorporate dividends at 20% (15% in 2009);  The 42 percent reduction rate under §3 of RA 9337, amending §34(B)(1) of
60

and to reduce the allowable deductions for interest expense by 42% (33% in 2009) of the Tax Code, is derived by first subtracting the 20 percent tax on interest income
the interest income subject to final tax. from the increased tax rate of 35 percent imposed on domestic, resident foreign, and
48
 The amendments to income taxes also partake of the nature of taxation without nonresident foreign corporations, and then dividing the difference obtained by the
representation. As I will discuss in the succeeding paragraphs of this Opinion, they increased rate. Hence, it is computed as follows:
did not emanate from the House of Representatives that, under §24 of Article VI of      35% - 20% = 15%
the 1987 Constitution, is the only body from which revenue bills should exclusively      15% : 35% = 42%, the amount of reduction.
originate.
49
 Mamalateo, Philippine Income Tax (2004), p. 1. 190
 Commissioner of Internal Revenue v. American Express International, Inc.
190 SUPREME COURT REPORTS ANNOTATED
50

(Philippine Branch), G.R. No. 152609, 462 SCRA 197, 215, June 29, 2005, per
Panganiban, J. See Deoferio, Jr. & Mamalateo, The Value Added Tax in the Abakada Guro Party List vs. Ermita
Philippines (2000), p. 36.
51 ity to make amendments not only implies the power to make
 De Leon, The Fundamentals of Taxation (12th ed., 1998), pp. 92 & 132.
insertions, but also deletions, in order to
188 resolve conflicting provisions.
188 SUPREME COURT REPORTS ANNOTATED The no pass-on provision in House Bill (HB) No. 3705
referred to the petroleum products subject to excise tax (and the
Abakada Guro Party List vs. Ermita raw materials used in the manufacture of such products), the
how the provisions that increase corporate income taxes can be sellers of petroleum products, and the generation companies.  The 61

considered as mitigating measures for increasing the VAT and, as analogous provision in Senate Bill (SB) No. 1950 dealt with
I will explain later, for effectively imposing a maximum of 3 electricity, businesses other than generation companies, and
percent tax on gross sales or revenues because of the 70 percent services of franchise grantees of electric utilities.  In contrast, there 62

cap. Even the argument that the corporate income tax rates will be was a marked absence of the no pass-on provision in HB 3555.
reduced to 30 percent does not hold water. This reduction will take Faced with such variances, the BCC had the option of retaining or
effect only in 2009, not 2006 when the 12 percent VAT rate will modifying the no pass-on provisions and determining their extent,
have been implemented. or of deleting them altogether. In opting for deletion to resolve the
Two, taxes on intercorporate dividends are final, but the input variances, it was merely acting within its discretion. No grave
VAT is generally creditable. Under a final withholding tax abuse may be imputed to the BCC.
system, the amount of income tax that is withheld by a The 70 Percent Cap on Input Tax and the 5 Percent Final
withholding agent is constituted as a full and final payment of the Withholding VAT. Deciding on the 70 percent cap and the 5
income tax due from the payee on said income.  The liability for percent final withholding VAT in the consolidated bill is also
52

the tax primarily rests upon the payor as a withholding within the power of the BCC. While HB 3555 in-
agent.  Under a creditable withholding tax system, taxes withheld
53
_______________
on certain payments are meant to approximate the tax that is due
  §§1-3 of HB 3705.
61
 §5 of SB 1950. There seems to be a discrepancy between the Conference
62
Committee Report and the various pleadings before this Court. While such report,
attaching a copy of the bill as reconciled and approved by its conferees, as well as the
report submitted by the Senate’s Committee on Ways & Means to the Senate
President on March 7, 2005, show that SB 1950 does not contain a no-pass on
provision, the petitioners and respondents show that it does (Pimentel Memorandum,
Annex “A” showing a “Matrix on the Disagreeing Provisions of the [VAT] Bills,” pp.
9-11; Escudero Memorandum, p. 42; and Respondents’ Memorandum, pp. 109-110).
Notably, the qualified dissent of Senator Joker Arroyo to the Bicameral Conference
Report states that the Senate version prohibits the power companies from passing on
the VAT that they will pay.
191
VOL. 469, SEPTEMBER 1, 2005
Abakada Guro Party List vs. Ermita
cluded limits of 5 percent and 11 percent on input tax,  SB 1950 63
proposed an even spread over 60 months.  The decision to put a
64
cap and fix its rate, so as to harmonize or to find a compromise in
settling the apparent differences in these versions,  was within the
65
sound discretion of the BCC.
In like manner, HB 3555 contained provisions on the
withholding of creditable VAT at the rates of 5 percent, 8 percent,
10.5 percent, and 12 percent.  HB 3705 had no such equiva-
66
_______________
 §4 of HB 3555 seeks to amend §110(A) of the Tax Code by limiting to 5% and
63
11% of their respective total amounts the claim for input tax credit of capital goods,
through equal distribution of the amount of such claim over their depreciable lives;
and of goods and services other than capital goods, and goods purchased by persons
engaged in retail trade.
 §7 of SB 1950 seeks to amend §110 of the Tax Code by also limiting the claim
64
for input tax credit of goods purchased or imported for use in trade or business,
through an even depreciation or amortization over the month of acquisition and the 59
succeeding months, if the aggregate acquisition cost of such goods exceeds P
660,000.
The depreciation or amortization in the amendments is referred to as a “spread-
out” in an unnumbered Revenue Memorandum Circular dated July 12, 2005,
submitted to this Court by public respondents in their Compliance dated August 16,
2005. Such spread-out recognizes industries where capital assets are constructed or
assembled.
 No cap is found in HB 3705.
65
 §5 of HB 3555 seeks to amend §114 of the Tax Code by requiring that the
66
VAT be deducted and withheld by the government or by any of its political
subdivisions, instrumentalities or agencies—including government-owned-and-
controlled corporations (GOCCs)—before making any payment on account of each
purchase of goods from sellers and services rendered by contractors. The VAT
deducted and withheld shall be at the rates of 5% of the gross payment for the
purchase of goods and 8% of the gross receipts for services rendered by contractors
on every sale or installment payment. The VAT that is deducted and withheld shall be
creditable against their respective VAT liabilities—10.5%, in case of government
public works contrac-
192
192 SUPREME COURT REPORTS ANNOTATED 194
Abakada Guro Party List vs. Ermita
lent amendment, and SB 1950 pegged the rates at only 5 percent
and 10 percent.  I believe that the decision to impose a final (not
67
creditable) VAT and to fix the rates at 5 percent and 10 percent, so
as to harmonize the apparent differences in all three versions, was
also within the sound discretion of the BCC.
Indeed, the tax credit method under our VAT system is not
only practical, but also principally used in almost all taxing
jurisdictions. This does not mean, however, that in the eyes of
Congress through the BCC, our country can neither deviate from
this method nor modify its application to suit our fiscal
requirements. The VAT is usually collected through the tax credit
method (and in the past, even through the cost deduction method
or a mixture of these two methods),  but there is no hard and fast
68
rule that 100 percent of the input taxes will always be allowed as a
tax credit.
In fact, it was Maurice Lauré, a French engineer,  who 69
invented the VAT. In 1954, he had the idea of imposing an indi-
_______________
tors; and 12% of the payments for the lease or use of properties orproperty rights to
nonresident owners.
 §11 of SB 1950 seeks to amend §114 of the Tax Code by requiring that the
67
VAT be deducted and withheld by the government or by any of its political
subdivisions, instrumentalities or agencies—including government-owned or
controlled corporations (GOCCs)—before making any payment on account of each
purchase of goods from sellers and services rendered by contractors. The VAT
deducted and withheld shall be at the rates of 5% of the gross payment for the
purchase of goods and on the gross receipts for services rendered by contractors,
including public works contractors. The VAT that is deducted and withheld shall be
creditable against the VAT liability of the seller; and 10% of the gross payment for
the lease or use of properties or property rights to nonresident owners.
 Deoferio, Jr. & Mamalateo, The Value Added Tax in the Philippines (2000),
68
pp. 34-35 & 44.
 http://explanation-guide.info/meaning/Maurice-Lauré.html (Last visited
69
August 23, 2005, 3:25pm PST).
193
VOL. 469, SEPTEMBER 1, 2005
Abakada Guro Party List vs. Ermita
rect tax on consumption, called taxe sur la valeur ajoutée,  which 70
was quickly adopted by the Direction Générale des Impost, the
new French tax authority of which he became joint director.
Consequently, taxpayers at all levels in the production process,
rather than retailers or tax authorities, were forced to administer
and account for the tax them-selves. 71
Since the unutilized input VAT can be carried over to
succeeding quarters, there is no undue deprivation of property.
Alternatively, it can be passed on to the consumers;  there is no 72
law prohibiting that. Merely speculative and unproven, therefore,
is the contention that the law is arbitrary and oppressive.  Laws 73
that impose taxes are necessarily burdensome, compulsory, and
involuntary.
The deferred input tax account—which accumulates the
unutilized input VAT—remains an asset in the accounting
_______________
70
 This refers to a “tax on value added”—TVA in French and VAT in English.
71
 http://en.wikipedia.org/wiki/ Maurice-Lauré (Last visited August 23, 2005,
3:20pm PST).
72
 The Transcript of the Oral Arguments in G.R. Nos. 168461, 168463, 168056,
and 168207, held on July 14, 2005 at the Supreme Court Session Hall, show that the
act of passing on to consumers is a mere cash flow problem, as agreed to by counsel
for petitioners in G.R. No. 168461:
“Justice Panganiban:
  So, the final consumer pays the tax?
“Atty. Baniqued:
  Yes, Your Honor.
“Justice Panganiban:
  The trade people in between the middlemen just take it as an inpu
then [collect] it as output, isn’t it?
Atty. Baniqued:
  Yes, Your Honor.
“Justice Panganiban:
  It’s just a cash flow problem for them, essentially?
“Atty. Baniqued:
  Yes x x x.” (p. 375).
 The 5 percent final withholding tax may also be charged as part of a supplier’s
73
Cost of Sales.
194
SUPREME COURT REPORTS ANNOTATED
Abakada Guro Party List vs. Ermita
records of a business. It is not at all confiscated by the
government. By deleting Section 112(B) of the Tax
Code,  Congress no longer made available tax credit
74
certificates for such asset account until retirement from or
cessation of business, or changes in or cessation of VAT-
registered status.  This is a matter of policy, not legality. The Court
75
cannot step beyond the confines of its constitutional power, if
there is absolutely no clear showing of grave abuse of discretion in
the enactment of the law.
That the unutilized input VAT would be rendered useless is
merely speculative.  Although it is recorded as a deferred asset in
76
the books of a company, it remains to be a mere privilege. It may
be written off or expensed outright; it may also be denied as a tax
credit.
There is no vested right in a deferred input tax account; it is a
mere statutory privilege.  The State may modify or withdraw such
77
privilege, which is merely an asset granted by operation of
law.  Moreover, there is no vested right in gener-
78
_______________
 This refers to RA 8424, as amended.
74
 In fact, §112(B) of the Tax Code, prior to and after its amendment by §10 of
75
RA 9337, does not at all prohibit the application of unused input taxes against other
internal revenue taxes. The manner of application is determined though by the BIR
through §4.112-1(b) of Revenue Regulations No. 14-2005, otherwise known as the
“Consolidated VAT Regulations of 2005,” dated June 22, 2005.
 That the unutilized input VAT can be considered an ordinary and necessary
76
expense for which a corresponding deduction will be allowed against gross income
under §34(A)(1) of the Tax Code—instead of a deferred asset—is another matter to
be adjudicated upon in proper cases.
 See United Paracale Mining Co. v. De la Rosa, 221 SCRA 108, 115, April 7,
77
1993.
 The law referred to is not only the Tax Code, but also RA 9298, otherwise
78
known as the “Philippine Accountancy Act of 2004.”
195
VOL. 469, SEPTEMBER 1, 2005
 These impositions may constitute double taxation,  which is not
Abakada Guro Party List vs. Ermita
82

constitutionally proscribed. 83

ally accepted accounting principles.  These refer to accounting

79

_______________
concepts, measurement techniques, and standards of presentation
in a company’s financial statements, and are not rooted in laws of stages in the distribution process, and culminating with the sale to the final
nature, as are the laws of physical science, for these are merely consumer. This is the essence of a VAT; it is a tax on the value added, that is, on the
developed and continually modified by excess of sales over purchases. See Deoferio Jr. & Mamalateo, The Value Added Tax
_______________ in the Philippines (2000), pp. 33-34. With the 70 percent cap on output tax that is
allowable as an input tax credit, the remaining 30 percent becomes an outright
expense that is, however, immediately payable and remitted by the business
79
 These are based on pronouncements of recognized bodies involved in setting establishment to the government. This amount can never be recovered or passed on to
accounting principles. Greatest weight shall be given to their pronouncements in the the consumer, but it can be an allowable deduction from gross income under §34(A)
order listed below: (1) of the Tax Code. In effect, it is a tax computed by multiplying 30 percent to the 10
percent VAT that is imposed on gross sales, receipts or revenues. It is not a tax on tax
and, mathematically, it is derived as follows:
1. 1.Securities and Exchange Commission (SEC);
2. 2.Accounting Standards Council;
3. 3.Standards issued by the International Accounting Standards Board (now 30% x 10% = 3% of gross sales, receipts or revenues.
Committee); and
4. 4.Accounting principles and practices for which there has been a long history of
acceptance and usage.  “Double taxation means taxing the same property [or subject matter] twice
82

when it should be taxed only once; that is, ‘taxing the same person twice by the same
jurisdiction for the same thing.’” Commissioner of Internal Revenue v. Solidbank
If there appears to be a conflict between any of the bodies listed above, the
Corp., 416 SCRA 436, November 25, 2003, per Panganiban, J.; (citing Afisco
pronouncements of the first listed body shall be applied. SEC Securities Regulation
Insurance Corp. v. Court of Appeals, 361 Phil. 671, 687; 302 SCRA 1, 16, January
Code Rule 68(1)(b)(iv) as amended, cited in Appendix “C” of Morales, The
25, 1999, per Panganiban, J.). See Commissioner of Internal Revenue v. Bank of
Philippine Securities Regulation Code (Annotated), [2005], p. 578.
Commerce, G.R. No. 149636, 459 SCRA 638, June 8, 2005.
Recommended by the World Bank and the Asian Development Bank, and
 “The rule x x x is well-settled that there is no constitutional prohibition against
83

increasingly recognized worldwide, international accounting standards (IAS) have

double taxation.” China Banking Corp. v. Court
been merely adopted by Philippine regulatory bodies and accredited professional
organizations. The SEC, for instance, complies with the agreement among co-
members of the International Organization of Securities Commissions to adopt IAS in 198
order to ensure high-quality and transparent financial reporting, with full disclosure as 198 SUPREME COURT REPORTS ANNOTATED
a means to promote credibility and efficiency in the capital markets. In implementing
the General Agreement on Trade in Services, the Professional Regulatory Board of Abakada Guro Party List vs. Ermita
Accountancy (PRBOA) of the Professional Regulatory Commission supports the
Besides, prior to the amendments introduced by the BCC, already
adoption of IAS. The Philippine Institute of Certified Public Accountants, a member
extant in the Tax Code was a 3 percent percentage tax on the gross
of the International Accounting Standards Committee (IASC), also has the
quarterly sales or receipts of persons who were not VAT-
commitment to support the work of the IASC and uses best endeavors to foster
compliance with IAS. http://www.picpa.com.ph/adb/index.htm (Last visited August
registered, and whose sales or receipts were exempt from
23, 2005, 3:15pm PST).
VAT.  This is another type of tax imposed by the Tax Code, in
84

196 addition to the tax on their respective incomes. No question as to

196 SUPREME COURT REPORTS ANNOTATED its validity was raised before; none is being brought now. More
important, there is a presumption in favor of
Abakada Guro Party List vs. Ermita constitutionality,  “rooted in the doctrine of separation of powers
85

local and international regulatory accounting bodies.  To state which enjoins upon the three coordinate departments of the
80

otherwise and recognize such asset account as a vested right is to Government a becoming courtesy for each other’s acts.” 86

limit the taxing power of the State. Unlimited, plenary, As to the argument that Section 8 of RA 9337 contravenes
comprehensive and supreme, this power cannot be unduly Section 1 of Article III and Section 20 of Article II of the 1987
restricted by mere creations of the State. Constitution, I respectfully disagree.
That the unutilized input VAT would also have an unequal One, petitioners have not been denied due process or, as I
effect on businesses—some with low, others with high, input- have illustrated earlier, equal protection. In the exercise of its
output ratio—is not a legal ground for invalidating the law. Profit inherent power to tax, the State validly interferes with the right to
margins are a variable of sound business judgment, not of legal property of persons, natural or artificial. Those similarly situated
doctrine. The law applies equally to all businesses; it is up to each are affected in the same way and treated alike, “both as to
of them to determine the best formula for selling their goods or privileges conferred and liabilities enforced.” 87

services in the face of stiffer competition. There is, thus, no _______________

violation of the equal protection clause. If the implementation of
the 70 percent cap would cause an ad infinitum deferment of input of Appeals, 403 SCRA 634, 664, June 10, 2003, per Carpio, J.
Cruz, Constitutional Law (1998), p. 89.
taxes or an unequal effect upon different types of businesses with  §116 of the Tax Code as amended.
84

varying profit margins and capital requirements, then the remedy  “[C]ourts accord the presumption of constitutionality to legislative enactments,
85

would be an amendment of the law—not an unwarranted and
outright declaration of unconstitutionality.
The matter of business establishments shouldering 30 percent
of output tax and remitting the amount, as computed, to the
government is in effect imposing a tax that is equivalent to a
maximum of 3 percent of gross sales or revenues.  This
not only because the legislature is presumed to abide by the Constitution[,] but also
because the judiciary[,] in the determination of actual cases and controversies[,] must
reflect the wisdom and justice of the people as expressed through their representatives
in the executive and legislative departments of the government.” Angara v. Electoral
Commission, 63 Phil. 139, 158-159, July 15, 1936, per Laurel, J.; (cited in Francisco,
Jr. v. House of Representatives, supra, pp. 121-122.)
 Cawaling, Jr. v. Commission on Elections, 420 Phil. 524, 530; 368 SCRA 453,
86

81

456, October 26, 2001, per Sandoval-Gutierrez, J.

_______________ 87
 Ichong v. Hernandez, 101 Phil. 1155, 1164, May 31, 1957, per Labrador, J.

80
 Meigs & Meigs, Accounting: The Basis for Business Decisions (1981), pp. 28 199
& 515.
Under §9(b) & (g) of RA 9298, the PRBOA shall supervise the practice of VOL. 469, SEPTEMBER 1, 2005
accountancy in the Philippines and adopt measures—such as the promulgation of
accounting and auditing standards, rules and regulations, and best practices—that Abakada Guro Party List vs. Ermita
may be deemed proper for the enhancement and maintenance of high professional, RA 9337 was enacted precisely to achieve the objective of raising
ethical, accounting, and auditing standards that include international accounting and revenues to defray the necessary expenses of government.  The 88

auditing standards and generally accepted best practices.

81
 The VAT is collected on each sale of goods or properties or upon the actual or means that this law employs are reasonably related to the
constructive receipt of consideration for services, starting from the production stage, accomplishment of such objective, and not unduly oppressive. The
followed by the intermediate reduction of tax credits is a question of economic policy, not of
legal perlustration. Its determination is vested in Congress, not in
197
this Court. Since the purpose of the law is to raise revenues, it
VOL. 469, SEPTEMBER 1, 2005 cannot be denied that the means employed is reasonably related to
Abakada Guro Party List vs. Ermita the achievement of that purpose. Moreover, the proper
imposition is arguably another tax on gross—not net—income and congressional procedure for its enactment was followed;  neither 89

thus a deviation from the concept of VAT as a tax on
consumption; it also assumes that sales or revenues are on cash
basis or, if on credit, given credit terms shorter than a quarter of a
year. However, such additional imposition and assumption are also
arguably within the power of Congress to make. The State may in
fact choose to impose an additional 3 percent tax on gross income,
in lieu of the 70 percent cap, and thus subject the income of
businesses to two types of taxes—one on gross, the other on net.
public notice nor public hearings were denied.
Two, private enterprises are not discouraged. Tax burdens are
never delightful, but with the imposition of the 70 percent cap,
there will be an assurance of a steady cash flow to the government,
which can be translated to the production of improved goods,
rendition of better services, and construction of better facilities for
the people, including all private enterprises. Perhaps, Congress
deems it best to make our economy depend more on businesses
that are easier to monitor, so there will be a more efficient
collection of taxes. Whatever is expected of the outcome of the
law, or its wisdom, should be the sole responsibility of the
representatives chosen by the electorate.
The profit margin rates of various industries generally do not
change. However, the profit margin figures do, because these are
obviously monetary variables that affect business, along with the
level of competition, the quality of goods and services offered, and
the cost of their production. And there will inevitably be a
conscious desire on the part of those who engage in business and
those who consume their output to
_______________
88
 De Leon, The Fundamentals of Taxation (12th ed., 1998), p. 1.
 Except, as earlier discussed, for Sections 1, 2 and 3 of the law.
89
200
200 SUPREME COURT REPORTS ANNOTATED   It’s not 100 [percent] credi[ta]bility[,] unlike if it were applied
Abakada Guro Party List vs. Ermita
adapt or adjust accordingly to any congressional modification of
the VAT system.
In addition, it is contended that the VAT should be
proportional in nature. I submit that this proportionality pertains to
the rate imposable, not the credit allowable. Private enterprises are
subjected to a proportional VAT rate, but VAT credits need not
be. The VAT is, after all, a human concept that is neither
immutable nor invariable. In fact, it has changed after it was
adopted as a system of indirect taxation by other countries. Again
unlike the laws of physical science, the VAT system can always be
modified to suit modern fiscal demands. The State, through the
Legislative Department, may even choose to do away with it and
revert to our previous system of turnover taxes, sales taxes and
compensating taxes, in which credits may be disallowed
altogether.
Not expensed, but amortized over its useful life, is capital
equipment, which is purchased or treated as capital leases by
private enterprises. Aimed at achieving the twin objectives of
profitability and solvency, such purchase or lease is a matter of
prudence in business decision-making.
Hence, business judgments, sales volume, and their effect on
competition are for businesses to determine and for Congress to
regulate—not for this Court to interfere with, absent a clear
showing that constitutional provisions have been violated. Tax
collection and administrative feasibility are for the executive
branch to focus on, again not for this Court to dwell upon.
The Transcript of the Oral Arguments on July 14, 2005 clearly
point out in a long line of relevant questioning that, absent a
violation of constitutional provisions, the Court cannot interfere
with the 70 percent cap, the 5 percent final withholding tax, and
the 60-month amortization, there being other extra-judicial
remedies available to petitioners, thus:
“Atty. Baniqued:
      But if your profit margin is low as i[n] the case of the petroleum
dealers, x x x then we would have a serious problem, Your Honor. “Atty. Baniqued:
201
VOL. 469, SEPTEMBER 1, 2005
Abakada Guro Party List vs. Ermita
“Justice Panganiban:
      Isn’t the solution to increase the price then?
“Atty. Baniqued:
  If you increase the price which you can very well do, Your Honor, of recouping it[.] I am saying that, not advising that it’s good. A
then that [will] be deflationary and it [will] have a cascading effect onam saying is, is it constitutional or not[?] We’re not here to det
all other basic commodities[, especially] because what is involved the wisdom of the law, that’s up for Congress. As pointed out e
here is pet roleum, Your Honor.
“Justice Panganiban:
  That may be true[,] but it’s not unconstitutional?
“Atty. Baniqued:
  That may be true, Your Honor, but the very limitation of the
[seventy percent] input [VAT], when applied to the case of the
petroleum dealers[,] is oppressive[.] [I]t’s unjust and it’s
unreasonable, Your Honor.
“Justice Panganiban:
  But it can be passed as a part of sales, sales costs rather.
“Atty. Baniqued:
  But the petroleum dealers here themselves…… interrupted
“Justice Panganiban:
  In your [b]alance [s]heet, it could be reflected as Cost of Sales
therefore the price will go up?
“Atty. Baniqued:
  Even if it were to be reflected as part of the Cost of Sales, You
Honor, the [input VAT] that you cannot claim, the benefit to y
only to the extent of the corporate tax rate which is 32 now 35
[percent].
“Justice Panganiban:
  Yes.
“Atty. Baniqued:
your [output VAT], you get to claim 100 [percent] of it, Your H
“Justice Panganiban:
  That might be true, but we are talking about whether that partic
provision would be unconstitutional. You say it’s oppressive, b
have a remedy, you just pass it on to the customer. I am not
sayin[g] it’s good[.] [N]either am I saying it’s wise[.] [A]ll I’m
talking about is, whether it’s constitutional or not.
“Atty. Baniqued:
  Yes, in fact we acknowledge, Your Honor, that that is a rem
available to the petroleum dealers, but considering the impact
limitation[,] and were just talking of the 70 [percent cap] on [in
VAT]
202
202 SUPREME COURT REPORTS ANNOTATED
Abakada Guro Party List vs. Ermita
      in the level of the petroleum dealers. Were not even talking ye
limitation on the [input VAT] available to the manufacturers, s
if they pass that on as well?
“Justice Panganiban:
  Yes.
“Atty. Baniqued:
  Then, it would complicate… interrupted
“Justice Panganiban:
  What I am saying is, there is a remedy, which is business in ch
The mere fact that the government is imposing that [seventy pe
cap doesnot make the law unconstitutional, isn’t it?
  It does, Your Honor, if it can be shown. And as we have shown
oppressive and unreasonable, it is excessive, Your Honor…
interrupted
“Justice Panganiban:
  If you have no way of recouping it. If you have no way of reco
that amount, then it will be oppressive, but you have a business
if the law is not wise, the law makers will be changed by the pe
[T]hat is their solution t[o] the lack of wisdom of a law. If the l
unconstitutional[,] then the Supreme Court will declare it
unconstitutional and void it, but[,] in this case[,] there seems to
business remedy in the same manner that Congress may just im
that tax straight without saying it’s [VAT]. If Congress will jus
all petroleum will pay 3 [percent] of their Gross Sales, but you
bear that, you pass that on, isn’t it?
“Atty. Baniqued:
  We acknowledge your concern, Your Honor, but we should no
that when the petroleum dealers pass these financial burden or
differential to the consumers, they themselves are consumers in
 own right. As a matter of fact, they filed this case both as petroleum ability to do that[,] and that is why the first step that we are see
dealer[s] and as taxpayers. If they pass if on, they themselves would to seek redress from this Honorable Court[,] because we feel th
ultimately bear the burden[, especially] in increase[d] cost of imposit on is excessive and oppressive….. interrupted
electricity, land transport, food, everything, Your Honor. “Justice Panganiban:
“Justice Panganiban:   You can find redress here, only if you can show that the law is
  Yes, but the issue here in this Court, is whether that act of Congress isunconstitutional.
unconstitutional. “Atty. Baniqued:
203
  We realized that, Your Honor.
VOL. 469, SEPTEMBER 1, 2005
“Justice Panganiban:
Abakada Guro Party List vs. Ermita
  Alright. Let’s talk about the 5 [percent] [d]epreciation rate, b
“Atty. Baniqued: applies only to the capital equipment worth over a million?
      Yes, we believe it is unconstitutional, Your Honor. “Atty. Baniqued:
“Justice Panganiban:   Yes, Your Honor.
  You have a right to complain that it is oppressive, it is excessive, it
“Justice Panganiban:
burdens the people too much, but is it unconstitutional?   And that doesn’t apply at all times, isn’t it?
“Atty. Baniqued: “Atty. Baniqued:
  Besides, passing it on, Your Honor, may not be as simple as it may Well……
seem. As a matter of fact, at the strike of midnight on June 30,“Justice
when Panganiban:
petroleum prices were being changed upward, the [s]ecretary of   [the] That doesn’t at all times?
Department of Energy was going around[.] [H]e was seen on TV “Atty. Baniqued:
going around just to check that prices don’t go up. And as a matter
  ofFor capital goods costing less than 1 million, Your Honor, th
fact, he had pronouncements that, the increase in petroleum price “Justice Panganiban:
should only be limited to the effect of 10 [percent] E-VAT.   That will not apply?
“Justice Panganiban: “Atty. Baniqued:
  It’s becaus[e] the implementing rules were not clear and were  not That will not apply, but you will have the 70 [percent] cap on
extensive enough to cover how much really should be the increase for[VAT], Your Honor.
various oil products, refined oil products. It’s up for the dealers“Justice
to Panganiban:
guess, and the dealers were guessing to their advantage by saying   plusYes, but we talked already about the 70 [percent].
10 [percent] anyway, right? “Atty. Baniqued:
“Atty. Baniqued:   Yes, Your Honor.
  In fact, the petroleum dealers, Your Honors, are not only faced“Justice
with Panganiban:
constitutional issues before this Court. They are also faced with   a When you made your presentation on the balance sheet, it is as
possibility of the Department of Energy not allowing them to pass it every capital expenditure you made is subject to the 5 [percent
on[,] because this would be an unreasonable price increase. And so, rather the [five year] depreciation schedule[.] [T]hat’s not so. S
they are being hit from both sides…interrupted presentation you made is a little inaccurate and misleading.
“Justice Panganiban: “Atty. Baniqued:
  That’s why I say, that there is need to refine the implementing rules At the start of our presentation, Your Honor[,] we stated clearl
so that everyone will know, the customers will know how much to this applies only to capital goods costing more than one [millio
pay for gasoline, not only gasoline, gasoline, and so on, diesel and205 all
kinds of products, so there’ll be no confusion and there’ll be no undue VOL. 469, SEPTEMBER 1, 2005
taking advantage. There will be a smooth implementation[,] if the law Abakada Guro Party List vs. Ermita
were to be upheld by the Court. In your case, as I said, it may be
“Justice Panganiban:
unwise to pass that on to the customers, but definitely, the dealers
      willYes, but you combined it later on with the 70 [percent] cap to s
not bear that [—] to suffer the loss that you mentioned in your that the dealers are so disadvantaged. But you didn’t tell us tha
consolidated balance sheets. Certainly, the dealers will not bear that will apply only when capital equipment or goods is one million
[cost], isn’t it? more. And in your case, what kind of capital goods will be wo
“Atty. Baniqued: million or more in your existing gas stations?
  It will be a very hard decision to make, Your Honor. “Atty. Baniqued:
204
  Well, you would have petroleum dealers, Your Honor, who wo
204 SUPREME COURT REPORTS ANNOTATED
have[,] aside from sale of petroleum[,] they would have their s
Abakada Guro Party List vs. Ermita
centers[,] like[…] to service cars and they would have those
“Justice Panganiban: equipments, they are, Your Honor.
      Why, you will not pass it on? “Justice Panganiban:
“Atty. Baniqued:   But that’s a different profit center, that’s not from the sale of…
  I cannot speak for the dealers…. interrupted. “Atty. Baniqued:
“Justice Panganiban:   No, they would form part of their [VATable] sale, Your Honor
  As a consumer, I will thank you if you don’t pass it on[;] but you or
Justice Panganiban:
your clients as businessm[e]n, I know, will pass it on.   It’s a different profit center[;] it’s not in the sale of petroleum
“Atty. Baniqued: products. In fact the mode now is to put up super stores in hug
  As I have said, Your Honor, there are many constraints on their stations. I do not begrudge the gas station[.] [A]ll I am saying i
 should be presented to us in perspective. Neither am I siding with
“Atty.theBaniqued:
government. All I am saying is, when I saw your complicated  balanceIf it is passed on, Your Honor, that’s of course we agree….
sheet and mathematics, I saw that you were to put in all the time the Interrupted.
depreciation that should be spread over [five] years. But we have“Justice Panganiban:
agreed that that applies only to capital equipment [—]not to any   kind Not if, you can pass it on….
of goods [—] but to capital equipment costing over 1 million pesos.
“Atty. Baniqued:
“Atty. Baniqued:   Yes, we can…. interrupted
  Yes, Your Honor, we apologize if it has caused a little confusion….
“Justice Panganiban:
“Justice Panganiban:   There is no prohibition to passing it on[.] [P]robably the gas st
  Again the solution could b[e] to pass that on, because that’s an will simply pass it on to the Supreme Court and say[,] well[,] t
added cost, isn’t it? this 5 [percent]
207
“Atty. Baniqued:
VOL. 469, SEPTEMBER 1, 2005
  Well, yes, you can pass it on….
Abakada Guro Party List vs. Ermita
“Justice Panganiban:
  I am not teaching you, I am just saying that you have a remedy…       I final VAT on you so[,] therefore, for every tank full you buy[,]
am not saying either that the remedy is wise or should be done, just have to [charge] you 5 [percent] more. Well, the Supreme
because[,] as a consumer[,] I wouldn’t want that to be done to me. will probably say, well, anyway, that 5 [percent] that we will p
“Atty. Baniqued: gas dealer, will be paid back to the government, isn’t it[?] So, h
  We realiz[e] that, Your Honor, but the fact remain[s] that whether it is[will] you be affected?
in the hands of the petroleum dealers or in the hands of the “Atty. Baniqued:
consumers[,] if this   I hope the passing on of the burden, Your Honor, doesn’t come
206 to party litigants by way of increase in docket fees, Your Hono
206 SUPREME COURT REPORTS ANNOTATED “Justice Panganiban:
Abakada Guro Party List vs. Ermita   But that’s quite another m[a]tter, though…(laughs) [W]hat I am
      imposition is unreasonable and oppressive, it will remain so, even saying, Mr. [C]ounsel is, you still have to show to us that your
after it is passed on, Your Honor. remedy is to declare the law unconstitutional[,] and it’s not bus
“Justice Panganiban: in character.
  Alright. Let’s go to the third. The 5 [percent] withholding tax, “Atty.
[f]inal Baniqued:
[w]ithholding [t]ax, but this applies to sales to government?   Yes, Your Honor, it is our submission that this limitation in the
“Atty. Baniqued: [VAT] credit as well as the amortization…….
  Yes, Your Honor. “Justice Panganiban:
“Justice Panganiban:   All you talk about is equal protection clause, about due process
  So, you can pass on this 5 [percent] to the [g]overnment depreciation of property without observance of due process[,] c
that 5 [percent] will still go back to the government. really be a remedy than a business way.
“Atty. Baniqued: “Atty. Baniqued:
  Then it will come back to haunt us, Your Honor…..   Business in the level of the petroleum dealers, Your Honor, or
“Justice Panganiban: level of Congress, Your Honor.
  Why? “Justice Panganiban:
“Atty. Baniqued:   Yes, you can pass them on to customers[,] in other words. It’s
  By way of, for example sales to NAPOCOR or NTC…. interrupted customers who should [complain].
“Justice Panganiban: “Atty. Baniqued:
  Sales of petroleum products….   Yes, Your Honor… interrupted
“Atty. Baniqued: “Justice Panganiban:
  ………… in the case of NTC, Your Honor, it would come back   to usAnd perhaps will not elect their representatives anymore[.]
by way of increase[d] cost, Your Honor. “Atty. Baniqued:
“Justice Panganiban:   Yes, Your Honor…..
  Okay, let’s see. You sell, let’s say[,] your petroleum products to
“Justice
the Panganiban:
Supreme Court, as a gas station that sells gasoline to us here. Under
  For agreeing to it, because the wisdom of a law is not for the S
this law, the 5 [percent] withholding tax will have to be charged, Court to pass upon.
right? “Atty. Baniqued:
“Atty. Baniqued:   It just so happens, Your Honor, that what is [involved] here is
  Yes, Your Honor. commodity that when it goes up, it affects everybody….
“Justice Panganiban: “Justice Panganiban:
  You will charge that[.] [T]herefore[,] the sales to the Supreme  Court Yes, inflationary and inflammatory….
by that gas station will effectively be higher? “Atty. Baniqued:
“Atty. Baniqued:   …just like what Justice Puno says it shakes the entire economi
  Yes, Your Honor. foundation, Your Honor.
208
“Justice Panganiban:
208 SUPREME COURT REPORTS ANNOTATED
  So, the Supreme Court will pay more, you will not [be] going to
Abakada Guro Party List vs. Ermita
[absorb] that 5 [percent], will you?
“Justice Panganiban: “Justice Panganiban:
      Yes, it’s inflationary[,] brings up the prices of everything…       As a matter of fact[,] a part of the mitigating measures would b
“Atty. Baniqued: elimination of the [e]xcise [t]ax and the import duties. That is [
  And it is our submission that[,] if the petroleum dealers cannot absorbis not correct to say that the [VAT] as to petroleum dealers inc
it and they pass it on to the customers, a lot of consumers would 10 [percent].
“Atty. Baniqued:
neither be in a position to absorb it too and that[’s] why we patronize,
Your Honor.   Yes, Your Honor.
“Justice Panganiban: “Justice Panganiban:
  There might be wisdom in what you’re saying, but is that   And[,] therefore, there is no justification for increasing the reta
unconstitutional? by 10 [percent] to cover the E-[VAT.] [I]f you consider the exc
“Atty. Baniqued: and the import duties, the [n]et [t]ax would probably be in the
  Yes, because as I said, Your Honor, there are even constraints in the neighborhood of 7 [percent]? We are not going into exact figur
petroleum dealers to pass it on, and we[‘]re not even sure am just trying to deliver a point that different industries, differe
210
whether….interrupted
210 SUPREME COURT REPORTS ANNOTATED
“Justice Panganiban:
Abakada Guro Party List vs. Ermita
  Are these constraints [--] legal constraints?
order to achieve the purpose of the law, cushion the impact of
“Atty. Baniqued: increased taxation, and still maintain the equitability desired of
  Well, it would be a different story, Your Honor[.] [T]hat’s any other revenue law.  Directly related to the proposed VAT
92

changes, these amendments are expected also to have a salutary

something we probably have to take up with the Department of on the national economy.
effect
Energy, lest [we may] be accused of ….. The no-amendment rule  in the Constitution was not violated
93

by the BCC, because no completely new provision was inserted in

“Justice Panganiban:
the approved bill. The amendments may be unpopular or even
  In other words, that’s your remedy [--] to take it up with the work hardship upon everyone (this writer included). If so, the
Department of Energy remedy cannot be prescribed by this Court, but by Congress.
“Atty. Baniqued:
Rejecting Non-Conflicting
  …..unreasonable price increases, Your Honor. Provisions
“Justice Panganiban:
Fourth, the BCC may choose neither to adopt nor to consolidate
  Not for us to declare those provisions unconstitutional.
the versions presented to it by both houses of Congress, but
“Atty. Baniqued: instead to reject non-conflicting provisions in those versions. In
  We, again, wish to stress that the petroleum dealers went to thisother words, despite the lack of conflict in them, such provisions
are still eliminated entirely from the consolidated bill. There may
Court[,] both as businessmen and as consumers. And as consumers, be a constitutional problem here.
[we’re] also going to bear the burden of whatever they themselves_______________

pass on.
      products, different services are hit differently. So it’s not corre
“Justice Panganiban:
say that all prices must go up by 10 [percent].
  You know[,] as a consumer, I wish you can really show that the laws
“Atty. Baniqued:
are unconstitutional, so I don’t have to pay it. But as a magistrate of
  You’re right, Your Honor.
this Court, I will have to pass upon judgment on the basis of [--]
“Justice Panganiban:
whether the law is unconstitutional or not. And I hope you can in your
  Now. For instance, [d]omestic [a]irlinecompanies, Mr. Counse
memorandum show that.
present imposed a [s]ales [t]ax of 3 [percent]. When this E-[VA
“Atty. Baniqued:
took effect[,] the [s]ales [t]ax was also removed as a mitigating
  We recognized that, Your Honor.” (boldface supplied, pp. 386-410).
measure. So, therefore, there is no justif ication to increase the
Amendments on Other Taxes and Administrative Matters.
Finally, the BCC’s amendments regarding other by 10 [percent;] at best 7 [percent], correct?
209
“Atty. Baniqued:
VOL. 469, SEPTEMBER 1, 2005   I guess so, Your Honor, yes.” (pp. 367-368).
Abakada Guro Party List vs. Ermita  §28(1) of Article VI of the 1987 Constitution.
92

93
 §26(2) of Article VI of the 1987 Constitution.
taxes  are both germane in a legal sense and reasonably necessary
90

in an economic sense. This fact is evident, considering that the 211

proposed changes in the VAT law will have inevitable
VOL. 469, SEPTEMBER 1, 2005
implications and repercussions on such taxes, as well as on the
procedural requirements and the disposition of incremental Abakada Guro Party List vs. Ermita
revenues, in the Tax Code. Either mitigating meas-ures  have to be 91
The no pass-on provisions in the congressional bills are the only
put in place or increased rates imposed, in item raised by petitioners concerning deletion.  As I have already
94

_______________ mentioned earlier, these provisions were in conflict. Thus, the

BCC exercised its prerogative to remove them. In fact,
90
 §§13-20 of SB 1950 seek to amend Tax Code provisions on percentage taxes congressional rules give the BCC the power to reconcile
on domestic carriers and keepers of garages in §117, and on international carriers in
§118; franchise taxes in §119; amusement taxes in §125; excise taxes on disagreeing provisions, and in the process of reconciliation, to
manufactured oils and other fuels in §148; registration requirements in §236; issuance delete them. No other non-conflicting provision was deleted.
of receipts or sales or commercial invoices in §237; and disposition of incremental At this point, and after the extensive discussion above, it can
revenues in §288.
91
 “[T]he removal of the excise tax on diesel x x x and other socially sensitive
readily be seen no non-conflicting provisions of the E-VAT bills
products such as kerosene and fuel oil substantially lessened the impact of VAT. The were rejected indiscriminately by the BCC.
reduction in import duty x x x also eased the impact of VAT.” Manila Bulletin,
“Impact of VAT on prices of oil products should be less than 10%, says DoE,” by
James A. Loyola, Business Bulletin B-3, Friday, July 1, 2005, attached as Annex A to
Approving and Inserting
the Memorandum filed by the Association of Pilipinas Shell Dealers, Inc. Completely New Provisions
The Transcript of the Oral Arguments in G.R. Nos. 168461, 168463, 168056,
and 168207 on July 14, 2005 also reveals the effect of mitigating measures upon
petitioners in G.R. No. 168461: Fifth, the BCC had the option of inserting completely new
provisions not found in any of the provisions of the bills of either
house of Congress, or make and endorse an entirely new bill as a
substitute. Taking this option may be a blatant violation of the
Constitution, for not only will the surreptitious insertion or
unwarranted creation contravene the “origination” principle; it
may likewise desecrate the three-reading requirement and the no-
amendment rule. 95
Fortunately, however, the BCC did not approve or insert
completely new provisions. Thus, no violation of the Constitution
was committed in this regard.
Summary
The enrolled bill doctrine is said to be conclusive not only as to
the provisions of a law, but also to its due enactment. It is not
absolute, however, and must yield to mandatory provisions of the
1987 Constitution. Specifically, this Court has the
_______________
94
 These bills refer to HB 3705 and SB 1950.
95
 §26(2), supra.
212
212 SUPREME COURT REPORTS ANNOTATED every doubt in its favor.”  As pointed our in Cawaling Jr. v.
Abakada Guro Party List vs. Ermita
duty of striking down provisions of a law that in their enactment
violate conditions, restrictions or limitations imposed by the
Constitution.  The Bicameral Conference Committee (BCC) is a
96
mere creation of Congress. Hence, the BCC may resolve
differences only in conflicting provisions of congressional bills
that are referred to it; and it may do so only on the condition that unconstitutional,
such resolution does not violate the origination, the three-reading, income tax on domestic, resident foreign, and nonresident foreign
and the no-amendment rules of the Constitution.
In crafting RA 9337, the BCC opted to reconcile the
conflicting provisions of the Senate and House bills, particularly
those on the 70 percent cap on input tax; the 5 percent final
withholding tax; percentage taxes on domestic carriers, keepers of
garages and international carriers; franchise taxes; amusement
taxes; excise taxes on manufactured oils and other fuels;
registration requirements; issuance of receipts or sales or
commercial invoices; and disposition of incremental revenues. To
my mind, these changes do not violate the origination or the
germaneness principles.
Neither is there undue delegation of legislative power in the
standby authority given by Congress to the President. The law is
complete, and the standards are fixed. While I concur with
the ponencia’s view that the President was given merely the power
to ascertain the facts to bring the law into operation—clearly an
administrative, not a legislative, function—I stress that the finance provisions of either the House bill or Senate
secretary remains the Chief Executive’s alter ego, not an agent of
Congress.
The BCC exercised its prerogative to delete the no pass-on
provisions, because these were in conflict. I believe, however,
_______________
96
 “Each house may not by its rules ignore constitutional restraints or violate
fundamental rights, and there should be a reasonable relation between the mode or
method of proceeding established by the rule and the result which is sought to be
attained.” US v. Ballin, 144 US 1, 5, 12 S.Ct. 507, 509, February 29, 1892, per
Brewer, J.
213
VOL. 469, SEPTEMBER 1, 2005
Abakada Guro Party List vs. Ermita
that it blatantly violated the origination and the germaneness
principles when it inserted provisions not found in the House
versions of the E-VAT Law: (1) increasing the tax rates on
domestic, resident foreign and nonresident foreign corporations;
(2) increasing the tax credit against taxes due from nonresident
foreign corporations on intercorporate dividends; and (3) reducing
the allowable deduction for interest expense. Hence, I find these
insertions unconstitutional.
Some have criticized the E-VAT Law as oppressive to our
already suffering people. On the other hand, respondents have
justified it by comparing it to bitter medicine that patients must
endure to be healed eventually of their maladies. The advantages
and disadvantages of the E-VAT Law, as well as its long-term
effects on the economy, are beyond the reach of judicial review.
The economic repercussions of the statute are policy in nature and
are beyond the power of the courts to pass upon.
I have combed through the specific points raised in the
Petitions. Other than the three items on income taxes that I
respectfully submit are unconstitutional, I cannot otherwise
attribute grave abuse of discretion to the BCC, or Congress for that
matter, for passing the law.
“[T]he Court—as a rule—is deferential to the actions taken by
the other branches of government that have primary responsibility
for the economic development of our country.”  Thus, in 97
upholding the Philippine ratification of the treaty establishing the
World Trade Organization (WTO), Tañada v. Angara held that
“this Court never forgets that the Senate, whose act is under
review, is one of two sovereign houses of Congress and is thus
entitled to great respect in its actions. It is itself a constitutional
body, independent and coordinate, and thus its actions are
presumed regular and done in good faith. Unless convincing proof
and persuasive arguments are
_______________
 Panganiban, Leveling the Playing Field (2004), PRINT-TOWN Group of
97
Companies, pp. 46-47.
214
214 SUPREME COURT REPORTS ANNOTATED
Abakada Guro Party List vs. Ermita
presented to overthrow such presumption, this Court will resolve
98
Comelec, the grounds for nullity of the law “must be beyond
reasonable doubt, for to doubt is to sustain.”  Indeed, “there must 99
be clear and unequivocal showing that what the Constitutions
prohibits, the statute permits.” 100
WHEREFORE, I vote to GRANT the Petitions in part and to
declare Sections 1, 2, and 3 of Republic Act No. 9337
insofar as these sections (a) amend the rates of
corporations; (b) amend the tax credit against taxes due from
nonresident foreign corporations on intercorporate dividends; and
(c) reduce the allowable deduction for interest expense. The other
provisions are constitutional, and as to these I vote to DISMISS the
Petitions.
CONCURRING AND DISSENTING OPINION
YNARES-SANTIAGO, J.:
The ponencia states that under the provisions of the Rules of the
House of Representatives and the Senate Rules, the Bicameral
Conference Committee is mandated to settle differences between
the disagreeing provisions in the House bill and Senate bill.
However, the ponencia construed the term “settle” as synonymous
to “reconcile” and “harmonize,” and as such, the Bicameral
Conference Committee may either (a) adopt the specific
_______________
 338 Phil. 546, 604-605; 272 SCRA 18, 80, May 2, 1997, per Panganiban, J.
98
 420 Phil. 525, 531; 368 SCRA 453, 457, October 26, 2001, per Sandoval-
99
Gutierrez, J.; (citing The Philippine Judges Association v. Prado, 227 SCRA 703,
706, November 11, 1993, per Cruz, J.).
 Veterans Federation Party v. Commission on Elections, 396 Phil. 419, 452-
100
453; 342 SCRA 244, 283, October 6, 2000, per Panganiban, J.; (citing Garcia v.
Commission on Elections, 227 SCRA 100, 107-108, October 5, 1993).
215
VOL. 469, SEPTEMBER 1, 2005
Abakada Guro Party List vs. Ermita
bill, (b) decide that neither provisions in the House bill or the
provisions in the Senate bill would be carried into the final form of
the bill, and/or (c) try to arrive at a compromise between the
disagreeing provisions.
I beg to differ on the third proposition.
Indeed, Section 16(3), Article VI of the 1987 Constitution
explicitly allows each House to determine the rules of its
proceedings. However, the rules must not contravene
constitutional provisions. The rule-making power of Congress
should take its bearings from the Constitution. If in the exercise of
this rule-making power, Congress failed to set parameters in the
functions of the committee and allowed the latter unbridled
authority to perform acts which Congress itself is prohibited, like
the passage of a law without undergoing the requisite three-
reading and the so-called no-amendment rule, then the same
amount to grave abuse of discretion which this Court is
empowered to correct under its expanded certiorari jurisdiction.
Notwithstanding the doctrine of separation of powers, therefore, it
is the duty of the Court to declare as void a legislative
enactment, either from want of constitutional power to enact or
because the constitutional forms or conditions have not been
observed.  When the Court declares as unconstitutional a law or a
1
specific provision thereof because procedural requirements for its
passage were not complied, the Court is by no means asserting its
ascendancy over the Legislature, but simply affirming the
supremacy of the Constitution as repository of the sovereign
will.  The judicial branch must ensure that constitutional norms for
2
the exercise of powers vested upon the two other branches are
properly observed. This is the very essence of judicial authority
conferred upon the Court under Section 1, Article VII of the 1987
Constitution.
_______________
1
 Cooley on Constitutional Limitations, 8th Ed., Vol. I, p. 332. cause it would relegate the no-amendment rule to a mere rule of
2
 Angara v. Electoral Commission, 63 Phil. 139, 158 (1936).
216
216 SUPREME COURT REPORTS ANNOTATED disagreeing provisions of the House and Senate bills. In sum, the
Abakada Guro Party List vs. Ermita
The Rules of the House of Representatives and the Rules of the
Senate provide that in the event there is disagreement between the
provisions of the House and Senate bills, the differences shall be
settled by a bicameral conference committee.
By this, I fully subscribe to the theory advanced in the
Dissenting Opinion of Chief Justice Hilario G. Davide, Jr.
in Tolentino v. Secretary of Finance  that the authority of the
3
bicameral conference committee was limited to the reconciliation
of disagreeing provisions or the resolution of differences or
inconsistencies. Thus, it could only either (a) restore, wholly or
partly, the specific provisions of the House bill amended by the
Senate bill, (b) sustain, wholly or partly, the Senate’s
amendments, or (c) by way of a compromise, to agree that neither
provisions in the House bill amended by the Senate nor the
latter’s amendments thereto be carried into the final form of the
former.
Otherwise stated, the Bicameral Conference Committee is
authorized only to adopt either the version of the House bill or the
Senate bill, or adopt neither. It cannot, as the ponencia proposed, SANDOVAL-GUTIERREZ, J.:
“try to arrive at a compromise,” such as introducing provisions not
included in either the House or Senate bill, as it would allow a
mere ad hoc committee to substitute the will of the entire Congress
and without undergoing the requisite three-reading, which are both
constitutionally proscribed. To allow the committee unbridled
discretion to overturn the collective will of the whole Congress
defies logic considering that the bills are passed presumably after _______________
study, deliberation and debate in both houses. A lesser body like
the Bicameral Conference Committee should not be allowed to
substitute its judgment for that of the entire Congress, whose will
is expressed collectively through the passed bills.
_______________
3
 G.R. Nos. 115455, 115525, 115543, 115544, 115754, 115781, 115852,
115873, 115931, 25 August 1994, 235 SCRA 630, 750.
217
VOL. 469, SEPTEMBER 1, 2005
Abakada Guro Party List vs. Ermita
When the Bicameral Conference Committee goes beyond its
limited function by substituting its own judgment for that of either
of the two houses, it violates the internal rules of Congress and
contravenes material restrictions imposed by the Constitution,
particularly on the passage of law. While concededly, the internal
rules of both Houses do not explicitly limit the Bicameral
Conference Committee to a consideration only of conflicting
provisions, it is understood that the provisions of the Constitution
should be read into these rules as imposing limits on what the
committee can or cannot do. As such, it cannot perform its
delegated function in violation of the three-reading requirement
and the no-amendment rule.
Section 26(2) of Article VI of the 1987 Constitution provides
that:
(2) No bill shall be passed by either House shall become a law unless it has
passed three readings on separate days, and printed copies thereof in its
final form have been distributed to its Members three days before its
passage, except when the President certifies to the necessity of its
immediate enactment to meet a public calamity or emergency. Upon the
last reading of a bill, no amendment hereto shall be allowed, and the vote
thereon shall be taken immediately thereafter,
the yeas and nays entered in the Journal.
Thus, before a bill becomes a law, it must pass three readings.
Hence, the ponencia’s submission that despite its limited
authority, the Bicameral Conference Committee could
“compromise the disagreeing provisions” by substituting it with its
own version—clearly violate the three-reading requirement, as the
committee’s version would no longer undergo the same since it
would be immediately put into vote by the respective houses. In
effect, it is not a bill that was passed by the entire Congress but by
the members of the ad hoc committee only, which of course is
constitutionally infirm.
I disagree that the no-amendment rule referred only to “the
procedure to be followed by each house of Congress with regard
to bills initiated in each of said respective houses” be-
218
218 SUPREME COURT REPORTS ANNOTATED
Abakada Guro Party List vs. Ermita
procedure. To my mind, the no-amendment rule should be
construed as prohibiting the Bicameral Conference Committee
from introducing amendments and modifications to non-
committee could only either adopt the version of the House bill or
the Senate bill, or adopt neither. As Justice Reynato S. Puno said
in his Dissenting Opinion in Tolentino v. Secretary of
Finance,  there is absolutely no legal warrant for the bold
4
submission that a Bicameral Conference Committee possesses the
power to add/delete provisions in bills already approved on third
reading by both Houses or an ex post veto power.
In view thereof, it is my submission that the amendments
introduced by the Bicameral Conference Committee which are not
found either in the House or Senate versions of the VAT reform
bills, but are inserted merely by the Bicameral Conference
Committee and thereafter included in Republic Act No. 9337,
should be declared unconstitutional. The insertions and deletions
made do not merely settle conflicting provisions but materially
altered the bill, thus giving rise to the instant petitions.
I, therefore, join the concurring and dissenting opinion of Mr.
Justice Reynato S. Puno.
CONCURRING AND DISSENTING OPINION
Adam Smith, the great 18th-century political economist,
enunciated the dictum that “the subjects of every state ought to
contribute to the support of government, as nearly as possible, in
proportion to their respective abilities; that is, in proportion to the
revenue which they respectively enjoy under
 Supra, p. 811.
4
219
VOL. 469, SEPTEMBER 1, 2005
Abakada Guro Party List vs. Ermita
the protection of the state.”  At no other time this dictum becomes
1
more urgent and obligatory as in the present time, when the
Philippines is in its most precarious fiscal position.
At this juncture, may I state that I join Mr. Senior Justice
Reynato S. Puno in his Opinion, specifically on the following
points:
1. 1.It is “high time to re-examine the test of germaneness
proffered in Tolentino”;
2. 2.The Bicameral Conference Committee “cannot
exercise its unbridled discretion,” “it cannot create a
new law,” and its deletion of the “no pass on
provision” common in both Senate Bill No. 1950 and
House Bill No. 3705 is “unconstitutional.”
In addition to the above points raised by Mr. Senior Justice Puno,
may I expound on the issues specified hereunder:
There is no reason to rush and stamp the imprimatur of
validity to a tax law, R.A. 9337, that contains patently
unconstitutional provisions. I refer to Sections 4 to 6 which violate
the principle of non-delegation of legislative power. These
Sections authorize the President, upon recommendation of the
Secretary of Finance, to raise the VAT rate from 10% to 12%
effective January 1, 2006, if the conditions specified therein are
and met, thus:
. . . That the President, upon the recommendation of the Secretary of
Finance, shall, effective January 1, 2006, raise the rate of value-added tax
to twelve percent (12%) after any of the following conditions has been
satisfied:
1. (i)Value-added tax collection as a percentage of Gross
Domestic Product (GDP) of the previous year exceeds two
and four-fifth percent (2 4/5%); or
 2. (ii)National government deficit as a percentage of GDP of
the previous year exceeds one and one-half percent (1 Abakada Guro Party List vs. Ermita
1/2%). potestas delegata non delegare potest.  As Judge Cooley 8

enunciated:
“One of the settled maxims in constitutional law is, that the power
_______________
conferred upon the legislature to make laws cannot be delegated by that
department to any other body or authority. Where the sovereign power of
 Book V of The Wealth of Nations. the state has located the authority, there it must remain; and by the
1

220
constitutional agency alone the laws must be made until the
Constitution itself is changed. The power to whose judgment, wisdom,
220 SUPREME COURT REPORTS ANNOTATED and patriotism this high prerogative has been entrusted cannot relieve itself
of the responsibility by choosing other agencies upon which the power
Abakada Guro Party List vs. Ermita shall be devolved, nor can it substitute the judgment, wisdom, and
This proviso on the authority of the President is uniformly patriotism of any other body for those to which alone the people have seen
appended to Sections 4, 5 and 6 of R.A. No. 9337, provisions fit to confide this sovereign trust.” 9

amending Sections 106, 107 and 108 of the NIRC, respectively.

Section 4 imposes a 10% VAT on sales of goods and properties, Of course, the rule which forbids the delegation of the power of
Section 5 imposes a 10% VAT on importation of goods, and taxation is not absolute and inflexible. It admits of exceptions.
Section 6 imposes a 10% VAT on sale of services and use or lease Retired Justice Jose C. Vitug enumerated such exceptions, to
of properties. wit: (1) delegations to local governments (to be exercised by the
Petitioners in G.R. Nos. 168056,  168207  and 168463  assail
2 3 4 local legislative bodies thereof) or political
the constitutionality of the above provisions on the ground that subdivisions; (2) delegations allowed by the Constitution;
such stand-by authority granted to the President and (3) delegations relating merely to administrative
constitutes: (1) undue delegation of legislative power; (2) violation implementation that may call for some degree of discretionary
of due process; and (3) violation of the principle of “ex-clusive powers under a set of sufficient standards expressed by law. 10

origination.” They cited as their basis Article VI, Section 28 (2);
Article III, Section 1; and Article VI, Section 24 of the
Constitution.
I Undue Delegation of Legislative Power
Taxation is an inherent attribute of sovereignty.  It is a power that
5
Patently, the act of the Legislature in delegating its power to
tax does not fall under any of the exceptions.
First, it does not involve a delegation of taxing power to the
local government. It is a delegation to the President.
Second, it is not allowed by the Constitution. Section 28 (2),
Article VI of the Constitution enumerates the charges or duties,

is purely legislative and which the central legislative body cannot

the rates of which may be fixed by the President pursuant to a law
delegate either to the executive or judicial
_______________
passed by Congress, thus:
_______________

 ABAKADA GURO Party List (Formerly AASJAS), officers Samson S.

2

8
 People vs. Vera, 65 Phil. 56 (1937).
Alcantara and Ed Vincent S. Albano. 9
 Cooley on Constitutional Limitations, 8th ed., Vol. I, p. 224.
 Aquilino Q. Pimentel, Jr., Luisa P. Ejercito-Estrada, Jinggoy E. Estrada,
3

10
 Vitug, Acosta, Tax Law and Jurisprudence, Second Edition, at pp. 8-9.
Panfilo M. Lacson, Alfredo S. Lim, Jamby A.S. Madrigal and Sergio R. Osmenña III.
 Francis Joseph G. Escudero, Vincent Crisologo, Emmanuel Joel J. Villanueva,
4

Rodolfo G. Plaza, Darlene Antonino-Custodio, Oscar G. Malapitan, Benjamin C. 223

Agarao, Jr., Juan Edgardo M. Angara, Justin Marc SB. Chipeco, Florencio G. Noel, VOL. 469, SEPTEMBER 1, 2005
Mujiv S. Hataman, Renato B. Magtubo, Joseph A. Santiago, Teofisto DL. Guingona
III, Ruy Elias C. Lopez, Rodolfo Q. Agbayani and Teodoro A. Casiño. Abakada Guro Party List vs. Ermita
 Luzon Stevedoring Co. vs. Court of Tax Appeals, L-302332, July 29, 1998, 163
5

The Congress may, by law, authorize the President to fix within

SCRA 647 cited in Vitug, Acosta, Tax Law and Jurisprudence, Second Edition, at p.
7.
221
VOL. 469, SEPTEMBER 1, 2005
Abakada Guro Party List vs. Ermita
department of government without infringing upon the theory of
separation of powers.  The rationale of this doctrine may be traced
6
from the democratic principle of “no taxation without
representation.” The power of taxation being so pervasive, it is in
the best interest of the people that such power be lodged only in
the Legislature. Composed of the people’s representatives, it is
“closer to the pulse of the people and… are therefore in a better
specified limits, and subject to such limitations and restrictions as it may
impose, tariff rates, import and export quotas, tonnage and wharfage
dues, and other duties or imposts within the framework of the national
development program of the Government.
Noteworthy is the absence of tax rates or VAT rates in the
enumeration. If the intention of the Framers of the Constitution is
to permit the delegation of the power to fix tax rates or VAT
rates to the President, such could have been easily achieved by the
mere inclusion of the term “tax rates” or “VAT rates” in the
enumeration. It is a dictum in statutory construction that what is
expressed puts an end to what is implied. Expressium facit cessare
tacitum.  This is a derivative of the more familiar maxim express
11

position to determine both the extent of the legal burden the mention is implied exclusion or expressio unius est exclusio
people are capable of bearing and the benefits they need.”  Also, 7
alterius. Considering that Section 28 (2), Article VI expressly
this set-up provides security against the abuse of power. As Chief speaks only of “tariff rates,  import  and
12
export 13

Justice Marshall said: “In imposing a tax, the legislature acts upon quotas,  tonnage  and wharfage
14 15

its constituents. The power may be abused; but the interest,
wisdom, and justice of the representative body, and its relations
with its constituents, furnish a sufficient security.”
Consequently, Section 24, Article VI of our Constitution
enshrined the principle of “no taxation without representation” by
providing that “all… revenue bills… shall originate exclusively in
the House of Representatives, but the Senate may propose or
concur with amendments.” This provision generally confines the
power of taxation to the Legislature.
R.A. No. 9337, in granting to the President the stand-by
authority to increase the VAT rate from 10% to 12%, the
Legislature abdicated its power by delegating it to the President.
This is constitutionally impermissible. The Legislature may not
_______________
11
 Espiritu vs. Cipriano, G.R. No. 32743, February 15, 1974, 55 SCRA 533, 538,
citing Sutherlands Statutory Construction, Vol. 2, Section 4945, p. 412.
12
 A tariff is a list or schedule of articles on which a duty is imposed upon their
importation, with the rates at which they are severally taxed, it is also the custom or
duty payable on such articles. (Black’s Law Dictionary [6th Edition], 1990, at p.
1456).
13
 An import quota is a quantitative restriction on the importation of an article
into a country, and is a remedy available to the executive department upon its
determination that an imported article threatens serious injury to a domestic industry.
(Id., at p. 755).
14
 An export quota is an amount of specific goods which may be exported and are
set by the government for purposes of national defense, economic stability and price
support. (Id., at p. 579).
 Tonnage dues are duties laid upon vessels according to their tonnage or cubical
15

capacity. (Id., at p. 1488).

escape its duties and responsibilities by delegating its power to any
other body or authority. Any attempt to abdicate the power is 224
unconstitutional and void, on the principle that 224 SUPREME COURT REPORTS ANNOTATED
_______________
Abakada Guro Party List vs. Ermita
6
dues  and other duties and imposts,  “by no stretch of imagination
 Pepsi Cola Bottling Company of the Philippines vs. Municipality of Tanauan, 16 17

Leyte, G.R. No. L-31156, February 27, 1976, 69 SCRA 460. See also National Power
can this enumeration be extended to include the VAT.
Corporation vs. Albay, G.R. No. 87479, June 4, 1990, 186 SCRA 198.
And third, it does not relate merely to the administrative
 Bernas, S.J., The 1987 Constitution of the Republic of the Philippines, A
7

Commentary, 1996 Edition, at p. 687. implementation of R.A. No. 9337.

In testing whether a statute constitutes an undue delegation of
222 legislative power or not, it is usual to inquire whether the statute
222 SUPREME COURT REPORTS ANNOTATED was complete in all its terms and provisions when it left the hands
of the Legislature so that nothing was left to the judgment of any
other appointee or delegate of the legislature. 18
In the present case, the President is the delegate of the
Legislature, endowed with the power to raise the VAT rate from
10% to 12% if any of the following conditions, to reiterate, has
been satisfied: (i) value-added tax collection as a percentage of
gross domestic product (GDP) of the previous year exceeds two
and four-fifths percent (2 4/5%) or (ii) National Government
deficit as a percentage of GDP of the previous year exceeds one
and one-half percent (1 1/2%).
At first glance, the two conditions may appear to be definite
standards sufficient to guide the President. However, to my mind,
they are ineffectual and malleable as they give the President ample
opportunity to exercise her authority in arbitrary and discretionary
fashion.
_______________
 Wharfage dues are generally understood to be the fees paid for landing goods
16
upon or loading them from a wharf. It is a charge for the use of the wharf and may be
treated either as rent or compensation. (Marine Lighterage Corp. vs. Luckenbach S.S.
Co., 119 Misc. 612, 248 NYS 71).
17
 A duty is generally understood to be a tax on the importation or exportation of
goods, merchandise and other commodities, while imposts are duties or impositions
levied for various reasons. (Crew Levick Co. vs. Commonwealth of Pennsylvania, 245
US 292, 62 L. Ed. 295, 38 S. Ct. 126).
18
 People vs. Vera, supra.
225
VOL. 469, SEPTEMBER 1, 2005
Abakada Guro Party List vs. Ermita
The two conditions set forth by law would have been sufficient
had it not been for the fact that the President, being at the helm of
the entire officialdom, has more than enough power of control to
bring about the existence of such conditions. Obviously, R.A. No.
9337 allows the President to determine for herself whether the
VAT rate shall be increased or not at all. The fulfillment of the
conditions is entirely placed in her hands. If she wishes to increase
the VAT rate, all she has to do is to strictly enforce the VAT
collection so as to exceed the 2 4/5% ceiling. The same holds true
with the national government deficit. She will just limit
government expenses so as not to exceed the 1 1/2% ceiling. On
the other hand, if she does not wish to increase the VAT rate, she
may discourage the Secretary of Finance from making the
recommendation.
That the President’s exercise of an authority is practically
within her control is tantamount to giving no conditions at all. I
believe this amounts to a virtual surrender of legislative power to
her. It must be stressed that the validity of a law is not tested by
what has been done but by what may be done under its provisions.
II Violation of Due Process
The constitutional safeguard of due process is briefly worded in
Section 1, Article III of the Constitution which states that, “no
person shall be deprived of life, liberty or property without due
process of law.” 20
Substantive due process requires the intrinsic validity of the
law in interfering with the rights of the person to his property. The
inquiry in this regard is not whether or not the law is being
enforced in accordance with the prescribed man-
_______________
 Walter E. Olsen & Co. vs. Aldanese and Trinidad (1922), 43 Phil., 259;
19
12 C.J., p. 786.
 Cruz, Constitutional Law, 1987 Edition, at p. 101.
20
226
226 SUPREME COURT REPORTS ANNOTATED principles of sound taxation is fiscal adequacy. The proceeds of
Abakada Guro Party List vs. Ermita
ner but whether or not, to begin with, it is a proper exercise of
legislative power.
To be so, the law must have a valid governmental
objective, i.e., the interest of the public as distinguished from those
of a particular class, requires the intervention of the State. This
objective must be pursued in a lawful manner, or in other words,
the means employed must be reasonably related to the
accomplishment of the purpose and not unduly oppressive.
There is no doubt that R.A. No. 9337 was enacted pursuant to
a valid governmental objective, i.e. to raise revenues for the
government. However, with respect to the means employed to
accomplish such objective, I am convinced that R.A. No. 9337,
particularly Sections 4, 5 and 6 thereof, are arbitrary and unduly
oppressive.
A reading of the Senate deliberation reveals that the first
condition constitutes a reward to the President for her effective
collection of VAT. Thus, the President may increase the VAT rate
from 10% to 12% if her VAT collection during the previous year
exceeds 2 4/5% of the Gross Domestic Product. I quote the
deliberation:
Senator Lacson.
      Thank you, Mr. President. Now, I will go back to my original
question, my first question. Who are we threatening to punish
imposed condition No. 1—the public or the President?
Senator Recto.
  That is not a punishment, that is supposed to be a reward s
Senator Lacson.
  Yes, an incentive. So we are offering an incentive to the Ch
Executive.
Senator Recto.
  That is right.
Senator Lacson.
  —In order for her to be able to raise the VAT to 12 %.
Senator Recto.
  That is right. That is the intention, yes.
  x x x     x x x
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Abakada Guro Party List vs. Ermita
Senator Osmeña.
      All right. Therefore, with the lifting of exemptions it stands
reason that Value-added tax collections as a percentage of G
will be much higher than . . . Now, if it is higher than 2.5%
other words, because they collected more, we will allow the
even tax more. Is that the meaning of this particular phrase
Senator Recto.
  Yes, Mr. President, that is why it is as low as 2.8%. It is lik
person has a son and his son asks him for an allowance, I d
think that he would immediately give his son an increase in
allowance unless he tells his son, You better imp rove your
and I will give you an allowance. That is the analogy of this
19
  xxxxxx
Senator Osmeña.
  So the gentleman is telling the President, If you collect mor
138 billion, I will give you additional powers to tax the peop
Senator Recto.
  x x x We are saying, kung mataas ang grade mo, dadagdag
ang allowance mo. Katulad ng sinabi natin dito. What we a
saying here is you prove to me that you can collect it, then w
increase your rate, you can raise your rate. It is an incentiv
Why authorize the President to increase the VAT rate on the
premise alone that she deserves an “incentive” or “reward”?
Indeed, why should she be rewarded for performing a duty
reposed upon her by law?
The rationale stated by Senator Recto is flawed. One of the
tax revenue should coincide with, and approximate the needs of,
government expenditures. Neither an excess nor a
_______________
 TSN, May 10, 2005, Annex ‘E” of the Petition in G.R. No. 168056.
21
228
228 SUPREME COURT REPORTS ANNOTATED
Abakada Guro Party List vs. Ermita
deficiency of revenue vis-à-vis the needs of government would be
in keeping with the principle. 22
Equating the grant of authority to the President to increase the
VAT rate with the grant of additional allowance to a studious son
is highly inappropriate. Our Senators must have forgotten that for
every increase of taxes, the burden always redounds to the people.
Unlike the additional allowance given to a studious son that comes
from the pocket of the granting parent alone, the increase in the
VAT rate would be shouldered by the masses. Indeed, mandating
them to pay the increased rate as an award to the President is
arbitrary and unduly oppressive. Taxation is not a power to be Not both Chambers of Congress. But there is more to it than
exercised at one’s whim. that. It also means that “an act for taxation must pass the House
III Exclusive Origination from the first.” It is no consequence what amendments the Senate adds. 28

_______________
House of Representatives
Section 24, Article VI of the Constitution provides:  Merriam-Webster’s Third New International Dictionary (1993 Ed.), at p. 793.
24

SEC. 24. All appropriations, revenue or tariff bills, bills authorizing  Id.

25

increase of the public debt, bills of local application, and private bills  City Mayor vs. The Chief of Philippine Constabulary, G.R. No. 20346,
26

October 31, 1967, 21 SCRA 665, 673.

shall originate exclusively in the House of Representatives, but the Senate
 Merriam-Webster’s Third New International Dictionary (1993 Ed.), at p.
27

may propose or concur with amendments. 1592.

 Davies, Legislative Law and Process, (2d. Ed. 1986), at p. 89.
28

In Tolentino vs. Secretary of Finance,  this Court expounded on

23

the foregoing provision by holding that: 231

“x x x To begin with, it is not the law—but the revenue bill—which is
required by the Constitution to ‘originate exclusively in the House of
Representatives. It is important to emphasize this, because a bill
originating the in the House may undergo such extensive changes in the
Senate that the result may be a rewriting of the whole x x x. At this point,
what is important to note is that, as a result of the Senate action, a distinct
bill may be produced. To insist
_______________
VOL. 469, SEPTEMBER 1, 2005
Abakada Guro Party List vs. Ermita
A perusal of the legislative history of R.A. No. 9337 shows that it
did not “exclusively originate” from the House of Representatives.
The House of Representatives approved House Bill Nos.
3555  and 3705.  These Bills intended to amend Sections 106, 107,
29 30

108, 109, 110, 111 and 114 of the NIRC. For its part, the Senate
22
 Vitug, Acosta, Tax Law and Jurisprudence, Second Edition, at p. 3. approved Senate Bill No. 1950,  taking into consideration House
31

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

Bill Nos. 3555 and 3705. It intended to amend Sections 27, 28, 34,
23

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Abakada Guro Party List vs. Ermita
that a revenue statute—and not only the bill which initiated the legislative
process culminating in the enactment of the law—must substantially be the
same as the House Bill would be to deny the Senate’s power not only to
‘concur with amendments: but also to ‘propose amendments.’ It would be
to violate the co-equality of the legislative power of the two houses of
Congress and in fact, make the House superior to the Senate.”
The case at bar gives us an opportunity to take a second hard look
at the efficacy of the foregoing jurisprudence.
Section 25, Article VI is a verbatim re-enactment of Section
18, Article VI of the 1935 Constitution. The latter provision was
modeled from Section 7 (1), Article I of the United States
Constitution, which states:
“All bills for raising revenue shall originate in the House of
Representatives, but the Senate may propose or concur with
106, 108, 109, 110, 112, 113, 114, 116, 117, 119, 121, 125, 148,
151, 236, 237 and 288 of the NIRC.
Thereafter, on April 13, 2005, a Committee Conference was
created to thresh out the disagreeing provisions of the three
proposed bills.
In less than a month, the Conference Committee “after having
met and discussed in full free and conference,” came up with a
report and recommended the approval of the consolidated version
of the bills. The Senate and the House of Representatives
approved it.
On May 23, 2005, the enrolled copy of the consolidated
version of the bills was transmitted to President Arroyo, who
signed it into law. Thus, the enactment of R.A. No. 9337, entitled
“An Act Amending Sections 27, 28, 34, 106, 107, 108, 109, 110,
111, 112, 113, 114, 116, 117, 119, 121, 148, 151, 236,
_______________
 Entitled “An Act Restructuring the Value-Added Tax, Amending for the
29

Purpose Sections 106, 107, 108, 110 and 114 of the National Internal Revenue Code
amendments, as on other bills.”
of 1997, As amended, and For Other Purposes.” Approved on January 27, 2005.
 Entitled “An Act Amending Sections 106, 107, 108, 109, 110 and 111 of the
30

The American people, in entrusting what James Madison termed National Internal Revenue Code of 1997, As Amended, and For Other Purposes.”
“the power of the purse” to their elected representatives, drew Approved on February 28, 2005.
inspiration from the British practice and experience with the  Entitled “An Act Amending Sections 27, 28, 34, 106, 108, 109, 110, 112, 113,
31

114, 116, 117, 119, 121, 125, 148, 151, 236, 237 and 288 of the National Internal
House of Commons. As one commentator puts it: Revenue Code of 1997, As Amended, and For Other Purposes.” Approved on April
“They knew the inestimable value of the House of Commons, as a 13, 2005.
component branch of the British parliament; and they believed that it had
at all times furnished the best security against the oppression of the crown 232
and the aristocracy. While the power of taxation, of revenue, and of
supplies remained in the hands of a popular branch, it was difficult for
232 SUPREME COURT REPORTS ANNOTATED
usurpation to exist for any length of time without check, and Abakada Guro Party List vs. Ermita
prerogative must yield of that necessity which controlled at once the237 and 288 of the National Internal Revenue Code of 1997, As
sword and the purse.”
Amended and For Other Purposes.”
But while the fundamental principle underlying the vesting of the Clearly, Senate Bill No. 1950 is not based on any bill passed
power to propose revenue bills solely in the House of by the House of Representatives. It has a legislative identity and
Representatives is present in both the Philippines and US existence separate and apart from House Bills No. 3555 and 3705.
Constitutions, stress must be laid on the differences between Instead of concurring or proposing amendments, Senate Bill No.
230 1950 merely “takes into consideration” the two House Bills. To
take into consideration means “to take into account.”
230 SUPREME COURT REPORTS ANNOTATED
Consideration, in this sense, means “deliberation, attention,
Abakada Guro Party List vs. Ermita observation or contemplation.  Simply put, the Senate in passing
32

the two quoted provisions. For one, the word “exclusively”
appearing in Section 24, Article VI of our Constitution is nowhere
to be found in Section 7 (1), Article I of the US Constitution. For either or both bills. As a matter of fact, it did not even take these
another, the phrase “as on other bills,” present in the same
provision of the US Constitution, is not written in our
Constitution.
The adverb “exclusively” means “in an exclusive
manner.”   The term “exclusive” is defined as “excluding or
24
Senate Bill No. 1950, a tax measure, merely took into account
House Bills No. 3555 and 3705, but did not concur with or amend
two House Bills as a frame of reference.
In Tolentino, the majority subscribed to the view that Senate
may amend the House revenue bill by substitution or by presenting
its own version of the bill. In either case, the result is “two bills on
the same subject.”  This is the source of the “germaneness” rule
33

having power to exclude; limiting to or limited to; single, sole, which states that the Senate bill must be germane to the bill
undivided, whole.”  In one case, this Court define the term
25 originally passed by the House of Representatives. In Tolentino,
“exclusive” as “possessed to the exclusion of others; appertaining this was not really an issue as both the House and Senate Bills in
to the subject alone, not including, admitting, or pertaining to question had one subject—the VAT.
another or others.” 26 The facts obtaining here is very much different
As for the term “originate,” its meaning are “to cause the from Tolentino. It is very apparent that House Bills No. 3555 and
beginning of; to give rise to; to initiate; to start on a course or 3705 merely intended to amend Sections 106, 107, 108, 109, 110,
journey; to take or have origin; to be deprived; arise; begin or 111 and 114 of the NIRC of 1997, pertaining to the VAT
start.” 27 provisions. On the other hand, Senate Bill No. 1950 intended to
With the foregoing definitions in mind, it can be reasonably amend Sections 27, 28, 34, 106, 108, 109, 110, 112, 113, 114, 116,
concluded that when Section 24, Article VI provides that revenue 117, 119, 121, 125, 148, 151, 236, 237 and 288 of the NIRC,
bills shall originate exclusively from the House of Representatives, pertaining to matters outside of VAT, such as income
what the Constitution mandates is that any revenue statute _______________
must begin or start solely and only in the House. Not the Senate.
 32
 Merriam-Webster’s Third New International Dictionary (1993 Ed.), at p. 484.
33
 Supra.
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tax, percentage tax, franchise tax, taxes on banks and other
financial intermediaries, excise taxes, etc.
Thus, I am of the position that the Senate could not, without
violating the germaneness rule and the principle of “exclusive
origination,” propose tax matters not included in the House Bills.
WHEREFORE, I vote to CONCUR with the majority opinion
except with respect to the points above-mentioned.
CONCURRING AND DISSENTING OPINION
CALLEJO, SR., J.:
I join the concurring and dissenting opinion of Mr. Justice
Reynato S. Puno as I concur with the majority opinion but vote to
declare as unconstitutional the deletion of the “no-pass on
provision” contained in Senate Bill No. 1950 and House Bill No.
3705 (the constituent bills of Republic Act No. 9337).
The present petitions provide an opportune
occasion for the Court to re-examine
Tolentino v. Secretary of Finance
In ruling that Congress, in enacting R.A. No. 9337, complied with
the formal requirements of the Constitution, the ponencia relies
mainly on the Court’s rulings in Tolentino v. Secretary of
Finance.  To recall, Tolentino involved Republic Act No. 7716,
1
which similarly amended the NIRC by widening the tax base of
the VAT system. The procedural attacks against R.A. No. 9337 are
substantially the same as those leveled against R.A. No. 7716, e.g.,
violation of the “Origination Clause” (Article VI, Section 24) and
the “Three-Reading Rule” and the “No-Amendment Rule” (Article
VI, Section 26[2]) of the Constitution.
_______________
1
 G.R. No. 115455, 25 August 1994, 235 SCRA 630.
234
234 SUPREME COURT REPORTS ANNOTATED
Abakada Guro Party List vs. Ermita
The present petitions provide an opportune occasion for the Court
to re-examine its rulings in Tolentino particularly with respect to
the scope of the powers of the Bicameral Conference
Committee vis-à-vis Article VI, Section 26(2) of the Constitution.
The crucial issue posed by the present petitions is whether the
Bicameral Conference Committee may validly introduce
amendments that were not contained in the respective bills of the
Senate and the House of Representatives. As a corollary, whether
it may validly delete provisions uniformly contained in the
respective bills of the Senate and the House of Representatives.
In Tolentino, the Court declared as valid amendments
introduced by the Bicameral Conference Committee even if these
were not contained in the Senate and House bills. The majority
opinion therein held:
“As to the possibility of an entirely new bill emerging out of a Conference
Committee, it has been explained:
Under congressional rules of procedures, conference committees are not expected to
make any material change in the measure at issue, either by deleting provisions to
which both houses have already agreed or by inserting new provisions. But this is a
difficult provision to enforce. Note the problem when one house amends a proposal
originating in either house by striking out everything following the enacting clause
and substituting provisions which make it an entirely new bill. The versions are now
altogether different, permitting a conference committee to draft essentially a new bill
… law, be presented to the President. If he approves the same, he shall sign it;
The result is a third version, which is considered an “amendment in
the nature of a substitute,” the only requirement for which being that the
third version be germane to the subject of the House and Senate bills.
Indeed, this Court recently held that it is within the power of a
conference committee to include in its report an entirely new provision that
is not found either in the House bill or in the Senate Bill. If the committee
can propose an amendment consisting of one or two provisions,
collectively considered as an “amendment in the nature
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Abakada Guro Party List vs. Ermita
of a substitute,” so long as such an amendment is germane to the subject of
the bills before the committee. After all, its report was not final but needed
the approval of both houses of Congress to become valid as an act of the
legislative department. The charge that in this case the Conference
Committee acted a third legislative chamber is thus without any basis.” 2
The majority opinion in Tolentino relied mainly on the practice of
the United States legislature in making the foregoing disquisition.
It was held, in effect, that following the US Congress’ practice
where a conference committee is permitted to draft a bill that is
entirely different from the bills of either the House of
Representatives or Senate, the Bicameral Conference Committee
is similarly empowered to make amendments not found in either
the House or Senate bills.
The ponencia upholds the acts of the Bicameral Conference
Committee with respect to R.A. No. 9337, following the said
ruling in Tolentino.
To my mind, this unqualified adherence by the majority
opinion in Tolentino, and now by the ponencia, to the practice of
the US Congress and its conference committee system ought to be
re-examined. There are significant textual differences between the
US Federal Constitution’s and our Constitution’s prescribed
congressional procedure for enacting laws. Accordingly, the
degree of freedom accorded by the US Federal Constitution to the
US Congress markedly differ from that accorded by our
Constitution to the Philippine Congress.
Section 7, Article I of the US Federal Constitution reads:
[1] All Bills for raising Revenue shall originate in the House of
Representatives; but the Senate may propose or concur with Amendments
as on other Bills.
[2] Every Bill which shall have passed the House of Representatives
and the Senate, shall, before it become a Law, be presented to the President
of the United States; If he approve he shall
_______________
2
 Tolentino v. Secretary of Finance, supra, at pp. 667-668.
236
236 SUPREME COURT REPORTS ANNOTATED
Abakada Guro Party List vs. Ermita
it, but if not he shall return it, with his Objections to the House in which it
shall have originated, who shall enter the Objections at large on their
Journal, and proceed to reconsider it. If after such Reconsideration two
thirds of that House shall agree to pass the Bill, it shall be sent together
with the Objections, to the other House, by which it shall, likewise, be
reconsidered, and if approved by two thirds of that House, it shall become
a Law. But in all such Cases the Votes of both Houses shall be determined
by yeas and nays, and the Names of the Persons voting for and against the
Bill shall be entered on the Journal of each House respectively. If any Bill
shall not be returned by the President within ten Days (Sundays excepted)
after it shall have been presented to him, the Same shall be a Law, in like
Manner as if he had signed it, unless the Congress by their Adjournment
prevent its return in which Case it shall not be a Law.
[3] Every Order, Resolution, or Vote to Which the Concurrence of the
Senate and House of Representatives may be necessary (except on a
question of Adjournment) shall be presented to the President of the United
States; and before the Same shall take Effect, shall be approved by him, or
being disapproved by him, shall be repassed by two thirds of the Senate
and House of Representatives, according to the Rules and Limitations
prescribed in the Case of a Bill.
On the other hand, Article VI of our Constitution prescribes for the
following procedure for enacting a law:
Sec. 26. (1) Every bill passed by Congress shall embrace only one subject
which shall be expressed in the title thereof.
(2) No bill passed by either House shall become a law unless it has
passed three readings on separate days, and printed copies thereof in its
final form have been distributed to its Members three days before its
passage, except when the President certifies to the necessity of its
immediate enactment to meet a public calamity or emergency. Upon the
last reading of a bill, no amendment thereto shall be allowed, and the vote
thereon shall be taken immediately thereafter, and the yeas and nays
entered in the Journal.
Sec. 27. (1) Every bill passed by Congress shall, before it becomes a
otherwise, he shall veto it and return the same with his objections to the
House where it originated, which
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shall enter the objections at large in its Journal and proceed to reconsider
it. If, after such reconsideration, two-thirds of all the Members of such
House shall agree to pass the bill, it shall be sent, together with the
objections, to the other House by which it shall likewise be reconsidered,
and if approved by two-thirds of all the Members of that House, it shall
become a law. In all such cases, the votes of each House shall be
determined by yeas and nays, and the names of the Members voting for or
against shall be entered in its Journal. The President shall communicate his
veto of any bill to the House where it originated within thirty days after the
date of receipt thereof; otherwise, it shall become a law as if he had signed
it.
 (2) The President shall have the power to veto any particular item or
items in an appropriation, revenue, or tariff bill, but the veto shall not
affect the item or items to which he does not object.
Two distinctions are readily apparent between the two procedures:
1. 1.Unlike the US Federal Constitution, our Constitution
prescribes the “three-reading” rule or that no bill shall
become a law unless it shall have been read on three
separate days in each house except when its urgency is
certified by the President; and
2. 2.Unlike the US Federal Constitution, our Constitution
prescribes the “no-amendment” rule or that no
amendments shall be allowed upon the last reading of
the bill.
American constitutional experts have lamented that certain
congressional procedures have not been entrenched in the US
Federal Constitution. According to a noted constitutional law
professor, the absence of the “three-reading” requirement as well
as similar legislative-procedure rules from the US Federal
Constitution is a “cause for regret.” 3
_______________
 See, for example, Vermuele, A., The Constitutional Law of Congressional
3
Procedure, 71 U. Chi. L. Rev. 361 (Spring 2004).
238
238 SUPREME COURT REPORTS ANNOTATED
Abakada Guro Party List vs. Ermita
In this connection, it is interesting to note that the conference
committee system in the US Congress has been described in this
wise:
Conference Committees
Another main mechanism of joint House and Senate action is the
conference committee. Inherited from the English Constitution, the
conference committee system is an evolutionary product whose principal
threads were woven on the loom of congressional practice into a unified
pattern by the middle of the nineteenth century. “By 1852,” writes Ada
McCown, historian of the origin and development of the conference
committee, “the customs of presenting identical reports from the
committees of conference in both houses, of granting high privilege to
these conference reports, of voting upon the conference report as a whole
and permitting no amendment of it, of keeping secret the discussions
carried on in the meetings of the conference committee, had become
established in American parliamentary practice.”
Conference committees are composed of Senators and
Representatives, usually three each, appointed by the presiding officers of
both houses, for the purpose of adjusting differences between bills they
have passed. This device has been extensively used by every Congress
since 1789. Of the 1157 laws enacted by the 78  Congress, for example,
th
107 went through conference and, of these, 36 were appropriation bills on
which the House had disagreed to Senate amendments. In practice, most
important legislation goes through the conference closet and is there
revised, sometimes beyond recognition, by the all-powerful conferees or
managers, as they are styled. A large body of law and practice has been
built up over the years governing conference procedure and reports.
Suffice it to say here that serious evils have marked the development
of the conference committee system. In the first place, it is highly prodigal
of members’ time. McConachie calculated that the average time consumed
in conference was 33 days per bill. Bills are sent to conference without
reading the amendments of the other chamber. Despite rules to the
contrary, conferees do not confine themselves to matters in dispute, but
often initiate entirely new legislation and even strike out identical
provisions previously approved by both houses. This happened during the
78th Congress, for instance, when
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an important amendment to the surplus property bill, which had been
approved by both houses, was deleted in conference.
Conference committees, moreover, suffer like other committees from
the seniority rule. The senior members of the committees concerned, who
are customarily appointed as managers on the part of the House and
Senate, are not always the best informed on the questions at issue, nor do
they always reflect the majority sentiment of their houses. Furthermore,
conference reports must be accepted or rejected in toto without
amendment and they are often so complex and obscure that they are voted
upon without knowledge of their contents. What happens in practice is that
Congress surrenders its legislative function to irresponsible committees of
conference. The standing rules against including new and extraneous
matter in conference reports have been gradually whittled away in recent
years by the decisions of presiding officers. Senate riders attached to
appropriation bills enable conference committees to legislate and the
House usually accepts them rather than withhold supply, thus putting it, as
Senator Hoar once declared, under a degrading duress.
It is also alleged that under this secret system lobbyist are able to kill
legislation they dislike and that “jokers” designed to defeat the will of
Congress can be inserted without detection. Senator George W. Norris
once characterized the conference committee as a third house of Congress.
“The members of this ‘house,’ he said, “are not elected by the people. The
people have no voice as to who these members shall be . . . This
conference committee is many times, in very important matters of
legislation, the most important branch of our legislature. There is no
record kept of the workings of the conference committee. Its work is
performed, in the main, in secret. No constituent has any definite
knowledge as to how members of this conference committee vote, and
there is no record to prove the attitude of any member of the conference
committee . . . As a practical proposition we have legislation, then, not by
the voice of the members of the Senate, not by the members of the House of
Representatives, but we have legislation by the voice of five or six men.
And for practical purposes, in most cases, it is impossible to defeat the
legislation proposed by this conference committee. Every experienced
legislator knows that it is the hardest thing in the world to defeat a
conference report.”
Despite these admitted evils, impartial students of the conference
committee system defend it on net balance as an essential part of the
legislative process. Some mechanism for reconciling differ-
240
240 SUPREME COURT REPORTS ANNOTATED
Abakada Guro Party List vs. Ermita
ences under bicameral system is obviously indispensable. The remedy for
the defects of the device is not to abolish it, but to keep it under
congressional control. This can be done by enforcing the rules which
prohibit the inclusion in conference reports of matter not committed to
them by either house and forbid the deletion of items approved by both
bodies; by permitting conference managers to report necessary new matter
separately and the houses to consider it apart from the conference report;
by fixing a deadline toward the close of a session after which no bills could
be sent to conference, so as to eliminate congestion at the end of the
session—a suggestion made by the elder Senator La Follete in 1919; by
holding conferences in sessions open to the public, letting conference
reports lie over longer, and printing them in bill form (with conference
changes in italics) so as to allow members more time to examine them and
discover “jokers.” 4
The “three-reading” and “no-amendment” rules, absent in the US
Federal Constitution, but expressly mandated by Article VI,
Section 26(2) of our Constitution are mechanisms instituted to
remedy the “evils” inherent in a bicameral system of legislature,
including the conference committee system.
Sadly, the ponencia’s refusal to apply Article VI, Section
26(2) of the Constitution on the Bicameral Conference Committee
and the amendments it introduced to R.A. No. 9337 has
“effectively dismantled” the “three-reading rule” and
“noamendment rule.” As posited by Fr. Joaquin Bernas, a member
of the Constitutional Commission:
In a bicameral system, bills are independently processed by both House of
Congress. It is not unusual that the final version approved by one House
differs from what has been approved by the other. The “conference
committee,” consisting of members nominated from both Houses, is an
extra-constitutional creation of Congress whose function is to propose to
Congress ways of reconciling conflicting provisions found in the Senate
version and in the House version of a bill. It performs a necessary function
in a bicameral system.
_______________
4
 Galloway, G., Congress at the Crossroads, pp. 98-100.
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However, since conference committees have merely delegated authority
from Congress, they should not perform functions that Congress itself may
not do. Moreover, their proposals need confirmation by both Houses of
Congress.
In Tolentino v. Secretary of Finance, the Court had the opportunity to
delve into the limits of what conference committees may do. The
petitioners contended that the consolidation of the House and Senate bills
made by the conference committee contained provisions which neither the
Senate bill nor the House bill had. In her dissenting opinion, Justice
Romero laid out in great detail the provisions that had been inserted by the
conference committee. These provisions, according to the petitioners had
been introduced “surreptitiously” during a closed door meeting of the
committee.
The Court’s answer to this was that in United States practice
conference committees could be held in executive sessions and
amendments germane to the purpose of the bill could be introduced even if
these were not in either original bill. But the Court did not bother to check
whether perhaps the American practice was based on a constitutional text
different from that of the Philippine Constitution.
There are as a matter of fact significant differences in the degree of
freedom American and Philippine legislators have. The only rule that binds
the Federal Congress is that it may formulate its own rules of procedure. former. Justice Romero, who also dissented in Tolentino, added
For this reason, the Federal Congress is master of its own procedures. It is that the conference committee is not authorized to initiate or
different with the Philippine Congress. Our Congress indeed is also propose completely new matters although under certain legislative
authorized to formulate its own rules of procedure—but within limits not
rules like the Jefferson’s Manual, a conference committee may
found in American law. For instance, there is the “three readings on
separate days” rule. Another important rule is that no amendments may be introduce germane matters in a particular bill. However, such
introduced by either house during third reading. These limitations were matters should be circumscribed by the committee’s sole authority
introduced by the 1935 and 1973 Constitutions and confirmed by the 1987 and function to reconcile differences.
Constitution as a defense against the inventiveness of the stealthy and 244
surreptitious. These, however, were disregarded by the Court 244 SUPREME COURT REPORTS ANNOTATED
in Tolentino in favor of contrary American practice.
This is not to say that conference committees should not be allowed. Abakada Guro Party List vs. Ermita
But an effort should be made to lay out the scope of what conference In the case of R.A. No. 9337, the Bicameral Conference
committees may do according to the requirements and the reasons of the Committee made an “amendment by deletion” with respect to the
Philippine Constitution and not according to the practice of the American
“no pass on provision” contained in both House Bill (HB) No.
Congress. For instance, if the two Houses are not allowed to introduce and
debate amendments on third reading, 3705 and Senate Bill (SB) No. 1950. HB 3705 proposed to amend
Sections 106 and 108 of the NIRC by expressly stating therein that
242 sellers of petroleum products and power generation companies
242 SUPREME COURT REPORTS ANNOTATED selling electricity are prohibited from passing on the VAT to the
consumers. SB 1950 proposed to amend Section 108 by likewise
Abakada Guro Party List vs. Ermita prohibiting power generation companies from passing on the VAT
can they circumvent this rule by coursing new provisions through the to the consumers. However, these “no pass on provisions” were
instrumentality of a conference committee created by Congress and altogether deleted by the Bicameral Conference Committee. At the
meeting in secret? The effect of the Court’s uncritical embrace of the
least, since there was no disagreement between HB 3705 and SB
practice of the American Congress and its conference committees is to
dismantle the no-amendment rule. 5
1950 with respect to the “no pass on provision” on the sale of
electricity, the Bicameral Conference Committee acted beyond the
The task at hand for the Court, but which the ponencia eschews, is scope of its authority in deleting the pertinent proviso.
to circumscribe the powers of the Bicameral Conference At this point, it is well to recall the rationale for the
Committee in light of the “three-reading” and “noamendment” “noamendment rule” and the “three-reading rule” in Article VI,
rules in Article VI, Section 26(2) of the Constitution. Section 26(2) of the Constitution. The proscription on
amendments upon the last reading is intended to subject all bills
The Bicameral Conference Committee, in and their amendments to intensive deliberation by the legislators
deleting the “no pass on provision” contained in and the ample ventilation of issues to afford the public an
Senate Bill No. 1950 and House Bill No. 3705, opportunity to express their opinions or objections
violated Article VI , Section 26(2) of the Constitution thereon.  Analogously, it is said that the “three-reading rule”
6

operates “as a self-binding mechanism that allows the legislature

Pertinently, in his dissenting opinion in Tolentino, Justice Davide
(now Chief Justice) opined that the duty of the Bicameral
Conference Committee was limited to the reconciliation of
disagreeing provisions or the resolution of differences or
inconsistencies. This proposition still applies as can be gleaned
to guard against the consequences of its own future passions,
myopia, or herd behavior. By requiring that bills be read and
debated on successive days, legislature may anticipate and
forestall future occasions on which it will be seized by deliberative
pathologies.”  As Jeremy Bentham, a noted political analyst, put it:
7

from the following text of Sections 88 and 89, Rule XIV of the “[t]he more susceptible a people are of excitement and being led
Rules of the House of Representatives: astray, so much the more ought they
_______________
Sec. 88. Conference Committee.—In the event that the House does not
agree with the Senate on the amendments to any bill or joint resolution, the
 Dissenting Opinion of Justice Romero in Tolentino, supra.
differences may be settled by the conference committees of both chambers.
6

7
 Vermuele, supra.
In resolving the differences with the Senate, the House panel shall, as
much as possible, adhere to and support the House Bill. If the differences 245
with the Senate are so substantial that they materially impair the House
Bill, the panel shall report such fact to the House for the latter’s VOL. 469, SEPTEMBER 1, 2005
appropriate action. Abakada Guro Party List vs. Ermita
_______________
to place themselves under the protection of forms which impose
 Bernas SJ, J., The 1987 Constitution of the Republic of the Philippines, A Commentary, pp.
5 the necessity of reflection, and prevent surprises.” 8

702-703 (1996 Ed.). Reports of the Bicameral Conference Committee, especially in

243 cases where substantial amendments, or in this case deletions,
have been made to the respective bills of either house of Congress,
VOL. 469, SEPTEMBER 1, 2005 ought to undergo the “three-reading” requirement in order to give
Abakada Guro Party List vs. Ermita effect to the letter and spirit of Article VI, Section 26(2) of the
Sec. 89. Conference Committee Reports.—. . . Each report shall Constitution.
contain a detailed, sufficiently explicit statement of the changes in or The Bicameral Conference Committee Report that eventually
amendments to the subject measure. became R.A. No. 9337, in fact, bolsters the argument for the strict
... compliance by Congress of the legislative procedure prescribed by
The Chairman of the House panel may be interpellated on the the Constitution. As can be gleaned from the said Report, of the 9
Conference Committee Report prior to the voting thereon. The House shall
Senators-Conferees,  only 5 Senators  unqualifiedly approved it.
9 10

vote on the Conference Committee report in the same manner and

procedure as it votes on a bill on third and final reading. Senator Joker P. Arroyo expressed his qualified dissent while
Senators Sergio R. Osmeña III and Juan Ponce Enrile approved it
and Rule XII, Section 35 of the Rules of the Senate: with reservations. On the other hand, of the twenty-eight (28)
Sec. 35. In the event that the Senate does not agree with the House of Members of the House of Representatives-Conferees,  fourteen 11

Representatives on the provision of any bill or joint resolution, the (14)  approved the same with reservations while three  voted no.
12 13

differences shall be settled by a conference committee of both Houses All the reservations
which shall meet within ten (10) days after their composition. The _______________
President shall designate the members of the Senate Panel in the
conference committee with the approval of the Senate. 8
 Id. citing Bentham, J., Political Tactics.
Each Conference Committee Report shall contain a detailed and 9
 Senators Ralph G. Recto, Joker P. Arroyo, Manuel B. Villar, Richard J.
sufficiently explicit statement of the changes in, or amendments to the Gordon, Rodolfo G. Biazon, Edgardo G. Angara, M.A. Madrigal, Sergio R. Osmena
subject measure, and shall be signed by a majority of the members of each III, Juan Ponce Enrile.
House panel, voting separately. 10
 Senators Recto, Villar, Gordon, Biazon.
11
 Representatives Jesli A. Lapus, Danilo E. Suarez, Arnulfo P. Fuentebella, Eric
Justice Davide further explained that under its limited authority, D. Singson, Junie E. Cua, Teodoro L. Locsin, Jr., Salacnib Baterina, Edcel C.
Lagman, Luis R. Villafuerte, Herminio G. Teves, Eduardo G. Gullas, Joey Sarte
the Bicameral Conference Committee could only (a) restore, Salceda, Prospero C. Nograles, Exequiel B. Javier, Rolando G. Andaya, Jr.,
wholly or partly, the specific provisions of the House Bill Guillermo P. Cua, Arthur D. Defensor, Raul V. Del Mar, Ronaldo B. Zamora, Rolex
amended by the Senate Bill; (b) sustain, wholly or partly, the P. Suplico, Jacinto V. Paras, Vincent P. Crisologo, Alan Peter S. Cayetano, Joseph
Santiago, Oscar G. Malapitan, Catalino Figueroa, Antonino P. Roman and Imee R.
Senate’s amendments, or (c) by way of compromise, to agree that Marcos.
neither provisions in the House Bill amended by the Senate nor the 12
 Representatives Suarez, Fuentebella, Cua, Locsin, Jr., Teves, Gullas, Javier,
latter’s amendments thereto be carried into the final form of the Cua, Defensor, Crisologo, Cayetano, Santiago, Malapitan and Marcos.
13
 Representatives Del Mar, Suplico and Paras.
 246
246 SUPREME COURT REPORTS ANNOTATED was based on the fact that the alleged irregularities that attended
Abakada Guro Party List vs. Ermita
expressed by the conferees relate to the deletion of the “no pass on
provision.” Only eleven (11) unqualifiedly approved it. In other
words, even among themselves, the conferees were not unanimous
on their Report. Nonetheless, Congress approved it without even
thoroughly discussing the reserva ti ons or qualifications expressed
by the conferees therein.
This “take it or leave it” stance vis-à-vis conference
committee reports opens the possibility of amendments, which are
substantial and not even germane to the original bills of either
house, being introduced by the conference committees and voted
upon by the legislators without knowledge of their contents. This
practice cannot be countenanced as it patently runs afoul of the
essence of Article VI, Section 26(2) of the Constitution. Worse, it
is tantamount to Congress surrendering its legislative functions to
the conference committees.
Ratification by Congress did not cure the
unconstitutional act of the Bicameral Conference
Committee of deleting the “no pass on provision”
That both the Senate and the House of Representatives approved
the Bicameral Conference Committee Report which deleted the
“no pass on provision” did not cure the unconstitutional act of the
said committee. As succinctly put by Chief Justice Davide in his
dissent in Tolentino, “[t]his doctrine of ratification may apply to
minor procedural flaws or tolerable breaches of the parameters of
the bicameral conference committee’s limited powers but never to
violations of the Constitution. Congress is not above the
Constitution.” 14
Enrolled Bill Doctrine is not applicable where, as in
this case, there is grave violation of the Constitution
As expected, the ponencia invokes the enrolled bill doctrine to
buttress its refusal to pass upon the validity of the assailed
_______________
 Dissenting Opinion in Tolentino, supra.
14
247
VOL. 469, SEPTEMBER 1, 2005
Abakada Guro Party List vs. Ermita
acts of the Bicameral Conference Committee. Under the “enrolled
bill doctrine,” the signing of a bill by the Speaker of the House and
the Senate President and the certification of the Secretaries of both
houses of Congress that it was passed are conclusive of its due
enactment. In addition to Tolentino, the ponencia cites Fariñas v.
Executive Secretary  where the Court declined to go behind the
15
enrolled bill vis-à-vis the allegations of the petitioners therein that
irregularities attended the passage of Republic Act No. 9006,
otherwise known as the Fair Election Act.
Reliance by the ponencia on Fariñas is quite misplaced. The
Court’s adherence to the enrolled bill doctrine in the said case was
justified for the following reasons:
The Court finds no reason to deviate from the salutary in this case where
the irregularities alleged by the petitioners mostly involved the internal
rules of Congress, whether House or Senate. Parliamentary rules are
merely procedural and with their observance the courts have no
concern. Whatever doubts there may be as to the formal validity of Rep.
Act No. 9006 must be resolved in its favor. The Court reiterates its ruling
in Arroyo v. De Venecia, viz.:
But the cases, both here and abroad, in varying forms of expression, all deny to the
courts the power to inquire into the allegations that, in enacting a law, a House of
Congress failed to comply with its own rules, in the absence of showing that there
was a violation of a constitutional provision or the rights of private individuals.
In Osmeña v. Pendatun, it was held: “At any rate, courts have declared that ‘the rules
adopted by deliberative bodies are subject to revocation, modification or waiver at the
pleasure of the body adopting them.’ And it has been said that ‘Parliamentary rules
are merely procedural, and with their observance, the courts have no concern. They
may be waived or disregarded by the legislative body.’ Consequently, ‘mere failure to
conform to parliamentary usage will not invalidate the action (taken by a deliberative
body) when the A scrutiny of these “conditions” shows that one of them
_______________ is certain to happen on January 1, 2006.
The first condition is that the collection from the E-VAT
 G.R. No. 147387, 10 December 2003, 417 SCRA 503.
15 exceeds 2 4/5% of the Gross Domestic Product (GDP) of the
previous year, a ratio that is known as the tax effort.
248 The second condition is that the national government deficit
248 SUPREME COURT REPORTS ANNOTATED exceeds 1 1/2% of the GDP of the previous year.
Note that the law says that the rate shall be increased if any of
Abakada Guro Party List vs. Ermita
the two conditions happens, i.e., if condition (i) or condition (ii)
requisite number of members have agreed to a particular measure.
occurs.
16
Thus, in Fariñas, the Court’s refusal to go behind the enrolled bill
the passage of R.A. No. 9006 merely involved the internal rules of
both houses of Congress. The procedural irregularities allegedly
committed by the conference committee therein did not amount to
a violation of a provision of the Constitution. 17
In contrast, the act of the Bicameral Conference Committee of
deleting the “no pass on provision” of SB 1950 and HB 3705
infringe Article VI, Section 26(2) of the Constitution. The
violation of this constitutional provision warrants the exercise by
the Court of its constitutionally-ordained power to strike down any
act of a branch or instrumentality of government or any of its
officials done with grave abuse of discretion amounting to lack or
excess of jurisdiction. 18
ACCORDINGLY, I join the concurring and dissenting
opinion of Mr. Justice Reynato S. Puno and vote to dismiss the
petitions with respect to Sections 4, 5 and 6 of Republic Act No.
9337 for being premature. Further, I vote to declare as
unconstitutional Section 21 thereof and the deletion of the “no
_______________
 Id., pp. 529-530. (Emphases mine.).
16
 By way of explanation, the constitutional issues raised in Fariñas were (1)
17
whether Section 14 of R.A. No. 9006 was a rider or that it violated Article VI, Section
26(1) of the Constitution requiring that “[e]very bill passed by Congress shall
embrace only one subject which shall be expressed in the title thereof”; and (2)
whether Section 14 of R.A. No. 9006 violated the equal protection clause of the
Constitution. On both issues the Court ruled in the negative. To reiterate, unlike in the
present cases, the acts of the conference committee with respect to R.A. No. 9006
in Fariñas allegedly violated the internal rules of either house of Congress, but it was
not alleged therein that they amounted to a violation of any constitutional provision
on legislative procedure.
 Article VIII, Section 1, CONSTITUTION.
18
249
VOL. 469, SEPTEMBER 1, 2005
Abakada Guro Party List vs. Ermita
pass on provision” contained in the constituent bills of Republic
Act No. 9337.
CONCURRING AND DISSENTING OPINION
AZCUNA, J.:
Republic Act No. 9337, the E-VAT law, is assailed as an
unconstitutional abdication of Congress of its power to tax through
its delegation to the President of the decision to increase the rate of
the tax from 10% to 12%, effective January 1, 2006, after any of
two conditions has been satisfied. 1
The two conditions are:
1. (i)Value-added tax collection as a percentage of Gross
Domestic Product (GDP) of the previous year exceeds
two and four-fifth percent (2 4/5%); or
2. (ii)National government deficit as a percentage of GDP
of the previous year exceeds one and one-half percent
(1 1/2%).
2
_______________
 The Constitution states that “Congress may, by law, allow the President to fix
1
within specified limits, and subject to such limitations and restrictions as it may
impose, tariff rates, import and export quotas, tonnage and wharfage dues, and other
duties as imposts within the framework of the national development program of the
Government.” (Art. VI, Sec. 28 [2], emphasis supplied.)
Petitioners claim that the power does not extend to fixing the rates of taxes,
since taxes are not tariffs, import and export quotas, tonnage and wharfage dues, or
other duties or imposts.
 Section 4, Republic Act No. 9337. The pertinent portion of the provision states:
2
SEC. 4. Section 106 of the same Code, as amended, is hereby further amended to read as follows:
“SEC. 106. Value-added Tax on Sale of Goods or Properties.—
“(A) Rate and Base of Tax.—There shall be levied, assessed and collected on every sale,
barter or exchange of goods or properties, a value-added tax equivalent to ten percent
250
250 SUPREME COURT REPORTS ANNOTATED
Abakada Guro Party List vs. Ermita
 Now, in realistic terms, considering the short time-frame
given, the only practicable way that the present deficit of the
national government can be reduced to 1 1/2% or lower, thus
preventing condition (ii) from happening, is to increase the tax
effort, which mainly has to come from the E-VAT. But increasing
the tax effort through the E-VAT, to the extent needed to reduce
the national deficit to 1 1/2% or less, will trigger the happening of
condition (i) under the law. Thus, the happening of condition
(i) or condition (ii) is in reality certain and unavoidable, as of
January 1, 2006.
_______________
(10%) of the gross selling price or gross value in money of the goods or
properties sold, bartered or exchanged, such tax to be paid by the seller or transferor:
Provided, That the President, upon the recommendation of the Secretary of Finance,
shall, effective January 1, 2006, raise the rate of value-added tax to twelve percent
(12%), after any of the following conditions has been satisfied:
1. “(i)Value-added tax collection as a percentage of Gross Domestic
Product (GDP) of the previous year exceeds two and four-fifth percent
(2 4/5%); or
2. “(ii)National government deficit as a percentage of GDP of the previous
year exceeds one and one-half percent (1 ½%).”
251
VOL. 469, SEPTEMBER 1, 2005
Abakada Guro Party List vs. Ermita
This becomes all the more clear when we consider the figures
provided during the oral arguments.
The Gross Domestic Product for 2005 is estimated at P5.3
Trillion pesos.
The tax effort of the present VAT is now at 1.5%.
The national budgetary deficit against the GDP is now at 3%.
So to reduce the deficit to 1.5% from 3%, one has to increase
the tax effort from VAT, now at 1.5%, to at least 3%, thereby
exceeding the 2 4/5 percent ceiling in condition (i), making
condition (i) happen. If, on the other hand, this is not done, then
condition (ii) happens—the budget deficit remains over 1.5%.
What is the result of this? The result is that in reality, the law
does not impose any condition, or the rate increase there-
under, from 10% to 12%, effective January 1, 2006, is
unconditional. For a condition is an event that may or may not
happen, or one whose occurrence is uncertain.  Now while 3
condition (i) is indeed uncertain and condition (ii) is likewise
uncertain, the combination of both makes the occurrence of one of
them certain.
Accordingly, there is here no abdication by Congress of its
power to fix the rate of the tax since the rate increase provided
under the law, from 10% to 12%, is definite and certain
_______________
 Condition has been defined by Escriche as “every future and uncertain event
3
supply chain of the affected products. A proper implementation of
the E-VAT, therefore, should cause only the appropriate
incremental increase in prices, reflecting the net incremental effect
of the tax, which is not necessarily 10%, but possibly less,
depending on the products involved.
The introduction of the mitigating or cushioning measures
through the Senate or through the Bicameral Conference
Committee, is also being questioned by petitioners as
unconstitutional for violating the rule against amendments after
third reading and the rule that tax measures must originate
exclusively in the House of Representatives (Art. VI, Secs. 24 and
26 [2], Constitution). For my part, I would rather give the
necessary leeway to Congress, as long as the changes are
253
VOL. 469, SEPTEMBER 1, 2005
Abakada Guro Party List vs. Ermita
germane to the bill being changed, the bill which originated from
the House of Representatives, and these are so, since these were
precisely the mitigating measures that go handon-hand with the E-
VAT, and are, therefore, essential—and hopefully sufficient—
means to enable our people to bear the sacrifices they are being
asked to make. Such an approach is in accordance with the
Enrolled Bill Doctrine that is the prevailing rule in this
jurisdiction. (Tolentino v. Secretary of Finance, 249 SCRA
628 [1994]). The exceptions I find are the provisions on corporate
income taxes, which are not germane to the E-VAT law, and are
not found in the Senate and House bills.
I thus agree with Chief Justice Hilario G. Davide, Jr. in his
separate opinion that the following are not germane to the E-VAT
legislation:
Amended TAX CODE Subject Matter
Provision
Section 27 Rate of income tax on domestic corporations
Section 28(A)(1) Rate of income tax on resident foreign corpo
Section 28(B)(1) Rate of income tax on non-resident foreign
corporations
Section 28(B)(5-b) Rate of income tax on intercorporate dividen
received by non-resident foreign corporation
Section 34(B)(1) Deduction from gross income
Similarly, I agree with Justice Artemio V. Panganiban in his
separate opinion that the following are not germane to the E-VAT
law:
“Sections 1, 2, and 3 of the Republic Act No. 9337 . . ., in so
far as these sections (a) amend the rates of income tax on
domestic, resident foreign, and nonresident foreign corpora-
254
254 SUPREME COURT REPORTS ANNOTATED

upon which an obligation or provision is made to depend.” It is a future and uncertain

event upon which the acquisition or resolution of rights is made to depend by those
who execute the juridical act. Futurity and uncertainty must concur as characteristics Abakada Guro Party List vs. Ermita
of the event. tions; (b) amend the tax credit against taxes due from nonresident
... foreign corporations on the intercorporate dividends; and
An event which is not uncertain but must necessarily happen cannot be a
condition; the obligation will be considered as one with a term. (IV
(c) reduce the allowable deduction from interest expense.”
TOLENTINO, COMMENTARIES AND JURISPRUDENCE ON THE CIVIL CODE Respondents should, in any case, now be able to implement
OF THE PHILIPPINES, 144). the E-VAT law without confusion and thereby achieve its
purpose. 4

252
I vote to GRANT the petitions to the extent of declaring
252 SUPREME COURT REPORTS ANNOTATED unconstitutional the provisions in Republic Act. No. 9337 that are
Abakada Guro Party List vs. Ermita not germane to the subject matter and DENY said petitions as to
to occur, effective January 1, 2006. All that the President will do is the rest of the law, which are constitutional.
state which of the two conditions occurred and there-upon DISSENTING AND CONCURRING OPINION
implement the rate increase.
At first glance, therefore, it would appear that the decision to TINGA, J.:
increase the rate is to be made by the President, or that the increase
is still uncertain, as it is subject to the happening of any of two The E-VAT Law,  as it stands, will exterminate our country’s small
1

conditions. to medium enterprises. This will be the net effect of affirming

Nevertheless, the contrary is true and thus it would be best in
these difficult and critical times to let our people know precisely
what burdens they are being asked to bear as the necessary means
to recover from a crisis that calls for a heroic sacrifice by all.
It is for this reason that the Court required respondents to
submit a copy of the rules to implement the E-VAT, particularly as
to the impact of the tax on prices of affected commodities,
specially oil and electricity. For the onset of the law last July 1,
2005 was confusing, resulting in across-the-board increases of
10% in the prices of commodities. This is not supposed to be the
effect of the law, as was made clear during the oral arguments,
because the law also contains provisions that mitigate the impact
of the E-VAT through reduction of other kinds of taxes and duties,
and other similar measures, specially as to goods that go into the
Section 8 of the law, which amends Sections 110 of the National
Internal Revenue Code (NIRC) by imposing a seventy percent
(70%) cap on the creditable input tax a VAT-registered person
may apply every quarter and a mandatory sixty (60)-month
amortization period on the input tax on goods purchased or
imported in a calendar month if the acquisition cost of such goods
exceeds One Million Pesos (P1,000,000.00).
Taxes may be inherently punitive, but when the fine line
between damage and destruction is crossed, the courts must step
forth and cut the hangman’s noose. Justice Holmes once
confidently asserted that “the power to tax is not the power to
_______________
  I voted for the issuance of the temporary restraining order to prevent the
4
disorderly implementation of the law that would have defeated its very purpose and
disrupted the entire VAT system, resulting in less revenues. The rationale, therefore,
of the rule against enjoining the collection of taxes, that taxes are the lifeblood of
Government, leaned in favor of the temporary restraining order.
 Republic Act No. 9337. Referred to intext as “E-VAT Law.”
1
255
VOL. 469, SEPTEMBER 1, 2005
Abakada Guro Party List vs. Ermita
destroy while this Court sits,” and we should very well live up to
this expectation not only of the revered Holmes, but of the Filipino
people who rely on this Court as the guardian of their rights. At
stake is the right to exist and subsist despite taxes, which is
encompassed in the due process clause.
I respectfully submit these views while maintaining the
deepest respect for the prerogative of the legislature to impose
taxes, and of the national government to chart economic policy.
Such respect impels me to vote to deny the petitions in G.R. Nos.
168056, 168207, 168463,  and 168730, even as I acknowledge
2 every sale, barter or exchange of goods or properties, a value-added tax equivalent to
certain merit in the challenges against the E-VAT law that are
asserted in those petitions. In the final analysis, petitioners therein
are unable to convincingly demonstrate the constitutional infirmity
of the provisions they seek to assail. The only exception is Section
21 of the law, which I consider unconstitutional, for reasons I shall
later elaborate.
However, I see the petition in G.R. No. 168461 as meritorious
and would vote to grant it. Accordingly, I dissent and hold as
unconstitutional Section 8 of Republic Act No. 9337, insofar as it
amends Section 110(A) and (B) of the National Internal Revenue
Code (NIRC) as well as Section 12 of the same law, with respect
to its amendment of Section 114(C) of the NIRC.
The first part of my discussion pertains to the petitions in G.R.
Nos. 168056, 168207, 168463, and 168730, while the second part
is devoted to what I deem the most crucial issue before the Court,
the petition in G.R. No. 168461.
I. Undue Delegation and the Increase of the VAT Rate
My first point pertains to whether or not Sections 4, 5 and 6 of the
E-VAT Law constitutes an undue delegation of legis-
_______________
 Except insofar as it prays that Section 21 of the E-VAT Law be declared
2
unconstitutional. Infra.
256
256 SUPREME COURT REPORTS ANNOTATED
Abakada Guro Party List vs. Ermita
lative power. In appreciating the aspect of undue delegation as
regards taxation statutes, the fundamental point remains that the
power of taxation is inherently legislative,  and may be imposed or
3
revoked only by the legislature.  In tandem with Section 1, Article
4
VI of the Constitution which institutionalizes the law-making
power of Congress, Section 24 under the same Article crystallizes
this principle, as it provides that “[a]ll appropriation, revenue or
tariff bills … shall originate exclusively in the House of
Representatives.” 5
Consequently, neither the executive nor judicial branches of
government may originate tax measures. Even if the President
desires to levy new taxes, the imposition cannot be done by mere
executive fiat. In such an instance, the President would have to
rely on Congress to enact tax laws.
Moreover, this plenary power of taxation cannot be delegated
by Congress to any other branch of government or private persons,
unless its delegation is authorized by the Constitution itself.  In this 6
regard, the situation stands different from that in the recent
case Southern Cross v. PHILCEMCOR,  wherein I noted in 7
my ponencia that the Tariff Commission and the DTI Secretary
may be regarded as agents of Congress for the purpose of
imposing safeguard measures. That pronouncement was made in
light of Section 28(2) Article VI, which allows Congress to
delegate to the President through law the power to impose tariffs
and imposts, subject to limitations and restrictions as may be
ordained by Con-
_______________
 J. Vitug and E. Acosta, Tax Law and Jurisprudence (2nd ed., 2000), at pp. 7-8.
3
 See National Power Corporation v. Province of Albay, G.R. No. 87479, 4 June
4
1990, 186 SCRA 198, 203.
 See Section 24, Article VI, Constitution.
5 The petitioners deem as noxious the proviso common to these
 The recognized exceptions, both expressly provided by the Constitution, being
6
the tariff clause under Section 28(2), Article VI, and the powers of taxation of local
government units under Section 5, Article X.
 G.R. No. 158540, 8 July 2005, 434 SCRA 65.
7 rate of value-added tax to twelve percent (12%),” after the
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Abakada Guro Party List vs. Ermita
gress. In the case of taxes, no such constitutional authorization
exists, and the discretion to ascertain the rates, subjects, and
conditions of taxation may not be delegated away by Congress.
However, as the majority correctly points out, the power to
ascertain the facts or conditions as the basis of the taking into
effect of a law may be delegated by Congress,  and that the details
8
as to the enforcement and administration of an exercise of taxing
power may be delegated to executive agencies, including the
power to determine the existence of facts on which its operation
depends. 9
Proceeding from these principles, Sections 4, 5, and 6 of the
E-VAT Law warrant examination. The provisions read:
SEC. 4. Sec. 106 of the same Code, as amended, is hereby further amended
to read as follows:
SEC. 106. Value-Added Tax on Sale of Goods or Properties.—
(A) Rate and Base of Tax.—There shall be levied, assessed and collected on
ten percent (10%) of the gross selling price or gross value in money of the goods or
properties sold, bartered or exchanged, such tax to be paid by the seller or
transferor; provided, that the President, upon the recommendation of the
Secretary of Finance, shall, effective January 1, 2006, raise the rate of value-
added tax to twelve percent (12%), after any of the following conditions has been
satisfied.
1. (i)value-added tax collection as a percentage of Gross
Domestic Product (GDP) of the previous year exceeds two
and four-fifth percent (2 4/5%) or
2. (ii)national government deficit as a percentage of GDP of
the previous year exceeds one and one-half percent 1
1/2%).
_______________
8
 See People v. Vera, 65 Phil. 56, 117 (1937).
9
 Decision, infra.
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258 SUPREME COURT REPORTS ANNOTATED
Abakada Guro Party List vs. Ermita
Sec. 5. Section 107 of the same Code, as amended, is hereby further
amended to read as follows:
SEC. 107. Value-Added Tax on Importation of Goods.—
(a) In General.—There shall be levied, assessed and collected on every
importation of goods a value-added tax equivalent to ten percent (10%) based on the
total value used by the Bureau of Customs in determining tariff and customs duties,
plus customs duties, excise taxes, if any, and other charges, such tax to be paid by the
importer prior to the release of such goods from customs custody: Provided, That
where the customs duties are determined on the basis of the quantity or volume of the
goods, the value-added tax shall be based on the landed cost plus excise taxes, if
any: provided, further, that the President, upon the recommendation of the
Secretary of Finance, shall, effective January 1, 2006, raise the rate of value-
added tax to twelve percent (12%) after any of the following conditions has been
satisfied.
1. (i)national value-added tax collection as a percentage of Gross
Domestic Product (GDP) of the previous year exceeds two and
four-fifth percent (2 4/5%) or
2. (ii)government deficit as a percentage of GDP of the previous year
exceeds one and one-half percent (1 1/2%).
SEC. 6. Section 108 of the same Code, as amended, is hereby further
amended to read as follows:
SEC. 108. Value-added Tax on Sale of Services and Use of Lease of
Properties—
(A) Rate and Base of Tax.—There shall be levied, assessed and collected, a
value-added tax equivalent to ten percent (10%) of gross receipts derived from
the sale or exchange of services; provided, that the President, upon the
recommendation of the Secretary of Finance, shall, effective January 1, 2006, raise
the rate of value-added tax to twelve percent (12%), after any of the following
conditions has been satisfied.
1. (i)value-added tax collection as a percentage of Gross Domestic Product
(GDP) of the previous year exceeds two and four-fifth percent (2
4/5%) or
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(ii) national government deficit as a percentage of GDP of the
previous year exceed same and on-half percent (1 1/2%).
provisions that “the President, upon the recommendation of the
Secretary of Finance, shall, effective January 1, 2006, raise the
satisfaction of the twin conditions that value-added tax collection
as a percentage of Gross Domestic Product (GDP) of the previous
year exceeds two and four-fifth percent (2 4/5%); or that the
national government deficit as a percentage of GDP of the
previous year exceeds one and one-half percent (1 1/2%).
At first blush, it does seem that the assailed provisions are
constitutionally deficient. It is Congress, and not the President,
which is authorized to raise the rate of VAT from 10% to 12%, no
matter the circumstance. Yet a closer analysis of the proviso
reveals that this is not exactly the operative effect of the law. The
qualifier “shall” denotes a mandatory, rather than discretionary
function on the part of the President to raise the rate of VAT to
12% upon the existence of any of the two listed conditions.
Since the President is not given any discretion in refusing to
raise the VAT rate to 12%, there is clearly no delegation of the
legislative power to tax by Congress to the executive branch. The
use of the word “shall” obviates any logical construction that
would allow the President leeway in not raising the tax rate. More
so, it is accepted that the principle of constitutional construction
that every presumption should be indulged in favor of
constitutionality and the court in considering the validity of the
statute in question should give it such reasonable construction as
can be reached to bring it within the fundamental law.  While all 10
reasonable doubts should be
_______________
10
 Carpio v. Executive Secretary, G.R. No. 96409 February 14, 1992, 206 SCRA
290, 298; citing In re Guarina, 24 Phil. 37.
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260 SUPREME COURT REPORTS ANNOTATED in Southern Cross wherein the Constitution itself authorizes the
Abakada Guro Party List vs. Ermita
resolved in favor, of the constitutionality of a statute,  it should11
necessarily follow that the construction upheld should be one that
is not itself noxious to the Constitution.
Congress should be taken to task for imperfect draftsmanship
at least. Much trouble would have been avoided had the provisos
instead read: “that effective January 1, 2006, the rate of value-
added tax shall be raised to twelve percent (12%), after any of the
following conditions has been satisfied x x x.” This, after all is the
operative effect of the provision as it stands. In relation to the
operation of the tax increase, the denominated role of the President
and the Secretary of Finance may be regarded as a superfluity, as
their imprimatur as a precondition to the increase of the VAT rate
must have no bearing.
Nonetheless, I cannot ignore the fact that both the President
and the Secretary of Finance have designated roles in the
implementation of the tax increase. Considering that it is
Congress, and not these officials, which properly have imposed
the increase in the VAT rate, how should these roles be construed?
The enactment of a law should be distinguished from its
implementation. Even if it is Congress which exercises the plenary
power of taxation, it is not the body that administers the
implementation of the tax. Under Section 2 of the National
Internal Revenue Code (NIRC), the assessment and collection of
all national internal revenue taxes, and the enforcement of all
forfeitures, penalties and fines connected therewith had been
previously delegated to the Bureau of Internal Revenue, under the
supervision and control of the Department of Finance. 12
Moreover, as intimated earlier, Congress may delegate to
other components of the government the power to ascertain the
facts or conditions as the basis of the taking into effect of
_______________
11
 People v. Vera, supra note 8.
12
 See Section 2, National Internal Revenue Code.
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a law. It follows that ascertainment of the existence of the two
conditions precedent for the increase as stated in the law could
very well be delegated to the President or the Secretary of
Finance. 13
Nonetheless, the apprehensions arise that the process of
ascertainment of the listed conditions delegated to the Secretary of
Finance and the President effectively vest discretionary authority
to raise the VAT rate on the President, through the subterfuges that
may be employed to delay the determination, or even to
manipulate the factual premises. Assuming arguendo that these
feared abuses may arise, I think it possible to seek judicial
enforcement of the increased VAT rate, even without the
participation or consent of the President or Secretary of Finance,
upon indubitable showing that any of the two listed conditions do
exist. After all, the Court is ruling that the increase in the VAT
rate is mandatory and beyond the discretion of the President to
impose or delay.
The majority states that in making the recommendation to the
President on the existence of either of the two conditions, the
Secretary of Finance is acting as the agent of the legislative
branch, to determine and declare the event upon which its
expressed will is to take effect.  This recognition of agency must
14
be qualified. I do not doubt the ability of Congress to delegate to
the Secretary of Finance administrative functions
_______________
 There are two eminent tests for valid delegation, the “completeness test” and
13
the “sufficient standard test.” The law must be complete in its essential terms and
conditions when it leaves the legislature so that there will be nothing left for the
delegate to do when it reaches him except enforce it. U.S. v. Ang Tang Ho, 43 Phil. 1,
6-7 (1922). On the other hand, a sufficient standard is intended to map out the
boundaries of the delegate’s authority by defining legislative policy and indicating the
circumstances under which it is to be pursued and effected; intended to prevent a total
transference of legislative power from the legislature to the delegate.
 Decision, infra, citing Alunan v. Mirasol, G.R. No. 108399, 31 July 1997, 276
14
SCRA 501, 513-514.
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262 SUPREME COURT REPORTS ANNOTATED
Abakada Guro Party List vs. Ermita
in the implementation of tax laws, as it does under Section 2 of the
NIRC. Yet it would be impermissible for Congress to delegate to
the Secretary of Finance the plenary function of enacting a tax
law. As stated earlier, the situation stands different from that
delegation by Congress through a law to the President of the
discretion to impose tariff measures, subject to restrictions and
limitations provided in the law.  Herein, Congress cannot delegate
15
to either the President or the Secretary of Finance the discretion to
raise the tax, as such power belongs exclusively to the legislative
branch of government.
Perhaps the term “agency” is not most suitable in describing
the delegation exercised by Congress in this case, for agency
implies that the agent takes on attributes of the principal by reason
of representative capacity. In this case, whatever “agency” that can
be appreciated would be of severely limited capacity,
encompassing as it only could the administration, not enactment,
of the tax measure.
I do not doubt the impression left by the provisions that it is
the President, and not Congress, which is authorized to raise the
VAT rate. On paper at least, these imperfect provisions could be
multiple sources of mischief. On the political front, whatever
blame or scorn that may be attended with the increase of the VAT
rate would fall on the President, and not on Congress which
actually increased the tax rate. On the legal front, a President
averse to increasing the VAT rate despite the existence of the two
listed conditions may take refuge in the infelicities of the
provision, and refuse to do so on the ground that the law, as
written, implies some form of
_______________
 Notwithstanding, the Court in Southern Cross did rule that Section 5 of the
15
Safeguard Measures Act, which required a positive final determination by the Tariff
Commission before the DTI or Agriculture Secretaries could impose general
safeguard measures, operated as a valid restriction and limitation on the exercise by
the executive branch of government of its tariff powers.
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discretion on the part of the President who was, after all,
“authorized” to increase the tax rate. It is critical for the Court to
disabuse this notion right now.
The Continued Viability of
Tolentino v. Secretary of Finance
One of the more crucial issues now before us, one that has
seriously divided the Court, pertains to the ability of the Bicameral
Conference Committee to introduce amendments to the final bill
which were not contained in the House bill from which the E-VAT
Law originated. Most of the points addressed by the petitioners
have been settled in our ruling in Tolentino v. Secretary of
Finance,  yet a revisit of that precedent is urged upon this Court.
16
On this score, I offer my qualified concurrence with the ponencia.
Two key provisions of the Constitution come into play:
Sections 24 and 26(2), Article VI of the Constitution. They read:
Section 24: All appropriation, revenue or tariff bills, bills authorizing
increase of the public debt, bills of local application, and private bills shall
originate exclusively in the House of Representatives, but the Senate may
propose or concur with amendments.
 Section 26(2): No bill passed by either House shall become a law
unless it has passed three readings on separate days, and printed copies
thereof in its final form have been distributed to its Members three days
before its passage, except when the President certifies to the necessity of
its immediate enactment to meet a public calamity or emergency. Upon the
last reading of a bill, no amendment thereto shall be allowed, and the vote
thereon shall be taken immediately thereafter, and the yeas and nays
entered in the Journal.
Section 24 is also known as the origination clause, which derives
origin from British practice. From the assertion that the power to
tax the public at large must reside in the repre-
_______________
 G.R. No. 115455, 25 August 1994, 235 SCRA 630.
16
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264 SUPREME COURT REPORTS ANNOTATED
Abakada Guro Party List vs. Ermita
sentatives of the people, the principle evolved that money bills
must originate in the House of Commons and may not be amended
by the House of Lords.  The principle was adopted across the
17
shores in the United States, and was famously described by James
Madison in The Federalist Papers as follows:
This power over the purse, may in fact be regarded as the most complete
and effectual weapon with which any constitution can arm the immediate
representatives of the people, for obtaining a redress of every grievance,
and for carrying into effect every just and salutary measure.
18
There is an eminent difference from the British system from which
the principle emerged, and from our own polity. To this day, only
members of the British House of Commons are directly elected by
the people, with the members of the House of Lords deriving their
seats from hereditary peerage. Even in the United States, members
of the Senate were not directly elected by the people, but chosen
by state legislatures, until the adoption of the Seventeenth
Amendment in 1913. Hence, the rule assured the British and
American people that tax legislation arises with the consent of the
sovereign people, through their directly elected representatives. In
our country though, both members of the House and Senate are
directly elected by the people, hence the vitality of the original
conception of the rule has somewhat lost luster.
Still, the origination clause deserves obeisance in this
jurisdiction, simply because it is provided in the Constitution.
_______________
 M.
17
Evans, ‘A SOURCE OF FREQUENT AND OBSTINATE
ALTERCATIONS’: THE HISTORY AND APPLICATION OF THE ORIGINATION
CLAUSE.
 The Federalist No. 58, at p. 394 (J. Madison) (J. Cooke ed. 1961), cited in J.
18
M. Medina, The Origination Clause in the American Constitution: A Comparative
Survey, 23 Tulsa Law Journal 2, at p. 165.
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At the same time, its proper interpretation is settled precedent, as
enunciated in Tolentino:
“To begin with, it is not the law—but the revenue bill—which is required
by the Constitution to “originate exclusively” in the House of
Representatives. It is important to emphasize this, because a bill
originating in the House may undergo such extensive changes in the
Senate that the result may be a rewriting of the whole. The possibility of a
third version by the conference committee will be discussed later. At this
point, what is important to note is that, as a result of the Senate action, a
distinct bill may be produced. To insist that a revenue statute—and not
only the bill which initiated the legislative process culminating in the
enactment of the law—must substantially be the same as the House bill
would be to deny the Senate’s power not only to “concur with
amendments” but also to “propose amendments.” It would be to violate the
coequality of legislative power of the two houses of Congress and in fact
make the House superior to the Senate.”
19
The vested power of the Senate to “propose or concur with
amendments” necessarily implies the ability to adduce
transformations from the original House bill into the final law.
Since the House and Senate sit separately in sessions, the only
opportunity for the Senate to introduce its amendments would be
in the Bicameral Conference Committee, which emerges only after
both the House and the Senate have approved their respective
bills.
In the present petitions, Tolentino comes under fire on two
fronts. The first controversy arises from the adoption
in Tolentino of American legislative practices relating to bicameral
committees despite the difference in constitutional frameworks,
particularly the limitation under Section 26(2), Article VI which
does not exist in the American Constitution.
The majority points out that “the ‘no amendment rule’ refers
only to the procedure to be followed by each house of Congress
with regard to bills initiated in the house concerned,
_______________
19
 Tolentino v. Secretary of Finance, supra note 16 at p. 661.
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266 SUPREME COURT REPORTS ANNOTATED
Abakada Guro Party List vs. Ermita
before said bills are transmitted to the other house for its
concurrence or amendment.” I agree with this statement. Clearly,
the procedure under Section 26(2), Article VI only relates to the
passage of a bill before the House and Senate, and not the process
undertaken afterwards in the Bicameral Conference Committee.
Indeed, Sections 26 and 27 of Article VI, which detail the
procedure how a bill becomes a law, are silent as to what occurs
between the passage by both houses of their respective bills, and
the presentation to the President of “every bill passed by the
Congress.”  Evidently, “Congress” means both Houses, such that a
20
bill approved by the Senate but not by the House is not presented
to the President for approval. There is obviously a need for joint
concurrence by the House and Senate of a bill before it is
transmitted to the President, but the Constitution does not provide
how such concurrence is acquired. This lacuna has to be filled,
otherwise no bill may be transmitted to the President.
Even if the Bicameral Conference Committee is not a
constitutionally organized body, it has existed as the necessary
conclave for both chambers of Congress to reconcile their
respective versions of a prospective law. The members of the
Bicameral Conference Committee may possess in them the
capacity to represent their particular chamber, yet the collective is
neither the House nor the Senate. Hence, the procedure contained
in Section 26(2), Article VI cannot apply to the Bicameral
Conference Committee.
Tellingly, the version approved by the Bicameral Conference
Committee still undergoes deliberation and approval by both
Houses. Only one vote is taken to approve the reconciled bill, just
as only one vote is taken in order to approve the original bill.
Certainly, it could not be contended that this final version
surreptitiously evades approval of either the House or Senate.
_______________
20
 See Section 27(1), Article VI, CONSTITUTION.
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The second front concerns the scope and limitations of the
Bicameral Conference Committee to amend, delete, or otherwise
modify the bills as approved by the House and the Senate.
Tolentino adduced the principle, adopted from American
practice, that the version as approved by the Bicameral Conference
Committee need only be germane to the subject of the House and
Senate bills in order to be valid.  The majority, in applying the test
21
of germaneness, upholds the contested provisions of the E-VAT
Law. Even the members of the Court who prepared to strike down
provisions of the law applying germaneness nonetheless accept the
basic premise that such test is controlling.
I agree that any amendment made by the Bicameral
Conference Committee that is not germane to the subject matter of
the House or Senate Bills is not valid. It is the only valid ground
by which an amendment introduced by the Bicameral Conference
Committee may be judicially stricken.
The germaneness standard which should guide Congress or
the Bicameral Conference Committee should be appreciated in
its normal but total sense. In that regard, my views contrast with
that of Justice Panganiban, who asserts that provisions that are not
“legally germane” should be stricken down. The legal notion of
germaneness is just but one component, along with other factors
such as economics and politics, which guides the Bicameral
Conference Committee, or the legislature for that matter, in the
enactment of laws. After all, factors such as economics or politics
are expected to cast a pervasive influence on the legislative
process in the first place, and it is essential as well to allow such
“non-legal” elements to be considered in ascertaining whether
Congress has complied with the criteria of germaneness.
_______________
21
 Tolentino v. Secretary of Finance, supra note 16 at p. 668.
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268 SUPREME COURT REPORTS ANNOTATED

Abakada Guro Party List vs. Ermita
Congress is a political body, and its rationale for legislating may
be guided by factors other than established legal standards. I
deem it unduly restrictive on the plenary powers of Congress to
legislate, to coerce the body to adhere to judge-made standards,
such as a standard of “legal germaneness.” The Constitution is
the only legal standard that Congress is required to abide by in its
enactment of laws.
Following these views, I cannot agree with the position
maintained by the Chief Justice, Justices Panganiban and Azcuna
that the provisions of the law that do not pertain to VAT should be
stricken as unconstitutional. These would include, for example, the
provisions raising corporate income taxes. The Bicameral
Conference Committee, in evaluating the proposed amendments,
necessarily takes into account not just the provisions relating to the
VAT, but the entire revenue generating mechanism in place. If, for
example, amendments to non-VAT related provisions of the NIRC
were intended to offset the expanded coverage for the VAT, then
such amendments are germane to the purpose of the House and
Senate Bills.
Moreover, it would be myopic to consider that the subject
matter of the House Bill is solely the VAT system, rather than the
generation of revenue. The majority has sufficiently demonstrated
that the legislative intent behind the bills that led to the E-VAT
Law was the generation of revenue to counter the country’s dire
fiscal situation.
The mere fact that the law is popularly known as the E-VAT
Law, or that most of its provisions pertain to the VAT, or indirect
taxes, does not mean that any and all amendments which are
introduced by the Bicameral Conference Committee must pertain
to the VAT system. As the Court noted in Tatad v. Secretary of
Energy: 22
_______________
 G.R. No. 124360, 5 November 1997, 281 SCRA 330.
22
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[I]t is contended that section 5(b) of R.A. No. 8180 on tariff differential
violates the provision 17 of the Constitution requiring every law to have
only one subject which should be expressed in its title. We do not concur
with this contention. As a policy, this Court has adopted a liberal
construction of the one title—one subject rule. We have consistently
ruled that the title need not mirror, fully index or catalogue all
contents and minute details of a law. A law having a single general
subject indicated in the title may contain any number of provisions, no
matter how diverse they may be, so long as they are not inconsistent
with or foreign to the general subject, and may be considered in
furtherance of such subject by providing for the method and means of
carrying out the general subject. We hold that section 5(b) providing for
tariff differential is germane to the subject of R.A. No. 8180 which is the
deregulation of the downstream oil industry. The section is supposed to
sway prospective investors to put up refineries in our country and make
them rely less on imported petroleum. 23
I submit that if the amendments are attuned to the goal of revenue
generation, the stated purpose of the original House Bills, then the
test of germaneness is satisfied. It might seem that the goal of
revenue generation, which is stated in virtually all tax or tariff
bills, is so encompassing in scope so as to justify the inclusion by
the Bicameral Conference Committee of just about any revenue
generation measure. This may be so, but it does not mean that the
test of germaneness would be rendered inutile when it comes to
revenue laws.
I do believe that the test of germaneness was violated by the
E-VAT Law in one regard. Section 21 of the law, which was not
contained in either the House or Senate Bills, imposes restrictions
on the use by local government units of their incremental revenue
from the VAT. These restrictions are alien to the principal
purposes of revenue generation, or the purposes of restructuring
the VAT system. I could not see how the provision, which relates
to budgetary allocations, is
_______________
23
 Id., at pp. 349-350.
270
270 SUPREME COURT REPORTS ANNOTATED law designed to relieve our country’s financial woes are sadly
Abakada Guro Party List vs. Ermita obviated with the realization that a key amendment introduced in
germane to the E-VAT Law. Since it was introduced only in the
Bicameral Conference Committee, the test of germaneness is
essential, and the provision does not pass muster. I join Justice
Puno and the Chief Justice in voting to declare Section 21 as
unconstitutional.
I also offer this brief comment regarding the deletion of the
so-called “no pass on” provisions, which several of my colleagues
deem unconstitutional. Both the House and Senate Bills contained
these provisions that would prohibit the seller/producer from
passing on the cost of the VAT payments to the consumers.
However, an examination of the said bills reveal that the “no pass
on” provisions in the House Bill affects a different subject of
taxation from that of the Senate Bill. In the House Bill No. 3705,
the taxpayers who are prohibited from passing on the VAT
payments are the sellers of petroleum products and
electricity/power generation companies. In Senate Bill No. 1950,
no prohibition was adopted as to sellers of petroleum products, but
enjoined therein are electricity/power generation companies but
also transmission and distribution companies.
I consider such deletions as valid, for the same reason that I
deem the amendments valid. The deletion of the two disparate “no
pass on” provisions which were approved by the House in one
instance, and only by the Senate in the other, remains in the sphere
of compromise that ultimately guides the approval of the final
version. Again, I point out that even while the two provisions may
have been originally approved by the House and Senate
respectively, their subsequent deletion by the Bicameral
Conference Committee is still subject to approval by both
chambers of Congress when the final version is submitted for
deliberation and voting.
Moreover, the fact that the nature of the “no pass on”
provisions adopted by the House essentially differs from that of
the Senate necessarily required the corrective relief from the
Bicameral Conference Committee. The Committee could have
either insisted on the House version, the Senate version, or
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both versions, and it is not difficult to divine that any of these
steps would have obtained easy approval. Hence, the deletion
altogether of the “no pass on” provisions existed as a tangible
solution to the possible impasse, and the Committee should be
accorded leeway to implement such a compromise, especially
considering that the deletion would have remained germane to the
law, and would not be constitutionally prohibited since the
prohibition on amendments under Section 26(2), Article VI does
not apply to the Committee.
An outright declaration that the deletion of the two
elementally different “no-pass on” provisions is unconstitutional,
is of dubious efficacy in this case. Had such pronouncement
gained endorsement of a majority of the Court, it could not result
in the ipso facto restoration of the provision, the omission of
which was ultimately approved in both the House and Senate.
Moreover, since the House version of the “no pass on” is quite
different from that of the Senate, there would be a question as to
whether the House version, the Senate version, or both versions
would be reinstated. And of course, if it were the Court which
would be called upon to choose, such would be way beyond the
bounds of judicial power.
Indeed, to intimate that the Court may require Congress to
reinstate a provision that failed to meet legislative approval would
result in a blatant violation of the principle of separation of
powers, with the Court effectively dictating to Congress the
content of its legislation. The Court cannot simply decree to
Congress what laws or provisions to enact, but is limited to
reviewing those enactments which are actually ratified by the
legislature.
II.
My earlier views, as are the submissions I am about to offer, are
rooted in nothing more than constitutional interpretation. Perhaps
my preceding discussion may lead to an impression that I whole-
heartedly welcome the passage of the E-VAT Law. Yet whatever
relief I may have over the enactment of a
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the law is not only unconstitutional, but of fatal consequences. The
clarion call of judicial review is most critical when it stands as the
sole barrier against the deprivation of life, liberty and property
without due process of law. It becomes even more impelling now
as we are faced with provisions of the E-VAT Law which, though
in bland disguise, would operate as the most destructive of tax
measures enacted in generations.
Tax Statutes and the Due Process Clause
It is the duty of the courts to nullify laws that contravene the due
process clause of the Bill of Rights. This task is at the heart not
only of judicial review, but of the democratic system, for the
fundamental guarantees in the Bill of Rights become merely
hortatory if their judicial enforcement is unavailing. Even if the
void law in question is a tax statute, or one that encompasses
national economic policy, the courts should not shirk from striking
it down notwithstanding any notion of deference to the executive
or legislative branch on questions of policy. Neither Congress nor
the President has the right to enact or enforce unconstitutional
laws.
The Bill of Rights is by no means the only constitutional
yardstick by which the validity of a tax law can be measured.
Nonetheless, it stands as the most unyielding of constitutional
standards, given its position of primacy in the fundamental law
way above the articles on governmental power.  If the question 24
lodged, for example, hinges on the proper exercise of legislative
powers in the enactment of the tax law, leeway can be appreciated
in favor of affirming the legislature’s inherent power to levy taxes.
On the other hand, no quarter can be ceded, no concession yielded,
on the people’s
_______________
24
 People v. Tudtud, G.R. No. 144037, 26 September 2003, 412 SCRA 142, 168.
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fundamental rights as enshrined in the Bill of Rights, even if the
sacrifice is ostensibly made “in the national interest.” It is my
understanding that “the national interests,” however comported,
always subsumes in the first place recognition and enforcement of
the Bill of Rights, which manifests where we stand as a
democratic society.
The constitutional safeguard of due process is embodied in the
fiat “No person shall be deprived of life, liberty or property
without due process of law.”  The purpose of the guaranty is to
25
prevent governmental encroachment against the life, liberty and
property of individuals; to secure the individual from the arbitrary
exercise of the powers of the government, unrestrained by the
established principles of private rights and distributive justice; to
protect property from confiscation by legislative enactments, from
seizure, forfeiture, and destruction without a trial and conviction
by the ordinary mode of judicial procedure; and to secure to all
persons equal and impartial justice and the benefit of the general
law. 26
In Magnano Co. v. Hamilton,  the U.S. Supreme Court
27
recognized that the due process clause may be utilized to strike
down a taxation statute, “if the act be so arbitrary as to compel the
conclusion that it does not involve an exertion of the taxing power,
but constitutes, in substance and effect, the direct exertion of a
different and forbidden power, as, for example, the confiscation of
property.”  Locally, Sison v. Ancheta  has long provided sanctuary
28 29
for persons assailing the constitutionality of taxing statutes. The
oft-quoted pronouncement of Justice Fernando follows:
_______________
 See Section 1, Article III, CONSTITUTION. Private corporations and
25
partnerships are persons within the scope of the guaranty insofar as their property is
concerned. Smith Bell & Co. v. Natividad, 40 Phil. 136, 145 (1919).
 16 C.J.S., at pp. 1150-1151.
26
 292 U.S. 40 (1934).
27
 Id., at p. 44.
28
 G.R. No. L-59431, 25 July 1984, 130 SCRA 654.
29
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274 SUPREME COURT REPORTS ANNOTATED
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2. The power to tax moreover, to borrow from Justice Malcolm, “is an
attribute of sovereignty. It is the strongest of all the powers of
government.” It is, of course, to be admitted that for all its plenitude,
the power to tax is not unconfined. There are restrictions. The
Constitution sets forth such limits. Adversely affecting as it does
property rights, both the due process and equal protection clauses
may properly be invoked, as petitioner does, to invalidate in
appropriate cases a revenue measure. If it were otherwise, there would
be truth to the 1803 dictum of Chief Justice Marshall that “the power to tax
involves the power to destroy.” In a separate opinion in Graves v. New
York, Justice Frankfurter, after referring to it as an “unfortunate remark,” examination of the statute, and seek to understand how exactly it
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 Holme’s pen: ‘The power to tax is not the power to destroy while
this Court sits.’ ” So it is in the Philippines.
3. This Court then is left with no choice. The Constitution as the
fundamental law overrides any legislative or executive act that runs
counter to it. In any case therefore where it can be demonstrated that
the challenged statutory provision—as petitioner here alleges—fails to
abide by its command, then this Court must so declared and adjudge
it null. The inquiry thus is centered on the question of whether the
imposition of a higher tax rate on taxable net income derived from
business or profession than on compensation is constitutionally infirm.
4. The difficulty confronting petitioner is thus apparent. He alleges
arbitrariness. A mere allegation, as here, does not suffice. There must be a
factual foundation of such unconstitutional taint. Considering that
petitioner here would condemn such a provision as void on its face, he has
not made out a case. This is merely to adhere to the authoritative doctrine
that where the due process and equal protection clauses are invoked,
considering that they are not fixed rules but rather broad standards, there is
a need for proof of such persuasive character as would lead to such a
conclusion. Absent such a showing, the presumption of validity must
prevail.
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5. It is undoubted that the due process clause may be invoked where a
taxing statute is so arbitrary that it finds no support in the
Constitution. An obvious example is where it can be shown to amount
to the confiscation of property. That would be a clear abuse of power.
It then becomes the duty of this Court to say that such an arbitrary act
amounted to the exercise of an authority not conferred. That properly
calls for the application of the Holmes dictum. It has also been held
that where the assailed tax measure is beyond the jurisdiction of the
state, or is not for a public purpose, or, in case of a retroactive statute
is so harsh and unreasonable, it is subject to attack on due process
grounds. 30
Sison pronounces more concretely how a tax statute may
contravene the due process clause. Arbitrariness, confiscation,
overstepping the state’s jurisdiction, and lack of a public purpose
are all grounds for nullity encompassed under the due process
invocation.
Yet even these more particular standards as enunciated
in Sison are quite exacting, and difficult to reach. Even the
constitutional challenge posed in Sison failed to pass muster. The
majority cites Sison in asserting that due process and equal
protection are broad standards which need proof of such
persuasive character to lead to such a conclusion.
It is difficult though to put into quantifiable terms how
onerous a taxation statute must be before it contravenes the due
process clause.  After all, the inherent nature of taxation is to
31
_______________
 Id., at pp. 660-662.
30
 Justice Isagani Cruz offers the following examples of taxes that contravene the
31
due process clause: “A tax, for example, that would claim 80 percent of a person’s net
income would clearly be oppressive and could unquestionably struck down as a
deprivation of his property without due process of law. A property tax retroacting to
as long as fifty years back would by tyrannical and unrealistic, as the property might
not yet have been then in the possession of the taxpayer nor, presumably, would he
have acquired it had he known
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cause pain and injury to the taxpayer, albeit for the greater good of
society. Perhaps whatever collective notion there may be of what
constitutes an arbitrary, confiscatory, and unreasonable tax might
draw more from the fairy tale/legend traditions of absolute
monarchs and the oppressed peasants they tax. Indeed, it is easier
to jump to the conclusion that a tax is oppressive and unfair if it is
imposed by a tyrant or an authoritarian state.
But could an arbitrary, confiscatory or unreasonable tax
actually be enacted by a democratic state such as ours? Of course
it could, but these would exist in more palatable guises. In a
democratic society wherein statutes are enacted by a representative
legislature only after debate and deliberation, tax statutes will most
likely, on their face, seem fair and even-handed. After all, if
Congress passes a tax law that on facial examination is obviously
harsh and unfair, it faces the wrath of the voting public, to say
nothing of the media.
In testing the validity of a tax statute as against the due
process clause, I think that the Court should go beyond a facial
would operate. The express terms of a statute, especially tax laws,
are usually inadequate in spelling out the practical effects of its
implementation. The devil is usually in the details.
Admittedly, the degree of difficulty involved of judicial
review of tax laws has increased with the growing complexities of
business, economic and accounting practices. These are sciences
which laymen are not normally equipped by their general
education to fully grasp, hence the possible insecurity on their part
when confronted with such questions on these fields.
However, we should not cede ground to those transgressions
of the people’s fundamental rights simply because the
_______________
of the tax to be imposed on it.” I. CRUZ, CONSTITUTIONAL LAW, p. 85.
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mechanism employed to violate constitutional guarantees is
steeped in disciplines not normally associated with the legal
profession. Venality cannot be allowed to triumph simply due to
its sophistication. This petition imputes in the E-VAT Law
unconstitutional oppression of the fatal variety, but in order to
comprehend exactly how and why that is so, one has to delve into
the complex milieu of the VAT system. The party alleging the
law’s unconstitutionality of course has the burden to demonstrate
the violations in understandable terms, but if such proof is
presented, the Court’s duty is to engage accordingly.
The Viability of the Clear and Present
Danger Doctrine as Counterweight
To the Shibboleths of Speculation
and Wisdom
I do not see as an impediment to the annulment of a tax law the
fact that it has yet to be implemented, or the fear that doing so
constitutes an undue attack on the wisdom, rather than the legality
of a statute. However, my position in this petition has been
challenged on those grounds, and I see it fit to refute these
preemptive allegations before delving into the operative aspect of
the E-VAT Law.
If there is cause to characterize my arguments as speculative,
it is only because the E-VAT Law has yet to be implemented. No
person as of yet can claim to have sustained actual injury by
reason of the implementation of the assailed provisions in G.R.
No. 168461. Yet this should not mean that the Court is impotent
from declaring a provision of law as violative of the due process
clause if it is clear that its implementation will cause the illegal
deprivation of life, liberty or property without due process of law.
This is especially so if, as in this case, the injury is of
mathematical certainty, and the extent of the loss quantifiable
through easy reference to the most basic of business practices.
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These arguments are conjectural for the same reason that the bare
statement “firing a gunshot into the head will cause a fatal
wound” would be conjectural. Some people are lucky enough to
survive gunshot wounds to the head, while many others are not.
Yet just because the fear of mortality would be merely speculative,
it does not mean that there should be less compulsion to avoid a
situation of getting shot in the head.
Indeed, the Court has long responded to strike down
prospective actions, even if the injury has not yet even
occurred. One of the most significant legal principles of the last
century, the “clear and present danger” doctrine in free speech
cases, in fact emanates from the prospectivity, and not the
actuality of danger. The Court has not been hesitant to nullify acts
which might cause injury, owing to the presence of a clear and
present danger of a substantive evil which the State has the right to
prevent. It has even extended the “clear and present danger rule”
beyond the confines of freedom of expression to the realm of
freedom of religion, as noted by Justice Puno in
his ponencia in Estrada v. Escritor. 32
Justice Teodoro Padilla goes further in his concurring opinion
in Basco v. PAGCOR, and asserts that the clear and present danger
test squarely applies to the due process clause:
_______________
 “After defining religion, the Court, citing Tañada and Fernando, made this
32
statement, viz.:
The constitutional guaranty of the free exercise and enjoyment of religious profession and worship
carries with it the right to disseminate religious information. Any restraint of such right can only be
justified like other restraints of freedom of expression on the grounds that there is a clear and
present danger of any substantive evil which the State has the right to prevent. (Tanada and
Fernando on the Constitution of the Philippines, vol. 1, 4th ed., p. 297) (emphasis supplied)
This was the Court’s maiden unequivocal affirmation of the “clear and present
danger” rule in the religious freedom area, and in Philippine jurisprudence, for that
matter.” Estrada v. Escritor, A.M. No. P-02-1651, 4 August 2003, 408 SCRA 1.
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“The courts, as the decision states, cannot inquire into the
wisdom, morality or expediency of policies adopted by the
political departments of government in areas which fall within
their authority, except only when such policies pose a clear and
present danger to the life, liberty or property of the individual.”
I see no reason why the clear and present danger test cannot
apply in this case, or any case wherein a taxing statute poses a
clear and present danger to the life, liberty or property of the
individual. The application of this standard frees the Court from
inutility in the face of patently unconstitutional tax laws that have
been enacted but are yet to be fully operational.
If for example, Congress deems it wise to impose the most
draconian of tax measures—such as trebling the income taxes of
all persons over 40, raising the gross sales tax rate to 50%, or
penalizing delinquent taxpayers with 50 lashes of the whip—there
certainly would be a massive public outcry, and an expectation
that the Court would immediately nullify the offensive measures
even before they are actually imposed. Applying the clear and
present danger test, the Court is empowered to strike down the
noxious measures even before they are implemented. Yet with this
“bar on speculativeness” as argued by the majority, the Court
could easily refuse to pay heed to the prayers for injunctive relief,
and instead demand that the taxing subjects must first suffer before
the Court can act.
In the same vein, the claim that my arguments strike at the
wisdom, rather than the constitutionality of the law are misplaced.
Concededly, the assailed provisions of the E-VAT law are
basically unwise. But any provision of law that directly contradicts
the Constitution, especially the Bill of Rights, are similarly
unwise, as they run inconsistent with the fundamental law of the
land, the enunciated state policies and the elemental guarantees
assured by the State to its people. Not every unwise law is
unconstitutional, but every unconstitutional law is unwise, for an
unconstitutional law
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Abakada Guro Party List vs. Ermita
contravenes a primordial principle or guarantee on which our
polity is founded.
If it can be shown that the E-VAT Law violates these
provisions of the Constitution, especially the due process clause,
then the Court should accordingly act and nullify. Such is the
essence of judicial review, which stands as the sole barrier to the
implementation of an unconstitutional law.
The Separate Opinion of Justice Panganiban notes that “[t]he
Court cannot step beyond the confines of its constitutional power,
if there is absolutely no clear showing of grave abuse of discretion
in the enactment of the law.”  This, I feel, is an unduly narrow
33
view of judicial review, implying that such merely encompasses
the procedural aspect by which a law is enacted. If the policy of
the law, and/or the means by which such policy is implemented
run counter to the Constitution, then the Court is empowered to
strike down the law, even if the legislative and executive branches
act within their discretion in legislating and signing the law.
It is also asserted that if the implementation of the 70% cap
imposes an unequal effect on different types of businesses with
varying profit margins and capital requirements, then the remedy
would be an amendment of the law.  Of course, the remedy of
34
legislative amendment applies to even the most unconstitutional of
laws. But if our society can take cold comfort in the ability of the
legislature to amend its enactments as the defense against
unconstitutional laws, what remains then as the function of judicial
review? This legislative capacity to amend unconstitutional laws
runs concurrently with the judicial capacity to strike down
unconstitutional laws. In fact, the long-standing tradition has been
reliance on the judicial branch, and not the legislative branch, for
salvation from unconstitutional laws.
_______________
33
 Separate Opinion, infra.
34
 Ibid.
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I do recognize that the Separate Opinion of Justice Panganiban
ultimately proceeds from the premise that the assailed provisions
of the E-VAT Law may be merely unwise, but not
unconstitutional. Hence, its preference to rely on Congress to
amend the offending provisions rather than judicial nullification.
But I maintain that the assailed provisions of the E-VAT Law
violate the due process clause of the Constitution and must be
stricken down.
The Nature of VAT
To understand why Sections 8 and 12 of the E-VAT law
contravenes the due process clause, it is essential to understand the
nature of the value-added tax itself. Filipino consumers may
comprehend VAT at its elemental form, having been accustomed
for several years now in paying an extra 10% of the listed selling
price for a wide class of consumer goods. From the perspective of
the end consumer, such as the patron who purchases a meal from a
fastfood restaurant, VAT is simply a tax on transactions involving
the sale of goods. The tax is shouldered by the buyer, and is based
on a percentage of the purchase price. Since an excise or
percentage tax shares the same characteristics, there could be some
confusion as between such taxes and the VAT.
However, VAT is distinguishable from the standard excise or
percentage taxes in that it is imposable not only on the final
transaction involving the end user, but on previous stages as well
so long as there was a sale involved. Thus, VAT does not simply
pertain to the extra percentage paid by the buyer of a fast-food
meal, but also that paid by restaurant itself to its suppliers of raw
food products. This multi-stage system is more acclimated to the
vagaries of the modern industrial climate, which has long
surpassed the stage when there was only one level of transfer
between the farmer who harvests the crop and the person who eats
the crop. Indeed, from the extraction or production of the raw
material to its final consumption by a user, several transactions or
sales
282
282 SUPREME COURT REPORTS ANNOTATED services covered by the tax, or rentals of property.
Abakada Guro Party List vs. Ermita
materialize. The VAT system assures that the government shall
reap income for every transaction that is had, and not just on the
final sale or transfer.
The European Union, which has long required its member
states to apply the VAT system, provided the following definition
of the tax which I deem clear and comprehensive:
The principle of the common system of value added tax involves the
application to goods and services of a general tax on consumption  exactly
proportional to the price of the goods and services, whatever the
number of transactions that take place in the production and
distribution process before the stage at which tax is charged.
On each transaction, value added tax, calculated on the price of the
goods or services at the rate applicable to such goods or services, shall be accumulates, until the end of every quarter, when the enterprise is
chargeable after deduction of the amount of value added tax borne
directly by the various cost components. 35
The above definition alludes to a key characteristic of the VAT
system, that the imposable tax remains proportional to the price of
goods and services no matter the number of transactions that takes
place.
There is another key characteristic of the VAT—that no
matter how many the taxable transactions that precede the final
purchase or sale, it is the end-user, or the consumer, that ultimately
shoulders the tax. Despite its name, VAT is generally not intended
to be a tax on value added, but rather as a tax on consumption.
Hence, there is a mechanism in the VAT system that enables firms
to offset the tax they have paid on their own purchases of goods
and services against the tax they charge on their sales of goods and
services.  Section 105 of the NIRC assures that “the amount of tax
36
may be
_______________
 Art. 2, European Commission First Council Directive 67/227 of 11 April 1967
35
on the Harmonization of Legislation of Member States Concerning Turnover Taxes,
1971 O.J. (L 71) 1301.
 Liam & Ebrill, THE MODERN VAT.
36
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Abakada Guro Party List vs. Ermita
shifted or passed on to the buyer, transferee or lessee of the goods,
properties or services.” The assailed provisions of the E-VAT law
strike at the heart of this accepted principle.
And there is one final basic element of the VAT system
integral to this disquisition: the mode by which the tax is remitted
to the government. In simple theory, the VAT payable can be
remitted to the government immediately upon the occurrence of
the transaction, but such a demand proves excessively unwieldy.
The number of VAT covered transactions a modern enterprise
may contract in a single day, plus the recognized principle that it is
the final end user who ultimately shoulders the tax; render the
remittance of the tax on a per transaction basis impossible.
Thus, the VAT is delivered by the purchaser not directly to
the government but to the seller, who then collates the VAT
received and remits it to the government every quarter. The
process may seem simple if cast in this manner, but there is a
wrinkle, due to the offsetting mechanism designed to ultimately
make the end consumer bear the cost of the VAT.
The Concepts of Input and
Output VAT
This mechanism is employed through the introduction of two
concepts, the input tax and the output tax. Section 110(A) of the
National Internal Revenue Code defines the input tax as the VAT
due from or paid by a VAT-registered person on the importation
of goods or local purchase of goods and services in the course of
trade or business, from a VAT registered person.
Let us put this in operational terms. A VAT registered person,
engaged in an enterprise, necessarily purchases goods such as raw
materials and machinery in order to produce consumer goods. The
purchase of such raw materials and machineries is subject to VAT,
hence the enterprise pays an additional 10% of the purchase price
to the supplier as VAT. This extra amount paid by the enterprise
constitutes its input
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VAT. The enterprise likewise pays input VAT when it purchases
Since VAT is a final tax that is supposed to be ultimately
shouldered by the end consumer, the VAT system allows for a
mechanism by which the business is able to recover the input VAT
that it paid. This comes into play when the business, having
transformed the raw materials into consumer goods, sells these
goods to the public. As widely known, the consumer pays to the
business an additional amount of 10% of the purchase price as
VAT. As to the business, this VAT payments it collects from the
consumer represents output VAT, which is formally described
under Section 110(A) of the NIRC as “the value-added tax due on
the sale or lease of taxable goods or properties or services by” by
any VAT-registered person.
The output VAT collected by the business from the consumers
obliged to remit the collected output VAT to the government. This
is where the crediting mechanism comes into play. Since the
business is entitled to recover the prepaid input VAT, it does so in
every quarter by applying the amount of prepaid input VAT
against the collected output VAT which is to be remitted. If the
output VAT collected exceeds the prepaid input VAT, then the
amount of input VAT is deducted from the output VAT, and it is
entitled to remit only the remainder as output VAT to the
government. To illustrate, if Business X collects P1,000,000.00 as
output VAT and incurs P500,000.00 as input VAT, the
P500,000.00 is deducted from the P1,000,000.00 output VAT, and
X is required to remit only P500,000.00 of the output VAT it
collected from customers.
On the other hand, if the input VAT prepaid exceeds the
output VAT collected, then the business need not remit any
amount as output VAT for the quarter. Moreover, the difference
between the input VAT and the output VAT may be credited as
input VAT by the business in the succeeding quar-
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Abakada Guro Party List vs. Ermita
ter. Thus, if in the First Quarter of a year, Business X prepays
P1,000,000.00 as input VAT, and collects only P500,000.00 as
output VAT, it need not remit any amount of output VAT to the
government. Moreover, in the Second Quarter, Business X can
credit the remaining P500,000.00 as part of its input VAT for that
quarter. Hence, if in the Second Quarter, X actually prepays
P400,000.00 as input VAT, and collects P500,000.00 as output percent (70%) of the output VAT: Provided, however, That any input tax
VAT, it may add the P500,000.00 input VAT from the previous attributable to zero rated sales by a VAT-registered person may at his
quarter to the P400,000.00 prepaid in the current quarter, bringing option be refunded or credited against other internal revenue taxes, subject
to the provisions of Section 112. (emphasis supplied)
the total input VAT it could claim to P900,000.00. Since the input
VAT of P900,000.00 now exceeds the output VAT collected of All hope for entrepreneurial stability is dashed with the imposition
P500,000, then X need not remit any output VAT as well to the of the 70% cap. Under the E-VAT Law, the business, regardless of
government for the Second Quarter. stability or financial capability, is obliged to remit to the
However, reality is far bleaker than that befaced by Business government every quarter at least 30% of the output VAT
X. The VAT collected and remitted is not the most relevant collected from customers, or roughly 3% of the amount of gross
statistic evaluated by the business. The figure of primary concern sales. Thus, if a quarterly gross sales of Y Business totaled
of the enterprise would be the profit margin, which is simply the P1,000,000, and Y is prudent enough to keep its capital expenses
excess of revenue less expenditures. Revenue is derived from the down to P980,000, it would then appear on paper that Y incurred a
gross sales of the business. Expenditures encompass all expenses profit of P20,000. However, with the 70% cap, Y would be
incurred by the business including overhead expenses, wages and obliged to remit to the government P30,000, thus wiping out the
purchases of capital goods. Crucially, expenditures would include profit margin for the quarter. Y would be entitled to credit the
the input VAT prepaid by the business on its capital expenditures. excess input VAT it prepaid for the next quarter, but the
Since a significant amount of the capital outlay incurred by a continuous operation of the 70% cap obviates whatever benefits
business is subjected to the prepayment of input taxes, the this may give, and cause the accumulation of the unutilized
necessity of recovering these losses through the output VAT creditable input VAT which should be returned to the business.
collected becomes more impelling. These output taxes are 288
obviously proportional to the volume of gross sales—the higher
288 SUPREME COURT REPORTS ANNOTATED
the gross sales, the higher the output VAT collected. The output
taxes collected on sales answer for not only those input taxes paid Abakada Guro Party List vs. Ermita
on the purchase of the raw materials, but also for the input taxes The difference is even more dramatic if seen how the unutilized
paid on the multifarious overhead expenses covered by VAT. The creditable input VAT accumulates over a one year period. To
burden carried by the sales volume on the stability, if not survival illustrate, Business Y prepays the following amounts of input VAT
of the business thus just became more crucial. The maintenance of over a one-year period: P100,000.00—First Quarter; P100,000.00
the proper equilibrium is not an easy matter. Increasing the selling —2nd Quarter; P34,000.00—3rd Quarter; and P50,000.00—4th
price of the goods Quarter. On the other hand, Y collects the following amounts of
286 output VAT from consumers: P60,000.00—First Quarter;
286 SUPREME COURT REPORTS ANNOTATED P60,000.00—2nd Quarter; P100,000.00—3rd Quarter; and
P50,000.00—4th Quarter. Applying the 70% cap, which would
Abakada Guro Party List vs. Ermita limit the amount of the declarable input VAT to 70% in a quarter,
sold does not necessarily increase the gross sales, as it could have the following results obtain, as presented in tabular form:
the counter-effect of repelling the consumer and diminishing the
number of goods sold. At the same time, keeping the selling price Particulars 1st Quarter 2ndQuarter 3rdQuarter
low may increase the volume of goods sold, but not necessarily the Output VAT 60,000 60,000 100,000
amount of gross sales.
Profit is a chancy matter, and in cases of small to medium Input VAT (Actual)   100,000 34,000
enterprises, usually small if any. It is quite common for retail and + Carry Over [input] [input]
distribution enterprises to incur profits of less than 1% of their +58,000 +116,000
gross revenues. Low profitability is not an automatic badge of
poor business skills, but a reality dictated by the laws of the [excess [excess
marketplace. The probability of profit is lower than that of capital creditable] creditable]
expenditures, and ultimately, many business establishments end up
with a higher input tax than output tax in a given quarter. This 100,000 158,000 150,000
would be especially true for small to medium enterprises who do Declarable Input (60,000 (60,000 (100,000
not reap sufficient profits from its business in the first place, and
for those firms that opt to also invest in capital expenses in VAT (70% of output x70%) x70%) x70%)
addition to the overhead. Whatever miniscule profit margins that VAT) 42,000 42,000 70,000
can be obtained usually spell the difference between life and death
of the business. Lower of actual and (60,000 - (60,000 - (100,000-
The possibility of profit is further diminished by the fact that 70% cap – allowable 42,000) 42,000) 70,000)
businesses have to shoulder the input VAT in the purchase of their
capital expenses. Yet the erstwhile VAT system was not tainted by 18,000 18,000 30,000
the label of oppressiveness and neither did it bear the confiscatory Creditable Input (100,000– (158,000– (150,000-
mode. This was because of the immediate relief afforded from the
input taxes paid by the crediting system. In theory, VAT is not VAT 42,000) 42,000) 70,000)
supposed to affect the profit margin. If such margin is affected, it 58,000 116,000 80,000
is only because of the prepayment of the input taxes, and this This stands in contrast to same business VAT accountability under
should be remedied by the immediate recovery through the the present system, using the same variables of output VAT and
crediting system of the settled input taxes. input VAT. The need to distinguish a de-
The new E-VAT law changes all that, and puts in jeopardy the 289
survival of small to medium enterprises. VOL. 469, SEPTEMBER 1, 2005
287
VOL. 469, SEPTEMBER 1, 2005 Abakada Guro Party List vs. Ermita
clarable input VAT is obviated with the elimination of the 70%
Abakada Guro Party List vs. Ermita cap.
Particulars 1st 2nd Quarter 3rd Quarter 4th Q
The Effects of the 70% Cap on Creditable Input VAT
Quarter
The first radical shift introduced by the E-VAT law to the Output VAT 60,000 60,000 100,000 50,000
creditable input system—the 70% cap on the creditable input tax
Input VAT   100,000 34,000 [input] 50,00
that may be carried over into the next quarter—is provided in
Section 8 of the law, which amends Section 110(A) of the NIRC, (Actual) + [input] +80,000 +
among others. Section 110(A) as amended would now read: Carry Over +40,000 [excess
Sec. 110. Tax Credits.—
[excess creditable] cr
(B) Excess Output or Input Tax.—If at the end of any taxable quarter the creditable]
output tax exceeds the input tax, the excess shall be paid by the VAT-
registered person. If the input tax exceeds the output tax, the excess shall 100,000 140,000 114,000
be carried over to the succeeding quarter or quarters. Provided, That the
input tax inclusive of input VAT carried over from the previous VAT Payable 0 0 0
quarter that may be credited in every quarter shall not exceed seventy Creditable        
 Particulars 1st 2nd Quarter 3rd Quarter
Quarter
Input VAT 40,000 80,000
The difference is dramatic, as is the impact on the business’s profit
margin and available cash on hand. Under normal conditions,
small to medium enterprises are already encumbered with the
likelihood of obtaining only a minimal profit margin. Without the
70% cap, those businesses would nonetheless be able to expect an
immediate return on its input taxes earlier advanced, taxes which
under the VAT system it is not supposed to shoulder in the first
place. However, with the 70% cap in place, the unutilized input
taxes would continue to accumulate, and the enterprise precluded
from immediate recovery thereof. The inability to utilize these
input taxes, which could spell the difference between profit and
loss, solvency and insolvency, will eventually impair, if not kill off
the enterprise.
The majority fails to consider one of the most important
concepts in finance, time value for money.  Simply put, the
37
_______________
 “The most basic law in finance!” Understand the Time Value of Money.
37
http://www.free-financial-advice.net/time-value-of-money. html. Last visited, 30
August 2005.
290
290 SUPREME COURT REPORTS ANNOTATED to the increased prices, but their threshold of physical survival, as
Abakada Guro Party List vs. Ermita
value of one peso is worth more today than in 2006. Money that
you hold today is worth more because you can invest it and earn
interest.  By reason of the 70% cap, the amount of input VAT
38
credit that remains unutilized would continue accumulate for
months and years. The longer the amount remains unutilized, the
higher the degree of its depreciation in value, in accordance with
the concept of time value of money. Even assuming that the
business eventually recovers the input VAT credit, the sum
recovered would have decreased in practical value.
It would be sad, but fair, if a business ceases because of its the 70% cap and 60-month amortization period, would mean the
inability to compete with other businesses. It would be utter
malevolence to condemn an enterprise to death solely through the
employment of a deceptive accounting wizardry. For the raison
d’etre of this 70% cap is to make it appear on paper that the
government is more solvent than it actually is. Conceding for the
nonce, there is a temporary advantage gained by the government
by this 70% cap, as the steady remittance by businesses of the
30% output VAT would assure a cash flow. Such collection may
only momentarily resolve an endemic problem in our local tax
system, the problem of collection itself.
If the 70% cap was designed in order to enhance revenue
collection, then I submit that the means employed stand beyond
reason. If sheer will proves insufficient in assuring that the State Those three basic items of expenditure cannot simply be reduced,
all taxes due it, there should be allowable discretion for the
government to formulate creative means to enhance collection.
But to do so by depriving low profit enterprises of whatever
meager income earned and consequently assuring the death of
these industries goes beyond any valid State purpose.
Only stable businesses with substantial cash flows, or
extraordinarily successful enterprises will be able to remain in
_______________
38
 Time Value
Money. http://www.jetobjects.com/components/finance/TVM/concepts.html. Last
visited, 30 August 2005.
291
VOL. 469, SEPTEMBER 1, 2005
Abakada Guro Party List vs. Ermita
operation should the 70% cap be retained. The effect of the 70%
cap is to effectively impose a tax amounting to 3% of gross
revenue. The amount may seem insignificant to those without
working knowledge of the ways of business, but anybody who is
actually familiar with business would be well aware the profit
margins of the retailing and distribution sectors typically amount
to less than 1% of the gross revenues. A taxpayer has to earn a
margin of at least 3% on gross revenue in order to recoup the
losses sustained due to the 70% cap. But as stated earlier, profits
are chancy, and the entrepreneur does not have full control of the
conditions that lead to profit.
Even more galling is the fact that the 70% cap, oppressive as
it already is to the business establishment, even limits the options
of the business to recover the unutilized input VAT credit. During
the deliberations, the argument was raised that the problem
presented by the 70% cap was a business problem, which can only
be solved by business. Yet there is only one viable option for the
enterprise to resolve the problem, and that is to increase the selling
price of goods.  It would be incorrect to assume that increase the
39
14,000 volume of the goods sold could solve the problem, since for items
with the same purchasing cost, the effect of the 70% cap remains
constant regardless of an increase in volume.
But the additional burden is not limited to the increase of
prices by the retailer to the end consumer. Since VAT is a
transaction tax, every level of distribution becomes subject not
only to the VAT, but also to the 70% cap. The problem increases
due to a cascading effect as the number of distribution levels
increases since it will result in the collection of an effective 3%
percentage tax at every distribution level.
_______________
 There is also the option for the business to go underground and avoid VAT
39
registration, and consequently avoid remitting VAT payments to the government. It
would be facetious though for a Justice of the Supreme Court to characterize this
illegal option as “viable.”
292
292 SUPREME COURT REPORTS ANNOTATED
Abakada Guro Party List vs. Ermita
In analyzing the effects of the 70% cap, and appreciating how it
violates the due process clause, we should not focus solely on the
end consumers. Undoubtedly, consumers will face hardships due
individual people, is significantly less than that of enterprises.
Somehow, I do not think the new E-VAT would generally deprive
consumers of the bare necessities such as food, water, shelter and
clothing. There may be significant deprivation of comfort as a
result, but not of life.
The same does not hold true for businesses. The standard of
“deprivation of life” of juridical persons employs different
variables than that of natural persons. What food and water may be
for persons, profit is for an enterprise—the bare necessity for
survival. For businesses, the implementation of the same law, with
deprivation of profit, which is the determinative necessity for the
survival of a business.
It is easy to admonish both the consumer and the enterprise to
cut back on expenditures to survive the new E-VAT Law.
However, this can be realistically expected only of the consumer.
The small/medium enterprise cannot just cut back easily on
expenditures in order to survive the implementation of the E-VAT
Law. For such businesses, expenditures do not normally
contemplate unnecessary expenses such as executive perks which
can be dispensed with without injury to the enterprises. These
expenditures pertain to expenses necessary for the survival of the
enterprise, such as wages, overhead and purchase of raw materials.
as to do so with impair the ability of the business to operate on a
daily basis.
And reduction of expenditures is not the exclusive antidote to
these impositions under the E-VAT Law, as there must also be a
corresponding increase in the amount of gross sales. To do so
though, would require an increase in the selling price, dampening
consumer enthusiasm, and further impairing the ability of the
enterprise to recover from the E-VAT Law. This
293
of VOL. 469, SEPTEMBER 1, 2005
Abakada Guro Party List vs. Ermita
is your basic Catch-22  situation—no matter which means the
40
enterprise employs to recover from the E-VAT Law, it will still go
down in flames.
Section 8 of the E-VAT law, while ostensibly even-handed in
application, fails to appreciate valid substantial distinctions
between large scale enterprises and small and medium enterprises.
The latter group, owing to the limited capability for capital
investment, subsists on modest profit margins, whereas the former
expects, by reason of its substantial capital investments, a high
margin. In essentially prohibiting the recovery of small profit
margins, the E-VAT law effectively sends the message that only
high margin businesses are welcome to do business in the
Philippines. It stifles any entrepreneurial ambitions of Filipinos
unfortunate enough to have been born poor yet seek a better life
by sacrificing all to start a small business.
Pilipinas Shell Dealers, on whom the burden to establish the
violation of due process and equal protection lies, offers the
following chart of the income statement of a typical petroleum
dealer:
QUARTERLY PROFIT AND LOSS STATEMENT
 DEALER “A” Slide 1    
Item Cost VAT
  Price VAT (without 70% VAT (with 70%
Net VAT Payable 20,000.00 Net VAT Payable 30
cap)
    Excess Input VAT 10
Sales/Output 32,748,534 3,274,853.40 3,274,853.40
    Carry-over to next
Cost of Sales 31,834,717 3,183,471.70   quarter
Gross Margin 913,817     Slide 2      
_______________
VATItem   Cost
 In Joseph Heller’s Catch-22, Yossarian, a World War II pilot reasoned that if
Sales 100,000.00   1,000,000.00
40

he feigned insanity, he would be necessarily exempt from assignment to dangerous

bombing runs in enemy territory. However, his superiors reasoned that if he were
Purchases 60,000.00   600,000.00
truly insane, he then would be heedless enough to be sent on those dangerous bomb
ing runs he had sought to avoid in the first place. Due BIR without cap Due BIR with 70% cap
294 Output VAT 100,000.00 Output VAT 100
294 SUPREME COURT REPORTS ANNOTATED Actual Input VAT (60% of output Allowable Input VAT 60
_______________
Abakada Guro Party List vs. Ermita
Operating Expenses Non- 536,249    Pangloss was a famed character ridiculed in Voltaire’s Candide, renowned for
41

his absolute blind faith in optimism, no matter how dire the circumstances.
vatable items Vatable 317,584 31,758.40
296
Items
296 SUPREME COURT REPORTS ANNOTATED
Total Cost 853,833  
Abakada Guro Party List vs. Ermita
Net Profit 59,984  
VAT) 60,000.00    
Total Input Tax   3,215,230.10 2,292,397.38
Net VAT Payable 40,000.00 Net VAT Payable 40
VAT Payable   59,623.30
    Excess Input VAT ___
Unutilized Input VAT
    Carry-over to next  
*computed by multiplying output VAT by 70% [3,274,853.40 x 70% =
quarter
2,292.397.38] This presentation of the respondents is grossly deceptive, as it fails
The presentation of the Pilipinas Shell Dealers more or less jibes to account for the excess creditable input VAT that remains
with my own observations on the impact of the 70% cap. The unutilized due to the 70% cap. This excess or creditable input
dealer whose income is illustrated above has to outlay a cash VAT is supposed to be carried over for the computation of the
amount of P922,832.72 more than what would have been shelled input VAT of the next quarter. Instead, this excess or creditable
out if the 70% cap were not in place. Considering that the net input VAT magically disappears from the table of the respondents.
profit of the dealer is only P59,984.00, the consequences could In their memorandum, the Pilipinas Shell Dealers counter with
very well be fatal, especially if these state of events persist in their own presentation using the same variables as respondents’,
succeeding quarters. but taking into account the excess creditable input VAT and
The burden of proof was on the Pilipinas Shell Dealers’ to extending the situation over a one-year period. I cite with approval
prove their allegations, and accordingly, these figures have been the following chart  of the Pilipinas Shell Dealers:
42

duly presented to the Court for appreciation and evaluation.

Slide 1    
Instead, the majority has shunted aside these presentations as
being merely theoretical, despite the fact that they present a clear Quarter 1    
and present danger to the very life of our nation’s enterprises. The Item No. Cost VA
majority’s position would have been more credible had it faced the
issue squarely, and endeavored to demonstrate in like numerical Sales 1,000,000.00 100
fashion why the 70% cap is not oppressive, confiscatory, or Purchases 800,000.00 80
otherwise violative of the due process clause.
Sadly, the majority refuses to confront the figures or engage in Due BIR with 70% cap
a meaningful demonstration of how these assailed provisions truly Output VAT   100
operate. Instead, it counters with platitudes and bromides that do Allowable Input VAT   70
not intellectually satisfy. Considering
295 Net VAT Payable   30
VOL. 469, SEPTEMBER 1, 2005 Excess Input Vat   10
Abakada Guro Party List vs. Ermita Carry-over to next quarter    
_______________
that the very vitality, if not life of our domestic economy is at
stake, I think it derelict to our duty to block out these urgent
 Id., at pp. 29-30.
concerns presented to the Court with blind faith tinged with
42

irrational Panglossian  optimism.
41
297
The obligation of the majority to refute on the merits the
VOL. 469, SEPTEMBER 1, 2005
arguments of the Petroleum Dealers becomes even more grave
considering that the respondents have abjectly failed in to Abakada Guro Party List vs. Ermita
convincingly dispute the claims. During oral arguments, Quarter 2
respondents attempted to counter the arguments that the 70% cap
was oppressive and confiscatory by presenting the following   Cost VA
illustration, which I fear is severely misleading: Sales 1,000,000.00 100
Slide 1     Purchases 800,000.00 80
Item Cost VAT Due BIR with 7-% cap
Sales 1,000,000.00 100,000.00 Output VAT   100
Purchases 800,000.00 80,000.00 Less: Input VAT
Due BIR without   Due BIR with 70% cap     Excess Input VAT fr. 1st Qtr. 10,000.00
cap      Input VAT-Current Qtr. 80,000.00
Output VAT 100,000.00 Output VAT      Total Available Input VAT 90,000.00
Actual Input 80,000.00 Allowable Input Allowable Input VAT (100,000 x 70%) 70,000.00 70
VAT VAT
Net VAT Payable person, through the accumulation of unutilized input taxes, would
have in a quarter an express creditable input tax of P50,000,000,
Total Available Input VAT but would be allowed to actually credit only P70,000 if the output
Allowable Input VAT tax collected for that quarter were only P100,000.
The burden of the VAT may fall at first to the immediate
Excess Input VAT to be carried over to next Quarter buyers, but it is supposed to be eventually shifted to the
Quarter 3 endconsumer. The 70% cap effectively prevents this from
  Cost happening, as it limits the ability of the business to recover the
prepaid input taxes. This is unconscionable, since in the first place,
Sales 1,000,000.00 these intervening Players—the manufacturers, producers, traders,
Purchases 800,000.00 retailers—are not even supposed to sustain the losses incurred by
reason of the prepayment of the input taxes. Worse, they would be
Due BIR with 70% cap obliged every quarter to pay to the government from out of their
Output VAT   own pockets the equivalent of 30% of the output taxes, no matter
Less: Input VAT their own particular financial condition. Worst, this twin yoke on
the taxpayer of having to sustain a debit equivalent to 30% of
Excess Input VAT fr. 2nd Qtr. 20,000.00 output taxes,
300
Input VAT-Current Qtr. 80,000.00
Total Available Input VAT 100,000.00 300 SUPREME COURT REPORTS ANNOTATED
Allowable Input VAT (100,000 x 70%) 70,000.00 Abakada Guro Party List vs. Ermita
and having to await forever in order to recover the prepaid taxes
Net VAT Payable would impair the cash flow and prove fatal for a shocking number
298
of businesses which, as they now stand, have to make do with a
298 SUPREME COURT REPORTS ANNOTATED minimum profit that stands to be wiped out with the introduction
Abakada Guro Party List vs. Ermita of the 70% cap.
Nonetheless, the majority notes that the excess creditable
Total Available Input VAT input tax may be the subject of a tax credit certificate, which then
Allowable Input VAT could be used in payment of internal revenue taxes, or a refund to
the extent that such input taxes have not been applied against
Excess Input VAT to be carried over to next quarter output taxes.  What the majority fails to mention is that under
43

Quarter 4     Section 10 of the E-VAT Law, which amends Section 112 of

  Cost the NIRC, such credit or refund may not be done while the
enterprise remains operational:
Sales 1,000,000.00 SEC. 10. Section 112 of the same Code, as amended, is hereby further
amended to read as follows:
Purchases 800,000.00 SEC. 112. Refunds or Tax Credits of Input Tax.—
Due BIR with 70% cap xxx
“(B) Cancellation of VAT Registration.—A person whose registration has
Output VAT   been cancelled due to retirement from or cessation of business or due to changes
or cessation of status under Section 106(C) of this Code may, within two (2)
Less: Input VAT     years from the date of cancellation, apply for the issuance of a tax credit
certificate for any unused input tax which may be used in payment of his other
Excess Input VAT fr. 3rd Qtr. 30,000.00   internal revenue taxes.
xxx
Input VAT-Current Qtr. 80,000.00  
Total Available Input VAT 110,000.00   This stands in marked contrast to Section 112(B) of the NIRC as it
read prior to this amendment. Under the previous rule, a VAT-
Allowable Input VAT (100,000 x 70%) 70,000.00
registered person was entitled to apply for the tax credit certificate
Net VAT Payable   or refund paid on capital goods even while it remained in
Allowable Input VAT   operation:
_______________
Total Available Input VAT  
Excess Input VAT to be carried over   43
 Decision, infra.

to next quarter 301

The 70% cap is not merely an unwise imposition. It is a
burden designed, either through sheer heedlessness or cruel
calculation, to kill off the small and medium enterprises that
are the soul, if not the heart, of our economy. It is not merely
an undue taking of property, but constitutes an unjustified
taking of life as well.
And what legitimate, germane purposes does this lethal
70% cap serve? It certainly does not increase the
government’s revenue since the unutilized creditable
299
VOL. 469, SEPTEMBER 1, 2005
VOL. 469, SEPTEMBER 1, 2005
Abakada Guro Party List vs. Ermita
SEC. 112. Refunds or Tax Credits of Input Tax.—
xxx
“(B) Capital Goods.—A VAT-registered person may apply for the
issuance of a tax credit certificate or refund of input taxes paid on capital
goods imported or locally purchased, to the extent that such input taxes
have not been applied against output taxes. The application may be made
only within two (2) years after the close of the taxable quarter when the
importation or purchase was made.

Abakada Guro Party List vs. Ermita
input VAT should be entered in the government books as a
debt payable as it is supposed to be eventually repaid to the
taxpayer, and so on the contrary it increases the government’s
debts. I do see that the 70% cap temporarily allows the
government to brag to the world of an increased cash flow. But
This provision, which could have provided foreseeable and useful
relief to the VAT-registered person, was deleted under the new E-
VAT Law. At present, the refund or tax credit certificate may only
be issued upon two instances: on zero-rated or effectively zero-
rated sales, and upon cancellation of VAT registration due to
retirement from or cessation of business.  This is the cruelest cut
44

this situation would be akin to the provincial man who of all. Only after the
borrows from everybody in the barrio in order to show off _______________
money and maintain the pretense of prosperity to visiting city
relatives. The illusion of wealth is hardly a legitimate state  This is confirmed by the BIR in its draft Revenue Memorandum Circular dated
44

12 July 2005, submitted by respondents in its Compliance dated 16 August 2005:

purpose, especially if projected at the expense of the very
business life of the country.
The majority, in an effort to belittle these concerns, points out
that that the excess input tax remains creditable in succeeding
quarters. However, as seen in the above illustration, the actual
application of the excess input tax will always be limited by the
amount of output taxes collected in a quarter, as a result of the
70% cap. Thus, it is entirely possible that a VAT-registered
“[Q]: Is there a way by which such unapplied excess input tax credits can be claimed for refund or
issuance of TCC?
[A]: The only time application for refund/issuance of TCC is allowed for input taxes
incurred on the purchase of domestic goods/services is when the same are directly attributable
to zero-rated or effectively zero-rated sales (of goods/services). x x x
For those engaged purely in domestic transactions, the only time that unapplied input
taxes may be applied for the issuance of TCC is when the VAT registration of the taxpayer is
cancelled due to retirement or cessation of business or change in the status of the taxpayer as a
VAT registered taxpayer. As provided for in Section 112(B0, in case of cancellation of VAT
registration due to cessation of business or change in status of taxpayer, the only recourse given to
such taxpayer is to apply for the issuance of TCC on his excess input tax credits which may be used
in payment of
 302 credits can be utilised”  If not probable, it would be recognized as
51

302 SUPREME COURT REPORTS ANNOTATED a loss.  Since these international standards, duly recognized by the
52

Securities and Exchange Commission as controlling in this

Abakada Guro Party List vs. Ermita
business ceases to be may the State be compelled to repay the
entire amount of the unutilized input tax. It is like a macabre
form of sweepstakes wherein the winner is to be paid his
fortune only when he is already dead. Aanhin pa ang damo
kung patay na ang kabayo.
Moreover, the inability to immediately credit or otherwise
recover the unutilized input VAT could cause such prepaid
amount to actually be recognized in the accounting books as a
loss. Under international accounting practices, the unutilized input policies under the Constitution is the recognition of the
VAT due to the 70% cap would not even be recognized as a
deferred asset. The same would not hold true if the 70% cap were
eliminated. Under the International Accounting Standards,  the
jurisdiction, attribute tangible gain or loss to the VAT credit, it
necessarily follows that there is proprietary value attached to such
gain or loss.
Moreover, the prepaid input tax represents unutilized profit,
which can only be utilized if it is refunded or credited to output
taxes. To assert that the input VAT is merely a privilege is to
correspondingly claim that the business profit is similarly a mere
privilege. The Constitution itself recognizes the right to profit by
private enterprises. As I stated earlier, one of the enunciated State
indispensable role of the private sector, the encouragement of
private enterprise, and the provision of incentives to needed
investments.  Moreover, the Constitution also requires the State to
45
53

unutilized input VAT credit is recognized as an asset “to the extent recognize the right of enterprises to reasonable returns on
that it is probable that future taxable profit will be available investments, and to expansion and growth.  This, I believe, 54

against which the unused tax losses and unused tax credits can be encompasses profit.
utili[z]ed”  Thus, if the immediate accreditation of the input VAT
46
_______________
credit can be obtained, as it would without the 70% cap, the asset
could be recognized.  See Part III, Paragraph 3, Revenue Memorandum Ruling No. 1-2002.
50

However, the same Standards hold that “[t]o the extent that it  Section 32, International Accounting Standards 12.
51

 Supra note 47.
is not probable that taxable profit will be available against which
52

 Supra note 9. 53

the unused tax losses or unused tax credits can be utilised, the  Section 3, Article XIII, CONSTITUTION.
54

deferred tax asset is not recognised.”  As demonstrated, the

47

continuous operation of the 70% cap precludes the recovery of 305

input VAT prepaid months or years prior. Moreover, the inability VOL. 469, SEPTEMBER 1, 2005
to claim a refund or tax credit
_______________ Abakada Guro Party List vs. Ermita

his other internal revenue taxes, application for refund thereof is not an option.” 60-Month Amortization Period
See Annexes “18-N” and “18-O,” Compliance dated 12 July 2005.
 See SRC Rule 68(1)(b)(c), IMPLEMENTING RULES AND REGULATIONS
45

TO THE SECURITIES AND REGULATIONS CODE. Another portion of Section 8 of the E-VAT Law is
 Section 34, INTERNATIONAL ACCOUNTING STANDARDS 12.
46
unconstitutional, essentially for the same reasons as above. The
 Section 36, Id.
47

relevant portion reads:

303
VOL. 469, SEPTEMBER 1, 2005
Abakada Guro Party List vs. Ermita
certificate until after the business has already ceased virtually
renders it improbable for the input VAT to be recovered. As such,
under the International Accounting Standards, it is with all
likelihood that the prepaid input VAT, ostensibly creditable,
would actually be reflected as a loss.  What heretofore was 48
SEC. 8. Section 110 of the same Code, as amended, is hereby further
amended to read as follows:
“SEC. 110. Tax Credits.—
(A) Creditable Input Tax.—
....
Provided, That the input tax on goods purchased or imported in a calendar
month for use in trade or business for which deduction for depreciation is
allowed under this Code, shall be spread evenly over the month of acquisition
and the fifty-nine (59) succeeding months if the aggregate acquisition cost for
such goods, excluding the VAT component thereof, exceeds One million pesos
(P1,000,000): Provided, however, That if the estimated useful life of the capital good

recognized as an asset would now, with the imposition of the 70%
cap, be now considered as a loss, enhancing the view that the 70%
cap is ultimately confiscatory in nature.
This leads to my next point. The majority asserts that the input
tax is not a property or property right within the purview of the
due process clause.  I respectfully but strongly disagree.
49
is less than five (5) years, as used for depreciation purposes, then the input VAT shall
be spread over such a shorter period: Provided, finally, That in the case of purchase of
services, lease or use of properties, the input tax shall be creditable to the purchaser,
lessee or licensee upon payment of the compensation, rental, royalty or fee.
Again, this provision unreasonably severely limits the ability of an
enterprise to recover its prepaid input VAT. On its face, it might
appear injurious primarily to high margin enterprises, whose

Tellingly, the BIR itself has recognized that unutilized input

purchase of capital goods in a given quarter would routinely
VAT is one of those assets, corporate attributes or property rights
exceed P1,000,000.00. The amortization over a five-year period of
that, in the event of a merger, are transferred to
_______________
the input VAT on these capital goods would definitely eat up into
their profit margin. But it is still possible for such big businesses
48
 In his Separate Opinion, Justice Panganiban asserts that the deferred input tax to survive despite this new restriction, and their financial pain
credit is not really confiscated by the government, as it remains an asset in the alone may not be sufficient to cause the invalidity of a taxing
accounting records of a business. See Separate Opinion, infra. By the same logic, a statute.
law requiring all businesses to surrender to the government 100% of its gross sales
subject to reimbursement only after a five year period, would pass muster, since the
However, this amortization plan will prove especially fatal to
amount is “not really confiscated by the government as it remains an asset in the start-ups and other new businesses, which need to purchase
accounting records of a business.” 306
 Justice Panganiban cites United Paracale Mining Co. v. De la Rosa (cited
306 SUPREME COURT REPORTS ANNOTATED
49

as 221 SCRA 108, 115, April 7, 1993) to bolster his stated position that “[t]here is no
vested right in a deferred input tax account; it is a mere statutory privilege.” Separate
Opinion, infra. United Paracale does not pertain to any deferred input taxes, but
Abakada Guro Party List vs. Ermita
capital goods in order to start up their new businesses. It is a
instead to “mining claims which according to [petitioners] is private property would
known fact in the financial community that a majority of
constitute impairment of vested rights since by shifting the forum of the petitioner’s
case from the courts to the Bureau of Mines…[the] substantive rights to full
businesses start earning profit only after the second or third year,
protection of its property rights shall be greatly impaired.” United Paracale Mining
and many enterprises do not even get to survive that long. The first
Co. v. Hon. Dela Rosa, G.R. Nos. 63786-87, 7 April 1993, 221 SCRA 108, `115.
few years of a business are the most crucial to its survival, and any
Clearly, United Paracale is not even a tax case, involving as it does, questions of the
jurisdiction of the Bureau of Mines. financial benefits it can obtain in those years, no matter how
304
miniscule, may spell the difference between life and death. For
such emerging businesses, it is already difficult under the present
304 SUPREME COURT REPORTS ANNOTATED system to recover the prepaid input VAT from the output VAT
Abakada Guro Party List vs. Ermita collected from customers because initial sales volumes are usually
the surviving corporation by operation of law.  Assets would fall 50
low. With this further limitation, diminishing as it does any
under the purview of property under the due process clause, and if opportunity to have a sustainable cash flow, the ability of new
the taxing arm of the State recognizes that such property belongs businesses to survive the first three years becomes even more
to the taxpayer and not to the State, then due respect should be endangered.
given to such expert opinion. Even existing small to medium enterprises are imperiled by
Even under the International Accounting Standards I adverted this 60-month amortization restriction, especially considering the
to above, the unutilized input VAT credit may be recognized as an application of the 70% cap. The additional purchase of capital
asset “to the extent that it is probable that future taxable profit will goods bears as a means of adding value to the consumer good, as a
be available against which the unused tax losses and unused tax means to justify the increased selling price. However, the purchase
of capital goods in excess of P1,000,000.00 would impose another
burden on the small to medium enterprise by further restricting
their ability to immediately recover the entire prepaid input VAT
(which would exceed at least P100,000.00), as they would be
compelled to wait for at least five years before they can do so.
Another hurdle is imposed for such small to medium enterprise to
obtain the profit margin critical to survival. For some lucky
enterprises who may be able to survive the injury brought about
by the 70% cap, this 60 month amortization period might instead
provide the mortal head wound.
Moreover, the increased administrative burden on the taxpayer
should not be discounted, considering this Court’s previous
recognition of the aims of the VAT system to “rationalize the
system of taxes on goods and services, [and] simplify
307
VOL. 469, SEPTEMBER 1, 2005
Abakada Guro Party List vs. Ermita
tax administration.”  With the amortization requirement, the
55
taxpayer would be forced to segregate assets into several classes
and strictly monitor the useful life of assets so that proper
classification can be made. The administrative requirements of the
taxpayer in order to monitor the input VAT from the purchase of
capital assets thus has exponentially increased.
5% Withholding VAT on Sales
Pilipinas Shell Dealers argue that Section 12 of the E-VAT law,
which amends Section 114(C) of the NIRC, is also
unconstitutional. The provision is supremely unwise, oppressive
and confiscatory in nature, and ruinous to private enterprise and
even State development. The provision reads:
SEC. 12. Section 114 of the same Code, as amended, is hereby further
amended to read as follows:
“SEC. 114. Return and Payment of Value-Added Tax.—
xxx
“(C) Withholding of Value-added Tax.—The Government or any of its political
subdivisions, instrumentalities or agencies, including government-owned or
-controlled corporations (GOCCs) shall, before making payment on account of each
purchase of goods and services which are subject to the value-added tax imposed in
Sections 106 and 108 of this Code, deduct and withhold a final value-added tax at the
rate of five percent (5%) of the gross payment thereof: Provided, That the payment
for lease or use of properties or property rights to nonresident owners shall be subject
to ten percent (10%) withholding tax at the time of payment. For purposes of this
Section, the payor or person in control of the payment shall be considered as the
withholding payment. x x x
_______________
 Kapatiran ng Mga Naglilingkod sa Pamahalaan ng Pilipinas, Inc., et al. v.
55
Tan, G.R. No. L-81311, 30 June 1988, 163 SCRA 371.
308
308 SUPREME COURT REPORTS ANNOTATED government coffers would be overturned by the disadvantages of
Abakada Guro Party List vs. Ermita
The principle that the Government and its subsidiaries may deduct
and withhold a final value-added tax on its purchase of goods and
services is not new, as the NIRC had allowed such deduction and
withholding at the rate of 3% of the gross payment for the
purchase of goods, and 6% of the gross receipts for
services. However, the NIRC had also provided that this tax
withheld would also be creditable against the VAT liability of the
seller or contractor, a mechanism that was deleted by the E-VAT
law. The deletion of this credit apparatus effectively compels the
private enterprise transacting with the government to shoulder the
output VAT that should have been paid by the government in
excess of 5% of the gross selling price, and at the same time
unduly burdens the private enterprise by precluding it from
applying any creditable input VAT on the same transaction.
Notably, the removal of the credit mechanism runs contrary to
the essence of the VAT system, which characteristically allows the
crediting of input taxes against output taxes. Without such
crediting mechanism, which allows the shifting of the VAT to only
the final end user, the tax becomes a straightforward tax on
business or income. The effect on the enterprise doing business
with the government would be that two taxes would be imposed on
the income by the business derived on such transaction: the
regular personal or corporate income tax on such income, and
this final withholding tax of 5%.
Granted that Congress is not bound to adopt with strict
conformity the VAT system, and that it has to power to impose
new taxes on business income, this amendment to Section 114(C)
of the NIRC still remains unconstitutional. It unfairly
discriminates against entities which contract with the government
by imposing an additional tax on the income derived from such
transactions. The end result of such discrimination is double
taxation on income that is both oppressive and confiscatory.
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VOL. 469, SEPTEMBER 1, 2005
Abakada Guro Party List vs. Ermita
It is a legitimate purpose of a tax law to devise a manner by which
the government could save money on its own transactions, but it is
another matter if a private enterprise is punished for doing
business with the government. The erstwhile NIRC worked
towards such advantage, by allowing the government to reduce its
cash outlay on purchases of goods and services by withholding the
payment of a percentage thereof. While the new E-VAT law
retains this benefit to the government, at the same time it burdens
the private enterprise with an additional tax by refusing to allow
the crediting of this tax withheld to the business’s input VAT.
This imposition would be grossly unfair for private entities
that transact with the government, especially on a regular basis. It
might be argued that the provision, even if concededly unwise,
nonetheless fails to meet the standard of unconstitutionality, as it
affects only those persons or establishments that choose to do
business with the government. However, it is an acknowledged
fact that the government and its subsidiaries rely on contracts with
private enterprises in order to be able to carry out innumerable
functions of the State. This provision effectively discourages
private enterprises to do business with the State, as it would
impose on the business a higher rate of tax if it were to transact
with the State, as compared to transactions with other private
entities.
Established industries with track records of quality
performance could very well be dissuaded from doing further
business with government entities as the higher tax rate would
make no economic sense. Only those enterprises which really need
the money, such as those with substandard track records that have
affected their viability in the marketplace, would bother seeking
out government contracts. The corresponding sacrifice in quality
would eventually prove detrimental to the State. Our society can
ill afford shoddy infrastructures such as roads, bridges and
buildings that would unnecessarily pose danger to the public at
large simply because the government wanted to skimp on
expenses.
310
310 SUPREME COURT REPORTS ANNOTATED
Abakada Guro Party List vs. Ermita
The provision squarely contradicts Section 20, Article II of the
Constitution as it vacuously discourages private enterprise, and
provides disincentives to needed investments such as those
expected by the State from private businesses. Whatever
advantages may be gained by the temporary increase in the
having a reduced pool of private enterprises willing to do business
with the government. Moreover, since government contracts with
private enterprises will still remain a necessary fact of life, the
amendment to Section 114(C) of the NIRC introduced by the E-
VAT Law.
Double taxation means taxing for the same tax period the
same thing or activity twice, when it should be taxed but once, for
the same purpose and with the same kind of character of
tax.  Double taxation is not expressly forbidden in our constitution,
56
but the Court has recognized it as obnoxious “where the taxpayer
is taxed twice for the benefit of the same governmental entity or
by the same jurisdiction for the same purpose.”  Certainly, both the
57
5% final tax withheld and the general corporate income tax are
both paid for the benefit of the national government, and for the
same incidence of taxation, the sale/lease of goods and services to
the government.
The Court, in Re: Request of Atty. Bernardo Zialcita  had
58
cause to make the following observation I submit apropos to the
case at bar, on double taxation in a case involving the attempt of
the BIR to tax the commuted accumulated leave credits of a
government lawyer upon his retirement:
_______________
 J. Vitug and E. Acosta, supra note 3 at p. 41.
56
 Pepsi-Cola Bottling Co. of the Philippines, Inc. v. Municipality of
57
Tanauan, G.R. No. L-31156, 27 February 1976, 69 SCRA 460, 466-67; citing Court
of Industrial Relations v. Lednicky, L-18169, July 31, 1964, 11 SCRA 609 and Ssn
Miguel Brewery, Inc. v. City of Cebu, L-20312, February 26, 1972, 43 SCRA 280.
 A.M. No. 90-6-015-SC, 18 October 1990, 190 SCRA 851.
58
311
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Abakada Guro Party List vs. Ermita
Section 284 of the Revised Administrative Code grants to a government
employee 15 days vacation leave and 15 days sick leave for every year of
service. Hence, even if the government employee absents himself and
exhausts his leave credits, he is still deemed to have worked and to have
rendered services. His leave benefits are already imputed in, and form
part of, his salary which in turn is subject to withholding tax on
income. He is taxed on the entirety of his salaries without any
deductions for any leaves not utilized. It follows then that the money
values corresponding to these leave benefits both the used and unused
have already been taxed during the year that they were earned. To tax
them again when the retiring employee receives their money value as a
form of government concern and appreciation plainly constitutes an
attempt to tax the employee a second time. This is tantamount to
double taxation. 59
1. 1)DENY the Petitions in G.R. Nos. 168056, 168207, and
168730 for lack of merit;
2. 2)PARTIALLY GRANT the Petition in G.R. Nos.
168463 and declare Section 21 of the E-VAT Law as
unconstitutional;
3. 3)GRANT the Petition in G.R. No. 168461 and declare
as unconstitutional Section 8 of Republic Act No.
9337, insofar as it amends Section 110(A) and (B) of
the National Internal Revenue Code (NIRC) as well as
Section 12 of the same law, with respect to its
amendment of Section 114(C) of the NIRC.

Conclusions
The VAT system, in itself, is intelligently designed, and stands as
a fair means to raise revenue. It has been adopted worldwide by
countries hoping to employ an efficient means of taxation. The
concerns I have raised do not detract from my general approval of
the VAT system.
CONCURRING OPINION
CHICO-NAZARIO, J.:
Five petitions were filed before this Court questioning the
constitutionality of Republic Act No. 9337. Rep. Act No. 9337,
which amended certain provisions of the National Internal
Revenue Code of 1997,  by essentially increasing the tax rates and
1

I do lament though that our government’s wholehearted expanding the coverage of the Value-Added Tax (VAT).
adoption of the VAT system is endemic of what I deem a flaw in Undoubtedly, during these financially difficult times, more taxes
our national tax policy in the last few decades. The power of would be additionally burdensome to the citizenry. However, like
taxation, inherent in the State and ever so powerful, has been a bitter pill, all Filipino citizens must bear the burden of these new
generally employed by our financial planners for a solitary taxes so as to raise the much-needed revenue for the ailing
purpose: the raising of revenue. Revenue generation is a legitimate Philippine economy. Taxation is the indispensable and inevitable
purpose of taxation, but standing alone, it is a woefully price for a civilized society, and
unsophisticated design. Intelligent tax policy should extend _______________
beyond the singular-minded goal of raising State funds—the old-
time philosophy behind the taxing schemes of war-mongering 1
 Presidential Decree No. 1158, as amended up to Rep. Act No. 8424.
monarchs and totalitarian states—and should sincerely explore the
314
concept of taxation as a means of provid-
_______________ 314 SUPREME COURT REPORTS ANNOTATED
59
 Id., at p. 856. Abakada Guro Party List vs. Ermita
without taxes, the government would be paralyzed.  Without the 2

312 tax reforms introduced by Rep. Act No. 9337, the then Secretary
312 SUPREME COURT REPORTS ANNOTATED of the Department of Finance, Cesar V. Purisima, assessed that
“all economic scenarios point to the National Government’s
Abakada Guro Party List vs. Ermita inability to sustain its precarious fiscal position, resulting in severe
ing genuine incentives to private enterprise to spur economic erosion of investor confidence and economic stagnation.” 3

growth; of promoting egalitarian social justice that would allow Finding Rep. Act No. 9337 as not unconstitutional, both in its
everyone to their fair share of the nation’s wealth. procedural enactment and in its substance, I hereby concur in full
Instead, we are condemned by a national policy driven by the in the foregoing majority opinion, penned by my esteemed
monomania for State revenue. It may be beyond my oath as a colleague, Justice Ma. Alicia Austria-Martinez.
Justice to compel the government to adopt an economic policy in According to petitioners, the enactment of Rep. Act No. 9337
consonance with my personal views, but I offer these observations by Congress was riddled with irregularities and violations of the
since they lie at the very heart of the noxiousness of the assailed Constitution. In particular, they alleged that: (1) The Bicameral
provisions of the E-VAT law. The 70% cap, the 60-month Conference Committee exceeded its authority to merely settle or
amortization period and the 5% withholding tax on government reconcile the differences among House Bills No. 3555 and 3705
transactions were selfishly designed to increase government and Senate Bill No. 1950, by including in Rep. Act No. 9337
revenue at the expense of the survival of local industries. provisions not found in any of the said bills, or deleting from Rep.
I am not insensitive to the concerns raised by the respondents Act No. 9337 or amending provisions therein even though they
as to the dire consequences to the economy should the E-VAT law were not in conflict with the provisions of the other bills; (2) The
be struck down. I am aware that the granting of the petition in amendments introduced by the Bicameral Conference Committee
G.R. No. 168461 will negatively affect the cash flow of the violated Article VI, Section 26(2), of the Constitution which
government. If that were the only relevant concern at stake, I forbids the amendment of a bill after it had passed third reading;
would have no problems denying the petition. Unfortunately, and (3) Rep. Act No. 9337 contravened Article VI, Section 24, of
under the device employed in the E-VAT law, the price to be paid the Constitution which prescribes that revenue bills should
for a more sustainable liquidity of the government’s finances will originate exclusively from the House of Representatives.
be the death of local business, and correspondingly, the demise of Invoking the expanded power of judicial review granted to it
our society. It is a measure just as draconian as the standard issue by the Constitution of 1987, petitioners are calling upon
taxes of medieval tyrants. _______________
I am not normally inclined towards the language of the
overwrought, yet if the sky were indeed truly falling, how else  Commissioner of Internal Revenue v. Algue, Inc., G.R. No. L-28896, 17
2

could that fact be communicated. The E-VAT Law is of multiple February 1988, 158 SCRA 9.
 Paragraph 3.3 of the Verification and Affidavit of Merit, executed by the then
fatal consequences. How are we to survive as a nation without the
3

Secretary of the Department of Finance, Cesar V. Purisima, dated 04 July 2005,

bulwark of private industries? Perhaps the larger scale, established attached as Annex “A” of the Very Urgent Motion to Lift Temporary Restraining
businesses may ultimately remain standing, but they will be unable
to sustain the void left by the demise of small to medium
enterprises. Or worse, domestic industry would be left in the
absolute control of monopolies, combines or cartels, whether
dominated by foreigners or local oligarchs. The destruction of
subsisting industries would be bad enough, the destruction of
opportunity and the entrepre-
313
VOL. 469, SEPTEMBER 1, 2005
Abakada Guro Party List vs. Ermita
neurial spirit would be even more grievous and tragic, as it would
mark as well the end of hope. Taxes may be the lifeblood of the
Order, filed by the Office of the Solicitor General on 04 July 2005.
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VOL. 469, SEPTEMBER 1, 2005
Abakada Guro Party List vs. Ermita
this Court to look into the enactment of Rep. Act No. 9337 by
Congress and, consequently, to review the applicability of the
enrolled bill doctrine in this jurisdiction. Under the said doctrine,
the enrolled bill, as signed by the Speaker of the House of
Representatives and the Senate President, and certified by the
Secretaries of both Houses of Congress, shall be conclusive proof
of its due enactment. 4

state, but never at the expense of the life of its subjects. Petitioners’ arguments failed to convince me of the wisdom of
Accordingly, I VOTE to: abandoning the enrolled bill doctrine. I believe that it is more
prudent for this Court to remain conservative and to continue its
adherence to the enrolled bill doctrine, for to abandon the said
doctrine would be to open a Pandora’s Box, giving rise to a
situation more fraught with evil and mischief. Statutes enacted by
Congress may not attain finality or conclusiveness unless declared
so by this Court. This would undermine the authority of our
statutes because despite having been signed and certified by the
designated officers of Congress, their validity would still be in
doubt and their implementation would be greatly hampered by
allegations of irregularities in their passage by the Legislature.
Such an uncertainty in the statutes would indubitably result in
confusion and disorder. In all probability, it is the contemplation
of such a scenario that led an American judge to proclaim, thus –
. . . Better, far better, that a provision should occasionally find its way into
the statute through mistake, or even fraud, than, that every Act, state and
national, should at any and all times be liable to put in issue and
impeached by the journals, loose papers of the Legislature, and parol
evidence. Such a state of uncertainty in the statute laws of the land would
lead to mischiefs absolutely intolerable. . . .5
_______________
4
 Fariñas v. Executive Secretary, G.R. No. 147387, 10 December 2003, 417
SCRA 503, 529.
5
 Justice Sawyer, in Sherman v. Story, 30 Cal. 253, 256, as quoted in Marshall
Field & Co. v. Clark, 143 U.S. 294, 304.
316
316 SUPREME COURT REPORTS ANNOTATED consideration, even in the absence of conflict thereon between the
Abakada Guro Party List vs. Ermita
Moreover, this Court must attribute good faith and accord utmost
respect to the acts of a co-equal branch of government. While it is
true that its jurisdiction has been expanded by the Constitution, the amendments of provisions of the National Internal Revenue Code
exercise thereof should not violate the basic principle of separation of 1997 not related to VAT.
of powers. The expanded jurisdiction does not contemplate
judicial supremacy over the other branches of government. Thus,
in resolving the procedural issues raised by the petitioners, this
Court should limit itself to a determination of compliance with, or
conversely, the violation of a specified procedure in the
Constitution for the passage of laws by Congress, and not of a
mere internal rule of proceedings of its Houses.
It bears emphasis that most of the irregularities in the
enactment of Rep. Act No. 9337 concern the amendments
introduced by the Bicameral Conference Committee. The
Constitution is silent on such a committee, it neither prescribes the national internal revenue taxes. While it does cover different taxes,
creation thereof nor does it prohibit it. The creation of the
Bicameral Conference Committee is authorized by the Rules of
both Houses of Congress. That the Rules of both Houses of
Congress provide for the creation of a Bicameral Conference
Committee is within the prerogative of each House under the
Constitution to determine its own rules of proceedings.
The Bicameral Conference Committee is a creation of
necessity and practicality considering that our Congress is
composed of two Houses, and it is highly improbable that their
respective bills on the same subject matter shall always be in
accord and consistent with each other. Instead of all their
members, only the appointed representatives of both Houses shall
meet to reconcile or settle the differences in their bills. The
resulting bill from their meetings, embodied in the Bicameral
Conference Report, shall be subject to approval and ratification by
both Houses, voting separately.
It does perplex me that members of both Houses would again
ask the Court to define and limit the powers of the Bicameral
Conference Committee when such committee is of
317
VOL. 469, SEPTEMBER 1, 2005
Abakada Guro Party List vs. Ermita
their own creation. In a number of cases,  this Court already made
6
a determination of the extent of the powers of the Bicameral
Conference Committee after taking into account the existing Rules
of both Houses of Congress. In gist, the power of the Bicameral
Conference Committee to reconcile or settle the differences in the
two Houses’ respective bills is not limited to the conflicting
provisions of the bills; but may include matters not found in the
original bills but germane to the purpose thereof. If both Houses
viewed the pronouncement made by this Court in such cases as
extreme or beyond what they intended, they had the power to
amend their respective Rules to clarify or limit even further the
scope of the authority which they grant to the Bicameral
Conference Committee. Petitioners’ grievance that, unfortunately,
they cannot bring about such an amendment of the Rules on the
Bicameral Conference Committee because they are members of
the minority, deserves scant consideration. That the majority of the
members of both Houses refuses to amend the Rules on the
Bicameral Conference Committee is an indication that it is still
satisfied therewith. At any rate, this is how democracy works—the
will of the majority shall be controlling.
Worth reiterating herein is the concluding paragraph
in Arroyo v. De Venecia,  which reads—
7
It would be unwarranted invasion of the prerogative of a coequal
department for this Court either to set aside a legislative action as void
because the Court thinks the house has disregarded its own rules of
procedure, or to allow those defeated in the political arena to seek a
rematch in the judicial forum when petitioners can find remedy in that
department. The Court has not been invested with a roving commission to
inquire into complaints, real or imagined, of legislative skullduggery. It
would be acting in excess of its
_______________
 Tolentino v. Secretary of Finance, G.R. No. 115544, 25 August 1994, 235 SCRA
6
630; Philippine Judges Association v. Prado, G.R. No. 105371, 11 November 1993, 227 SCRA
703.
 G.R. No. 127255, 14 August 1997, 277 SCRA 268, 299.
7
318
318 SUPREME COURT REPORTS ANNOTATED
Abakada Guro Party List vs. Ermita
power and would itself be guilty of grave abuse of its discretion were it to
do so. . . .
Present jurisprudence allows the Bicameral Conference
Committee to amend, add, and delete provisions of the Bill under
Senate and House versions, but only so far as said provisions are
germane to the purpose of the Bill.  Now, there is a question as to
8
whether the Bicameral Conference Committee, which produced
Rep. Act No. 9337, exceeded its authority when it included therein
Although House Bills No. 3555 and 3705 were limited to the
amendments of the provisions on VAT of the National Internal
Revenue Code of 1997, Senate Bill No. 1950 had a much wider
scope and included amendments of other provisions of the said
Code, such as those on income, percentage, and excise taxes. It
should be borne in mind that the very purpose of these three Bills
and, subsequently, of Rep. Act No. 9337, was to raise additional
revenues for the government to address the dire economic
situation of the country. The National Internal Revenue Code of
1997, as its title suggests, is the single Code that governs all our
all of them are imposed and collected by the national government
to raise revenues. If we have one Code for all our national internal
revenue taxes, then there is no reason why we cannot have a single
statute amending provisions thereof even if they involve different
taxes under separate titles. I hereby submit that the amendments
introduced by the Bicameral Conference Committee to non-VAT
provisions of the National Internal Revenue Code of 1997 are not
unconstitutional for they are germane to the purpose of House
Bills No. 3555 and 3705 and Senate Bill No. 1950, which is to
raise national revenues.
_______________
 Supra, note 6. 8
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Abakada Guro Party List vs. Ermita
Furthermore, the procedural issues raised by the petitioners were
already addressed and resolved by this Court in Tolentino v.
Executive Secretary.  Since petitioners failed to proffer novel
9
factual or legal argument in support of their positions that were not
previously considered by this Court in the same case, then I am
not compelled to depart from the conclusions made therein.
The majority opinion has already thoroughly discussed each
of the substantial issues raised by the petitioners. I would just wish
to discuss additional matters pertaining to the petition of the
petroleum dealers in G.R. No. 168461.
They claim that the provision of Rep. Act No. 9337 limiting
their input VAT credit to only 70% of their output VAT deprives
them of their property without due process of law. They argue
further that such 70% cap violates the equal protection and
uniformity of taxation clauses under Article III, Section 1, and
Article VI, Section 28(1), respectively, of the Constitution,
because it will unduly prejudice taxpayers who have high input
VAT and who, because of the cap, cannot fully utilize their input
VAT as credit.
I cannot sustain the petroleum dealers’ position for the
following reasons –
First, I adhere to the view that the input VAT is not a property
to which the taxpayer has vested rights. Input VAT consists of the
VAT a VAT-registered person had paid on his purchases or
importation of goods, properties, and services from a VAT-
registered supplier; more simply, it is VAT paid. It is not, as
averred by petitioner petroleum dealers, a property that the
taxpayer acquired for valuable consideration.  A VAT-registered10
person incurs input VAT because he complied
_______________
 Supra, note 3.
9 Second, assuming for the sake of argument, that the input VAT
 Petition for Prohibition (Under Rule 65 with Prayer for the Issuance of a
10
Temporary Restraining Order and/or Writ of Preliminary Injunction) in G.R. No.
168461 entitled, Association of Pilipinas Shell Dealers, Inc., et al. v. Purisima, et al.,
p. 17, paragraph 52.
320
320 SUPREME COURT REPORTS ANNOTATED
Abakada Guro Party List vs. Ermita
with the National Internal Revenue Code of 1997, which imposed
the VAT and made the payment thereof mandatory; and not
because he paid for it or purchased it for a price.
Generally, when one pays taxes to the government, he cannot
expect any direct and concrete benefit to himself for such
payment. The benefit of payment of taxes shall redound to the
society as a whole. However, by virtue of Section 110(A) of the
National Internal Revenue Code of 1997, prior to its amendment
by Rep. Act No. 9337, a VAT-registered person is allowed,
subject to certain substantiation requirements, to credit his input
VAT against his output VAT.
Output VAT is the VAT imposed by the VAT-registered
person on his own sales of goods, properties, and services or the
VAT he passes on to his buyers. Hence, the VAT-registered
person selling the goods, properties, and services does not pay for
the output VAT; said output VAT is paid for by his consumers and
he only collects and remits the same to the government.
The crediting of the input VAT against the output VAT is a
statutory privilege, granted by Section 110 of the National Internal
Revenue Code of 1997. It gives the VAT-registered person the
opportunity to recover the input VAT he had paid, so that, in
effect, the input VAT does not constitute an additional cost for
him. While it is true that input VAT credits are reported as assets
in a VAT-registered person’s financial statements and books of
account, this accounting treatment is still based on the statutory
provision recognizing the input VAT as a credit. Without Section
110 of the National Internal Revenue Code of 1997, then the
accounting treatment of any input VAT will also change and may
no longer be booked outright as an asset. Since the privilege of an
input VAT credit is granted by law, then an amendment of such
law may limit the exercise of or may totally withdraw the
privilege.
The amendment of Section 110 of the National Internal
Revenue Code of 1997 by Rep. Act No. 9337, which imposed the
70% cap on input VAT credits, is a legitimate exercise by
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VOL. 469, SEPTEMBER 1, 2005
Abakada Guro Party List vs. Ermita
Congress of its law-making power. To say that Congress may not
trifle with Section 110 of the National Internal Revenue Code of
1997 would be to violate a basic precept of constitutional law—
that no law is irrepealable.  There can be no vested right to the
11
continued existence of a statute, which precludes its change or
repeal. 12
It bears to emphasize that Rep. Act No. 9337 does not totally
remove the privilege of crediting the input VAT against the output
VAT. It merely limits the amount of input VAT one may credit
against his output VAT per quarter to an amount equivalent to
70% of the output VAT. What is more, any input VAT in excess
of the 70% cap may be carried-over to the next quarter.  It is
certainly a departure from the VAT crediting system under Section
110 of the National Internal Revenue Code of 1997, but it is an
innovation that Congress may very well introduce, because—
VAT will continue to evolve from its pioneering original structure.
Dynamically, it will be subjected to reforms that will make it conform to
many factors, among which are: the changing requirements of government
revenue; the social, economic and political vicissitudes of the times; and
the conflicting interests in our society. In the course of its evolution, it will
be injected with some oddities and inevitably transformed into a structure
which its revisionists believe will be an improvement overtime. 14
_______________
 Asociacion de Agricultores de Talisay-Silay, Inc. v. Talisay-Silay Milling Co.,
11
Inc., G.R. No. L-19937, 19 February 1979, 88 SCRA 294; Duarte v. Dade, 32 Phil.
36 (1915).
 Traux v. Corrigan, 257 U.S. 312, 66 L. Ed. 254, as quoted in Asociacion de
12
Agricultores de Talisay-Silay, Inc. v. Talisay-Silay Milling Co., Inc., Id., p. 452.
 Section 110(B) of the National Internal Revenue Code of 1997, as amended by
13
Section 8 of Rep. Act No. 9337.
 VICTORIO A. DEOFERIO, JR. AND VICTORINO C. MAMALATEO, THE
14
VALUE ADDED TAX IN THE PHILIPPINES 48 (2000).
322
322 SUPREME COURT REPORTS ANNOTATED
Abakada Guro Party List vs. Ermita
credit is indeed a property, the petroleum dealers’ right thereto has
not vested. A right is deemed vested and subject to constitutional
protection when—
“. . . [T]he right to enjoyment, present or prospective, has become the
property of some particular person or persons as a present interest. The
right must be absolute, complete, and unconditional, independent of a
contingency, and a mere expectancy of future benefit, or a contingent
interest in property founded on anticipated continuance of existing laws,
does not constitute a vested right. So, inchoate rights which have not been
acted on are not vested.” (16 C. J. S. 214-215)
15
Under the National Internal Revenue Code of 1997, before it was
amended by Rep. Act No. 9337, the sale or importation of
petroleum products were exempt from VAT, and instead, were
subject to excise tax.  Petroleum dealers did not impose any output
16
VAT on their sales to consumers. Since they had no output VAT
against which they could credit their input VAT, they shouldered
the costs of the input VAT that they paid on their purchases of
goods, properties, and services. Their sales not being subject to
VAT, the petroleum dealers had no input VAT credits to speak of.
It is only under Rep. Act No. 9337 that the sales by the
petroleum dealers have become subject to VAT and only in its
implementation may they use their input VAT as credit against
their output VAT. While eager to use their input VAT credit
accorded to it by Rep. Act No. 9337, the petroleum dealers reject
the limitation imposed by the very same law on such use.
It should be remembered that prior to Rep. Act No. 9337, the
petroleum dealers’ input VAT credits were inexistent—
_______________
15
 Benguet Consolidated Mining Co. v. Pineda, 98 Phil. 711, 722 (1956).
16
 Section 109(e) of the National Internal Revenue Code of 1997.
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VOL. 469, SEPTEMBER 1, 2005
Abakada Guro Party List vs. Ermita
they were unrecognized and disallowed by law. The petroleum
dealers had no such property called input VAT credits. It is only
rational, therefore, that they cannot acquire vested rights to the use
of such input VAT credits when they were never entitled to such
credits in the first place, at least, not until Rep. Act No. 9337.
My view, at this point, when Rep. Act No. 9337 has not yet
even been implemented, is that petroleum dealers’ right to use
their input VAT as credit against their output VAT unlimitedly has
not vested, being a mere expectancy of a future benefit and being
contingent on the continuance of Section 110 of the National
Internal Revenue Code of 1997, prior to its amendment by Rep.
Act No. 9337.
Third, although the petroleum dealers presented figures and
computations to support their contention that the cap shall lead to
the demise of their businesses, I remain unconvinced.
Rep. Act No. 9337, while imposing the 70% cap on input
VAT credits, allows the taxpayer to carry-over to the succeeding
quarters any excess input VAT. The petroleum dealers presented a
situation wherein their input VAT would always exceed 70% of
their output VAT, and thus, their excess input VAT will be
perennially carried-over and would remain unutilized. Even
though they consistently questioned the 70% cap on their input
VAT credits, the petroleum dealers failed to establish what is the
13
average ratio of their input VAT vis-à-vis their output VAT per
quarter. Without such fact, I consider their objection to the 70%
cap arbitrary because there is no basis therefor.
On the other, I find that the 70% cap on input VAT credits
was not imposed by Congress arbitrarily. Members of the
Bicameral Conference Committee settled on the said percentage so
as to ensure that the government can collect a minimum of 30%
output VAT per taxpayer. This is to put a VAT-taxpayer, at least,
on equal footing with a VAT-exempt taxpayer under Section
109(V) of the National Internal Revenue
324
324 SUPREME COURT REPORTS ANNOTATED
Abakada Guro Party List vs. Ermita
Code, as amended by Rep. Act No. 9337.  The latter taxpayer is
17
exempt from VAT on the basis that his sale or lease of goods or
properties or services do not exceed P1,500,000; instead, he is
subject to pay a three percent (3%) tax on his gross receipts in lieu
of the VAT.  If a taxpayer with presumably a smaller business is
18
required to pay three percent (3%) gross receipts tax, a type of tax
which does not even allow for any crediting, a VAT-taxpayer with
a bigger business should be obligated, likewise, to pay a minimum
of 30% output VAT (which should be equivalent to 3% of the
gross selling price per good or property or service sold). The cap
assures the government a collection of at least 30% output VAT,
contributing to an improved cash flow for the government.
Attention is further called to the fact that the output VAT is
the VAT imposed on the sales by a VAT-taxpayer; it is paid by the
purchasers of the goods, properties, and services, and merely
collected through the VAT-registered seller. The latter, therefore,
serves as a collecting agent for the government. The VAT-
supervise legislation and keep it within the bounds of propriety and
common sense. That is primarily and exclusively a legislative concern.’
There can be no possible objection then to the observation of Justice
Montemayor: ‘As long as laws do not violate any Constitutional provision,
the Courts merely interpret and apply them regardless of whether or not
they are wise or salutary.’ For they, according to Justice Labrador, ‘are not
supposed to override legitimate policy and * * * never inquire into the
wisdom of the law.’ It is thus settled, to paraphrase Chief Justice
Concepcion in Gonzales v. Commission on Elections, that only
congressional power or competence, not the wisdom of the action taken,
may be the basis for declaring a statute invalid. This is as it ought to be.
The principle of separation of powers has in the main wisely allocated the
respective authority of each department and confined its jurisdiction to
such sphere. There would then be intrusion not allowable under the
Constitution if on a matter left to the discretion of a coordinate branch, the
judiciary would substitute its own . . .”21

registered seller is merely being required to remit to the

government a minimum of 30% of his output VAT collection.
Fourth, I give no weight to the figures and computations
presented before this Court by the petroleum dealers, particularly
the supposed quarterly profit and loss statement of a “typical
dealer.” How these data represent the financial status of a typical
dealer, I would not know when there was no effort to explain the
manner by which they were surveyed, collated, and averaged out.
Without establishing their source therefor, the figures and
computations presented by the petroleum dealers are merely self-
serving and unsubstantiated, deserving scant consideration by this
Court. Even assuming that these figures truly represent the
financial standing of petro-
To reiterate, we cannot substitute our discretion for Congress, and
even though there are provisions in Rep. Act No. 9337 which we
may believe as unwise or iniquitous, but not unconstitutional, we
cannot strike them off by invoking our power of judicial review. In
such a situation, the recourse of the people is not judicial, but
rather political. If they severely doubt the wisdom of the present
Congress for passing a statute such as Rep. Act No. 9337, then
they have the power to
_______________
20
 G.R. No. L-49112, 02 February 1979, 88 SCRA 195.
 Id., pp. 210-211.
21

_______________ 327

 TSN, 18 April 2005, IV-2, p. 5.

17
VOL. 469, SEPTEMBER 1, 2005
 Section 116 of the National Internal Revenue Code, as amended by Rep. Act
Abakada Guro Party List vs. Ermita
18

No. 9337.
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VOL. 469, SEPTEMBER 1, 2005
Abakada Guro Party List vs. Ermita
leum dealers, the introduction and application thereto of the VAT
factor, which forebode the collapse of said petroleum dealers’
businesses, would be nothing more than an anticipated damage—
an injury that may or may not happen. To resolve their petition on
this basis would be premature and contrary to the established tenet
of ripeness of a cause of action before this Court could validly
exercise its power of judicial review.
Fifth, in response to the contention of the petroleum dealers
during oral arguments before this Court that they cannot pass on to
the consumers the VAT burden and increase the prices of their
goods, it is worthy to quote below this Court’s ruling in Churchill
v. Concepcion,  to wit—19
hold the members of said Congress accountable by using their
voting power in the next elections.
In view of the foregoing, I vote for the denial of the present
petitions and the upholding of the constitutionality of Rep. Act No.
9337 in its entirety.
Petitions in G.R. Nos. 168056, 168207, 168461, 168463 and
168730 are dismissed.
Notes.—The VAT law would perhaps be open to the charge
of discriminatory treatment if the only privilege withdrawn had
been that granted to the press. (Tolentino vs. Secretary of
Finance, 235 SCRA 630 [1994])
The computation of the output VAT of the seller should be
based on the selling price appearing on its own VAT invoice, not
on the selling price appearing on that of the customer. (Atlas
Consolidated Mining & Development Corporation vs.
Commissioner of Internal Revenue, 318 SCRA 386 [1999])

Under the value-added tax system, a zero-rated sale by a

“It will thus be seen that the contention that the rates charged for VAT-registered person, which is a taxable transaction for VAT
advertising cannot be raised is purely hypothetical, based entirely upon the
purposes, shall not result in any output tax, but the input tax on his
opinion of the plaintiffs, unsupported by actual test, and that the plaintiffs
themselves admit that a number of other persons have voluntarily and purchase of goods, properties or services related to such zero-rated
without protest paid the tax herein complained of. Under these sale shall be available as tax credit or refund. (Commissioner of
circumstances, can it be held as a matter of fact that the tax is confiscatory Internal Revenue vs. Cebu Toyo Corporation, 451 SCRA
or that, as a matter of law, the tax is unconstitutional? Is the exercise of the 447 [2005])
taxing power of the Legislature dependent upon and restricted by the
opinion of two interested witnesses? There can be but one answer to these ——o0o——
questions, especially in view of the fact that others are paying the tax and
presumably making reasonable profit from their business.”

As a final observation, I perceive that what truly underlies the

opposition to Rep. Act No. 9337 is not the question of its
constitutionality, but rather the wisdom of its enactment. Would it
truly raise national revenue and benefit the entire country, or
would it only increase the burden of the Filipino people? Would it
contribute to a revival of our economy or only contribute to the
difficulties and eventual closure of businesses? These are issues
that we cannot resolve as the
_______________

19
 34 Phil. 969, 973 (1916).

326
326 SUPREME COURT REPORTS ANNOTATED
Abakada Guro Party List vs. Ermita
Supreme Court. As this Court explained in Agustin v. Edu,  to wit 20

—
“It does appear clearly that petitioner’s objection to this Letter of
Instruction is not premised on lack of power, the justification for a finding
of unconstitutionality, but on the pessimistic, not to say negative, view he
entertains as to its wisdom. That approach, it put it at its mildest, is
distinguished, if that is the appropriate word, by its unorthodoxy. It bears
repeating “that this Court, in the language of Justice Laurel, ‘does not pass
upon questions of wisdom, justice or expediency of legislation.’ As
expressed by Justice Tuason: ‘It is not the province of the courts to