8 - (G.R. No. 168056, September 01, 2005)

9/1/22, 1:34 PM [ G.R. No.
168056, September 01, 2005 ]
506 Phil. 1
EN BANC
[ G.R. No. 168056, September 01, 2005 ]
ABAKADA GURO PARTY LIST (FORMERLY AASJAS) OFFICERS
SAMSON S. ALCANTARA AND ED VINCENT S. ALBANO,
PETITIONERS, VS. THE HONORABLE EXECUTIVE SECRETARY
EDUARDO ERMITA; HONORABLE SECRETARY OF THE
DEPARTMENT OF FINANCE CESAR PURISIMA; AND HONORABLE
COMMISSIONER OF INTERNAL REVENUE GUILLERMO
PARAYNO, JR., RESPONDENTS.

[G.R. NO. 168207]

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

JINGGOY E. ESTRADA, PANFILO M. LACSON, ALFREDO S. LIM,
JAMBY A.S. MADRIGAL, AND SERGIO R. 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]

ASSOCIATION OF PILIPINAS SHELL DEALERS, INC.

REPRESENTED BY ITS PRESIDENT, ROSARIO ANTONIO; PETRON
DEALERS’ ASSOCIATION REPRESENTED BY ITS PRESIDENT,
RUTH E. BARBIBI; ASSOCIATION OF CALTEX DEALERS’ OF THE
PHILIPPINES REPRESENTED BY ITS PRESIDENT, MERCEDITAS A.
GARCIA; ROSARIO ANTONIO DOING BUSINESS UNDER THE
NAME AND STYLE OF “ANB NORTH SHELL SERVICE STATION”;
LOURDES MARTINEZ DOING BUSINESS UNDER THE NAME AND
STYLE OF “SHELL GATE – N. DOMINGO”; BETHZAIDA TAN
DOING BUSINESS UNDER THE NAME AND STYLE OF “ADVANCE
SHELL STATION”; REYNALDO P. MONTOYA DOING BUSINESS
UNDER THE NAME AND STYLE OF “NEW LAMUAN SHELL
SERVICE STATION”; EFREN SOTTO DOING BUSINESS UNDER
THE NAME AND STYLE OF “RED FIELD SHELL SERVICE
STATION”; DONICA CORPORATION REPRESENTED BY ITS
PRESIDENT, DESI TOMACRUZ; RUTH E. MARBIBI DOING
BUSINESS UNDER THE NAME AND STYLE OF “R&R PETRON
STATION”; PETER M. UNGSON DOING BUSINESS UNDER THE
NAME AND STYLE OF “CLASSIC STAR GASOLINE SERVICE
STATION”; MARIAN SHEILA A. LEE DOING BUSINESS UNDER
THE NAME AND STYLE OF “NTE GASOLINE & SERVICE
STATION”; JULIAN CESAR P. POSADAS DOING BUSINESS UNDER
THE NAME AND STYLE OF “STARCARGA ENTERPRISES”;
ADORACION MAÑEBO DOING BUSINESS UNDER THE NAME AND
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STYLE OF “CMA MOTORISTS CENTER”; SUSAN M. ENTRATA

DOING BUSINESS UNDER THE NAME AND STYLE OF “LEONA’S
GASOLINE STATION AND SERVICE CENTER”; CARMELITA
BALDONADO DOING BUSINESS UNDER THE NAME AND STYLE
OF “FIRST CHOICE SERVICE CENTER”; MERCEDITAS A. GARCIA
DOING BUSINESS UNDER THE NAME AND STYLE OF “LORPED
SERVICE CENTER”; RHEAMAR A. RAMOS DOING BUSINESS
UNDER THE NAME AND STYLE OF “RJRAM PTT GAS STATION”;
MA. ISABEL VIOLAGO DOING BUSINESS UNDER THE NAME AND
STYLE OF “VIOLAGO-PTT SERVICE CENTER”; MOTORISTS’
HEART CORPORATION REPRESENTED BY ITS VICE-PRESIDENT
FOR OPERATIONS, JOSELITO F. FLORDELIZA; MOTORISTS’
HARVARD CORPORATION REPRESENTED BY ITS VICE-
PRESIDENT FOR OPERATIONS, JOSELITO F. FLORDELIZA;
MOTORISTS’ HERITAGE CORPORATION REPRESENTED BY ITS
VICE-PRESIDENT FOR OPERATIONS, JOSELITO F. FLORDELIZA;
PHILIPPINE STANDARD OIL CORPORATION REPRESENTED BY
ITS VICE-PRESIDENT FOR OPERATIONS, JOSELITO F.
FLORDELIZA; ROMEO MANUEL DOING BUSINESS UNDER THE
NAME AND STYLE OF “ROMMAN GASOLINE STATION”;
ANTHONY ALBERT CRUZ III DOING BUSINESS UNDER THE
NAME AND STYLE OF “TRUE SERVICE STATION”, PETITIONERS,
VS. CESAR V. PURISIMA, IN HIS CAPACITY AS SECRETARY OF
THE DEPARTMENT OF FINANCE AND GUILLERMO L. PARAYNO,
JR., IN HIS CAPACITY AS COMMISSIONER OF INTERNAL
REVENUE, RESPONDENTS.

[G.R. NO. 168463]

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]

BATAAN GOVERNOR ENRIQUE T. GARCIA, JR. PETITIONER, VS.

HON. EDUARDO R. ERMITA, IN HIS CAPACITY AS THE
EXECUTIVE SECRETARY; HON. MARGARITO TEVES, IN HIS
CAPACITY AS SECRETARY OF FINANCE; HON. JOSE MARIO
BUNAG, IN HIS CAPACITY AS THE OIC COMMISSIONER OF THE
BUREAU OF INTERNAL REVENUE; AND HON. ALEXANDER
AREVALO, IN HIS CAPACITY AS THE OIC COMMISSIONER OF
THE BUREAU OF CUSTOMS, RESPONDENTS.

DECISION
AUSTRIA-MARTINEZ, J.:
The expenses of government, having for their object the interest of all, should be
borne by everyone, and the more man enjoys the advantages of society, the more
he ought to hold himself honored in contributing to those expenses.

-Anne Robert Jacques Turgot (1727-1781)

French statesman and economist
Mounting budget deficit, revenue generation, inadequate fiscal allocation for education,
increased emoluments for health workers, and wider coverage for full value-added tax
benefits … these are the reasons why Republic Act No. 9337 (R.A. No. 9337)[1] was
enacted. Reasons, the wisdom of which, the Court even with its extensive constitutional
power of review, cannot probe. The petitioners in these cases, however, question not only the
wisdom of the law, but also perceived constitutional infirmities in its passage.

Every law enjoys in its favor the presumption of constitutionality. Their arguments
notwithstanding, petitioners failed to justify their call for the invalidity of the law. Hence,
R.A. No. 9337 is not unconstitutional.

LEGISLATIVE HISTORY

R.A. No. 9337 is a consolidation of three legislative bills namely, House Bill Nos. 3555 and
3705, and Senate Bill No. 1950.

House Bill No. 3555[2] was introduced on first reading on January 7, 2005. The House
Committee on Ways and Means approved the bill, in substitution of House Bill No. 1468,
which Representative (Rep.) Eric D. Singson introduced on August 8, 2004. The President
certified the bill on January 7, 2005 for immediate enactment. On January 27, 2005, the
House of Representatives approved the bill on second and third reading.

House Bill No. 3705[3] on the other hand, substituted House Bill No. 3105 introduced by
Rep. Salacnib F. Baterina, and House Bill No. 3381 introduced by Rep. Jacinto V. Paras. Its
“mother bill” is House Bill No. 3555. The House Committee on Ways and Means approved
the bill on February 2, 2005. The President also certified it as urgent on February 8, 2005.
The House of Representatives approved the bill on second and third reading on February 28,
2005.

Meanwhile, the Senate Committee on Ways and Means approved Senate Bill No. 1950[4] on
March 7, 2005, “in substitution of Senate Bill Nos. 1337, 1838 and 1873, taking into
consideration House Bill Nos. 3555 and 3705.” Senator Ralph G. Recto sponsored Senate
Bill No. 1337, while Senate Bill Nos. 1838 and 1873 were both sponsored by Sens. Franklin
M. Drilon, Juan M. Flavier and Francis N. Pangilinan. The President certified the bill on
March 11, 2005, and was approved by the Senate on second and third reading on April 13,
2005.
On the same date, April 13, 2005, the Senate agreed to the request of the House of
Representatives for a committee conference on the disagreeing provisions of the proposed
bills.
Before long, the Conference Committee on the Disagreeing Provisions of House Bill No.
3555, House Bill No. 3705, and Senate Bill No. 1950, “after having met and discussed in full
free and conference,” recommended the approval of its report, which the Senate did on May
10, 2005, and with the House of Representatives agreeing thereto the next day, May 11,
2005.
On May 23, 2005, the enrolled copy of the consolidated House and Senate version was
transmitted to the President, who signed the same into law on May 24, 2005. Thus, came
R.A. No. 9337.
July 1, 2005 is the effectivity date of R.A. No. 9337.[5] When said date came, the Court
issued a temporary restraining order, effective immediately and continuing until further
orders, enjoining respondents from enforcing and implementing the law.
Oral arguments were held on July 14, 2005. Significantly, during the hearing, the Court
speaking through Mr. Justice Artemio V. Panganiban, voiced the rationale for its issuance of
the temporary restraining order on July 1, 2005, to wit:
J. : . . . But before I go into the details of your presentation, let me

PANGANIBAN just tell you a little background. You know when the law took
effect on July 1, 2005, the Court issued a TRO at about 5 o’clock
in the afternoon. But before that, there was a lot of complaints
aired on television and on radio. Some people in a gas station
were complaining that the gas prices went up by 10%. Some
people were complaining that their electric bill will go up by
10%. Other times people riding in domestic air carrier were
complaining that the prices that they’ll have to pay would have
to go up by 10%. While all that was being aired, per your
presentation and per our own understanding of the law, that’s not
true. It’s not true that the e-vat law necessarily increased prices
by 10% uniformly isn’t it?
ATTY. : No, Your Honor.

BANIQUED
J. : It is not?
PANGANIBAN
ATTY. : It’s not, because, Your Honor, there is an Executive Order that
BANIQUED granted the Petroleum companies some subsidy . . . interrupted
J. : That’s correct . . .
PANGANIBAN
ATTY. : . . . and therefore that was meant to temper the impact . . .

BANIQUED interrupted
J. : . . . mitigating measures . . .
PANGANIBAN
ATTY. : Yes, Your Honor.

BANIQUED
J. : As a matter of fact a part of the mitigating measures would be

PANGANIBAN the elimination of the Excise Tax and the import duties. That is
why, it is not correct to say that the VAT as to petroleum dealers
increased prices by 10%.

BANIQUED
J. : And therefore, there is no justification for increasing the retail

PANGANIBAN price by 10% to cover the E-Vat tax. If you consider the excise
tax and the import duties, the Net Tax would probably be in the
neighborhood of 7%? We are not going into exact figures I am
just trying to deliver a point that different industries, different
products, different services are hit differently. So it’s not correct
to say that all prices must go up by 10%.
ATTY. : You’re right, Your Honor.

BANIQUED
J. : Now. For instance, Domestic Airline companies, Mr. Counsel,

PANGANIBAN are at present imposed a Sales Tax of 3%. When this E-Vat law
took effect the Sales Tax was also removed as a mitigating
measure. So, therefore, there is no justification to increase the
fares by 10% at best 7%, correct?
ATTY. : I guess so, Your Honor, yes.

BANIQUED
J. : There are other products that the people were complaining on

PANGANIBAN that first day, were being increased arbitrarily by 10%. And
that’s one reason among many others this Court had to issue
TRO because of the confusion in the implementation. That’s
why we added as an issue in this case, even if it’s tangentially
taken up by the pleadings of the parties, the confusion in the
implementation of the E-vat. Our people were subjected to the
mercy of that confusion of an across the board increase of 10%,
which you yourself now admit and I think even the Government
will admit is incorrect. In some cases, it should be 3% only, in
some cases it should be 6% depending on these mitigating
measures and the location and situation of each product, of each
service, of each company, isn’t it?

BANIQUED
J. : Alright. So that’s one reason why we had to issue a TRO

PANGANIBAN pending the clarification of all these and we wish the
government will take time to clarify all these by means of a
more detailed implementing rules, in case the law is upheld by
this Court. . . .[6]
The Court also directed the parties to file their respective Memoranda.

G.R. No. 168056

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

shall, effective January 1, 2006, raise the rate of value-added tax to twelve
percent (12%), after any of the following conditions has been satisfied:

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

of the previous year exceeds two and four-fifth percent (2 4/5%); or

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

exceeds one and one-half percent (1 ½%).
Petitioners argue that the law is unconstitutional, as it constitutes abandonment by Congress

of its exclusive authority to fix the rate of taxes under Article VI, Section 28(2) of the 1987
Philippine Constitution.

G.R. No. 168207

On June 9, 2005, Sen. Aquilino Q. Pimentel, Jr., et al., filed a petition for certiorari likewise
assailing the constitutionality of Sections 4, 5 and 6 of R.A. No. 9337.

Aside from questioning the so-called stand-by authority of the President to increase the VAT
rate to 12%, on the ground that it amounts to an undue delegation of legislative power,
petitioners also contend that the increase in the VAT rate to 12% contingent on any of the
two conditions being satisfied violates the due process clause embodied in Article III,
Section 1 of the Constitution, as it imposes an unfair and additional tax burden on the people,
in that: (1) the 12% increase is ambiguous because it does not state if the rate would be
returned to the original 10% if the conditions are no longer satisfied; (2) the rate is unfair and
unreasonable, as the people are unsure of the applicable VAT rate from year to year; and (3)
the increase in the VAT rate, which is supposed to be an incentive to the President to raise
the VAT collection to at least 2 4/5 of the GDP of the previous year, should only be based on
fiscal adequacy.

Petitioners further claim that the inclusion of a stand-by authority granted to the President by
the Bicameral Conference Committee is a violation of the “no-amendment rule” upon last
reading of a bill laid down in Article VI, Section 26(2) of the Constitution.
G.R. No. 168461
Thereafter, a petition for prohibition was filed on June 29, 2005, by the Association of
Pilipinas Shell Dealers, Inc., et al., assailing the following provisions of R.A. No. 9337:
1) Section 8, amending Section 110 (A)(2) of the NIRC, requiring that the
input tax on depreciable goods shall be amortized over a 60-month
period, if the acquisition, excluding the VAT components, exceeds One
Million Pesos (P1, 000,000.00);
2) Section 8, amending Section 110 (B) of the NIRC, imposing a 70% limit
on the amount of input tax to be credited against the output tax; and
3) Section 12, amending Section 114 (c) of the NIRC, authorizing the
Government or any of its political subdivisions, instrumentalities or
agencies, including GOCCs, to deduct a 5% final withholding tax on
gross payments of goods and services, which are subject to 10% VAT
under Sections 106 (sale of goods and properties) and 108 (sale of
services and use or lease of properties) of the NIRC.
Petitioners contend that these provisions are unconstitutional for being arbitrary, oppressive,
excessive, and confiscatory.

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

liberty or property without due process of law under Article III, Section 1 of the
Constitution. According to petitioners, the contested sections impose limitations on the
amount of input tax that may be claimed. Petitioners also argue that the input tax partakes
the nature of a property that may not be confiscated, appropriated, or limited without due
process of law. Petitioners further contend that like any other property or property right, the
input tax credit may be transferred or disposed of, and that by limiting the same, the
government gets to tax a profit or value-added even if there is no profit or value-added.

Petitioners also believe that these provisions violate the constitutional guarantee of equal
protection of the law under Article III, Section 1 of the Constitution, as the limitation on the
creditable input tax if: (1) the entity has a high ratio of input tax; or (2) invests in capital
equipment; or (3) has several transactions with the government, is not based on real and
substantial differences to meet a valid classification.

Lastly, petitioners contend that the 70% limit is anything but progressive, violative of Article
VI, Section 28(1) of the Constitution, and that it is the smaller businesses with higher input
tax to output tax ratio that will suffer the consequences thereof for it wipes out whatever
meager margins the petitioners make.

G.R. No. 168463

Several members of the House of Representatives led by Rep. Francis Joseph G. Escudero
filed this petition for certiorari on June 30, 2005. They question the constitutionality of R.A.
No. 9337 on the following grounds:
1) Sections 4, 5, and 6 of R.A. No. 9337 constitute an undue delegation of

legislative power, in violation of Article VI, Section 28(2) of the
Constitution;
2) The Bicameral Conference Committee acted without jurisdiction in

deleting the no pass on provisions present in Senate Bill No. 1950 and
House Bill No. 3705; and
3) Insertion by the Bicameral Conference Committee of Sections 27, 28, 34,

116, 117, 119, 121, 125,[7] 148, 151, 236, 237 and 288, which were
present in Senate Bill No. 1950, violates Article VI, Section 24(1) of the
Constitution, which provides that all appropriation, revenue or tariff bills
shall originate exclusively in the House of Representatives
G.R. No. 168730

On the eleventh hour, Governor Enrique T. Garcia filed a petition for certiorari and
prohibition on July 20, 2005, alleging unconstitutionality of the law on the ground that the
limitation on the creditable input tax in effect allows VAT-registered establishments to retain
a portion of the taxes they collect, thus violating the principle that tax collection and revenue
should be solely allocated for public purposes and expenditures. Petitioner Garcia further
claims that allowing these establishments to pass on the tax to the consumers is inequitable,
in violation of Article VI, Section 28(1) of the Constitution.

RESPONDENTS’ COMMENT

The Office of the Solicitor General (OSG) filed a Comment in behalf of respondents.
Preliminarily, respondents contend that R.A. No. 9337 enjoys the presumption of
constitutionality and petitioners failed to cast doubt on its validity.

Relying on the case of Tolentino vs. Secretary of Finance, 235 SCRA 630 (1994),
respondents argue that the procedural issues raised by petitioners, i.e., legality of the
bicameral proceedings, exclusive origination of revenue measures and the power of the
Senate concomitant thereto, have already been settled. With regard to the issue of undue
delegation of legislative power to the President, respondents contend that the law is complete
and leaves no discretion to the President but to increase the rate to 12% once any of the two
conditions provided therein arise.

Respondents also refute petitioners’ argument that the increase to 12%, as well as the 70%
limitation on the creditable input tax, the 60-month amortization on the purchase or
importation of capital goods exceeding P1,000,000.00, and the 5% final withholding tax by
government agencies, is arbitrary, oppressive, and confiscatory, and that it violates the
constitutional principle on progressive taxation, among others.

Finally, respondents manifest that R.A. No. 9337 is the anchor of the government’s fiscal
reform agenda. A reform in the value-added system of taxation is the core revenue measure
that will tilt the balance towards a sustainable macroeconomic environment necessary for
economic growth.

ISSUES

The Court defined the issues, as follows:

PROCEDURAL ISSUE
Whether R.A. No. 9337 violates the following provisions of the Constitution:
a. Article VI, Section 24, and

b. Article VI, Section 26(2)
SUBSTANTIVE ISSUES
1. Whether Sections 4, 5 and 6 of R.A. No. 9337, amending Sections 106, 107
and 108 of the NIRC, violate the following provisions of the Constitution:

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

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

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


b. Article III, Section 1
RULING OF THE COURT

As a prelude, the Court deems it apt to restate the general principles and concepts of value-
added tax (VAT), as the confusion and inevitably, litigation, breeds from a fallacious notion
of its nature.

The VAT is a tax on spending or consumption. It is levied on the sale, barter, exchange or
lease of goods or properties and services.[8] Being an indirect tax on expenditure, the seller
of goods or services may pass on the amount of tax paid to the buyer,[9] with the seller acting
merely as a tax collector.[10] The burden of VAT is intended to fall on the immediate buyers
and ultimately, the end-consumers.

In contrast, a direct tax is a tax for which a taxpayer is directly liable on the transaction or
business it engages in, without transferring the burden to someone else.[11] Examples are
individual and corporate income taxes, transfer taxes, and residence taxes.[12]

In the Philippines, the value-added system of sales taxation has long been in existence, albeit
in a different mode. Prior to 1978, the system was a single-stage tax computed under the
“cost deduction method” and was payable only by the original sellers. The single-stage
system was subsequently modified, and a mixture of the “cost deduction method” and “tax
credit method” was used to determine the value-added tax payable.[13] Under the “tax credit
method,” an entity can credit against or subtract from the VAT charged on its sales or outputs
the VAT paid on its purchases, inputs and imports.[14]

It was only in 1987, when President Corazon C. Aquino issued Executive Order No. 273,
that the VAT system was rationalized by imposing a multi-stage tax rate of 0% or 10% on all
sales using the “tax credit method.”[15]
E.O. No. 273 was followed by R.A. No. 7716 or the Expanded VAT Law,[16] R.A. No. 8241
or the Improved VAT Law,[17] R.A. No. 8424 or the Tax Reform Act of 1997,[18] and finally,
the presently beleaguered R.A. No. 9337, also referred to by respondents as the VAT Reform
Act.
The Court will now discuss the issues in logical sequence.
PROCEDURAL ISSUE

I.
Whether R.A. No. 9337 violates the following provisions of the Constitution:
a. Article VI, Section 24, and

A. The Bicameral Conference Committee
Petitioners Escudero, et al., and Pimentel, et al., allege that the Bicameral Conference
Committee exceeded its authority by:
1) Inserting the stand-by authority in favor of the President in Sections 4, 5, and 6

of R.A. No. 9337;

2) Deleting entirely the no pass-on provisions found in both the House and
Senate bills;

3) Inserting the provision imposing a 70% limit on the amount of input tax to be
credited against the output tax; and

4) Including the amendments introduced only by Senate Bill No. 1950 regarding
other kinds of taxes in addition to the value-added tax.

Petitioners now beseech the Court to define the powers of the Bicameral Conference
Committee.

It should be borne in mind that the power of internal regulation and discipline are intrinsic in
any legislative body for, as unerringly elucidated by Justice Story, “[i]f the power did not
exist, it would be utterly impracticable to transact the business of the nation, either at
all, or at least with decency, deliberation, and order.”[19] Thus, Article VI, Section 16 (3)
of the Constitution provides that “each House may determine the rules of its proceedings.”
Pursuant to this inherent constitutional power to promulgate and implement its own rules of
procedure, the respective rules of each house of Congress provided for the creation of a
Bicameral Conference Committee.

Thus, Rule XIV, Sections 88 and 89 of the Rules of House of Representatives provides as
follows:
Sec. 88. Conference Committee. – In the event that the House does not agree with
the Senate on the amendment to any bill or joint resolution, the differences may
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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.
Sec. 89. Conference Committee Reports. – . . . Each report shall contain a

detailed, sufficiently explicit statement of the changes in or amendments to the
subject measure.
...
The Chairman of the House panel may be interpellated on the Conference

Committee Report prior to the voting thereon. The House shall vote on the
Conference Committee Report in the same manner and procedure as it votes on a
bill on third and final reading.
Rule XII, Section 35 of the Rules of the Senate states:

Sec. 35. In the event that the Senate does not agree with the House of
Representatives on the provision of any bill or joint resolution, the differences
shall be settled by a conference committee of both Houses which shall meet
within ten (10) days after their composition. The President shall designate the
members of the Senate Panel in the conference committee with the approval of
the Senate.

Each Conference Committee Report shall contain a detailed and sufficiently

explicit statement of the changes in, or amendments to the subject measure, and
shall be signed by a majority of the members of each House panel, voting
separately.

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

reconciled version thereof with the explanatory statement of the conference
committee shall be attached to the report.

...

The creation of such conference committee was apparently in response to a problem, not
addressed by any constitutional provision, where the two houses of Congress find
themselves in disagreement over changes or amendments introduced by the other house in a
legislative bill. Given that one of the most basic powers of the legislative branch is to
formulate and implement its own rules of proceedings and to discipline its members, may the
Court then delve into the details of how Congress complies with its internal rules or how it
conducts its business of passing legislation? Note that in the present petitions, the issue is not
whether provisions of the rules of both houses creating the bicameral conference committee
are unconstitutional, but whether the bicameral conference committee has strictly
complied with the rules of both houses, thereby remaining within the jurisdiction
conferred upon it by Congress.

In the recent case of Fariñas vs. The Executive Secretary,[20] the Court En Banc,
unanimously reiterated and emphasized its adherence to the “enrolled bill doctrine,” thus,
declining therein petitioners’ plea for the Court to go behind the enrolled copy of the bill.
Assailed in said case was 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 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.”[21] (Emphasis
supplied)
The foregoing declaration is exactly in point with the present cases, where petitioners allege
irregularities committed by the conference committee in introducing changes or deleting
provisions in the House and Senate bills. Akin to the Fariñas case,[22] the present petitions
also raise an issue regarding the actions taken by the conference committee on matters
regarding Congress’ compliance with its own internal rules. As stated earlier, one of the
most basic and inherent power of the legislature is the power to formulate rules for its
proceedings and the discipline of its members. Congress is the best judge of how it should
conduct its own business expeditiously and in the most orderly manner. It is also the sole

concern of Congress to instill discipline among the members of its conference committee if it
believes that said members violated any of its rules of proceedings. Even the expanded
jurisdiction of this Court cannot apply to questions regarding only the internal operation of
Congress, thus, the Court is wont to deny a review of the internal proceedings of a co-equal
branch of government.
Moreover, as far back as 1994 or more than ten years ago, in the case of Tolentino vs.
Secretary of Finance,[23] the Court already made the pronouncement that “[i]f a change is
desired in the practice [of the Bicameral Conference Committee] it must be sought in
Congress since this question is not covered by any constitutional provision but is only
an internal rule of each house.” [24] To date, Congress has not seen it fit to make such
changes adverted to by the Court. It seems, therefore, that Congress finds the practices of the
bicameral conference committee to be very useful for purposes of prompt and efficient
legislative action.
Nevertheless, just to put minds at ease that no blatant irregularities tainted the proceedings of
the bicameral conference committees, the Court deems it necessary to dwell on the issue.
The Court observes that there was a necessity for a conference committee because a
comparison of the provisions of House Bill Nos. 3555 and 3705 on one hand, and Senate Bill
No. 1950 on the other, reveals that there were indeed disagreements. As pointed out in the
petitions, said disagreements were as follows:
House Bill No. 3555 House Bill No.3705 Senate Bill No. 1950
With regard to “Stand-By Authority” in favor of President
Provides for 12% VAT Provides for 12% VAT Provides for a single rate
on every sale of goods in general on sales of of 10% VAT on sale of
or properties (amending goods or properties goods or properties
Sec. 106 of NIRC); and reduced rates for (amending Sec. 106 of
12% VAT on sale of certain locally NIRC), 10% VAT on
importation of goods manufactured goods sale of services
(amending Sec. 107 of and petroleum including sale of
NIRC); and 12% VAT products and raw electricity by generation
on sale of services and materials to be used in companies, transmission
use or lease of the manufacture and distribution
properties (amending thereof (amending Sec. companies, and use or
Sec. 108 of NIRC) 106 of NIRC); 12% lease of properties
VAT on importation of (amending Sec. 108 of
goods and reduced NIRC)
rates for certain
imported products
including petroleum
products (amending
Sec. 107 of NIRC);
and 12% VAT on sale
of services and use or
lease of properties and
a reduced rate for
certain services
including power
generation (amending
Sec. 108 of NIRC)
With regard to the “no pass-on” provision
No similar provision Provides that the VAT Provides that the VAT
imposed on power imposed on sales of
generation and on the electricity by generation
sale of petroleum companies and services
products shall be of transmission
absorbed by generation companies and
companies or sellers, distribution companies,
respectively, and shall as well as those of
not be passed on to franchise grantees of
consumers electric utilities shall not
apply to residential end-
users. VAT shall be
absorbed by generation,
transmission, and
distribution companies.
With regard to 70% limit on input tax credit
Provides that the input No similar provision Provides that the input
tax credit for capital tax credit for capital
goods on which a VAT goods on which a VAT
has been paid shall be has been paid shall be
equally distributed over equally distributed over
5 years or the 5 years or the
depreciable life of such depreciable life of such
capital goods; the input capital goods; the input
tax credit for goods and tax credit for goods and
services other than services other than
capital goods shall not capital goods shall not
exceed 5% of the total exceed 90% of the
amount of such goods output VAT.
and services; and for
persons engaged in
retail trading of goods,
the allowable input tax
credit shall not exceed
11% of the total amount
of goods purchased.
With regard to amendments to be made to NIRC provisions regarding income and

excise taxes
No similar provision No similar provision Provided for

amendments to several
NIRC provisions
regarding corporate
income, percentage,
franchise and excise
taxes
The disagreements between the provisions in the House bills and the Senate bill were with
regard to (1) what rate of VAT is to be imposed; (2) whether only the VAT imposed on
electricity generation, transmission and distribution companies should not be passed on to
consumers, as proposed in the Senate bill, or both the VAT imposed on electricity generation,
transmission and distribution companies and the VAT imposed on sale of petroleum products
should not be passed on to consumers, as proposed in the House bill; (3) in what manner
input tax credits should be limited; (4) and whether the NIRC provisions on corporate
income taxes, percentage, franchise and excise taxes should be amended.

There being differences and/or disagreements on the foregoing provisions of the House and
Senate bills, the Bicameral Conference Committee was mandated by the rules of both houses
of Congress to act on the same by settling said differences and/or disagreements. The
Bicameral Conference Committee acted on the disagreeing provisions by making the
following changes:
1. With regard to the disagreement on the rate of VAT to be imposed, it would appear
from the Conference Committee Report that the Bicameral Conference Committee
tried to bridge the gap in the difference between the 10% VAT rate proposed by the
Senate, and the various rates with 12% as the highest VAT rate proposed by the House,
by striking a compromise whereby the present 10% VAT rate would be retained until
certain conditions arise, i.e., the value-added tax collection as a percentage of gross
domestic product (GDP) of the previous year exceeds 2 4/5%, or National Government
deficit as a percentage of GDP of the previous year exceeds 1½%, when the President,
upon recommendation of the Secretary of Finance shall raise the rate of VAT to 12%
effective January 1, 2006.

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

3. With regard to the disagreement on whether input tax credits should be limited or not,
the Bicameral Conference Committee decided to adopt the position of the House by
putting a limitation on the amount of input tax that may be credited against the output
tax, although it crafted its own language as to the amount of the limitation on input tax
credits and the manner of computing the same by providing thus:
(A) Creditable Input Tax. – . . .

...

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

month for use in trade or business for which deduction for depreciation is
allowed under this Code, shall be spread evenly over the month of
acquisition and the fifty-nine (59) succeeding months if the aggregate
acquisition cost for such goods, excluding the VAT component thereof,
exceeds one million Pesos (P1,000,000.00): PROVIDED, however, that if
the estimated useful life of the capital good is less than five (5) years, as
used for depreciation purposes, then the input VAT shall be spread over
such shorter period: . . .
(B) Excess Output or Input Tax. – If at the end of any taxable quarter the
output tax exceeds the input tax, the excess shall be paid by the VAT-
registered person. If the input tax exceeds the output tax, the excess shall be
carried over to the succeeding quarter or quarters: PROVIDED that the
input tax inclusive of input VAT carried over from the previous quarter that
may be credited in every quarter shall not exceed seventy percent (70%) of
the output VAT: PROVIDED, HOWEVER, THAT any input tax attributable
to zero-rated sales by a VAT-registered person may at his option be
refunded or credited against other internal revenue taxes, . . .
4. With regard to the amendments to other provisions of the NIRC on corporate income
tax, franchise, percentage and excise taxes, the conference committee decided to
include such amendments and basically adopted the provisions found in Senate Bill
No. 1950, with some changes as to the rate of the tax to be imposed.
Under the provisions of both the Rules of the House of Representatives and Senate Rules,
the Bicameral Conference Committee is mandated to settle the differences between the
disagreeing provisions in the House bill and the Senate bill. The term “settle” is synonymous
to “reconcile” and “harmonize.”[25] To reconcile or harmonize disagreeing provisions, the
Bicameral Conference Committee may then (a) adopt the specific provisions of either the
House bill or Senate bill, (b) decide that neither provisions in the House bill or the provisions
in the Senate bill would be carried into the final form of the bill, and/or (c) try to arrive at a
compromise between the disagreeing provisions.

In the present case, the changes introduced by the Bicameral Conference Committee on
disagreeing provisions were meant only to reconcile and harmonize the disagreeing
provisions for it did not inject any idea or intent that is wholly foreign to the subject
embraced by the original provisions.

The so-called stand-by authority in favor of the President, whereby the rate of 10% VAT
wanted by the Senate is retained until such time that certain conditions arise when the 12%
VAT wanted by the House shall be imposed, appears to be a compromise to try to bridge the
difference in the rate of VAT proposed by the two houses of Congress. Nevertheless, such
compromise is still totally within the subject of what rate of VAT should be imposed on
taxpayers.

The no pass-on provision was deleted altogether. In the transcripts of the proceedings of the
Bicameral Conference Committee held on May 10, 2005, Sen. Ralph Recto, Chairman of the
Senate Panel, explained the reason for deleting the no pass-on provision in this wise:
. . . the thinking was just to keep the VAT law or the VAT bill simple. And we
were thinking that no sector should be a beneficiary of legislative grace, neither
should any sector be discriminated on. The VAT is an indirect tax. It is a pass on-
tax. And let’s keep it 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.[26]
(Emphasis supplied)
Rep. Teodoro Locsin further made the manifestation that the no pass-on provision “never
really enjoyed the support of either House.”[27]

With regard to the amount of input tax to be credited against output tax, the Bicameral
Conference Committee came to a compromise on the percentage rate of the limitation or cap
on such input tax credit, but again, the change introduced by the Bicameral Conference
Committee was totally within the intent of both houses to put a cap on input tax that may be
redited against the output tax. From the inception of the subject revenue bill in the House of
Representatives, one of the major objectives was to “plug a glaring loophole in the tax policy
and administration by creating vital restrictions on the claiming of input VAT tax credits . . .”
and “[b]y introducing limitations on the claiming of tax credit, we are capping a major
leakage that has placed our collection efforts at an apparent disadvantage.”[28]

As to the amendments to NIRC provisions on taxes other than the value-added tax proposed
in Senate Bill No. 1950, since said provisions were among those referred to it, the
conference committee had to act on the same and it basically adopted the version of the
Senate.

Thus, all the changes or modifications made by the Bicameral Conference Committee were
germane to subjects of the provisions referred

to it for reconciliation. Such being the case, the Court does not see any grave abuse of
discretion amounting to lack or excess of jurisdiction committed by the Bicameral
Conference Committee. In the earlier cases of Philippine Judges Association vs. Prado[29]
and Tolentino vs. Secretary of Finance,[30] the Court recognized the long-standing legislative
practice of giving said conference committee ample latitude for compromising differences
between the Senate and the House. Thus, in the Tolentino case, it was held that:
. . . it is within the power of a conference committee to include in its report an

entirely new provision that is not found either in the House bill or in the Senate
bill. If the committee can propose an amendment consisting of one or two
provisions, there is no reason why it cannot propose several provisions,
collectively considered as an “amendment in the nature of a substitute,” so long
as such amendment is germane to the subject of the bills before the committee.
After all, its report was not final but needed the approval of both houses of
Congress to become valid as an act of the legislative department. The charge
that in this case the Conference Committee acted as a third legislative
chamber is thus without any basis.[31] (Emphasis supplied)
B. R.A. No. 9337 Does Not Violate Article VI,

Section 26(2) of the Constitution on the
“No-Amendment Rule”
Article VI, Sec. 26 (2) of the Constitution, states:
No bill passed by either House shall become a law unless it has passed three
readings on separate days, and printed copies thereof in its final form have been
distributed to its Members three days before its passage, except when the
President certifies to the necessity of its immediate enactment to meet a public
calamity or emergency. Upon the last reading of a bill, no amendment thereto
shall be allowed, and the vote thereon shall be taken immediately thereafter, and
the yeas and nays entered in the Journal.
Petitioners’ argument that the practice where a bicameral conference committee is allowed to
add or delete provisions in the House bill and the Senate bill after these had passed three
readings is in effect a circumvention of the “no amendment rule” (Sec. 26 (2), Art. VI of the
1987 Constitution), fails to convince the Court to deviate from its ruling in the Tolentino case
that:
Nor is there any reason for requiring that the 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.[32] (Emphasis supplied)
The Court reiterates here that the “no-amendment rule” refers only to the procedure to
be followed by each house of Congress with regard to bills initiated in each of said
respective houses, before said bill is transmitted to the other house for its concurrence
or amendment. Verily, to construe said provision in a way as to proscribe any further
changes to a bill after one house has voted on it would lead to absurdity as this would mean
that the other house of Congress would be deprived of its constitutional power to amend or
introduce changes to said bill. Thus, Art. VI, Sec. 26 (2) of the Constitution cannot be taken
to mean that the introduction by the Bicameral Conference Committee of amendments and
modifications to disagreeing provisions in bills that have been acted upon by both houses of
Congress is prohibited.

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

Section 24 of the Constitution on Exclusive
Origination of Revenue Bills
Coming to the issue of the validity of the amendments made regarding the NIRC provisions
on corporate income taxes and percentage, excise taxes. Petitioners refer to the following
provisions, to wit:

Section 27 Rates of Income Tax on Domestic

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

The argument does not hold water.

Article VI, Section 24 of the Constitution reads:
Sec. 24. All appropriation, revenue or tariff bills, bills authorizing increase of the
public debt, bills of local application, and private bills shall originate exclusively
in the House of Representatives but the Senate may propose or concur with
amendments.
In the present cases, petitioners admit that it was indeed House Bill Nos. 3555 and 3705 that
initiated the move for amending provisions of the NIRC dealing mainly with the value-added
tax. Upon transmittal of said House bills to the Senate, the Senate came out with Senate Bill
No. 1950 proposing amendments not only to NIRC provisions on the value-added tax but
also amendments to NIRC provisions on other kinds of taxes. Is the introduction by the
Senate of provisions not dealing directly with the value- added tax, which is the only kind of
tax being amended in the House bills, still within the purview of the constitutional provision
authorizing the Senate to propose or concur with amendments to a revenue bill that
originated from the House?

The foregoing question had been squarely answered in the Tolentino case, wherein the Court
held, thus:
. . . To begin with, it is not the law – but the revenue bill – which is required by
the Constitution to “originate exclusively” in the House of Representatives. It is
important to emphasize this, because a bill originating in the House may undergo
such extensive changes in the Senate that the result may be a rewriting of the
whole. . . . At this point, what is important to note is that, as a result of the Senate
action, a distinct bill may be produced. To insist that a revenue statute – and
not only the bill which initiated the legislative process culminating in the
enactment of the law – must substantially be the same as the House bill
would be to deny the 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.

…Given, then, the power of the Senate to propose amendments, the Senate
can propose its own version even with respect to bills which are required by
the Constitution to originate in the House.
...
Indeed, what the Constitution simply means is that the initiative for filing
revenue, tariff or tax bills, bills authorizing an increase of the public debt, private
bills and bills of local application must come from the House of Representatives
on the theory that, elected as they are from the districts, the members of the
House can be expected to be more sensitive to the local needs and problems.
On the other hand, the senators, who are elected at large, are expected to
approach the same problems from the national perspective. Both views are
thereby made to bear on the enactment of such laws.[33] (Emphasis supplied)
Since there is no question that the revenue bill exclusively originated in the House of
Representatives, the Senate was acting within its constitutional power to introduce
amendments to the House bill when it included provisions in Senate Bill No. 1950 amending
corporate income taxes, percentage, excise and franchise taxes. Verily, Article VI, Section 24
of the Constitution does not contain any prohibition or limitation on the extent of the
amendments that may be introduced by the Senate to the House revenue bill.

Furthermore, the amendments introduced by the Senate to the NIRC provisions that had not
been touched in the House bills are still in furtherance of the intent of the House in initiating
the subject revenue bills. The Explanatory Note of House Bill No. 1468, the very first House
bill introduced on the floor, which was later substituted by House Bill No. 3555, stated:
One of the challenges faced by the present administration is the urgent and
daunting task of solving the 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.[34] (Emphasis supplied)
Notably therefore, the main purpose of the bills emanating from the House of
Representatives is to bring in sizeable revenues for the government to supplement our
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 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 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
others. Thus, the Senate acted within its power to propose those amendments.

SUBSTANTIVE ISSUES

I.

Whether Sections 4, 5 and 6 of R.A. No. 9337, amending Sections 106, 107 and 108 of the
NIRC, violate the following provisions of the Constitution:


A. No Undue Delegation of Legislative Power

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

SEC. 106. Value-Added Tax on Sale of Goods or Properties. –
(A) Rate and Base of Tax. – There shall be levied, assessed and
collected on every sale, barter or exchange of goods or properties, a
value-added tax equivalent to ten percent (10%) of the gross selling
price or gross value in money of the goods or properties sold, bartered

or exchanged, such tax to be paid by the seller or transferor:
provided, that the President, upon the recommendation of the
Secretary of Finance, shall, effective January 1, 2006, raise the
rate of value-added tax to twelve percent (12%), after any of the
following conditions has been satisfied.
(i) value-added tax collection as a percentage of Gross

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

previous year exceeds one and one-half percent (1 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.



read as follows:
SEC. 108. Value-added Tax on Sale of Services and Use or Lease of

Properties –

collected, a value-added tax equivalent to ten percent (10%) of gross
receipts derived from the sale or exchange of services: provided, that
added tax to twelve percent (12%), after any of the following


(Emphasis supplied)
Petitioners allege that the grant of the stand-by authority to the President to increase the VAT
rate is a virtual abdication by Congress of its exclusive power to tax because such delegation
is not within the purview of Section 28 (2), Article VI of the Constitution, which provides:
The Congress may, by law, authorize the President to fix within specified limits,
and may impose, tariff rates, import and export quotas, tonnage and wharfage
dues, and other duties or imposts within the framework of the national
development program of the government.
They argue that the VAT is a tax levied on the sale, barter or exchange of goods and
properties as well as on the sale or exchange of services, which cannot be included within
the purview of tariffs under the exempted delegation as the latter refers to customs duties,
tolls or tribute payable upon merchandise to the government and usually imposed on goods
or merchandise imported or exported.

Petitioners ABAKADA GURO Party List, et al., further contend that delegating to the
President the legislative power to tax is contrary to republicanism. They insist that
accountability, responsibility and transparency should dictate the actions of Congress and
they should not pass to the President the decision to impose taxes. They also argue that the
law also effectively nullified the 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.[37] A logical corollary to the doctrine of separation of
powers is the principle of non-delegation of powers, as expressed in the Latin maxim:
potestas delegata non delegari potest which means “what has been delegated, cannot be
delegated.”[38] This doctrine is based on the ethical principle that such as delegated power
constitutes not only a right but a duty to be performed by the delegate through the
instrumentality of his own judgment and not through the intervening mind of another.[39]
With respect to the Legislature, Section 1 of Article VI of the Constitution provides that “the
Legislative power shall be vested in the Congress of the Philippines which shall consist of a
Senate and a House of Representatives.” The powers which Congress is prohibited from
delegating are those which are strictly, or inherently and exclusively, legislative. Purely
legislative power, which can never be delegated, has been described as the authority to
make a complete law – complete as to the time when it shall take effect and as to whom
it shall be applicable – and to determine the expediency of its enactment.[40] Thus, the
rule is that in order that a court may be justified in holding a statute unconstitutional as a
delegation of legislative power, it must appear that the power involved is purely legislative in
nature – that is, one appertaining exclusively to the legislative department. It is the nature of
the power, and not the liability of its use or the manner of its exercise, which determines the
validity of its delegation.
Nonetheless, the general rule barring delegation of legislative powers is subject to the
following recognized limitations or exceptions:
(1) Delegation of tariff powers to the President under Section 28 (2) of

Article VI of the Constitution;
(2) Delegation of emergency powers to the President under Section 23 (2) of

Article VI of the Constitution;
(3) Delegation to the people at large;
(4) Delegation to local governments; and
(5) Delegation to administrative bodies.
In every case of permissible delegation, there must be a showing that the delegation itself is
valid. It is valid only if the law (a) is complete in itself, setting forth therein the policy to be
executed, carried out, or implemented by the delegate;[41] and (b) fixes a standard — the
limits of which are sufficiently determinate and determinable — to which the delegate must
conform in the performance of his functions.[42] A sufficient standard is one which defines
legislative policy, marks its limits, maps out its boundaries and specifies the public agency to
apply it. It indicates the circumstances under which the legislative command is to be
effected.[43] Both tests are intended to prevent a total transference of legislative authority to
the delegate, who is not allowed to step into the shoes of the legislature and exercise a power
essentially legislative.[44]

In People vs. Vera,[45] the Court, through eminent Justice Jose P. Laurel, expounded on the
concept and extent of delegation of power in this wise:
In testing whether a statute constitutes an undue delegation of legislative power

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

What cannot be delegated is the authority under the Constitution to make laws
and to alter and repeal them; the test is the completeness of the statute in all its
terms and provisions when it leaves the hands of the legislature. To determine
whether or not there is an undue delegation of legislative power, the inquiry must
be directed to the scope and definiteness of the measure enacted. The legislative
does not abdicate its functions when it describes what job must be done, who
is to do it, and what is the scope of his authority. For a complex economy, that
may be the only way in which the legislative process can go forward. A
distinction has rightfully been made between delegation of power to make
the laws which necessarily involves a discretion as to what it shall be, which
constitutionally may not be done, and delegation of authority or discretion as
to its execution to be exercised under and in pursuance of the law, to which
no valid objection can be made. The Constitution is thus not to be regarded
as denying the legislature the necessary resources of flexibility and
practicability. (Emphasis supplied).[48]
Clearly, the legislature may delegate to executive officers or bodies the power to determine
certain facts or conditions, or the happening of contingencies, on which the operation of a
statute is, by its terms, made to depend, but the legislature must prescribe sufficient
standards, policies or limitations on their authority.[49] While the power to tax cannot be
delegated to executive agencies, details as to the enforcement and administration of an
exercise of such power may be left to them, including the power to determine the existence
of facts on which its operation depends.[50]

The rationale for this is that the preliminary ascertainment of facts as basis for the enactment
of legislation is not of itself a legislative function, but is simply ancillary to legislation. Thus,
the duty of correlating information and making recommendations is the kind of subsidiary
activity which the legislature may perform through its members, or which it may delegate to
others to perform. Intelligent legislation on the complicated problems of modern society is
impossible in the absence of accurate information on the part of the legislators, and any
reasonable method of securing such information is proper.[51] The Constitution as a
continuously operative charter of government does not require that Congress find for itself
every fact upon which it desires to base legislative action or that it make for itself detailed
determinations which it has declared to be prerequisite to application of legislative policy to
particular facts and circumstances impossible for Congress itself properly to investigate.[52]

In the present case, the challenged section of R.A. No. 9337 is the common proviso in
Sections 4, 5 and 6 which reads as follows:
That the President, upon the recommendation of the Secretary of Finance, shall,
effective January 1, 2006, raise the rate of value-added tax to twelve percent
(12%), after any of the following conditions has been satisfied:
(i) Value-added tax collection as a percentage of Gross Domestic

Product (GDP) of the previous year exceeds two and four-fifth
percent (2 4/5%); or

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

The case before the Court is not a delegation of legislative power. It is simply a delegation of
ascertainment of facts upon which enforcement and administration of the increase rate under
the law is contingent. The legislature has made the operation of the 12% rate effective
January 1, 2006, contingent upon a specified fact or condition. It leaves the entire operation
or non-operation of the 12% rate upon factual matters outside of the control of the executive.
No discretion would be exercised by the President. Highlighting the absence of discretion is

the fact that the word shall is used in the common proviso. The use of the word shall
connotes a mandatory order. Its use in a statute denotes an imperative obligation and is
inconsistent with the idea of discretion.[53] Where the law is clear and unambiguous, it must
be taken to mean exactly what it says, and courts have no choice but to see to it that the
mandate is obeyed.[54]
Thus, it is the ministerial duty of the President to immediately impose the 12% rate upon the
existence of any of the conditions specified by Congress. This is a duty which cannot be
evaded by the President. Inasmuch as the law specifically uses the word shall, the exercise of
discretion by the President does not come into play. It is a clear directive to impose the 12%
VAT rate when the specified conditions are present. The time of taking into effect of the 12%
VAT rate is based on the happening of a certain specified contingency, or upon the
ascertainment of certain facts or conditions by a person or body other than the legislature
itself.
The Court finds no merit to the contention of petitioners ABAKADA GURO Party List, et al.
that the law effectively nullified the 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
Pimentel, et al. that the word shall should be interpreted to mean may in view of the phrase
“upon the recommendation of the Secretary of Finance.” Neither does the Court find
persuasive the submission of petitioners Escudero, et al. that any recommendation by the
Secretary of Finance can easily be brushed aside by the President since the former is a mere
alter ego of the latter.
When one speaks of the Secretary of Finance as the alter ego of the President, it simply
means that as head of the Department of Finance he is the assistant and agent of the Chief
Executive. The multifarious executive and administrative functions of the Chief Executive
are performed by and through the executive departments, and the acts of the secretaries of
such departments, such as the Department of Finance, performed and promulgated in the
regular course of business, are, unless disapproved or reprobated by the Chief Executive,
presumptively the acts of the Chief Executive. The Secretary of Finance, as such, occupies a
political position and holds office in an advisory capacity, and, in the language of Thomas
Jefferson, "should be of the President's bosom confidence" and, in the language of Attorney-
General Cushing, is “subject to the direction of the President."[55]
In the present case, in making his recommendation to the President on the existence of either
of the two conditions, the Secretary of Finance is not acting as the alter ego of the President
or even her subordinate. In such instance, he is not subject to the power of control and
direction of the President. He is acting as the agent of the legislative department, to
determine and declare the event upon which its expressed will is to take effect.[56] The
Secretary of Finance becomes the means or tool by which legislative policy is determined
and implemented, considering that he possesses all the facilities to gather data and
information and has a much broader perspective to properly evaluate them. His function is to
gather and collate statistical data and other pertinent information and verify if any of the two
conditions laid out by Congress is present. His personality in such instance is in reality but a
projection of that of Congress. Thus, being the agent of Congress and not of the President,
the President cannot alter or modify or nullify, or set aside the findings of the Secretary of
Finance and to substitute the judgment of the former for that of the latter.
Congress simply granted the Secretary of Finance the authority to ascertain the existence of a
fact, namely, whether by December 31, 2005, the value-added tax collection as a percentage
of Gross Domestic Product (GDP) of the previous year exceeds two and four-fifth percent
(24/5%) or the national government deficit as a percentage of GDP of the previous year
exceeds one and one-half percent (1½%). If either of these two instances has occurred, the
Secretary of Finance, by legislative mandate, must submit such information to the President.
Then the 12% VAT rate must be imposed by the President effective January 1, 2006. There
is no undue delegation of legislative power but only of the discretion as to the execution
of a law. This is constitutionally permissible.[57] Congress does not abdicate its functions
or unduly delegate power when it describes what job must be done, who must do it, and what
is the scope of his authority; in our complex economy that is frequently the only way in
which the legislative process can go forward.[58]
As to the argument of petitioners ABAKADA GURO Party List, et al. that delegating to the
President the legislative power to tax is contrary to the principle of republicanism, the same
deserves scant consideration. Congress did not delegate the power to tax but the mere
implementation of the law. The intent and will to increase the VAT rate to 12% came from
Congress and the task of the President is to simply execute the legislative policy. That
Congress chose to do so in such a manner is not within the province of the Court to inquire
into, its task being to interpret the law.[59]
The insinuation by petitioners Pimentel, et al. that the President has ample powers to cause,
influence or create the conditions to bring about either or both the conditions precedent does
not deserve any merit as this argument is highly speculative. The Court does not rule on
allegations which are manifestly conjectural, as these may not exist at all. The Court deals
with facts, not fancies; on realities, not appearances. When the Court acts on appearances
instead of realities, justice and law will be short-lived.
B. The 12% Increase VAT Rate Does Not

Impose an Unfair and Unnecessary
Additional Tax Burden
Petitioners Pimentel, et al. argue that the 12% increase in the VAT rate imposes an unfair and
additional tax burden on the people. Petitioners also argue that the 12% increase, dependent
on any of the 2 conditions set forth in the contested provisions, is ambiguous because it does
not state if the VAT rate would be returned to the original 10% if the rates are no longer
satisfied. Petitioners also argue that such rate is unfair and unreasonable, as the people are
unsure of the applicable VAT rate from year to year.
Under the common provisos of Sections 4, 5 and 6 of R.A. No. 9337, if any of the two
conditions set forth therein are satisfied, the President shall increase the VAT rate to 12%.
The provisions of the law are clear. It does not provide for a return to the 10% rate nor does
it empower the President to so revert if, after the rate is increased to 12%, the VAT collection
goes below the 24/5 of the GDP of the previous year or that the national government deficit
as a percentage of GDP of the previous year does not exceed 1½%.
Therefore, no statutory construction or interpretation is needed. Neither can conditions or

limitations be introduced where none is provided for. Rewriting the law is a forbidden
ground that only Congress may tread upon.[60]
Thus, in the absence of any provision providing for a return to the 10% rate, which in this
case the Court finds none, petitioners’ argument is, at best, purely speculative. There is no
basis for petitioners’ fear of a fluctuating VAT rate because the law itself does not provide
that the rate should go back to 10% if the conditions provided in Sections 4, 5 and 6 are no
longer present. The rule is that where the provision of the law is clear and unambiguous, so
that there is no occasion for the court's seeking the legislative intent, the law must be taken
as it is, devoid of judicial addition or subtraction.[61]
Petitioners also contend that the increase in the VAT rate, which was allegedly an incentive
to the President to raise the VAT collection to at least 2 4/5 of the GDP of the previous year,
should be based on fiscal adequacy.
Petitioners obviously overlooked that increase in VAT collection is not the only condition.
There is another condition, i.e., the national government deficit as a percentage of GDP of
the previous year exceeds one and one-half percent (1 ½%).
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:
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.

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,
whether, in short, the legislative discretion within its prescribed limits should be
exercised in a particular manner are matters for the judgment of the legislature,
and the serious conflict of opinions does not suffice to bring them within the
range of judicial cognizance.[66]
In the same vein, the Court in this case will not dawdle on the purpose of Congress or the
executive policy, given that it is not for the judiciary to "pass upon questions of wisdom,
justice or expediency of legislation.”[67]

II.

Whether Section 8 of R.A. No. 9337, amending Sections 110(A)(2) and 110(B) of the NIRC;
and Section 12 of R.A. No. 9337, amending Section 114(C) of the NIRC, violate the
following provisions of the Constitution:


b. Article III, Section 1
A. Due Process and Equal Protection Clauses

Petitioners Association of Pilipinas Shell Dealers, Inc., et al. argue that Section 8 of R.A.
No. 9337, amending Sections 110 (A)(2), 110 (B), and Section 12 of R.A. No. 9337,
amending Section 114 (C) of the NIRC are arbitrary, oppressive, excessive and confiscatory.
Their argument is premised on the constitutional right against deprivation of life, liberty of
property without due process of law, as embodied in Article III, Section 1 of the
Constitution.

Petitioners also contend that these provisions violate the constitutional guarantee of equal
protection of the law.

The doctrine is that where the due process and equal protection clauses are invoked,
considering that they are not fixed rules but rather broad standards, there is a need for proof
of such persuasive character as would lead to such a conclusion. Absent such a showing, the
presumption of validity must prevail.[68]

Section 8 of R.A. No. 9337, amending Section 110(B) of the NIRC imposes a limitation on
the amount of input tax that may be credited against the output tax. It states, in part:
“[P]rovided, that the input tax inclusive of the input VAT carried over from the previous
quarter that may be credited in every quarter shall not exceed seventy percent (70%) of the
output VAT: …”

Input Tax is defined under Section 110(A) of the NIRC, as amended, as the value-added tax
due from or paid by a VAT-registered person on the importation of goods or local purchase of
good and services, including lease or use of property, in the course of trade or business, from
a VAT-registered person, and Output Tax is the value-added tax due on the sale or lease of
taxable goods or properties or services by any person registered or required to register under
the law.
Petitioners claim that the contested sections impose limitations on the amount of input tax
that may be claimed. In effect, a portion of the input tax that has already been paid cannot
now be credited against the output tax.
Petitioners’ argument is not absolute. It assumes that the input tax exceeds 70% of the output
tax, and therefore, the input tax in excess of 70% remains uncredited. However, to the extent
that the input tax is less than 70% of the output tax, then 100% of such input tax is still
creditable.
More importantly, the excess input tax, if any, is retained in a 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 quarter or quarters.” In addition, Section 112(B) allows a
VAT-registered person to apply for the issuance of a tax credit certificate or refund for any
unused input taxes, to the extent that such input taxes have not been applied against the
output taxes. Such unused input tax may be used in payment of his other internal revenue
taxes.
The non-application of the unutilized input tax in a given quarter is not ad infinitum, as
petitioners exaggeratedly contend. Their analysis of the effect of the 70% limitation is
incomplete and one-sided. It ends at the net effect that there will be unapplied/unutilized
inputs VAT for a given quarter. It does not proceed further to the fact that such
unapplied/unutilized input tax may be credited in the subsequent periods as allowed by the
carry-over provision of Section 110(B) or that it may later on be refunded through a tax
credit certificate under Section 112(B).
Therefore, petitioners’ argument must be rejected.
On the other hand, it appears that petitioner Garcia failed to comprehend the operation of the
70% limitation on the input tax. According to petitioner, the limitation on the creditable
input tax in effect allows VAT-registered establishments to retain a portion of the taxes they
collect, which violates the principle that tax collection and revenue should be for public
purposes and expenditures
As earlier stated, the input tax is the tax paid by a person, passed on to him by the seller,
when he buys goods. Output tax meanwhile is the tax due to the person when he sells goods.
In computing the VAT payable, three possible scenarios may arise:
First, if at the end of a taxable quarter the output taxes charged by the seller are equal to the
input taxes that he paid and passed on by the suppliers, then no payment is required;
Second, when the output taxes exceed the input taxes, the person shall be liable for the
excess, which has to be paid to the Bureau of Internal Revenue (BIR);[69] and
Third, if the input taxes exceed the output taxes, the excess shall be carried over to the
succeeding quarter or quarters. Should the input taxes result from zero-rated or effectively
zero-rated transactions, any excess over the output taxes shall instead be refunded to the
taxpayer or credited against other internal revenue taxes, at the 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 him by a seller can
only be credited up to 70% of the value-added taxes that is due to him on a taxable
transaction. There is no retention of any tax collection because the person/taxpayer has
already previously paid the input tax to a seller, and the seller will subsequently remit such
input tax to the BIR. The party directly liable for the payment of the tax is the seller.[71]
What only needs to be done is for the person/taxpayer to apply or credit these input taxes, as
evidenced by receipts, against his output taxes.
Petitioners Association of Pilipinas Shell Dealers, Inc., et al. also argue that the input tax
partakes the nature of a property that may not be confiscated, appropriated, or limited
without due process of law.
The input tax is not a property or a property right within the constitutional purview of the
due process clause. A VAT-registered 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.[72]
Under the previous system of single-stage taxation, taxes paid at every level of distribution
are not recoverable from the taxes payable, although it becomes part of the cost, which is
deductible from the gross revenue. When Pres. Aquino issued E.O. No. 273 imposing a 10%
multi-stage tax on all sales, it was then that the crediting of the input tax paid on purchase or
importation of goods and services by VAT-registered persons against the output tax was
introduced.[73] This was adopted by the Expanded VAT Law (R.A. No. 7716),[74] and The
Tax Reform Act of 1997 (R.A. No. 8424).[75] The right to credit input tax as against the
output tax is clearly a privilege created by law, a privilege that also the law can remove, or in
this case, limit.
Petitioners also contest as arbitrary, oppressive, excessive and confiscatory, Section 8 of

R.A. No. 9337, amending Section 110(A) of the NIRC, which provides:
SEC. 110. Tax Credits. –

(A) Creditable Input Tax. – …

Provided, That the input tax on goods purchased or imported in a calendar month
for use in trade or business for which deduction for depreciation is allowed under
this Code, shall be spread evenly over the month of acquisition and the fifty-nine
(59) succeeding months if the aggregate acquisition cost for such goods,
excluding the VAT component thereof, exceeds One million pesos
(P1,000,000.00): Provided, however, That if the estimated useful life of the

capital goods is less than five (5) years, as used for depreciation purposes, then
the input VAT shall be spread over such a shorter period: Provided, finally, That
in the case of purchase of services, lease or use of properties, the input tax shall
be creditable to the purchaser, lessee or license upon payment of the
compensation, rental, royalty or fee.
The foregoing section imposes a 60-month period within which to amortize the creditable
input tax on purchase or importation of capital goods with acquisition cost of P1 Million
pesos, exclusive of the VAT component. Such spread out only poses a delay in the crediting
of the input tax. Petitioners’ argument is without basis because the taxpayer is not
permanently deprived of his privilege to credit the input tax.

It is worth mentioning that Congress admitted that the spread-out of the creditable input tax
in this case amounts to a 4-year interest-free loan to the government.[76] In the same breath,
Congress also justified its move by saying that the provision was designed to raise an annual
revenue of 22.6 billion.[77] The legislature also dispelled the fear that the provision will fend
off foreign investments, saying that foreign investors have other tax incentives provided by
law, and citing the case of China, where despite a 17.5% non-creditable VAT, foreign
investments were not deterred.[78] Again, for whatever is the purpose of the 60-month
amortization, this involves executive economic policy and legislative wisdom in which the
Court cannot intervene.

With regard to the 5% creditable withholding tax imposed on payments made by the
government for taxable transactions, Section 12 of R.A. No. 9337, which amended Section
114 of the NIRC, reads:
SEC. 114. Return and Payment of Value-added Tax. –

(C) Withholding of Value-added Tax. – The Government or any of its political

subdivisions, instrumentalities or agencies, including government-owned or
controlled corporations (GOCCs) shall, before making payment on account of
each purchase of goods and services which are subject to the value-added tax
imposed in Sections 106 and 108 of this Code, deduct and withhold a final value-
added tax at the rate of five percent (5%) of the gross payment thereof: Provided,
That the payment for lease or use of properties or property rights to nonresident
owners shall be subject to ten percent (10%) withholding tax at the time of
payment. For purposes of this Section, the payor or person in control of the
payment shall be considered as the withholding agent.

The value-added tax withheld under this Section shall be remitted within ten (10)
days following the end of the month the withholding was made.
Section 114(C) merely provides a method of collection, or as stated by respondents, a more

simplified VAT withholding system. The government in this case is constituted as a
withholding agent with respect to their payments for goods and services.

Prior to its amendment, Section 114(C) provided for different rates of value-added taxes to
be withheld -- 3% on gross payments for purchases of goods; 6% on gross payments for
services supplied by contractors other than by public works contractors; 8.5% on gross
payments for services supplied by public work contractors; or 10% on payment for the lease
or use of properties or property rights to nonresident owners. Under the present Section
114(C), these different rates, except for the 10% on lease or property rights payment to
nonresidents, were deleted, and a uniform rate of 5% is applied.
The Court observes, however, that the law the used the word final. In tax usage, final, as
opposed to creditable, means full. Thus, it is provided in Section 114(C): “final value-added
tax at the rate of five percent (5%).”
In Revenue Regulations No. 02-98, implementing R.A. No. 8424 (The Tax Reform Act of
1997), the concept of final withholding tax on income was explained, to wit:
SECTION 2.57. Withholding of Tax at Source

(A) Final Withholding Tax. – Under the final withholding tax system the amount
of income tax withheld by the withholding agent is constituted as full and final
payment of the income tax due from the payee on the said income. The liability
for payment of the tax rests primarily on the payor as a withholding agent. Thus,
in case of his failure to withhold the tax or in case of underwithholding, the
deficiency tax shall be collected from the payor/withholding agent. …

(B) Creditable Withholding Tax. – Under the creditable withholding tax system,
taxes withheld on certain income payments are intended to equal or at least
approximate the tax due of the payee on said income. … Taxes withheld on
income payments covered by the expanded withholding tax (referred to in Sec.
2.57.2 of these regulations) and compensation income (referred to in Sec. 2.78
also of these regulations) are creditable in nature.
As applied to value-added tax, this means that taxable transactions with the government are
subject to a 5% rate, which constitutes as full payment of the tax payable on the transaction.
This represents the net VAT payable of the seller. The other 5% effectively accounts for the
standard input VAT (deemed input VAT), in lieu of the actual input VAT directly or
attributable to the taxable transaction.[79]

The Court need not explore the rationale behind the provision. It is clear that Congress
intended to treat differently taxable transactions with the government.[80] This is supported
by the fact that under the old provision, the 5% tax withheld by the government remains
creditable against the tax liability of the seller or contractor, to wit:
SEC. 114. Return and Payment of Value-added Tax. –

(C) Withholding of Creditable Value-added Tax. – The Government or any of

its political subdivisions, instrumentalities or agencies, including government-
owned or controlled corporations (GOCCs) shall, before making payment on
account of each purchase of goods from sellers and services rendered by
contractors which are subject to the value-added tax imposed in Sections 106 and
108 of this Code, deduct and withhold the value-added tax due at the rate of three
percent (3%) of the gross payment for the purchase of goods and six percent (6%)
on gross receipts for services rendered by contractors on every sale or installment
payment which shall be creditable against the value-added tax liability of the
seller or contractor: Provided, however, That in the case of government public
works contractors, the withholding rate shall be eight and one-half percent
(8.5%): Provided, further, That the payment for lease or use of properties or
property rights to nonresident owners shall be subject to ten percent (10%)

withholding tax at the time of payment. For this purpose, the payor or person in
control of the payment shall be considered as the withholding agent.
The valued-added tax withheld under this Section shall be remitted within ten
(10) days following the end of the month the withholding was made. (Emphasis
supplied)
As amended, the use of the word final and the deletion of the word creditable exhibits
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 the cost. Equally, should the actual input tax be less than 5%, the
difference is treated as income.[81]

Petitioners also argue that by imposing a limitation on the creditable input tax, the
government gets to tax a profit or value-added even if there is no profit or value-added.

Petitioners’ stance is purely hypothetical, argumentative, and again, one-sided. The Court
will not engage in a legal joust where premises are what ifs, arguments, theoretical and facts,
uncertain. Any disquisition by the Court on this point will only be, as Shakespeare describes
life in Macbeth,[82] “full of sound and fury, signifying nothing.”

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 clear showing of unreasonableness,
discrimination, or arbitrariness.[84]

Petitioners point out that the limitation on the creditable input tax if the entity has a high
ratio of input tax, or invests in capital equipment, or has several transactions with the
government, is not based on real and substantial differences to meet a valid classification.

The argument is pedantic, if not outright baseless. The law does not make any classification
in the subject of taxation, the kind of property, the rates to be levied or the amounts to be
raised, the methods of assessment, valuation and collection. Petitioners’ alleged distinctions
are based on variables that bear different consequences. While the implementation of the law
may yield varying end results depending on 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.[85]
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 score, suffice it to say that these
are still proposed legislations. Until Congress amends the law, and absent any unequivocal
basis for its unconstitutionality, the 70% limitation stays.
B. Uniformity and Equitability of Taxation
Article VI, Section 28(1) of the Constitution reads:
The rule of taxation shall be uniform and equitable. The Congress shall evolve a
progressive system of taxation.
Uniformity in taxation means that all taxable articles or kinds of property of the same class
shall be taxed at the same rate. Different articles may be taxed at different amounts provided
that the rate is uniform on the same class everywhere with all people at all times.[86]

In this case, the tax law is uniform as it provides a standard rate of 0% or 10% (or 12%) on
all goods and services. Sections 4, 5 and 6 of R.A. No. 9337, amending Sections 106, 107
and 108, respectively, of the NIRC, provide for a rate of 10% (or 12%) on sale of goods and
properties, importation of goods, and sale of services and use or lease of properties. These
same sections also provide for a 0% rate on certain sales and transaction.

Neither does the law make any distinction as to the type of industry or trade that will bear the
70% limitation on the creditable input tax, 5-year amortization of input tax paid on purchase
of capital goods or the 5% final withholding tax by the government. It must be stressed that
the rule of uniform taxation does not deprive Congress of the power to classify subjects of
taxation, and only demands uniformity within the particular class.[87]

R.A. No. 9337 is also equitable. The law is equipped with a threshold margin. The VAT rate
of 0% or 10% (or 12%) does not apply to sales of goods or services with gross annual sales
or receipts not exceeding P1,500,000.00.[88] Also, basic marine and agricultural food
products in their original state are still not subject to the tax,[89] thus ensuring that prices at
the grassroots level will remain accessible. As was stated in Kapatiran ng mga Naglilingkod
sa Pamahalaan ng Pilipinas, Inc. vs. Tan:[90]
The disputed sales tax is also equitable. It is imposed only on sales of goods or
services by persons engaged in business with an aggregate gross annual sales
exceeding P200,000.00. Small corner sari-sari stores are consequently exempt
from its application. Likewise exempt from the tax are sales of farm and marine
products, so that the costs of basic food and other necessities, spared as they are
from the incidence of the VAT, are expected to be relatively lower and within the
reach of the general public.
It is admitted that R.A. No. 9337 puts a premium on businesses with low profit margins, and
unduly favors those with high profit margins. Congress was not oblivious to this. Thus, to
equalize the weighty burden the law entails, the law, under Section 116, imposed a 3%
percentage tax on VAT-exempt persons under Section 109(v), i.e., transactions with gross
annual sales and/or receipts not exceeding P1.5 Million. This acts as a equalizer because in
effect, bigger businesses that qualify for VAT coverage and VAT-exempt taxpayers stand on
equal-footing.

Moreover, Congress provided mitigating measures to cushion the impact of the imposition of
the tax on those previously exempt. Excise taxes on petroleum products[91] and natural
gas[92] were reduced. Percentage tax on domestic carriers was removed.[93] Power producers
are now exempt from paying franchise tax.[94]

Aside from these, Congress also increased the income tax rates of corporations, in order to
distribute the burden of taxation. Domestic, foreign, and non-resident corporations are now
subject to a 35% income tax rate, from a previous 32%.[95] Intercorporate dividends of non-
resident foreign corporations are still subject to 15% final withholding tax but the tax credit
allowed on the corporation’s domicile was increased to 20%.[96] The Philippine Amusement
and Gaming Corporation (PAGCOR) is not exempt from income taxes anymore.[97] Even
the sale by an artist of his works or services performed for the production of such works was
not spared.

All these were designed to ease, as well as spread out, the burden of taxation, which would
otherwise rest largely on the consumers. It cannot therefore be gainsaid that R.A. No. 9337 is
equitable.

C. Progressivity of Taxation

Lastly, petitioners contend that the limitation on the creditable input tax is anything but
regressive. It is the smaller business with higher input tax-output tax ratio that will suffer the
consequences.

Progressive taxation is built on the principle of the taxpayer’s ability 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.[98]
The VAT is an antithesis of progressive taxation. By its very nature, it is regressive. The
principle of progressive taxation has no relation with the VAT system inasmuch as the VAT
paid by the consumer or business for every goods bought or services enjoyed is the same
regardless of income. In other words, the VAT paid eats the same portion of an income,
whether big or small. The disparity lies in the income earned by a person or profit margin
marked by a business, such that the higher the income or profit margin, the smaller the
portion of the income or profit that is eaten by VAT. A converso, the lower the income or
profit margin, the bigger the part that the VAT eats away. At the end of the day, it is really the
lower income group or businesses with low-profit margins that is always hardest hit.
Nevertheless, the Constitution does not really prohibit the imposition of indirect taxes, like
the VAT. What it simply provides is that Congress shall "evolve a progressive system of
taxation." The Court stated in the Tolentino case, thus:
The Constitution does not really prohibit the imposition of indirect taxes which,
like the VAT, are regressive. What it simply provides is that Congress shall
‘evolve a progressive system of taxation.’ The constitutional provision has been
interpreted to mean simply that ‘direct taxes are . . . to be preferred [and] as much
as possible, indirect taxes should be minimized.’ (E. FERNANDO, THE
CONSTITUTION OF THE PHILIPPINES 221 (Second ed. 1977)) Indeed, the
mandate to Congress is not to prescribe, but to evolve, a progressive tax system.
Otherwise, sales taxes, which perhaps are the oldest form of indirect taxes, would
have been prohibited with the proclamation of Art. VIII, §17 (1) of the 1973
Constitution from which the present Art. VI, §28 (1) was taken. Sales taxes are
also regressive.

Resort to indirect taxes should be minimized but not avoided entirely because it
is difficult, if not impossible, to avoid them by imposing such taxes according to
the taxpayers' ability to pay. In the case of the VAT, the law minimizes the
regressive effects of this imposition by providing for zero rating of certain
transactions (R.A. No. 7716, §3, amending §102 (b) of the NIRC), while granting
exemptions to other transactions. (R.A. No. 7716, §4 amending §103 of the
NIRC)[99]
CONCLUSION

It has been said that taxes are the lifeblood of the government. In this case, it is just an
enema, a first-aid measure to resuscitate an economy in distress. The Court is neither blind
nor is it turning a deaf ear on the plight of the masses. But it does not have the panacea for
the malady that the law seeks to remedy. As in other cases, the Court cannot strike down a
law as unconstitutional simply because of its yokes.
Let us not be overly influenced by the plea that for every wrong there is a
remedy, and that the judiciary should stand ready to afford relief. There are
undoubtedly many wrongs the judicature may not correct, for instance, those
involving political questions. . . .

Let us likewise disabuse our minds from the notion that the judiciary is the
repository of remedies for all political or social ills; We should not forget that the
Constitution has judiciously allocated the powers of government to three distinct
and separate compartments; and that judicial interpretation has tended to the
preservation of the independence of the three, and a zealous regard of the

prerogatives of each, knowing full well that one is not the guardian of the others
and that, for official wrong-doing, each may be brought to account, either by
impeachment, trial or by the ballot box.[100]
The words of the Court in Vera vs. Avelino[101] holds true then, as it still holds true now. All
things considered, there is no raison d'être for the unconstitutionality of R.A. No. 9337.

WHEREFORE, Republic Act No. 9337 not being unconstitutional, the petitions in G.R. Nos.
168056, 168207, 168461, 168463, and 168730, are hereby DISMISSED.

There being no constitutional impediment to the full enforcement and implementation of

R.A. No. 9337, the temporary restraining order issued by the Court on July 1, 2005 is
LIFTED upon finality of herein decision.

SO ORDERED.

Carpio, J. concur.

Davide, Jr., C.J., Please see Separate Concurring and Dissenting Opinion.
Puno, J., Pls. see Concurring and Dissenting Opinion.
Panganiban, J., Please see Separate Opinion.
Quisumbing, J., in the result.
Ynares-Santiago, J., on leave. I certify that she participated in the oral arguments and initial
deliberation and allowed to vote and submit her separate opinion.
Sandoval-Gutierrez, J., Pls. see my Concurring & Dissenting Opinion.
Corona, J., I join Mme. Justice Gutierrez in her concurring and dissenting
opinion.
Carpio-Morales, J., I concur. I also concur with the dessent of J. Tinga on Section
8 of the
law.

Sr., J., Please see my Concurring and Dessent Opinion.
Callejo,
Azcuna, J., Pls. see Separate concurring & dessenting opinion.
Tinga, J., See dissenting & concurring opinion.
Chico-Nazario,J., Please see separate concurring

opinion.
Garcia, J., I also concur with J. Puno in so far as the
deletion of no pass provision is
concerned including sec. 21.

[1]Entitled “An Act Amending Sections 27, 28, 34, 106, 107, 108, 109, 110, 111, 112, 113,
114, 116, 117, 119, 121, 148, 151, 236, 237, and 288 of the National Internal Revenue Code
of 1997, As Amended and For Other Purposes.”

[2]Entitled, “An Act Restructuring the Value-Added Tax, Amending for the Purpose
Sections 106, 107, 108, 110 and 114 of the National Internal Revenue Code of 1997, As
Amended, and For Other Purposes.”

[3]Entitled, “An Act Amending Sections 106, 107, 108, 109, 110 and 111 of the National
Internal Revenue Code of 1997, As Amended, and For Other Purposes.”

[4]Entitled, “An Act Amending Sections 27, 28, 34, 106, 108, 109, 110, 112, 113, 114, 116,
117, 119, 121, 125, 148, 151, 236, 237 and 288 of the National Internal Revenue Code of
1997, As Amended, and For Other Purposes.”
[5] Section 26, R.A. No. 9337.
[6] TSN, July 14, 2005.
[7]Section 125 of the National Internal Revenue Code, as amended, was not amended by
R.A. No. 9337, as can be gleaned from the title and body of the law.
[8] Section 105, National Internal Revenue of the Philippines, as amended.
[9] Ibid.
[10]Deoferio, Jr., V.A. and Mamalateo, V.C., The Value Added Tax in the Philippines (First
Edition 2000).
[11] Maceda vs. Macaraig, Jr., G.R. No. 88291, May 31, 1991, 197 SCRA 771.
[12] Maceda vs. Macaraig, Jr., G.R. No. 88291, June 8, 1993, 223 SCRA, 217.
[13] Id., Deoferio, Jr., V.A. and Mamalateo, V.C., The Value Added Tax in the Philippines
(First Edition 2000).
[14] Commissioner of Internal Revenue vs. Seagate, G.R. No. 153866, February 11, 2005.
[15]
Kapatiran ng mga Naglilingkod sa Pamahalaan ng Pilipinas, Inc. vs. Tan, G.R. Nos. L-
81311, L-81820, L-81921, L-82152, June 30, 1988, 163 SCRA 371.
[16]Entitled, “An Act Restructuring the Value-Added Tax (VAT) System, Widening its Tax
Base and Enhancing its Administration, And for these Purposes Amending and Repealing
the Relevant Provisions of the National Internal Revenue Code, as amended, and for other
Purposes.”
[17]
Entitled, “An Act Amending Republic Act No. 7716, otherwise known as the Value-
Added Tax Law and Other Pertinent Provisions of the National Internal Revenue Code, as
Amended.”
[18]Entitled, “An Act Amending the National Internal Revenue Code, as Amended, and for
other Purposes.”
[19] Story, Commentaries 835 (1833).
[20] G.R. No. 147387, December 10, 2003, 417 SCRA 503.
[21] Id., pp. 529-530.
[22] Supra., Note 20.
[23] G.R. No. 115455, August 25, 1994, 235 SCRA 630.
[24] Id., p. 670.
[25] Wester’s Third New International Dictionary, p. 1897.
[26]TSN, Bicameral Conference Committee on the Disagreeing Provisions of Senate Bill

No. 1950 and House Bill Nos. 3705 and 3555, May 10, 2005, p. 4.
[27] Id., p. 3.
[28]
Sponsorship Speech of Representative Teves, in behalf of Representative Jesli Lapus,
TSN, January 7, 2005, pp. 34-35.
[29] G.R. No. 105371, November 11, 1993, 227 SCRA 703.
[30] Supra, Note 23.
[31] Id., p. 668.
[32] Id., p. 671.
[33] Id., pp. 661-663.
[34] Transcript of Session Proceedings, January 7, 2005, pp. 19-20.
[35] Journal of the Senate, Session No. 67, March 7, 2005, pp. 727-728.
[36] Id., p. 726.
[37] See Angara vs. Electoral Commission, No. 45081, July 15, 1936, 63 Phil. 139, 156.
[38]Defensor-Santiago vs. Commission on Elections, G.R. No. 127325, March 19, 1997, 270
SCRA 106, 153; People vs. Rosenthal, Nos. 46076 & 46077, June 12, 1939, 68 Phil. 328;
ISAGANI A. CRUZ, Philippine Political Law 86 (1996). Judge Cooley enunciates the
doctrine in the following oft-quoted language: "One of the settled maxims in constitutional
law is, that the power conferred upon the legislature to make laws cannot be delegated by
that department to any other body or authority. Where the sovereign power of the state has
located the authority, there it must remain; and by the constitutional agency alone the laws
must be made until the Constitution itself is changed. The power to whose judgment,
wisdom, and patriotism this high prerogative has been intrusted cannot relieve itself of
the responsibility by choosing other agencies upon which the power shall be devolved,
nor can it substitute the judgment, wisdom, and patriotism of any other body for those
to which alone the people have seen fit to confide this sovereign trust." (Cooley on
Constitutional Limitations, 8th ed., Vol. I, p. 224)
[39] United States vs. Barrias, No. 4349, September 24, 1908, 11 Phil. 327, 330.
[40] 16 Am Jur 2d, Constitutional Law, § 337.
[41]Pelaez vs. Auditor General, No. L-23825, December 24, 1965, 122 Phil. 965, 974 citing
Calalang vs. Williams, No. 47800, December 2, 1940, 70 Phil. 726; Pangasinan Transp. Co.
vs. Public Service Commission, No. 47065, June 26, 1940, 70 Phil. 221; Cruz vs.
Youngberg, No. 34674, October 26, 1931, 56 Phil. 234; Alegre vs. Collector of Customs,
No. 30783, August 27, 1929, 53 Phil. 394 et seq.
[42]Pelaez vs. Auditor General, supra, citing People vs. Lim Ho, No. L-12091-2, January 28,
1960, 106 Phil. 887; People vs. Jolliffee, No. L-9553, May 13, 1959, 105 Phil 677; People
vs. Vera, No. 45685, November 16, 1937, 65 Phil. 56; U.S. vs. Nag Tang Ho, No. L-17122,
February 27, 1922, 43 Phil. 1; Compañia General de Tabacos vs. Board of Public Utility, No.
11216, March 6, 1916, 34 Phil. 136 et seq.
[43] Edu vs. Ericta, No. L-32096, October 24, 1970, 35 SCRA 481, 497.
[44]
Eastern Shipping Lines, Inc. vs. POEA, No. L-76633, October 18, 1988, 166 SCRA 533,
543-544.
[45] No. 45685, November 16, 1937, 65 Phil. 56.
[46] Id., pp. 115-120.
[47] Supra, note 43.
[48] Id., pp. 496-497.
[49] 16 C.J.S., Constitutional Law, § 138.
[50] Ibid.
[51] 16 Am Jur 2d, Constitutional Law § 340.
[52] Yajus vs. United States, 321 US 414, 88 L Ed 834, 64 S Ct. 660, 28 Ohio Ops 220.
[53]Province of Batangas vs. Romulo, G.R. No. 152774, May 27, 2004; Enriquez vs. Court
of Appeals, G.R. No. 140473, January 28, 2003, 396 SCRA 377; Codoy vs. Calugay, G.R.
No. 123486, August 12, 1999, 312 SCRA 333.
[54]Province of Batangas vs. Romulo, supra; Quisumbing vs. Meralco, G.R. No. 142943,
April 3, 2002, 380 SCRA 195; Agpalo, Statutory Construction, 1990 ed., p. 45.
[55] Villena vs. Secretary of Interior, No. 46570, April 21, 1939, 67 Phil 451, 463-464.
[56]Alunan vs. Mirasol, G.R. No. 108399, July 31, 1997, 276 SCRA 501, 513-514, citing
Panama Refining Co. vs. Ryan, 293 U.S. 388, 79 L.Ed. 469 (1935).
[57] Compañia General de Tabacos de Filipinas vs. The Board of Public Utility
Commissioners, No. 11216, 34 Phil. 136; Cruz vs. Youngberg, No. 34674, October 26, 1931,
56 Phil. 234; People vs. Vera, No. 45685, November 16, 1937, 65 Phil. 56, 113; Edu vs.
Ericta, No. L-32096, October 24, 1970, 35 SCRA 481; Tatad vs. Secretary of the Department
of Energy, G.R. No. 124360, November 5, 1997, 281 SCRA 330; Alunan vs. Mirasol, supra.
[58] Bowles vs. Willinghan, 321 US 503, 88 l Ed 892, 64 S Ct 641, 28 Ohio Ops 180.
[59]United Residents of Dominican Hill, Inc. vs. Commission on the Settlement of Land
Problems, G.R. No. 135945, March 7, 2001, 353 SCRA 782; Commissioner of Internal
Revenue vs. Santos, G.R. No. 119252, August 18, 1997, 277 SCRA 617, 630.
[60]Commission on Internal Revenue vs. American Express International, Inc. (Philippine

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

No. 1950 and House Bill Nos. 3705 and 3555, April 25, 2005, pp. 5-6.
[66] G.R. No. 147387, December 10, 2003, 417 SCRA 503, 524.
[67]National Housing Authority vs. Reyes, G.R. No. L-49439, June 29, 1983, 123 SCRA
245, 249.
[68] Sison vs. Ancheta, G.R. No. L-59431, July 25, 1984, 130 SCRA 654, 661.
[69] Section 8, R.A. No. 9337, amending Section 110(A)(B),NIRC.
[70] Ibid.
[71]Commissioner of Internal Revenue vs. Benguet Corp., G.R. Nos. 134587 & 134588, July
8, 2005.
[72]
United Paracale Mining Co. vs. Dela Rosa, G.R. Nos. 63786-87, April 7, 1993, 221
SCRA 108, 115.
[73] E.O. No. 273, Section 1.
[74] Section 5.
[75] Section 110(B).
[76] Journal of the Senate, Session No. 71, March 15, 2005, p. 803.
[77] Id., Session No. 67, March 7, 2005, p. 726.
[78] Id., Session No. 71, March 15, 2005, p. 803.
[79] Revenue Regulations No. 14-2005, 4.114-2(a).
[80] Commissioner of Internal Revenue vs. Philam, G.R. No. 141658, March 18, 2005.
[81] Revenue Regulations No. 14-2005, Sec. 4. 114-2.
[82] Act V, Scene V.
[83]Philippine Rural Electric Cooperatives Association, Inc. vs. DILG, G.R. No. 143076,
June 10, 2003, 403 SCRA 558, 565.
[84] Aban, Benjamin, Law of Basic Taxation in the Philippines (First Edition 1994).
[85] Philippine Judges Association case, supra., note 29.
[86]
Commissioner of Internal Revenue vs. Court of Appeals, G.R. No. 119761, August 29,
1996, 261 SCRA 236, 249.
[87] Kee vs. Court of Tax Appeals, No. L-18080, April 22, 1963, 117 Phil 682, 688.
[88] Section 7, R.A. No. 9337.
[89] Ibid.
[90] No. L-81311, June 30, 1988, 163 SCRA 371, 383.
[91] Section 17, R.A. No. 9337, amending Section 148, NIRC.
[92] Section 18, amending Section 151, NIRC.

[95] Sections 1 and 2, amending Sections 27 and 28, NIRC.
[97] Section 1, amending Section 27(C), NIRC.
[98] Reyes vs. Almanzor, G.R. Nos. 49839-46, April 26, 1991, 196 SCRA 322, 327.
[99]Tolentino vs. Secretary of Finance, G.R. No. 115455, October 30, 1995, 249 SCRA 628,
659.
[100] Vera vs. Avelino, G.R. No. L-543, August 31, 1946, 77 Phil. 365.
[101] Ibid.
RESOLUTION

The Court, by a majority vote and per the Decision written by Justice Ma. Alicia Austria-
Martinez, DISMISSED all the Petitions and upheld the constitutionality of Republic Act No.
9337 in its entirety. However, the following Justices dissented and voted to declare specific
provisions of the law unconstitutional per their Separate Opinions, as follows:

1. Sections 1, 2 and 3 – Chief Justice Davide, Jr. and Justices Panganiban, Sandoval-
Gutierrez, Corona, and Azcuna.

2. Sections 4, 5, 6 and 7 – Justices Sandoval-Gutierrez and Corona;

3. Section 8 – Justices Tinga and Carpio Morales;

4. Section 10 and 11 – Justices Sandoval-Gutierrez and Corona;

5. Section 12 – Justices Sandoval-Gutierrez, Corona, and Tinga;

6. Section 13 – Justices Sandoval-Gutierrez and Corona,

7. Sections 14, 15, 16, 17 and 18 – Chief Justice Davide, Jr. and Justices Sandoval-
Gutierrez and Corona;

8. Sections 19 and 20 – Justices Sandoval Gutierrez and Corona; and

9. Section 21 – Justices Puno, Ynares-Santiago, Sandoval-Gutierrez, Corona, Callejo, Sr.,

Tinga, and Garcia.

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

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

While I still hold on to my position expressed in my dissenting opinion in the first VAT
cases,[1] I partly yield to the application to the cases at bar of the rule on “germaneness”
therein enunciated. Thus, I concur with the ponencia of my highly-esteemed colleague Mme.
Justice Ma. Alicia Austria-Martinez except as regards its ruling on the issue of whether
Republic Act No. 9337 violates Section 24, Article VI of the Constitution.

R.A. No. 9337 primarily aims to restructure the value-added tax (VAT) system by
broadening its base and raising the rate so as to generate more revenues for the government
that can assuage the economic predicament that our country is now facing. This recently
enacted law stemmed from three legislative bills: House Bill (HB) No. 3555, HB No. 3705,
and Senate Bill (SB) 1950. The first (HB No. 3555) called for the amendment of Sections
106, 107, 108, 109, 110, and 111 of the National Internal Revenue Code (NIRC) as amended;
while the second (HB No. 3705) proposed amendments to Sections 106, 107, 108, 110, and
114 of the NIRC, as amended. It is significant to note that all these Sections specifically deal
with VAT. And indubitably, these bills are revenue bills in that they are intended to levy
taxes and raise funds for the government.[2]

On the other hand, SB No. 1950 introduced amendments to “Sections 27, 28, 34, 106, 108,
109, 110, 111, 112, 113, 114, 116, 117, 118, 119, 125, 148, 236, 237, and 288” of the NIRC,
as amended. Among the provisions sought to be amended, only Sections 106, 108, 109, 110,
111, 112, 113, 114, and 116 pertain to VAT. And while Sections 236, 237, and 288 are
administrative provisions pertaining to registration requirements and issuance of receipts
commercial invoices, the proposed amendments thereto are related to VAT. Hence, the
proposed amendments to these Sections were validly taken cognizance of and properly
considered by the Bicameral Conference Committee (BCC).

However, I am of the opinion that the inclusion into the law of the amendments proposed in
SB No. 1950 to the following provisions (with modifications on the rates of taxes) is invalid.

Provision Subject matter

Section 27 Rate of income tax on domestic corporations
Section 28(A)(1) Rate of income tax on resident foreign
corporation
Section 28(B)(1) Rate of income tax on non-resident foreign
corporation
Section 28(B)(5-b) Rate of income tax on intra-corporate
dividends received by non-resident foreign
corporation
Section 34(B)(1) Deductions from gross income

Section 117 Percentage tax on domestic carriers and
keepers of garages
Section 119 Tax on franchises
Section 148 Excise tax on manufactured oils and other
fuels
Obviously, these provisions do not deal with VAT. It must be noted that the House Bills
initiated amendments to provisions pertaining to VAT only. Doubtless, the Senate has the
constitutional power to concur with the amendments to the VAT provisions introduced in the
House Bills or even to propose its own version of VAT measure. But that power does not
extend to initiation of other tax measures, such as introducing amendments to provisions on
corporate income taxes, percentage taxes, franchise taxes, and excise taxes like what the
Senate did in these cases. It was beyond the ambit of the authority of the Senate to propose
amendments to provisions not covered by the House Bills or not related to the subject matter
of the House Bills, which is VAT. To allow the Senate to do so would be tantamount to
vesting in it the power to initiate revenue bills -- a power that exclusively pertains to the
House of Representatives under Section 24, Article VI of the Constitution, which provides:

Sec. 24. All appropriation, revenue or tariff bills, bills authorizing increase of the
public debt, bills of local application, and private bills shall originate exclusively
in the House of Representatives but the Senate may propose or concur with
amendments.

Moreover, Sections 121 (Percentage Tax on Banks and Non-Bank Financial Intermediaries)
and 151 (Excise Tax on Mineral Products) of the NIRC, as amended, have been included by
the BCC in R.A. N0. 9337 even though they were not found in the Senate and House Bills.

In Philippine Judges Association v. Prado,[3] the Court described the function of a

conference committee in this wise: “A conference committee may deal generally with the
subject matter or it may be limited to resolving the precise differences between the two
houses. Even where the conference committee is not by rule limited in its jurisdiction,
legislative custom severely limits the freedom with which new subject matter can be
inserted into the conference bill.”

The limitation on the power of a conference committee to insert new provisions was laid
down in Tolentino v. Secretary of Finance.[4] There, the Court, while recognizing the power
of a conference committee to include in its report an entirely new provision that is not found
either in the House bill or in the Senate bill, held that the exercise of that power is subject to
the condition that the said provision is “germane to the subject of the House and Senate
bills.”

As pointed out by the petitioners, Tolentino differs from the present cases in the sense that in
that case the amendments introduced in the Senate bill were on the same subject matter
treated in the House bill, which was VAT, and the new provision inserted by the conference
committee had relation to that subject matter. Specifically, HB No. 11197 called for the (1)
amendment of Sections 99,100,102,103,104,105,106,107, 108, 110, 112,115, 116, 236,237,
and 238 of the NIRC, as amended; and (2) repeal of Sections 113 and 114 of the NIRC, as
amended. SB No. 1630, on the other hand, proposed the (1) amendment of Sections
99,100,102,103,104,105,107, 108, 110, 112, 236, 237, and 238 of the NIRC, as amended;
and (2) repeal of Sections 113, 114, and 116 of the NIRC, as amended. In short, all the
provisions sought to be changed in the Senate bill were covered in the House bill. Although
the new provisions inserted by the conference committee were not found in either the House
or Senate bills, they were germane to the general subject of the bills.
In the present cases, the provisions inserted by the BCC, namely, Sections 121 (Percentage
Tax on Banks and Non-Bank Financial Intermediaries) and 151 (Excise Tax on Mineral
Products) of the NIRC, as amended, are undoubtedly germane to SB No. 1950, which
introduced amendments to the provisions on percentage and excise taxes -- but foreign to HB
Nos. 3555 and 3705, which dealt with VAT only. Since the proposed amendments in the
Senate bill relating to percentage and excise taxes cannot themselves be sustained because
they did not take their root from, or are not related to the subject of, HB Nos. 3705 and 3555,
in violation of Section 24, Article VI of the Constitution, the new provisions inserted by the
BCC on percentage and excise taxes would have no leg to stand on.
I understand very well that the amendments of the Senate and the BCC relating to corporate
income, percentage, franchise, and excise taxes were designed to “soften the impact of VAT
measure on the consumer, i.e., by distributing the burden across all sectors instead of putting
it entirely on the shoulders of the consumers” and to alleviate the 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, 3, 14, 15, 16,
17, and 18 thereof which, respectively, amend Sections 27, 28, 34, 117, 119, 121, 148, and
151 of the NIRC, as amended because these amendments deal with subject matters which
were not touched or covered by the bills emanating from the House of Representatives,
thereby violating Section 24 of Article VI of the Constitution.
[1]
Tolentino v. Secretary of Finance, G.R. No. 115455, 25 August 1994, 235 SCRA 630, and
companion cases.

[2]SAGANI A. CRUZ, POLITICAL LAW 154 (2002 ed.) citing U.S. v. Nortorn, 91 U.S.
566.

[3]G.R. No. 105371, 11 November 1993, 27 SCRA 703, 708, citing Davies, Legislative Law
and Process: In a Nutshell 81 (1986 ed.)

[4] Supra note 1.

CONCURRING AND
DISSENTING OPINION

PUNO, J.:
The main opinion of Madam Justice Martinez exhaustively discusses the numerous
constitutional and legal issues raised by the petitioners. Be that as it may, I wish to raise the
following points, viz:
First. Petitioners assail sections 4 to 6 of Republic Act No. 9337 as violative of the principle
of non-delegation of legislative power. These sections authorize the President, upon
recommendation of the Secretary of Finance, to raise the value-added tax (VAT) rate to 12%
effective January 1, 2006, upon satisfaction of the following conditions: viz:



exceeds one and one-half percent (1 ½%)

The power of judicial review under Article VIII, section 5(2) of the 1987 Constitution is
limited to the review of "actual cases and controversies."[1] As rightly stressed by retired
Justice Vicente V. Mendoza, this requirement gives the judiciary "the opportunity, denied to
the legislature, of seeing the actual operation of the statute as it is applied to actual facts and
thus enables it to reach sounder judgment" and "enhances public acceptance of its role in our
system of government."[2] It also assures that the judiciary does not intrude on areas
committed to the other branches of government and is confined to its role as defined by the
Constitution.[3] Apposite thereto is the doctrine of ripeness whose basic rationale is "to
prevent the courts, through premature adjudication, from entangling themselves in abstract
disagreements."[4] Central to the doctrine is the determination of "whether the case involves
uncertain or contingent future events that may not occur as anticipated, or indeed may not
occur at all."[5] The ripeness requirement must be satisfied for each challenged legal
provision and parts of a statute so that those which are "not immediately involved are not
thereby thrown open for a judicial determination of constitutionality."[6]

It is manifest that the constitutional challenge to sections 4 to 6 of R.A. No. 9337 cannot
hurdle the requirement of ripeness. These sections give the President the power to raise
the VAT rate to 12% on January 1, 2006 upon satisfaction of certain fact-based
conditions. We are not endowed with the infallible gift of prophesy to know whether these
conditions are certain to happen. The power to adjust the tax rate given to the President is
futuristic and may or may not be exercised. The Court is therefore beseeched to render a
conjectural judgment based on hypothetical facts. Such a supplication has to be rejected.

Second. With due respect, I submit that the most important constitutional issue posed by the
petitions at bar relates to the parameters of power of a Bicameral Conference Committee.
Most of the issues in the petitions at bar arose because the Bicameral Conference Committee
concerned exercised powers that went beyond reconciling the differences between Senate
Bill No. 1950 and House Bill Nos. 3705 and 3555. In Tolentino v. Secretary of Finance,[7]
I ventured the view that a Bicameral Conference Committee has limited powers and cannot
be allowed to act as if it were a "third house" of Congress. I further warned that unless its
roving powers are reigned in, a Bicameral Conference Committee can wreck the lawmaking
process which is a cornerstone of the democratic, republican regime established in our

Constitution. The passage of time fortifies my faith that there ought to be no legal u-turn on
this preeminent principle. I wish, therefore, to reiterate my reasons for this unbending view,
viz:[8]
Section 209, Rule XII of the Rules of the Senate provides:

In the event that the Senate does not agree with the House of
Representatives on the provision of any bill or joint resolution, the
differences shall be settled by a conference committee of both Houses
which shall meet within ten days after their composition.

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.

x x x. Each report shall contain a detailed, sufficiently explicit

statement of the changes in or amendments to the subject measure.
(Emphasis supplied)

The Jefferson's Manual has been adopted as a supplement to our parliamentary

rules and practice. Section 456 of Jefferson's Manual similarly confines the
powers of a conference committee, viz:

The managers of a conference must confine themselves to the

differences committed to them ... and may not include subjects not
within the disagreements, even though germane to a question in issue.

This rule of antiquity has been honed and honored in practice by the Congress of
the United States. Thus, it is chronicled by Floyd Biddick, Parliamentarian
Emeritus of the United States Senate, viz:

Committees of conference are appointed for the sole purpose of

compromising and adjusting the differing and conflicting opinions of
the two Houses and the committees of conference alone can grant
compromises and modify propositions of either Houses within the
limits of the disagreement. Conferees are limited to the consideration
of differences between the two Houses.

Congress shall not insert in their report matters not committed to

them by either House, nor shall they strike from the bill matters
agreed to by both Houses. No matter on which there is nothing in
either the Senate or House passed versions of a bill may be included
in the conference report and actions to the contrary would subject the
report to a point of order. (Emphasis ours)
In fine, there is neither a sound nor a syllable in the Rules of the Senate and the
House of Representatives to support the thesis of the respondents that a bicameral
conference committee is clothed with an ex post veto power.

But the thesis that a Bicameral Conference Committee can wield ex post veto
power does not only contravene the rules of both the Senate and the House. It
wages war against our settled ideals of representative democracy. For the
inevitable, catastrophic effect of the thesis is to install a Bicameral Conference
Committee as the Third Chamber of our Congress, similarly vested with the
power to make laws but with the dissimilarity that its laws are not the subject of a
free and full discussion of both Houses of Congress. With such a vagrant power,
a Bicameral Conference Committee acting as a Third Chamber will be a
constitutional monstrosity.

It needs no omniscience to perceive that our Constitution did not provide for a
Congress composed of three chambers. On the contrary, section 1, Article VI of
the Constitution provides in clear and certain language: "The legislative power
shall be vested in the Congress of the Philippines which shall consist of a Senate
and a House of Representatives ..." Note that in vesting legislative power
exclusively to the Senate and the House, the Constitution used the word "shall."
Its command for a Congress of two houses is mandatory. It is not mandatory
sometimes.

In vesting legislative power to the Senate, the Constitution means the Senate "...
composed of twenty-four Senators xxx elected at large by the qualified voters of
the Philippines ..." Similarly, when the Constitution vested the legislative power
to the House, it means the House "... composed of not more than two hundred and
fifty members xxx who shall be elected from legislative districts xxx and those
who xxx shall be elected through a party-list system of registered national,
regional, and sectoral parties or organizations." The Constitution thus, did not
vest on a Bicameral Conference Committee with an ad hoc membership the
power to legislate for it exclusively vested legislative power to the Senate and the
House as co-equal bodies. To be sure, the Constitution does not mention the
Bicameral Conference Committees of Congress. No constitutional status is
accorded to them. They are not even statutory creations. They owe their existence
from the internal rules of the two Houses of Congress. Yet, respondents peddle
the disconcerting idea that they should be recognized as a Third Chamber of
Congress and with ex post veto power at that.

The thesis that a Bicameral Conference Committee can exercise law making
power with ex post veto power is freighted with mischief. Law making is a power
that can be used for good or for ill, hence, our Constitution carefully laid out a
plan and a procedure for its exercise. Firstly, it vouchsafed that the power to
make laws should be exercised by no other body except the Senate and the
House. It ought to be indubitable that what is contemplated is the Senate acting as
a full Senate and the House acting as a full House. It is only when the Senate and
the House act as whole bodies that they truly represent the people. And it is only
when they represent the people that they can legitimately pass laws. Laws that are
not enacted by the people's rightful representatives subvert the people's
sovereignty. Bicameral Conference Committees, with their ad hoc character and

limited membership, cannot pass laws for they do not represent the people. The
Constitution does not allow the tyranny of the majority. Yet, the respondents will
impose the worst kind of tyranny - the tyranny of the minority over the majority.
Secondly, the Constitution delineated in deft strokes the steps to be followed in
making laws. The overriding purpose of these procedural rules is to assure that
only bills that successfully survive the searching scrutiny of the proper
committees of Congress and the full and unfettered deliberations of both Houses
can become laws. For this reason, a bill has to undergo three (3) mandatory
separate readings in each House. In the case at bench, the additions and deletions
made by the Bicameral Conference Committee did not enjoy the enlightened
studies of appropriate committees. It is meet to note that the complexities of
modern day legislations have made our committee system a significant part of the
legislative process. Thomas Reed called the committee system as "the eye, the
ear, the hand, and very often the brain of the house." President Woodrow Wilson
of the United States once referred to the government of the United States as "a
government by the Chairmen of the Standing Committees of Congress ..."
Neither did these additions and deletions of the Bicameral Conference Committee
pass through the coils of collective deliberation of the members of the two
Houses acting separately. Due to this shortcircuiting of the constitutional
procedure of making laws, confusion shrouds the enactment of R.A. No. 7716.
Who inserted the additions and deletions remains a mystery. Why they were
inserted is a riddle. To use a Churchillian phrase, lawmaking should not be a
riddle wrapped in an enigma. It cannot be, for Article II, section 28 of the
Constitution mandates the State to adopt and implement a "policy of full public
disclosure of all its transactions involving public interest." The Constitution could
not have contemplated a Congress of invisible and unaccountable John and Mary
Does. A law whose rationale is a riddle and whose authorship is obscure cannot
bind the people.
All these notwithstanding, respondents resort to the legal cosmetology that these
additions and deletions should govern the people as laws because the Bicameral
Conference Committee Report was anyway submitted to and approved by the
Senate and the House of Representatives. The submission may have some merit
with respect to provisions agreed upon by the Committee in the process of
reconciling conflicts between S.B. No. 1630 and H.B. No. 11197. In these
instances, the conflicting provisions had been previously screened by the proper
committees, deliberated upon by both Houses and approved by them. It is,
however, a different matter with respect to additions and deletions which were
entirely new and which were made not to reconcile inconsistencies between S.B.
No. 1630 and H.B. No. 11197. The members of the Bicameral Conference
Committee did not have any authority to add new provisions or delete provisions
already approved by both Houses as it was not necessary to discharge their
limited task of reconciling differences in bills. At that late stage of law making,
the Conference Committee cannot add/delete provisions which can become laws
without undergoing the study and deliberation of both chambers given to bills on
1st, 2nd, and 3rd readings. Even the Senate and the House cannot enact a law
which will not undergo these mandatory three (3) readings required by the
Constitution. If the Senate and the House cannot enact such a law, neither can the
lesser Bicameral Conference Committee.
Moreover, the so-called choice given to the members of both Houses to either
approve or disapprove the said additions and deletions is more of an optical

illusion. These additions and deletions are not submitted separately for approval.
They are tucked to the entire bill. The vote is on the bill as a package, i.e.,
together with the insertions and deletions. And the vote is either "aye" or "nay,"
without any further debate and deliberation. Quite often, legislators vote "yes"
because they approve of the bill as a whole although they may object to its
amendments by the Conference Committee. This lack of real choice is well
observed by Robert Luce:
Their power lies chiefly in the fact that reports of conference

committees must be accepted without amendment or else rejected in
toto. The impulse is to get done with the matter and so the motion to
accept has undue advantage, for some members are sure to prefer
swallowing unpalatable provisions rather than prolong controversy.
This is the more likely if the report comes in the rush of business
toward the end of a session, when to seek further conference might
result in the loss of the measure altogether. At any time in the session
there is some risk of such a result following the rejection of a
conference report, for it may not be possible to secure a second
conference, or delay may give opposition to the main proposal chance
to develop more strength.

In a similar vein, Prof. Jack Davies commented that "conference reports are
returned to assembly and Senate on a take-it or leave-it-basis, and the bodies are
generally placed in the position that to leave-it is a practical impossibility." Thus,
he concludes that "conference committee action is the most undemocratic
procedure in the legislative process."

The respondents also contend that the additions and deletions made by the
Bicameral Conference Committee were in accord with legislative customs and
usages. The argument does not persuade for it misappreciates the value of
customs and usages in the hierarchy of sources of legislative rules of procedure.
To be sure, every legislative assembly has the inherent right to promulgate its
own internal rules. In our jurisdiction, Article VI, section 16(3) of the
Constitution provides that "Each House may determine the rules of its
proceedings x x x." But it is hornbook law that the sources of Rules of Procedure
are many and hierarchical in character. Mason laid them down as follows:

xxx
1. Rules of Procedure are derived from several sources. The

principal sources are as follows:

a. Constitutional rules.

b. Statutory rules or charter provisions.

c. Adopted rules.
d. Judicial decisions.

e. Adopted parliamentary authority.

f. Parliamentary law.
g. Customs and usages.
2. The rules from the different sources take precedence in the order
listed above except that judicial decisions, since they are
interpretations of rules from one of the other sources, take the
same precedence as the source interpreted. Thus, for example,
an interpretation of a constitutional provision takes precedence
over a statute.
3. Whenever there is conflict between rules from these sources the

rule from the source listed earlier prevails over the rule from the
source listed later. Thus, where the Constitution requires three
readings of bills, this provision controls over any provision of
statute, adopted rules, adopted manual, or of parliamentary law,
and a rule of parliamentary law controls over a local usage but
must give way to any rule from a higher source of authority.
(Emphasis ours)
As discussed above, the unauthorized additions and deletions made by the

Bicameral Conference Committee violated the procedure fixed by the
Constitution in the making of laws. It is reasonless for respondents therefore to
justify these insertions as sanctioned by customs and usages.

Finally, respondents seek sanctuary in the conclusiveness of an enrolled bill to

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

xxx

Where the failure of constitutional compliance in the enactment of

statutes is not discoverable from the face of the act itself but may be
demonstrated by recourse to the legislative journals, debates,
committee reports or papers of the governor, courts have used several
conflicting theories with which to dispose of the issue. They have
held: (1) that the enrolled bill is conclusive and like the sheriff's return
cannot be attacked; (2) that the enrolled bill is prima facie correct and
only in case the legislative journal shows affirmative contradiction of
the constitutional requirement will the bill be held invalid; (3) that
although the enrolled bill is prima facie correct, evidence from the
journals, or other extrinsic sources is admissible to strike the bill
down; (4) that the legislative journal is conclusive and the enrolled
bills is valid only if it accords with the recital in the journal and the
constitutional procedure.

Various jurisdictions have adopted these alternative approaches in view of strong

dissent and dissatisfaction against the philosophical underpinnings of the
conclusiveness of an enrolled bill. Prof. Sutherland further observed:

x x x. Numerous reasons have been given for this rule. Traditionally,

an enrolled bill was "a record" and as such was not subject to attack at
common law. Likewise, the rule of conclusiveness was similar to the
common law rule of the inviolability of the sheriff's return. Indeed,
they had the same origin, that is, the sheriff was an officer of the king
and likewise the parliamentary act was a regal act and no official
might dispute the king's word. Transposed to our democratic system
of government, courts held that as the legislature was an official
branch of government the court must indulge every presumption that
the legislative act was valid. The doctrine of separation of powers was
advanced as a strong reason why the court should treat the acts of a
co-ordinate branch of government with the same respect as it treats
the action of its own officers; indeed, it was thought that it was
entitled to even greater respect, else the court might be in the position
of reviewing the work of a supposedly equal branch of government.
When these arguments failed, as they frequently did, the doctrine of
convenience was advanced, that is, that it was not only an undue
burden upon the legislature to preserve its records to meet the attack
of persons not affected by the procedure of enactment, but also that it
unnecessarily complicated litigation and confused the trial of
substantive issues.
Although many of these arguments are persuasive and are indeed the
basis for the rule in many states today, they are not invulnerable to
attack. The rule most relied on – the sheriff's return or sworn official
rule – did not in civil litigation deprive the injured party of an action,
for always he could sue the sheriff upon his official bond. Likewise,
although collateral attack was not permitted, direct attack permitted
raising the issue of fraud, and at a later date attack in equity was also
available; and that the evidence of the sheriff was not of unusual
weight was demonstrated by the fact that in an action against the
sheriff no presumption of its authenticity prevailed.
The argument that the enrolled bill is a "record" and therefore

unimpeachable is likewise misleading, for the correction of records is
a matter of established judicial procedure. Apparently, the justification
is either the historical one that the king's word could not be questioned
or the separation of powers principle that one branch of the
government must treat as valid the acts of another.
Persuasive as these arguments are, the tendency today is to avoid

reaching results by artificial presumptions and thus it would seem
desirable to insist that the enrolled bill stand or fall on the basis of the
relevant evidence which may be submitted for or against it. (Emphasis
ours)
Thus, as far back as the 1940s, Prof. Sutherland confirmed that "x x x the
tendency seems to be toward the abandonment of the conclusive presumption
rule and the adoption of the third rule leaving only a prima facie presumption of
validity which may be attacked by any authoritative source of information.

Third. I respectfully submit that it is only by strictly following the contours of powers of a
Bicameral Conference Committee, as delineated by the rules of the House and the Senate,
that we can prevent said Committee from acting as a "third" chamber of Congress. Under
the clear rules of both the Senate and House, its power can go no further than settling
differences in their bills or joint resolutions. Sections 88 and 89, Rule XIV of the Rules of
the House of Representatives provide as follows:
Sec. 88. Conference Committee. - In the event that the House does not agree with
the Senate on the amendment to any bill or joint resolution, the differences may

such fact to the House for the latter's appropriate action.

Sec. 89. Conference Committee Reports. - . . . Each report shall contain a

detailed, sufficiently explicit statement of the changes in or amendments to the
subject measure.

...


Conference Committee Report in the same manner and procedure as it votes a

Section 35, Rule XII of the Rules of the Senate states:

the Senate.


separately.

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

Under both rules, it is obvious that a Bicameral Conference Committee is a mere agent of
the House or the Senate with limited powers. The House contingent in the Committee
cannot, on its own, settle differences which are substantial in character. If it is
confronted with substantial differences, it has to go back to the chamber that created it "for
the latter's appropriate action." In other words, it must take the proper instructions from
the chambers that created it. It cannot exercise its unbridled discretion. Where there is no
difference between the bills, it cannot make any change. Where the difference is
substantial, it has to return to the chamber of its origin and ask for appropriate instructions.
It ought to be indubitable that it cannot create a new law, i.e., that which has never been
discussed in either chamber of Congress. Its parameters of power are not porous, for they
are hedged by the clear limitation that its only power is to settle differences in bills and joint
resolutions of the two chambers of Congress.
Fourth. Prescinding from these premises, I respectfully submit that the following acts of the
Bicameral Conference Committee constitute grave abuse of discretion amounting to lack or
excess of jurisdiction and should be struck down as unconstitutional nullities, viz:
a. Its deletion of the pro poor "no pass on provision" which is common in both Senate Bill
No. 1950 and House Bill No. 3705.
Sec. 1 of House Bill No. 3705[9] provides:
Section 106 of the National Internal Revenue Code of 1997, as amended, is

hereby further amended to read as follows:

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

xxx

Provided, further, that notwithstanding the provision of the second paragraph of

Section 105 of this Code, the Value-added Tax herein levied on the sale of
petroleum products under Subparagraph (1) hereof shall be paid and absorbed by
the sellers of petroleum products who shall be prohibited from passing on the
cost of such tax payments, either directly or indirectly[,] to any consumer in
whatever form or manner, it being the express intent of this act that the Value-
added Tax shall be borne and absorbed exclusively by the sellers of petroleum
products x x x.

Sec. 3 of the same House bill provides:

Section 108 of the National Internal Revenue Code of 1997, as amended, is

hereby further amended to read as follows:

Sec. 108. Value-added Tax on Sale of Goods or Properties. –

Provided, further, that notwithstanding the provision of the second paragraph of

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

x x x Provided, that the VAT on sales of electricity by generation companies, and

services of transmission companies and distribution companies, as well as those
of franchise grantees of electrical utilities shall not apply to residential end-users:
Provided, that the Value-added Tax herein levied shall be absorbed and paid by
the generation, transmission and distribution companies concerned. The said
companies shall not pass on such tax payments to NAPOCOR or ultimately
to the consumers, including but not limited to residential end users, either as
costs or in any other form whatsoever, directly or indirectly. x x x.

Even the faintest eye contact with the above provisions will reveal that: (a) both the House
bill and the Senate bill prohibited the passing on to consumers of the VAT on sales of
electricity and (b) the House bill prohibited the passing on to consumers of the VAT on sales
of petroleum products while the Senate bill is silent on the prohibition.

In the guise of reconciling disagreeing provisions of the House and the Senate bills on the
matter, the Bicameral Conference Committee deleted the "no pass on provision" on
both the sales of electricity and petroleum products. This action by the Committee is not
warranted by the rules of either the Senate or the House. As aforediscussed, the only power
of a Bicameral Conference Committee is to reconcile disagreeing provisions in the bills or
joint resolutions of the two houses of Congress. The House and the Senate bills both
prohibited the passing on to consumers of the VAT on sales of electricity. The Bicameral
Conference Committee cannot override this unequivocal decision of the Senate and the
House. Nor is it clear that there is a conflict between the House and Senate versions on the
"no pass on provisions" of the VAT on sales of petroleum products. The House version
contained a "no pass on provision" but the Senate had none. Elementary logic will tell us
that while there may be a difference in the two versions, it does not necessarily mean
that there is a disagreement or conflict between the Senate and the House. The silence
of the Senate on the issue cannot be interpreted as an outright opposition to the House
decision prohibiting the passing on of the VAT to the consumers on sales of petroleum
products. Silence can even be conformity, albeit implicit in nature. But granting for the
nonce that there is conflict between the two versions, the conflict cannot escape the
characterization as a substantial difference. The seismic consequence of the deletion of the
"no pass on provision" of the VAT on sales of petroleum products on the ability of our
consumers, especially on the roofless and the shirtless of our society, to survive the
onslaught of spiraling prices ought to be beyond quibble. The rules require that the
Bicameral Conference Committee should not, on its own, act on this substantial conflict. It
has to seek guidance from the chamber that created it. It must receive proper instructions
from its principal, for it is the law of nature that no spring can rise higher than its source. The
records of both the Senate and the House do not reveal that this step was taken by the
members of the Bicameral Conference Committee. They bypassed their principal and ran
riot with the exercise of powers that the rules never bestowed on them.

b. Even more constitutionally obnoxious are the added restrictions on local government's
use of incremental revenue from the VAT in Section 21 of R.A. No. 9337 which were not
present in the Senate or House Bills. Section 21 of R.A. No. 9337 provides:

Fifty percent of the local government unit's share from VAT shall be allocated
and used exclusively for the following purposes:

1. Fifteen percent (15%) for public elementary and secondary

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

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

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

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

treasury and shall be over and above the annual appropriation for similar
purposes.

These amendments did not harmonize conflicting provisions between the constituent bills
of R.A. No. 9337 but are entirely new and extraneous concepts which fall beyond the
median thereof. They transgress the limits of the Bicameral Conference Committee's
authority and must be struck down.

I cannot therefore subscribe to the thesis of the majority that "the changes introduced by the
Bicameral Conference Committee on disagreeing provisions were meant only to reconcile
and harmonize the disagreeing provisions for it did not inject any idea or intent that is
wholly foreign to the subject embraced by the original provisions."

Fifth. The majority further defends the constitutionality of the above provisions by holding
that "all the changes or modifications were germane to subjects of the provisions referred to
it for reconciliation."

With due respect, it is high time to re-examine the test of germaneness proffered in
Tolentino.

The test of germaneness is overly broad and is the fountainhead of mischief for it allows
the Bicameral Conference Committee to change provisions in the bills of the House and the
Senate when they are not even in disagreement. Worse still, it enables the Committee to
introduce amendments which are entirely new and have not previously passed through the
coils of scrutiny of the members of both houses. The Constitution did not establish a
Bicameral Conference Committee that can act as a "third house" of Congress with super
veto power over bills passed by the Senate and the House. We cannot concede that super
veto power without wrecking the delicate architecture of legislative power so carefully laid
down in our Constitution. The clear intent of our fundamental law is to install a lawmaking
structure composed only of two houses whose members would thoroughly debate
proposed legislations in representation of the will of their respective constituents. The
institution of this lawmaking structure is unmistakable from the following provisions: (1)
requiring that legislative power shall be vested in a bicameral legislature;[10] (2) providing
for quorum requirements;[11] (3) requiring that appropriation, revenue or tariff bills, bills
authorizing increase of public debt, bills of local application, and private bills originate
exclusively in the House of Representatives;[12] (4) requiring

that bills embrace one subject expressed in the title thereof;[13] and (5) mandating that bills
undergo three readings on separate days in each House prior to passage into law and
prohibiting amendments on the last reading thereof.[14] A Bicameral Conference Committee
with untrammeled powers will destroy this lawmaking structure. At the very least, it will
diminish the free and open debate of proposed legislations and facilitate the smuggling of
what purports to be laws.
On this point, Mr. Robert Luce's disconcerting observations are apropos:
"Their power lies chiefly in the fact that reports of conference committees must
be accepted without amendment or else rejected in toto. The impulse is to get
done with the matters and so the motion to accept has undue advantage, for
some members are sure to prefer swallowing unpalatable provisions rather
than prolong controversy. This is more likely if the report comes in the rush of
business toward the end of the session, when to seek further conference might
result in the loss of the measure altogether. At any time in the session there is
some risk of such a result following the rejection of a conference report, for it
may not be possible to secure a second conference, or delay may give opposition
to the main proposal chance to develop more strength.

xxx xxx xxx

Entangled in a network of rule and custom, the Representative who resents and
would resist this theft of his rights, finds himself helpless. Rarely can be vote,
rarely can he voice his mind, in the matter of any fraction of the bill. Usually he
cannot even record himself as protesting against some one feature while
accepting the measure as whole. Worst of all, he cannot by argument or suggested
change, try to improve what the other branch has done.

This means more than the subversion of individual rights. It means to a degree
the abandonment of whatever advantage the bicameral system may have. By
so much it in effect transfers the lawmaking power to small group of
members who work out in private a decision that almost always prevails.
What is worse, these men are not chosen in a way to ensure the wisest choice. It
has become the practice to name as conferees the ranking members of the
committee, so that the accident of seniority determines. Exceptions are made, but
in general it is not a question of who are most competent to serve. Chance
governs, sometimes giving way to favor, rarely to merit.

xxx xxx xxx

Speaking broadly, the system of legislating by conference committee is

unscientific and therefore defective. Usually it forfeits the benefit of scrutiny
and judgment by all the wisdom available. Uncontrolled, it is inferior to that
process by which every amendment is secured independent discussion and
vote. . . ."[15]

It cannot be overemphasized that in a republican form of government, laws can only be

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

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

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

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

[2]Mendoza, Judicial Review of Constitutional Questions: Cases and Materials, p. 86

(2004).

[3] Id. at 87.

[4]
Abbott Laboratories v. Gardner, 387 U.S. 136 (1967); I Tribe, American Constitutional
Law, p. 334 (3rd ed.).

[5] Texas v. United States, 523 U.S. 296 (1998); Thomas v. Union Carbide Agricultural
Products Co., 473 U.S. 568 (1985); I Tribe, American Constitutional Law, pp. 335-336 (3rd
ed.).
[6]Communist Party of the United States v. Subversive Activities Control Bd., 367 U.S. 1,
71 (1961); I Tribe, American Constitutional Law, p. 336 (3rd ed.); See also concurring
opinion of Justice Brandeis in Ashwander v. Tennessee Valley Authority, 297 U.S. 288
(1936).
[7] 235 SCRA 630 (1994).
[8] See Opinion in 235 SCRA 630, 805-825.
[9] H.B. No. 3555 has no "no pass on provision." House Bill No. 3705 expresses the latest
intent of the House on the matter.
[10] 1 Sutherland Statutory Construction § 6:2 (6th ed.): The provision requiring that
legislative power shall be vested in a bicameral legislature seeks to "assure sound judgment
that comes from separate deliberations and actions in the respective bodies that check and
balance each other."
[11] Const.,Article VI, Section 16(2) (1987): "(2) A majority of each House shall constitute a
quorum to do business, but a smaller number may adjourn from day to day and may compel
the attendance of absent Members in such manner, and under such penalties, as such House
may provide."
[12] Const., Article VI, Section 24 (1987); 1 Sutherland Statutory Construction § 9:6 (6th
ed.): The provision helps guarantee that the exercise of the taxing power is well studied as
the lower house is "presumably more representative in character."
[13] Const., Article VI, Section 26(1) (1987); I Cooley, A Treatise on Constitutional
Limitations, p. 143; Central Capiz v. Ramirez, 40 Phil. 883 (1920): "In the construction and
application of this constitutional restriction the courts have kept steadily in view the
correction of the mischief against which it was aimed. The object is to prevent the practice,
which was common in all legislative bodies where no such restrictions existed of embracing
in the same bill incongruous matters having no relation to each other or to the subject
specified in the title, by which measures were often adopted without attracting attention.
Such distinct subjects represented diverse interests, and were combined in order to unite the
members of the legislature who favor either in support of all. These combinations were
corruptive of the legislature and dangerous to the State. Such omnibus bills sometimes
included more than a hundred sections on as many different subjects, with a title appropriate
to the first section, and for other purposes."
"The failure to indicate in the title of the bill the object intended to be accomplished by the
legislation often resulted in members voting ignorantly for measures which they would not
knowingly have approved; and not only were legislators thus misled, but the public also; so
that legislative provisions were steadily pushed through in the closing hours of a session,
which, having no merit to commend them, would have been made odious by popular
discussion and remonstrance if their pendency had been seasonably announced. The
constitutional clause under discussion is intended to correct these evils; to prevent such
corrupting aggregations of incongruous measures, by confining each act to one subject or

object; to prevent surprise and inadvertence by requiring that subject or object to be
expressed in the title."
[14] Const., Article VI, Section 26(2) (1987); 1 Sutherland Statutory Construction § 10:4 (6th
ed.); See also IV Laurel, Journal of the (1935) Constitutional Convention, pp. 436-437, 440-
441 where the 1934 Constitutional Convention noted the anomalous legislative practice of
railroading bills on the last day of the legislative year when members of Congress were eager
to go home. By this irregular procedure, legislators were able to successfully insert matters
into bills which would not otherwise stand scrutiny in leisurely debate; I Cooley, A Treatise
on the Constitutional Limitations, pp. 286-287(8th ed.); Smith v. Mitchell, 69 W.Va 481, 72
S.E. 755 (1911): "The purpose of this provision of the Constitution is to inform legislators
and people of legislation proposed by a bill, and to prevent hasty legislation."
[15] 235 SCRA 630, 783-784 citing Luce, Legislative Procedure, pp. 404-405, 407 (1922);
See also Davies, Legislative Law and Process, p. 81 (2nd ed.): "conference reports are
returned to assembly and Senate on a take-it or leave-it-basis, and the bodies are generally
placed in the position that to leave-it is a practical impossibility." Thus, he concludes that
"conference committee action is the most undemocratic procedure in the legislative process."
[16] 268 SCRA 269, 289 (1997).
[17] The Manila Standard Today, August 26, 2005, p. 1.
SEPARATE OPINION

PANGANIBAN, J.:

The ponencia written by the esteemed Madame Justice Ma. Alicia Austria-Martinez declares
that the enrolled bill doctrine has been historically and uniformly upheld in our country.
Cited as recent reiterations of this doctrine are the two Tolentino v. Secretary of Finance
judgments[1] and Fariñas v. Executive Secretary.[2]

Precedence of Mandatory
Constitutional Provisions
Over the Enrolled Bill Doctrine

I believe, however, that the enrolled bill doctrine[3] is not absolute. It may be all-
encompassing in some countries like Great Britain,[4] but as applied to our jurisdiction, it
must yield to mandatory provisions of our 1987 Constitution. The Court can take judicial
notice of the form of government[5] in Great Britain.[6] It is unlike that in our country and,
therefore, the doctrine from which it originated[7] could be modified accordingly by our
Constitution.

In fine, the enrolled bill doctrine applies mainly to the internal rules and processes followed
by Congress in its principal duty of lawmaking. However, when the Constitution imposes
certain conditions, restrictions or limitations on the exercise of congressional prerogatives,
the judiciary has both the power and the duty to strike down congressional actions that are
done in plain contravention of such conditions, restrictions or limitations.[8] Insofar as the
present case is concerned, the three most important restrictions or limitations to the enrolled
bill doctrine are the “origination,” “no-amendment” and “three-reading” rules which I will
discuss later.
Verily, these restrictions or limitations to the enrolled bill doctrine are safeguarded by the
expanded[9] constitutional mandate of the judiciary “to determine whether or not there has
been a grave abuse of discretion amounting to lack or excess of jurisdiction on the part of
any branch or instrumentality of the government.”[10] Even the ponente of Tolentino,[11] the
learned Mr. Justice Vicente V. Mendoza, concedes in another decision that each house “may
not by its rules ignore constitutional restraints or violate fundamental rights, and there should
be a reasonable relation between the mode or method of proceeding established by the rule
and the result which is sought to be attained.”[12]
The Bicameral Conference Committee (BCC) created by Congress to iron out differences
between the Senate and the House of Representatives versions of the E-VAT bills[13] is one
such “branch or instrumentality of the government,” over which this Court may exercise
certiorari review to determine whether or not grave abuse of discretion has been committed;
and, specifically, to find out whether the constitutional conditions, restrictions and
limitations on law-making have been violated.
In general, the BCC has at least five options in performing its functions: (1) adopt the House
version in part or in toto, (2) adopt the Senate version in part or in toto, (3) consolidate the
two versions, (4) reject non-conflicting provisions, and (5) adopt completely new provisions
not found in either version. This, therefore, is the simple question: In the performance of its
function of reconciling conflicting provisions, has the Committee blatantly violated the
Constitution?
My short answer is: No, except those relating to income taxes referred to in Sections 1, 2 and
3 of Republic Act (RA) No. 9337. Let me explain.
Adopting the House

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

Version in Part or in Toto
Second, the BCC may choose to adopt the Senate version either in part or in toto, endorsing
it also without changes. In so doing, the question of origination arises. Under the 1987
Constitution, all “revenue x x x bills x x x shall originate exclusively in the House of
Representatives, but the Senate may propose or concur with amendments.”[17]
If the revenue bill originates exclusively from the Senate, then obviously the origination
provision[18] of the Constitution would be violated. If, however, it originates exclusively
from the House and presumably passes the three-reading requirement there, then the
question to contend with is whether the Senate amendments complied with the “germane”
principle.
While in the Senate, the House version may, per Tolentino, undergo extensive changes, such
that the Senate may rewrite not only portions of it but even all of it.[19] I believe that such
rewriting is limited by the “germane” principle: although “relevant”[20] or “related”[21] to
the general subject of taxation, the Senate version is not necessarily “germane” all the time.
The “germane” principle requires a legal -- not necessarily an economic[22] or political --
interpretation. There must be an “inherent logical connection.”[23] What may be germane in
an economic or political sense is not necessarily germane in the legal sense. Otherwise, any
provision in the Senate version that is entirely new and extraneous, or that is remotely or
even slightly connected, to the vast and perplexing subject of taxation, would always be
germane. Under this interpretation, the origination principle would surely be rendered
inutile.
To repeat, in Tolentino, the Court said that the Senate may even write its own version, which
in effect would be an amendment by substitution.[24] The Court went further by saying that
“the Constitution does not prohibit the filing in the Senate of a substitute bill in anticipation
of its receipt of the bill from the House, so long as action by the Senate as a body is withheld
pending receipt of the House bill.”[25] After all, the initiative for filing a revenue bill must
come from the House[26] on the theory that, elected as its members are from their respective
districts, the House is more sensitive to local needs and problems. By contrast, the Senate
whose members are elected at large approaches the matter from a national perspective,[27]
with a broader and more circumspect outlook.[28]
Even if I have some reservations on the foregoing sweeping pronouncements in Tolentino, I

shall not comment any further, because the BCC, in reconciling conflicting provisions, also
did not take the second option of ignoring the House bills completely and of adopting only
the Senate version in part or in toto. Instead, the BCC used or applied the third option as will
be discussed below.
Compromising
by Consolidating
As a third option, the BCC may reach a compromise by consolidating both the Senate and
the House versions. It can adopt some parts and reject other parts of both bills, and craft new
provisions or even a substitute bill. I believe this option is viable, provided that there is no
violation of the origination and germane principles, as well as the three-reading rule. After
all, the report generated by the BCC will not become a final valid act of the Legislative
Department until the BCC obtains the approval of both houses of Congress.[29]
Standby Authority. I believe that the BCC did not exceed its authority when it crafted the so-
called “standby authority” of the President. The originating bills from the House imposed a
12 percent VAT rate,[30] while the bill from the Senate retained the original 10 percent.[31]
The BCC opted to initially use the 10 percent Senate provision and to increase this rate to the
12 percent House provision, effective January 1, 2006, upon the occurrence of a
predetermined factual scenario as follows:
“(i) [VAT] collection as a percentage of Gross Domestic Product (GDP) of

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

year exceeds one and one-half percent (1 1/2%).”[32]
In the computation of the percentage requirements in the alternative conditions under the
law, the amounts of the VAT collection, National Deficit,[33] and GDP[34] -- as well as the
interrelationship among them -- can easily be derived by the finance secretary from the
proper government bodies charged with their determination. The law is complete and
standards have been fixed.[35] Only the fact-finding mathematical computation for its
implementation on January 1, 2006, is necessary.

Once either of the factual and mathematical events provided in the law takes place, the
President has no choice but to implement the increase of the VAT rate to 12 percent.[36] This
eventuality has been predetermined by Congress.[37]

The taxing power has not been delegated by Congress to either or both the President and the
finance secretary. What was delegated was only the power to ascertain the facts in order to
bring the law into operation. In fact, there was really no “delegation’ to speak of; there was
merely a declaration of an administrative, not a legislative, function.[38]

I concur with the ponencia in that there was no undue delegation of legislative power in the
increase from 10 percent to 12 percent of the VAT rate. I respectfully disagree, however, with
the statements therein that, first, the secretary of finance is “acting as the agent of the
legislative department” or an “agent of Congress” in determining and declaring the event
upon which its expressed will is to take effect; and, second, that the secretary’s personality
“is in reality but a projection of that of Congress.”

The secretary of finance is not an alter ego of Congress, but of the President. The mandate
given by RA 9337 to the secretary is not equipollent to an authority to make laws. In passing
this law, Congress did not restrict or curtail the constitutional power of the President to retain
control and supervision over the entire Executive Department. The law should be construed
to be merely asking the President, with a recommendation from the President’s alter ego in
finance matters, to determine the factual bases for making the increase in VAT rate operative.
[39] Indeed, as I have mentioned earlier, the fact-finding condition is a mere administrative,
not legislative, function.

The ponencia states that Congress merely delegates the implementation of the law to the
secretary of finance. How then can the latter be its agent? Making a law is different from
implementing it. While the first (the making of laws) may be delegated under certain
conditions and only in specific instances provided under the Constitution, the second (the
implementation of laws) may not be done by Congress. After all, the legislature does not
have the power to implement laws. Therefore, congressional agency arises only in the first,
not in the second. The first is a legislative function; the second, an executive one.
Petitioners’ argument is that because the GDP does not account for the economic effects of
so-called underground businesses, it is an inaccurate indicator of either economic growth or
slowdown in transitional economies.[40] Clearly, this matter is within the confines of
lawmaking. This Court is neither a substitute for the wisdom, or lack of it, in Congress,[41]
nor an arbiter of flaws within the latter’s internal rules.[42] Policy matters lie within the
domain of the political branches of government,[43] outside the range of judicial cognizance.
[44] “[T]he right to select the measure and objects of taxation devolves upon the Congress,
and not upon the courts, and such selections are valid unless constitutional limitations are
overstepped.”[45] Moreover, each house of Congress has the power and authority to
determine the rules of its proceedings.[46] The contention that this case is not ripe for
determination because there is no violation yet of the Constitution regarding the exercise of
the 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 from the Senate version) regarding income taxes[47] are not legally
germane to the subject matter of the House bills. Revising the income tax rates on domestic,
resident foreign and nonresident foreign corporations; increasing the tax credit against taxes
due from nonresident foreign corporations on intercorporate dividends; and reducing the
allowable deduction for interest expense are legally unrelated and not germane to the subject
matter contained in the House bills; they violate the origination principle.[48] The reasons are
as follows:
One, an income tax is a direct tax imposed on actual or presumed income --gross or net --
realized by a taxpayer during a given taxable year,[49] while a VAT is an indirect tax not in
the context of who is directly and legally liable for its payment, but in terms of its nature as
“a tax on consumption.”[50] The former cannot be passed on to the consumer, but the latter
can.[51] It is too wide a stretch of the imagination to even relate one concept with the other.
In like manner, it is inconceivable how the provisions that increase corporate income taxes
can be considered as mitigating measures for increasing the VAT and, as I will explain later,
for effectively imposing a maximum of 3 percent tax on gross sales or revenues because of
the 70 percent cap. Even the argument that the corporate income tax rates will be reduced to
30 percent does not hold water. This reduction will take effect only in 2009, not 2006 when
the 12 percent VAT rate will have been implemented.
Two, taxes on intercorporate dividends are final, but the input VAT is generally creditable.
Under a final withholding tax system, the amount of income tax that is withheld by a
withholding agent is constituted as a full and final payment of the income tax due from the
payee on said income.[52] The liability for the tax primarily rests upon the payor as a
withholding agent.[53] Under a creditable withholding tax system, taxes withheld on certain
payments are meant to approximate the tax that is due of the payee on said payments.[54]
The liability for the tax rests upon the payee who is mandated by law to still file a tax return,
report the tax base, and pay the difference between the tax withheld and the tax due.[55]
From this observation alone, it can already be seen that not only are dividends alien to the
tax base upon which the VAT is imposed, but their respective methods of withholding are
totally different. VAT-registered persons may not always be nonresident foreign corporations
that declare and pay dividends, while intercorporate dividends are certainly not goods or
properties for sale, barter, exchange, lease or importation. Certainly, input VAT credits are
different from tax credits on dividends received by nonresident foreign corporations.
Three, itemized deductions from gross income partake of the nature of a tax exemption.[56]
Interest -- which is among such deductions -- refers to the amount paid by a debtor to a
creditor for the use or forbearance of money.[57] It is an expense item that is paid or incurred
within a given taxable year on indebtedness in connection with a taxpayer’s trade, business
or exercise of profession.[58] In order to reduce revenue losses, Congress enacted RA
8424[59] which reduces the amount of interest expense deductible by a taxpayer from gross
income, equal to the applicable percentage of interest income subject to final tax.[60] To
assert that reducing the allowable deduction in interest expense is a matter that is legally
related to the proposed VAT amendments is too far-fetched. Interest expenses are not
allowed as credits against output VAT. Neither are VAT-registered persons always liable for
interest.
Having argued on the unconstitutionality (non-germaneness) of the BCC insertions on

income taxes, let me now proceed to the other provisions that were attacked by petitioners.
No Pass-on Provisions. I agree with the ponencia that the BCC did not exceed its authority
when it deleted the no pass-on provisions found in the congressional bills. Its authority to
make amendments not only implies the power to make insertions, but also deletions, in order
to resolve conflicting provisions.
The no pass-on provision in House Bill (HB) No. 3705 referred to the petroleum products
subject to excise tax (and the raw materials used in the manufacture of such products), the
sellers of petroleum products, and the generation companies.[61] The analogous provision in
Senate Bill (SB) No. 1950 dealt with electricity, businesses other than generation companies,
and services of franchise grantees of electric utilities.[62] In contrast, there was a marked
absence of the no pass-on provision in HB 3555. Faced with such variances, the BCC had
the option of retaining or modifying the no pass-on provisions and determining their extent,
or of deleting them altogether. In opting for deletion to resolve the variances, it was merely
acting within its discretion. No grave abuse may be imputed to the BCC.
The 70 Percent Cap on Input Tax and the 5 Percent Final Withholding VAT. Deciding on
the 70 percent cap and the 5 percent final withholding VAT in the consolidated bill is also
within the power of the BCC. While HB 3555 included limits of 5 percent and 11 percent on
input tax,[63] SB 1950 proposed an even spread over 60 months.[64] The decision to put a
cap and fix its rate, so as to harmonize or to find a compromise in settling the apparent
differences in these versions,[65] was within the sound discretion of the BCC.
In like manner, HB 3555 contained provisions on the withholding of creditable VAT at the
rates of 5 percent, 8 percent, 10.5 percent, and 12 percent.[66] HB 3705 had no such
equivalent amendment, and SB 1950 pegged the rates at only 5 percent and 10 percent.[67] I
believe that the decision to impose a final (not creditable) VAT and to fix the rates at 5
percent and 10 percent, so as to harmonize the apparent differences in all three versions, was
also within the sound discretion of the BCC.
Indeed, the tax credit method under our VAT system is not only practical, but also principally
used in almost all taxing jurisdictions. This does not mean, however, that in the eyes of
Congress through the BCC, our country can neither deviate from this method nor modify its
application to suit our fiscal requirements. The VAT is usually collected through the tax
credit method (and in the past, even through the cost deduction method or a mixture of these
two methods),[68] but there is no hard and fast rule that 100 percent of the input taxes will
always be allowed as a tax credit.
In fact, it was Maurice Lauré, a French engineer,[69] who invented the VAT. In 1954, he had
the idea of imposing an indirect tax on consumption, called taxe sur la valeur ajoutée,[70]
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, rather than retailers or tax authorities, were forced to administer and
account for the tax themselves.[71]
Since the unutilized input VAT can be carried over to succeeding quarters, there is no undue
deprivation of property. Alternatively, it can be passed on to the consumers;[72] there is no
law prohibiting that. Merely speculative and unproven, therefore, is the contention that the
law is arbitrary and oppressive.[73] Laws that impose taxes are necessarily burdensome,
compulsory, and involuntary.
The deferred input tax account -- which accumulates the unutilized input VAT -- remains an
asset in the accounting records of a business. It is not at all confiscated by the government.
By deleting Section 112(B) of the Tax Code,[74] Congress no longer made available tax
credit certificates for such asset account until retirement from or cessation of business, or
changes in or cessation of VAT-registered status.[75] This is a matter of policy, not legality.
The Court cannot step beyond the confines of its constitutional power, if there is absolutely
no clear showing of grave abuse of discretion in the enactment of the law.
That the unutilized input VAT would be rendered useless is merely speculative.[76] Although
it is recorded as a deferred asset in the books of a company, it remains to be a mere privilege.
It may be written off or expensed outright; it may also be denied as a tax credit.
There is no vested right in a deferred input tax account; it is a mere statutory privilege.[77]
The State may modify or withdraw such privilege, which is merely an asset granted by
operation of law.[78] Moreover, there is no vested right in generally accepted accounting
principles.[79] These refer to accounting concepts, measurement techniques, and standards of
presentation in a 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.[80] To state otherwise and recognize
such asset account as a vested right is to limit the taxing power of the State. Unlimited,
plenary, comprehensive and supreme, this power cannot be unduly restricted by mere
creations of the State.
That the unutilized input VAT would also have an unequal effect on businesses --some with
low, others with high, input-output ratio -- is not a legal ground for invalidating the law.
Profit margins are a variable of sound business judgment, not of legal doctrine. The law
applies equally to all businesses; it is up to each of them to determine the best formula for
selling their goods or services in the face of stiffer competition. There is, thus, no violation
of the equal protection clause. If the implementation of the 70 percent cap would cause an ad
infinitum deferment of input taxes or an unequal effect upon different types of businesses
with varying profit margins and capital requirements, then the remedy would be an
amendment of the law -- not an unwarranted and outright declaration of unconstitutionality.
The matter of business establishments shouldering 30 percent of output tax and remitting the
amount, as computed, to the government is in effect imposing a tax that is equivalent to a
maximum of 3 percent of gross sales or revenues.[81] This imposition is arguably another tax
on gross -- not net -- income and thus a deviation from the concept of VAT as a tax on
consumption; it also assumes that sales or revenues are on cash basis or, if on credit, given
credit terms shorter than a quarter of a year. However, such additional imposition and
assumption are also arguably within the power of Congress to make. The State may in fact
choose to impose an additional 3 percent tax on gross income, in lieu of the 70 percent cap,
and thus subject the income of businesses to two types of taxes -- one on gross, the other on
net. These impositions may constitute double taxation,[82] which is not constitutionally
proscribed.[83]
Besides, prior to the amendments introduced by the BCC, already extant in the Tax Code
was a 3 percent percentage tax on the gross quarterly sales or receipts of persons who were
not VAT-registered, and whose sales or receipts were exempt from VAT.[84] This is another
type of tax imposed by the Tax Code, in addition to the tax on their respective incomes. No
question as to its validity was raised before; none is being brought now. More important,
there is a presumption in favor of constitutionality,[85] “rooted in the doctrine of separation
of powers which enjoins upon the three coordinate departments of the Government a
becoming courtesy for each other’s acts.”[86]
As to the argument that Section 8 of RA 9337 contravenes Section 1 of Article III and
Section 20 of Article II of the 1987 Constitution, I respectfully disagree.
One, petitioners have not been denied due process or, as I have illustrated earlier, equal
protection. In the exercise of its inherent power to tax, the State validly interferes with the
right to property of persons, natural or artificial. Those similarly situated are affected in the
same way and treated alike, “both as to privileges conferred and liabilities enforced.”[87]
RA 9337 was enacted precisely to achieve the objective of raising revenues to defray the
necessary expenses of government.[88] The means that this law employs are reasonably
related to the accomplishment of such objective, and not unduly oppressive. The reduction of
tax credits is a question of economic policy, not of legal perlustration. Its determination is
vested in Congress, not in this Court. Since the purpose of the law is to raise revenues, it
cannot be denied that the means employed is reasonably related to the achievement of that
purpose. Moreover, the proper congressional procedure for its enactment was followed;[89]
neither public notice nor public hearings were denied.
Two, private enterprises are not discouraged. Tax burdens are never delightful, but with the
imposition of the 70 percent cap, there will be an assurance of a steady cash flow to the
government, which can be translated to the production of improved goods, rendition of better
services, and construction of better facilities for the people, including all private enterprises.
Perhaps, Congress deems it best to make our economy depend more on businesses that are
easier to monitor, so there will be a more efficient collection of taxes. Whatever is expected
of the outcome of the law, or its wisdom, should be the sole responsibility of the
representatives chosen by the electorate.
The profit margin rates of various industries generally do not change. However, the profit
margin figures do, because these are obviously monetary variables that affect business, along
with the level of competition, the quality of goods and services offered, and the cost of their
production. And there will inevitably be a conscious desire on the part of those who engage
in business and those who consume their output to adapt or adjust accordingly to any
congressional modification of the VAT system.
In addition, it is contended that the VAT should be proportional in nature. I submit that this
proportionality pertains to the rate imposable, not the credit allowable. Private enterprises
are subjected to a proportional VAT rate, but VAT credits need not be. The VAT is, after all, a
human concept that is neither immutable nor invariable. In fact, it has changed after it was
adopted as a system of indirect taxation by other countries. Again unlike the laws of physical
science, the VAT system can always be modified to suit modern fiscal demands. The State,
through the Legislative Department, may even choose to do away with it and revert to our
previous system of turnover taxes, sales taxes and compensating taxes, in which credits may
be disallowed altogether.
Not expensed, but amortized over its useful life, is capital equipment, which is purchased or
treated as capital leases by private enterprises. Aimed at achieving the twin objectives of
profitability and solvency, such purchase or lease is a matter of prudence in business
decision-making.
Hence, business judgments, sales volume, and their effect on competition are for businesses
to determine and for Congress to regulate -- not for this Court to interfere with, absent a clear
showing that constitutional provisions have been violated. Tax collection and administrative
feasibility are for the executive branch to focus on, again not for this Court to dwell upon.
The Transcript of the Oral Arguments on July 14, 2005 clearly point out in a long line of
relevant questioning that, absent a violation of constitutional provisions, the Court cannot
interfere with the 70 percent cap, the 5 percent final withholding tax, and the 60-month
amortization, there being other extra-judicial remedies available to petitioners, thus:
“Atty. Baniqued: But if your profit margin is low as i[n] the case of the
petroleum dealers, x x x then we would have a serious
problem, Your Honor.

“Justice Panganiban: Isn’t the solution to increase the price then?

“Atty. Baniqued: If you increase the price which you can very well do,
Your Honor, then that [will] be deflationary and it [will]
have a cascading effect on all other basic commodities[,
especially] because what is involved here is petroleum,

Your Honor.
“Justice Panganiban: That may be true[,] but 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 and therefore the price will go up?

“Atty. Baniqued: Even if it were to be reflected as part of the Cost of

Sales, Your Honor, the [input VAT] that you cannot
claim, the benefit to you is only to the extent of the
corporate tax rate which is 32 now 35 [percent].

“Justice Panganiban Yes.
“Atty. Baniqued: It’s not 100 [percent] credi[ta]bility[,] unlike if it were

applied against your [output VAT], you get to claim 100
[percent] of it, Your Honor.

“Justice Panganiban: That might be true, but we are talking about whether that
particular provision would be unconstitutional. You say
it’s oppressive, but you 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

remedy available to the petroleum dealers, but
considering the impact of that limitation[,] and were just
talking of the 70 [percent cap] on [input VAT] in the
level of the petroleum dealers. Were not even talking yet
of the limitation on the [input VAT] available to the
manufacturers, so, what if they pass that on as well?

“Justice Panganiban: Yes.
“Atty. Baniqued: Then, it would complicate… interrupted

“Justice Panganiban: What I am saying is, there is a remedy, which is business

in character. The mere fact that the government is
imposing that [seventy percent] cap does not make the
law unconstitutional, isn’t it?
“Atty. Baniqued: It does, Your Honor, if it can be shown. And as we have

shown, it is oppressive and unreasonable, it is excessive,
Your Honor… interrupted

“Justice Panganiban: If you have no way of recouping it. If you have no way
of recouping that amount, then it will be oppressive, but
you have a business way of recouping it[.] I am saying
that, not advising that it’s good. All I am saying is, is it
constitutional or not[?] We’re not here to determine the
wisdom of the law, that’s up for Congress. As pointed
out earlier, if the law is not wise, the law makers will be
changed by the people[.] [T]hat is their solution t[o] the
lack of wisdom of a law. If the law is unconstitutional[,]
then the Supreme Court will declare it unconstitutional
and void it, but[,] in this case[,] there seems to be a
business remedy in the same manner that Congress may
just impose that tax straight without saying it’s [VAT]. If
Congress will just say all petroleum will pay 3 [percent]
of their Gross Sales, but you don’t bear that, you pass
that on, isn’t it?

“Atty. Baniqued: We acknowledge your concern, Your Honor, but we

should not forget that when the petroleum dealers pass
these financial burden or this tax differential to the
consumers, they themselves are consumers in their own
right. As a matter of fact, they filed this case both as
petroleum dealer[s] and as taxpayers. If they pass if on,
they themselves would ultimately bear the burden[,
especially] in increase[d] cost of electricity, land
transport, food, everything, Your Honor.

“Justice Panganiban: Yes, but the issue here in this Court, is whether that act
of Congress is unconstitutional.

“Atty. Baniqued: Yes, we believe it is unconstitutional, Your Honor.

“Justice Panganiban: You have a right to complain that it is oppressive, it is

excessive, it burdens the people too much, but is it
unconstitutional?

“Atty. Baniqued: Besides, passing it on, Your Honor, may not be as simple
as it may seem. As a matter of fact, at the strike of
midnight on June 30, when petroleum prices were being
changed upward, the [s]ecretary of [the] Department of
Energy was going around[.] [H]e was seen on TV going
around just to check that prices don’t go up. And as a
matter of fact, he had pronouncements that, the increase
in petroleum price should only be limited to the effect of
10 [percent] E-VAT.

“Justice Panganiban: It’s becaus[e] the implementing rules were not clear and
were not extensive enough to cover how much really
should be the increase for various oil products, refined
oil products. It’s up for the dealers to guess, and the
dealers were guessing to their advantage by saying plus
10 [percent] anyway, right?
“Atty. Baniqued: In fact, the petroleum dealers, Your Honors, are not only
faced with constitutional issues before this Court. They
are also faced with a possibility of the Department of
Energy not allowing them to pass it on[,] because this
would be an unreasonable price increase. And so, they
are being hit from both sides…interrupted

“Justice Panganiban: That’s why I say, that there is need to refine the
implementing rules so that everyone will know, the
customers will know how much to pay for gasoline, not
only gasoline, gasoline, and so on, diesel and all kinds of
products, so there’ll be no confusion and there’ll be no
undue taking advantage. There will be a smooth
implementation[,] if the law were to be upheld by the
Court. In your case, as I said, it may be unwise to pass
that on to the customers, but definitely, the dealers will
not bear that [--] to suffer the loss that you mentioned in
your consolidated balance sheets. Certainly, the dealers
will not bear that [cost], isn’t it?

“Atty. Baniqued: It will be a very hard decision to make, Your Honor.

“Justice Panganiban: Why, you will not pass it on?

“Atty. Baniqued: I cannot speak for the dealers…. interrupted.

“Justice Panganiban: As a consumer, I will thank you if you don’t pass it on[;]
but you or your clients as businessm[e]n, I know, will
pass it on.

“Atty. Baniqued: As I have said, Your Honor, there are many constraints
on their ability to do that[,] and that is why the first step
that we are seeking is to seek redress from this
Honorable Court[,] because we feel that the imposition
is excessive and oppressive….. interrupted

“Justice Panganiban: You can find redress here, only if you can show that the
law is unconstitutional.

“Atty. Baniqued: We realized that, Your Honor.

“Justice Panganiban: Alright. Let’s talk about the 5 [percent] [d]epreciation

rate, but that applies only to the capital equipment worth
over a million?

“Atty. Baniqued: Yes, Your Honor.
“Justice Panganiban: And that doesn’t apply at all times, isn’t it?

“Atty. Baniqued: Well……

“Justice Panganiban: That doesn’t at all times?

“Atty. Baniqued: For capital goods costing less than 1 million, Your
Honor, then….

“Justice Panganiban: That will not apply?

“Atty. Baniqued: That will not apply, but you will have the 70 [percent]
cap on input [VAT], Your Honor.

“Justice Panganiban: Yes, but we talked already about the 70 [percent].


“Justice Panganiban: When you made your presentation on the balance sheet,
it is as if every capital expenditure you made is subject
to the 5 [percent,] rather the [five year] depreciation
schedule[.] [T]hat’s not so. So, the presentation you
made is a little inaccurate and misleading.

“Atty. Baniqued: At the start of our presentation, Your Honor[,] we stated

clearly that this applies only to capital goods costing
more than one [million].

“Justice Panganiban Yes, but you combined it later on with the 70 [percent]
cap to show that the dealers are so disadvantaged. But
you didn’t tell us that that will apply only when capital
equipment or goods is one million or more. And in your
case, what kind of capital goods will be worth one
million or more in your existing gas stations?

“Atty. Baniqued: Well, you would have petroleum dealers, Your Honor,
who would have[,] aside from sale of petroleum[,] they
would have their service centers[,] like[…] to service
cars and they would have those equipments, they are,
Your Honor.

“Justice Panganiban: But that’s a different profit center, that’s not from the
sale of…

“Atty. Baniqued: No, they would form part of their [VATable] sale, Your
Honor.

“Justice Panganiban: It’s a different profit center[;] it’s not in the sale of
petroleum products. In fact the mode now is to put up
super stores in huge gas stations. I do not begrudge the
gas station[.] [A]ll I am saying is it should be presented

to us in perspective. Neither am I siding with the
government. All I am saying is, when I saw your
complicated balance sheet and mathematics, I saw that
you were to put in all the time the depreciation that
should be spread over [five] years. But we have agreed
that that applies only to capital equipment [-- ]not to any
kind of goods [--] but to capital equipment costing over
1 million pesos.
“Atty. Baniqued: Yes, Your Honor, we apologize if it has caused a little

confusion….

“Justice Panganiban: Again the solution could b[e] to pass that on, because
that’s an added cost, isn’t it?

“Atty. Baniqued: Well, yes, you can pass it on….

“Justice Panganiban: I am not teaching you, I am just saying that you have a
remedy… I am not saying either that the remedy is wise
or should be done, because[,] as a consumer[,] I
wouldn’t want that to be done to me.

“Atty. Baniqued: We realiz[e] that, Your Honor, but the fact remain[s] that
whether it is in the hands of the petroleum dealers or in
the hands of the consumers[,] if this imposition is
unreasonable and oppressive, it will remain so, even
after it is passed on, Your Honor.

“Justice Panganiban: Alright. Let’s go to the third. The 5 [percent]

withholding tax, [f]inal [w]ithholding [t]ax, but this
applies to sales to government?


“Justice Panganiban: So, you can pass on this 5 [percent] to the

[g]overnment. After all, that 5 [percent] will still go
back to the government.

“Atty. Baniqued: Then it will come back to haunt us, Your Honor…..

“Justice Panganiban: Why?

“Atty. Baniqued: By way of, for example sales to NAPOCOR or NTC….

interrupted

“Justice Panganiban: Sales of petroleum products….

“Atty. Baniqued: ………… in the case of NTC, Your Honor, it would

come back to us by way of increase[d] cost, Your Honor.

“Justice Panganiban: Okay, let’s see. You sell, let’s say[,] your petroleum
products to the Supreme Court, as a gas station that sells

gasoline to us here. Under this law, the 5 [percent]
withholding tax will have to be charged, right?

“Justice Panganiban: You will charge that[.] [T]herefore[,] the sales to the
Supreme Court by that gas station will effectively be
higher?


“Justice Panganiban: So, the Supreme Court will pay more, you will not [be]
going to [absorb] that 5 [percent], will you?

“Atty. Baniqued: If it is passed on, Your Honor, that’s of course we

agree…. Interrupted.

“Justice Panganiban: Not if, you can pass it on….

“Atty. Baniqued: Yes, we can…. interrupted

“Justice Panganiban There is no prohibition to passing it on[.] [P]robably the

gas station will simply pass it on to the Supreme Court
and say[,] well[,] there is this 5 [percent] final VAT on
you so[,] therefore, for every tank full you buy[,] we’ll
just have to [charge] you 5 [percent] more. Well, the
Supreme Court will probably say, well, anyway, that 5
[percent] that we will pay the gas dealer, will be paid
back to the government, isn’t it[?] So, how [will] you be
affected?

“Atty. Baniqued: I hope the passing on of the burden, Your Honor, doesn’t
come back to party litigants by way of increase in docket
fees, Your Honor.

“Justice Panganiban: But that’s quite another m[a]tter, though…(laughs)

[W]hat I am saying, Mr. [C]ounsel is, you still have to
show to us that your remedy is to declare the law
unconstitutional[,] and it’s not business in character.

“Atty. Baniqued: Yes, Your Honor, it is our submission that this limitation
in the input [VAT] credit as well as the
amortization…….

“Justice Panganiban: All you talk about is equal protection clause, about due
process, depreciation of property without observance of
due process[,] could really be a remedy than a business
way.

“Atty. Baniqued: Business in the level of the petroleum dealers, Your

Honor, or in the level of Congress, Your Honor.
“Justice Panganiban: Yes, you can pass them on to customers[,] in other

words. It’s the customers who should [complain].

“Atty. Baniqued: Yes, Your Honor… interrupted

“Justice Panganiban: And perhaps will not elect their representatives

anymore[.]

“Atty. Baniqued: Yes, Your Honor…..

“Justice Panganiban: For agreeing to it, because the wisdom of a law is not for
the Supreme Court to pass upon.

“Atty. Baniqued: It just so happens, Your Honor, that what is [involved]

here is a commodity that when it goes up, it affects
everybody….

“Justice Panganiban: Yes, inflationary and inflammatory….

“Atty. Baniqued: …just like what Justice Puno says it shakes the entire
economic foundation, Your Honor.

“Justice Panganiban: Yes, it’s inflationary[,] brings up the prices of

everything…

“Atty. Baniqued: And it is our submission that[,] if the petroleum dealers

cannot absorb it and they pass it on to the customers, a
lot of consumers would neither be in a position to absorb
it too and that[’s] why we patronize, Your Honor.

“Justice Panganiban: There might be wisdom in what you’re saying, but is

that unconstitutional?
“Atty. Baniqued: Yes, because as I said, Your Honor, there are even
constraints in the petroleum dealers to pass it on, and
we[‘]re not even sure whether….interrupted

“Justice Panganiban Are these constraints [--] legal constraints?

“Atty. Baniqued: Well, it would be a different story, Your Honor[.]

[T]hat’s something we probably have to take up with
the Department of Energy, lest [we may] be accused of
…..

“Justice Panganiban: In other words, that’s your remedy

of Energy
[--] to take it up with the Department

“Atty. Baniqued: …..unreasonable price increases, Your Honor.

“Justice Panganiban: Not for us to declare those provisions unconstitutional.

“Atty. Baniqued: We, again, wish to stress that the petroleum dealers went
to this Court[,] both as businessmen and as consumers.
And as consumers, [we’re] also going to bear the burden
of whatever they themselves pass on.
“Justice Panganiban: You know[,] as a consumer, I wish you can really show
that the laws are unconstitutional, so I don’t have to pay
it. But as a magistrate of this Court, I will have to pass
upon judgment on the basis of [--] whether the law is
unconstitutional or not. And I hope you can in your
memorandum show that.

“Atty. Baniqued: We recognized that, Your Honor.” (boldface supplied,

pp. 386-410).
Amendments on Other Taxes and Administrative Matters. Finally, the BCC’s amendments
regarding other taxes[90] are both germane in a legal sense and reasonably necessary in an
economic sense. This fact is evident, considering that the proposed changes in the VAT law
will have inevitable implications and repercussions on such taxes, as well as on the
procedural requirements and the disposition of incremental revenues, in the Tax Code. Either
mitigating measures[91] have to be put in place or increased rates imposed, in order to
achieve the purpose of the law, cushion the impact of increased taxation, and still maintain
the equitability desired of any other revenue law.[92] Directly related to the proposed VAT
changes, these amendments are expected also to have a salutary effect on the national
economy.

The no-amendment rule[93] in the Constitution was not violated by the BCC, because no
completely new provision was inserted in the approved bill. The amendments may be
unpopular or even work hardship upon everyone (this writer included). If so, the remedy
cannot be prescribed by this Court, but by Congress.

Rejecting Non-Conflicting
Provisions
Fourth, the BCC may choose neither to adopt nor to consolidate the versions presented to it
by both houses of Congress, but instead to reject non-conflicting provisions in those
versions. In other words, despite the lack of conflict in them, such provisions are still
eliminated entirely from the consolidated bill. There may be a constitutional problem here.

The no pass-on provisions in the congressional bills are the only item raised by petitioners
concerning deletion.[94] As I have already mentioned earlier, these provisions were in
conflict. Thus, the BCC exercised its prerogative to remove them. In fact, congressional
rules give the BCC the power to reconcile disagreeing provisions, and in the process of
reconciliation, to delete them. No other non-conflicting provision was deleted.

At this point, and after the extensive discussion above, it can readily be seen no non-
conflicting provisions of the E-VAT bills were rejected indiscriminately by the BCC.

Approving and Inserting

Completely New Provisions
Fifth, the BCC had the option of inserting completely new provisions not found in any of the
provisions of the bills of either house of Congress, or make and endorse an entirely new bill
as a substitute. Taking this option may be a blatant violation of the Constitution, for not only
will the surreptitious insertion or unwarranted creation contravene the “origination”
principle; it may likewise desecrate the three-reading requirement and the no-amendment
rule.[95]
Fortunately, however, the BCC did not approve or insert completely new provisions. Thus,
no violation of the Constitution was committed in this regard.
Summary
The enrolled bill doctrine is said to be conclusive not only as to the provisions of a law, but
also to its due enactment. It is not absolute, however, and must yield to mandatory provisions
of the 1987 Constitution. Specifically, this Court has the duty of striking down provisions of
a law that in their enactment violate conditions, restrictions or limitations imposed by the
Constitution.[96] The Bicameral Conference Committee (BCC) is a mere creation of
Congress. Hence, the BCC may resolve differences only in conflicting provisions of
congressional bills that are referred to it; and it may do so only on the condition that such
resolution does not violate the origination, the three-reading, and the no-amendment rules of
the Constitution.
In crafting RA 9337, the BCC opted to reconcile the conflicting provisions of the Senate and
House bills, particularly those on the 70 percent cap on input tax; the 5 percent final
withholding tax; percentage taxes on domestic carriers, keepers of garages and international
carriers; franchise taxes; amusement taxes; excise taxes on manufactured oils and other
fuels; registration requirements; issuance of receipts or sales or commercial invoices; and
disposition of incremental revenues. To my mind, these changes do not violate the
origination or the germaneness principles.
Neither is there undue delegation of legislative power in the standby authority given by
Congress to the President. The law is complete, and the standards are fixed. While I concur
with the 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 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, that it blatantly violated the origination and the germaneness
principles when it inserted provisions not found in the House versions of the E-VAT Law: (1)
increasing the tax rates on domestic, resident foreign and nonresident foreign corporations;
(2) increasing the tax credit against taxes due from nonresident foreign corporations on
intercorporate dividends; and (3) reducing the allowable deduction for interest expense.
Hence, I find these insertions unconstitutional.
Some have criticized the E-VAT Law as oppressive to our already suffering people. On the
other hand, respondents have justified it by comparing it to bitter medicine that patients must
endure to be healed eventually of their maladies. The advantages and disadvantages of the E-
VAT Law, as well as its long-term effects on the economy, are beyond the reach of judicial
review. The economic repercussions of the statute are policy in nature and are beyond the
power of the courts to pass upon.
I have combed through the specific points raised in the Petitions. Other than the three items
on income taxes that I respectfully submit are unconstitutional, I cannot otherwise attribute
grave abuse of discretion to the BCC, or Congress for that matter, for passing the law.
“[T]he Court -- as a rule -- is deferential to the actions taken by the other

branches of government that have primary responsibility for the economic
development of our country.”[97] Thus, in upholding the Philippine ratification of
the treaty establishing the World Trade Organization (WTO), 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 presented to overthrow such presumption, this
Court will resolve every doubt in its favor.”[98] As pointed our in Cawaling Jr. v.
Comelec, the grounds for nullity of the law “must be beyond reasonable doubt,
for to doubt is to sustain.”[99] Indeed, “there must be clear and unequivocal
showing that what the Constitutions prohibits, the statute permits.”[100]

WHEREFORE, I vote to GRANT the Petitions in part and to declare Sections 1, 2, and 3 of
Republic Act No. 9337 unconstitutional, insofar as these sections (a) amend the rates of
income tax on domestic, resident foreign, and nonresident foreign corporations; (b) amend
the tax credit against taxes due from nonresident foreign corporations on intercorporate
dividends; and (c) reduce the allowable deduction for interest expense. The other provisions
are constitutional, and as to these I vote to DISMISS the Petitions.

[1] 235 SCRA 630, August 25, 1994; and 249 SCRA 628, October 30, 1995. The second case
is an en banc Resolution on the Motions for Reconsideration of the first case.

[2] 417 SCRA 503, December 10, 2003.

[3] “[I]t is well settled that the enrolled bill doctrine is conclusive upon the courts as regards
the tenor of the measure passed by Congress and approved by the President.” Resins Inc. v.
Auditor General, 134 Phil. 697, 700, October 29, 1968, per Fernando, J., later CJ.; (citing
Casco Philippine Chemical Co., Inc. v. Gimenez, 117 Phil. 363, 366, February 28, 1963, per
Concepción, J., later CJ.). It is a doctrine that flows as a corollary to the separation of
powers, and by which due respect is given by one branch of government to the actions of the
others. See Morales v. Subido, 136 Phil. 405, 412, February 27, 1969.

Following Field v. Clark (143 US 649, 12 S.Ct. 495, February 29, 1892), such
conclusiveness refers not only to the provisions of the law, but also to its due enactment.
Mabanag v. Lopez Vito, 78 Phil. 1, 13-18, March 5, 1947.

“[T]he signing of a bill by the Speaker of the House and the Senate President and the
certification of the Secretaries of both [h]ouses of Congress that it was passed are conclusive
of its due enactment.” 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 formality. The second -- the second reading -- is when
general principles of the bill are debated upon. At the second reading, the House may vote to
reject the bill. Once the House considers the bill, the third reading follows. In the House of
Commons, no further amendments may be made, and the passage of the motion amounts to
passage of the whole bill. The House of Lords, however, may not amend a bill so as to insert
a provision relating to taxation.
http://en.wikipedia.org/wiki/Constitution_of_the_United_Kingdom; http://
www.oefre.unibe.ch/law/icl/uk00000_.html; www.parliament.uk; and
http://encyclopedia.thefreedictionary.com/British+Parliament (Last visited August 4, 2005,
11:30am PST).
[7] See Dissenting Opinion of Puno, J. in Tolentino v. Secretary of Finance, supra, p. 818.
[8] Cf. Francisco Jr. v. House of Representatives, 415 SCRA 44, November 10, 2003.
[9] Tolentino v. Secretary of Finance, supra.
[10] 2nd paragraph, §1 of Article VIII of the 1987 Constitution.
[11] Tolentino v. Secretary of Finance, supra.
[12] Arroyo v. De Venecia, 343 Phil. 42, 61-62, August 14, 1997, per Mendoza, J.
[13] These refer to House Bill Nos. 3555 & 3705; and Senate Bill No. 1950.
[14] §26(2) of Article VI of the 1987 Constitution.
[15] “The purpose for which three readings on separate days is required is said to be two-
fold: (1) to inform the members of Congress of what they must vote on and (2) to give them
notice that a measure is progressing through the enacting process, thus enabling them and
others interested in the measure to prepare their positions with reference to it.” Tolentino v.
Secretary of Finance, supra, p. 647, October 30, 1995, per Mendoza, J.
[16] §24 of Article VI of the 1987 Constitution.

The power of the Senate to propose or concur with amendments is, apparently, without
restriction. By virtue of this power, the Senate can practically rewrite a bill that is required to
come from the House and leave only a trace of the original bill. See Flint v. Stone Tracy Co.,
220 US 107, 31 S.Ct. 342, March 13, 1911.
[19] Tolentino v. Secretary of Finance, supra, p. 661, August 25, 1994.
[20] Garner (ed. in chief), Black’s Law Dictionary (8th ed., 2004), p. 708.
[21] Statsky, West’s Legal Thesaurus/Dictionary (1986), p. 348.
[22]To argue that the raising of revenues makes the non-VAT provisions of a VAT bill
automatically germane is to bring legal analysis within the penumbra of economic scrutiny.
The burden or impact of any tax depends on the relative elasticities of supply and demand
and is chiefly a matter of policy confined within the august halls of Congress. See Pindyck
and Rubinfeld, Microeconomics (5th ed., 2003), pp. 314-317.
[23] ExxonMobil Corp. v. Allapattah Services, Inc., 125 S.Ct. 2611, 2622, June 23, 2005, per
Kennedy, J.
[24]Tolentino v. Secretary of Finance, supra, p. 663, August 25, 1994. See Cruz, Philippine
Political Law (2002), p. 154.
[25] Tolentino v. Secretary of Finance, supra, August 25, 1994, per Mendoza, J.
[26] Cruz, Philippine Political Law (2002), p. 155.
[27] Tolentino v. Secretary of Finance, supra, August 25, 1994.
[28] Cruz, Philippine Political Law (2002), p. 111.
[29] Tolentino v. Secretary of Finance, supra, p. 668, August 25, 1994.
There is no allegation in any of the memoranda submitted to this Court that the consolidated
bill was not approved. In fact, both houses of Congress voted separately and majority of each
house approved it.
[30]On the one hand, §§1-3 of House Bill (HB) No. 3555 seek to amend §§106, 107 & 108
the Tax Code by increasing the VAT rate to 12% on every sale, barter or exchange of goods
or properties; importation of goods; and sale or exchange of services, including the use or
lease of properties.
§§1-3 of HB 3705, on the other, seek to amend §§106, 107 & 108 the Tax Code by also
increasing the VAT rate to 12% on every sale, barter or exchange of goods or properties;
importation of goods; and sale or exchange of services, including the use or lease of
properties, but decreasing such rate to 8% on every importation of certain goods; 6% on the
sale, barter or exchange of certain locally manufactured goods; and 4% on the sale, barter or
exchange, as well as importation, of petroleum products subject to excise tax and raw
materials to be used in their manufacture (subject to subsequent increases of such reduced
rates), and on the gross receipts derived from services rendered on the sale of generated
power.
The Tax Code referred to in this case is RA 8424, otherwise known as the “Tax Reform Act
of 1997.”
[31] §§4-5 of Senate Bill (SB) No. 1950 seek to amend §§106 & 108 of the Tax Code by
retaining the VAT rate of 10% on every sale, barter or exchange of goods or properties; and
on the sale or exchange of services, including the use or lease of properties, and the sale of
electricity by generation, transmission, and distribution companies.
[32]§§4-6 of the consolidated bill amending §§106-108 of the Tax Code, respectively.
Conference Committee Report on HBs 3555 & 3705, and SB 1950, pp. 4-7.
The predetermined factual scenario in the above-cited sections of the consolidated bill also
appears in §§4-6 of Republic Act (RA) No. 9337, amending the same provisions of the Tax
Code. Mathematically, it is expressed as follows:
VAT Collection > 2.8%

GDP or
National Government Deficit > 1.5%

GDP

[33]
A negative budget surplus, or an excess of expenditure over revenues, is a budget deficit.
Dornbusch, Fischer, and Startz, Macroeconomics (9th ed., 2005), p. 231.
[34]GDP refers to the value of all goods and services produced domestically; the sum of
gross value added of all resident institutional units engaged in production (plus any taxes,
and minus any subsidies, on products not included in the values of their outputs).
www.nscb.gov.ph/sna/default.asp (Last visited July 14, 2005 10am PST).
[35] See Pelaez v. Auditor General, 122 Phil. 965, 974, December 24, 1965.
[36] The acts of retroactively implementing the 12 percent VAT rate, should the finance
secretary be able to make recommendation only weeks or months after the end of fiscal year
2005, or reverting to 10 percent if both conditions are not met, are best addressed to the
political branches of government.
The following excerpts from the Transcript of the Oral Arguments in GR Nos. 168461,
168463, 168056, and 168207, held on July 14, 2005 at the Supreme Court Session Hall, are
instructive on the position of petitioners:
“Atty. Gorospe: [It’s] supposed to be 2005, Your Honor, but apparently, it

[will] be impossible to determine GDP the first day of

2006, Your Honor.” (p. 57);
xxx

“Justice Panganiban: Now [let’s see] when it is possible then to determine this
formula. It cannot be on the first day of January 2006,
because the year [2005] ended just the midnight before,
isn’t it?

“Atty. Gorospe: Yes, Your Honor.

“Justice Panganiban: x x x if it’s only determined on March 1[,] then how can the
law become effective January 1[.] In other words, how will
the [people be] able to pay the tax if ever that formula is
exceeded x x x?” (pp. 59-60);

xxx

“Atty. Gana: Well, x x x it would take a grace period of 6 to 8

months[,] because obviously, determination could not be
made on January 1, 2006. Yes, they were under the
impression that at the earliest it would take 30 days.

“Justice Panganiban: Historically, when [will] these figures [be] available[:] the
GDP, [VAT] collection?” (p. 192);

xxx

“Justice Panganiban: But certainly not on January 1. Therefore, by January 1,

people would not know whether the rate would be
increased or not, even if there is no discretion?

“Atty. Gana: That’s true, Your Honor, even if there is no discretion.

“Justice Panganiban: It will take weeks, or months to be able to determine that?

“Atty. Gana: Well, they anticipated it, would take at most by March.”
(p. 193); and

xxx

“Justice Panganiban: March, I will ask the government later on when they argue.

“Atty. Gana: As early as January but not later than 60 to 90 days.”

(boldface supplied; p. 194).
Culled from the same record, the following excerpts show the position of public respondents:

“Justice Panganiban: It will be based on actual figures?

“Usec. Bonoan: It will be based on actual figures.

“Justice Panganiban:That creates a problem[,] because where do you get the

actual figures[?]

“Usec. Bonoan: I understand that[,] traditionally[,] we can come in

March, but there is no impediment to speeding up the
gathering.

“Justice Panganiban: Speed it up. February 15?

“Usec. Bonoan: Even within January, Your Honor, I think this can be….

“Justice Panganiban: Alright at the end of January, it’s just estimate to get the
figures in January.

“Usec. Bonoan: Yes, Your Honor (pp. 661-662); and

xxx

“Justice Panganiban: My only point is, I raised this earlier and I promised counsel
for the petitioner whom I was questionin[g] that I will raise
it with you, whether the date January 1, 2006 would
present an impossibility of a condition happening.

“Usec. Bonoan: It will not, Your Honor.

“Justice Panganiban: So, your position [is] it will not present an impossibility.
Elaborate on it in your memorandum.

“Usec. Bonoan: Yes, Your Honor.

“Justice Panganiban:Because it is important. The administrative regulations

are important[,] because they clarify the law and it will
guide taxpayers. So[,] by January 1[,] [taxpayers] would
not be wondering. Do we charge the end consumers 10
[percent] or 12 [percent]? The regulations should be able to
spell that out [i]n the same manner that even now the
various consumers of various products and services must be
able to get from your regulations how much they [would] be
charged, how much should gasoline stations charge in
addition to their correct prices, how much carriers should
charge[,] so there [would] be no confusion.

“Usec. Bonoan: Yes, Your Honor.” (boldface supplied; pp. 665-666).
[37]Using available statistics, it is approximated that the 2 4/5 percent has been reached.
VAT collection (in million pesos) for the first quarter alone of 2004 is 83,542.83, or 83
percent of revenue collections amounting to 100,654.01. Divided into GDP of 13,053, the
quotient is already 6.4 percent. http://www.nscb.gov.ph/sna/2005/1stQ2005/2005per1.asp;
and the 2003 Bureau of Internal Revenue (BIR) Annual Report found on www.bir.gov.ph
(Last visited July 14, 2005, 10:45am PST).

[38]Besides, the use of the word “shall” in §§106(A), 107(A) & 108(A) of the Tax Code, as
amended respectively by §§4, 5 & 6 of RA 9337, is mandatory, imperative and compulsory.
See Agpalo, Statutory Construction (4th ed., 1998), p. 333.
[39] See
Separate Opinion (Concurring and Dissenting) of Panganiban, J., in Southern Cross
Cement Corp. v. Philippine Cement Manufacturers Corp., GR No. 158540, August 3, 2005,
p. 31.
[40] Escudero Memorandum, pp. 38-39.
GDP data are far from perfect measures of either economic output or welfare. There are
three major problems: (1) some outputs are poorly measured because they are not traded in
the market, and government services are not directly priced by such market; (2) some
activities measured as additions to GDP in fact only represent the use of resources in order to
avoid crime or risks to national security; and (3) it is difficult to account correctly for
improvements in the quality of goods. Dornbusch, Fischer, and Startz, Macroeconomics (9th
ed., 2005), pp. 35-36.
[41] Fariñas v. Executive Secretary, 417 SCRA, 503, 530, December 10, 2003.
[42]“Any meaningful change in the method and procedures of Congress or its committees
must x x x be sought in that body itself.” Tolentino v. Secretary of Finance, supra, p. 650,
October 30, 1995, per Mendoza, J.
[43] The necessity, desirability or expediency of a law must be addressed to Congress as the
body that is responsible to the electorate, for “legislators are the ultimate guardians of the
liberties and welfare of the people in quite as great a degree [as the] courts.” Tolentino v.
Secretary of Finance, supra, p. 650, October 30, 1995, per Mendoza, J.; (citing Missouri, K.
& T. Ry. Co. v. May, 194 US 267, 270, 24 S.Ct. 638, 639, May 2, 1904, per Holmes, J.)
[44] 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, 1911, per Day,
J.
“Parliamentary rules are merely procedural, and with their observance, the courts have no
concern. They may be waived or disregarded by the legislative body.” Arroyo v. De Venecia,
supra, p. 61, August 14, 1997, per Mendoza, J.; (citing Osmeña Jr. v. Pendatun, 109 Phil
863, 870-871, October 28, 1960, per Bengzon, J.).
[47] HBs 3555 & 3705 do not contain any provision that seeks to revise non-VAT provisions
of the Tax Code, but SB 1950 has §§1-3 that seek to amend the rates of income tax on
domestic, resident foreign and nonresident foreign corporations at 35% (30% in 2009), with
a tax credit on intercorporate dividends at 20% (15% in 2009); and to reduce the allowable
deductions for interest expense by 42% (33% in 2009) of the interest income subject to final
tax.
[48] The amendments to income taxes also partake of the nature of taxation without
representation. As I will discuss in the succeeding paragraphs of this Opinion, they did not
emanate from the House of Representatives that, under §24 of Article VI of the 1987
Constitution, is the only body from which revenue bills should exclusively originate.
[49] Mamalateo, Philippine Income Tax (2004), p. 1.
[50]Commissioner of Internal Revenue v. American Express International, Inc. (Philippine

Branch), GR No. 152609, p. 20, June 29, 2005, per Panganiban, J. See Deoferio Jr. &
Mamalateo, The Value Added Tax in the Philippines (2000), p. 36.
[51] De Leon, The Fundamentals of Taxation (12th ed., 1998), pp. 92 & 132.
[53] Vitug, Tax Law and Jurisprudence (2nd ed., 2000), p. 188.
[55]De Leon, The Law on Transfer and Business Taxation with Illustrations, Problems, and
Solutions (1998), pp. 195-196 & 222-224.
[57]See §78 of Revenue Regulations No. 2-1940, recommended by Bibiano L. Meer, then
Collector of Internal Revenue, and promulgated by Manuel Roxas, then Secretary of
Finance, later President of the Republic of the Philippines, on February 11, 1941, XXXIX
OG 18, 325.
[59] RA 8424 refers to the Tax Reform Act of 1997.
[60]The 42 percent reduction rate under §3 of RA 9337, amending §34(B)(1) of the Tax
Code, is derived by first subtracting the 20 percent tax on interest income from the increased
tax rate of 35 percent imposed on domestic, resident foreign, and nonresident foreign
corporations, and then dividing the difference obtained by the increased rate. Hence, it is
computed as follows:
35% - 20% = 15%

15% : 35% = 42%, the amount of reduction.
[61] §§1-3 of HB 3705.
[62]
§5 of SB 1950. There seems to be a discrepancy between the Conference Committee
Report and the various pleadings before this Court. While such report, attaching a copy of
the bill as reconciled and approved by its conferees, as well as the report submitted by the
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.
[63] §4 of HB 3555 seeks to amend §110(A) of the Tax Code by limiting to 5% and 11% of
their respective total amounts the claim for input tax credit of capital goods, through equal
distribution of the amount of such claim over their depreciable lives; and of goods and
services other than capital goods, and goods purchased by persons engaged in retail trade.
[64]§7 of SB 1950 seeks to amend §110 of the Tax Code by also limiting the claim for input
tax credit of goods purchased or imported for use in trade or business, through an even
depreciation or amortization over the month of acquisition and the 59 succeeding months, if
the aggregate acquisition cost of such goods exceeds P 660,000.
The depreciation or amortization in the amendments is referred to as a “spread-out” in an

unnumbered Revenue Memorandum Circular dated July 12, 2005, submitted to this Court by
public respondents in their Compliance dated August 16, 2005. Such spread-out recognizes
industries where capital assets are constructed or assembled.
[65] No cap is found in HB 3705.
[66] §5 of HB 3555 seeks to amend §114 of the Tax Code by requiring that the VAT be
deducted and withheld by the government or by any of its political subdivisions,
instrumentalities or agencies -- including government-owned-and-controlled corporations
(GOCCs) -- before making any payment on account of each purchase of goods from sellers
and services rendered by contractors. The VAT deducted and withheld shall be at the rates of
5% of the gross payment for the purchase of goods and 8% of the gross receipts for services
rendered by contractors on every sale or installment payment. The VAT that is deducted and
withheld shall be creditable against their respective VAT liabilities -- 10.5%, in case of
government public works contractors; and 12% of the payments for the lease or use of
properties or property rights to nonresident owners.
[67] §11 of SB 1950 seeks to amend §114 of the Tax Code by requiring that the VAT be
deducted and withheld by the government or by any of its political subdivisions,
instrumentalities or agencies -- including government-owned or -controlled corporations
(GOCCs) -- before making any payment on account of each purchase of goods from sellers
and services rendered by contractors. The VAT deducted and withheld shall be at the rates of
5% of the gross payment for the purchase of goods and on the gross receipts for services
rendered by contractors, including public works contractors. The VAT that is deducted and
withheld shall be creditable against the VAT liability of the seller; and 10% of the gross
payment for the lease or use of properties or property rights to nonresident owners.
[68] Deoferio Jr. & Mamalateo, The Value Added Tax in the Philippines (2000), pp. 34-35 &
44.
[69]http://explanation-guide.info/meaning/Maurice-LaurÃ©.html (Last visited August 23,

2005, 3:25pm PST).
[70] This refers to a “tax on value added” -- TVA in French and VAT in English.
[71]
http://en.wikipedia.org/wiki/ Maurice-LaurÃ© (Last visited August 23, 2005, 3:20pm
PST).
[72]The Transcript of the Oral Arguments in GR Nos. 168461, 168463, 168056, and 168207,
held on July 14, 2005 at the Supreme Court Session Hall, show that the act of passing on to
consumers is a mere cash flow problem, as agreed to by counsel for petitioners in GR No.
168461:
“Justice Panganiban: So, the final consumer pays the tax?


“Justice Panganiban: The trade people in between the middlemen just take it
as an input and then [collect] it as output, 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).
[73]The 5 percent final withholding tax may also be charged as part of a supplier’s Cost of
Sales.

[74] This refers to RA 8424, as amended.

[75]In fact, §112(B) of the Tax Code, prior to and after its amendment by §10 of RA 9337,
does not at all prohibit the application of unused input taxes against other internal revenue
taxes. The manner of application is determined though by the BIR through §4.112-1(b) of
Revenue Regulations No. 14-2005, otherwise known as the “Consolidated VAT Regulations
of 2005,” dated June 22, 2005.

[76]That the unutilized input VAT can be considered an ordinary and necessary expense for
which a corresponding deduction will be allowed against gross income under §34(A)(1) of
the Tax Code --instead of a deferred asset -- is another matter to be adjudicated upon in
proper cases.

[77] See United Paracale Mining Co. v. De la Rosa, 221 SCRA 108, 115, April 7, 1993.

[78]The law referred to is not only the Tax Code, but also RA 9298, otherwise known as the
“Philippine Accountancy Act of 2004.”

[79]These are based on pronouncements of recognized bodies involved in setting accounting

principles. Greatest weight shall be given to their pronouncements in the order listed below:
1. Securities and Exchange Commission (SEC);

2. Accounting Standards Council;
3. Standards issued by the International Accounting Standards Board (now Committee);
and
4. Accounting principles and practices for which there has been a long history of
acceptance and usage.
If there appears to be a conflict between any of the bodies listed above, the pronouncements
of the first listed body shall be applied. SEC Securities Regulation Code Rule 68(1)(b)(iv) as
amended, cited in Appendix C of Morales, The Philippine Securities Regulation Code
(Annotated), [2005], p. 578.

Recommended by the World Bank and the Asian Development Bank, and increasingly
recognized worldwide, international accounting standards (IAS) have been merely adopted
by Philippine regulatory bodies and accredited professional organizations. The SEC, for
instance, complies with the agreement among co-members of the International Organization
of Securities Commissions to adopt IAS in order to ensure high-quality and transparent
financial reporting, with full disclosure as a means to promote credibility and efficiency in
the capital markets. In implementing the General Agreement on Trade in Services, the
Professional Regulatory Board of Accountancy (PRBOA) of the Professional Regulatory
Commission supports the adoption of IAS. The Philippine Institute of Certified Public
Accountants, a member of the International Accounting Standards Committee (IASC), also
has the commitment to support the work of the IASC and uses best endeavors to foster
compliance with IAS. http://www.picpa.com.ph/adb/index.htm (Last visited August 23,
2005, 3:15pm PST).

[80]Meigs & Meigs, Accounting: The Basis for Business Decisions (1981), pp. 28 & 515.

Under §9(b) & (g) of RA 9298, the PRBOA shall supervise the practice of accountancy in
the Philippines and adopt measures -- such as the promulgation of accounting and auditing
standards, rules and regulations, and best practices -- that may be deemed proper for the
enhancement and maintenance of high professional, ethical, accounting, and auditing
standards that include international accounting and auditing standards and generally accepted
best practices.

[81] The VAT is collected on each sale of goods or properties or upon the actual or
constructive receipt of consideration for services, starting from the production stage,
followed by the intermediate stages in the distribution process, and culminating with the sale
to the final consumer. This is the essence of a VAT; it is a tax on the value added, that is, on
the excess of sales over purchases. See Deoferio Jr. & Mamalateo, The Value Added Tax in
the Philippines (2000), pp. 33-34. With the 70 percent cap on output tax that is allowable as
an input tax credit, the remaining 30 percent becomes an outright expense that is, however,
immediately payable and remitted by the business establishment to the government. This
amount can never be recovered or passed on to the consumer, but it can be an allowable
deduction from gross income under §34(A)(1) of the Tax Code. In effect, it is a tax
computed by multiplying 30 percent to the 10 percent VAT that is imposed on gross sales,
receipts or revenues. It is not a tax on tax and, mathematically, it is derived as follows:

30% x 10% = 3% of gross sales, receipts or revenues.

==========================
[82] “Double taxation means taxing the same property [or subject matter] twice when it
should be taxed only once; that is, ‘taxing the same person twice by the same jurisdiction for
the same thing.’” Commissioner of Internal Revenue v. Solidbank Corp., 416 SCRA 436,
November 25, 2003, per Panganiban, J.; (citing Afisco Insurance Corp. v. CA, 361 Phil. 671,
687, January 25, 1999, per Panganiban, J.). See Commissioner of Internal Revenue v. Bank
of Commerce, GR No. 149636, pp. 17-18, June 8, 2005.
[83]“The rule x x x is well settled that there is no constitutional prohibition against double
taxation.” China Banking Corp. v. CA, 403 SCRA 634, 664, June 10, 2003, per Carpio, J.
Cruz, Constitutional Law (1998), p. 89.
[84] §116 of the Tax Code as amended.
[85]“[C]ourts accord the presumption of constitutionality to legislative enactments, not only

because the legislature is presumed to abide by the Constitution[,] but also because the
judiciary[,] in the determination of actual cases and controversies[,] must reflect the wisdom
and justice of the people as expressed through their representatives in the executive and
legislative departments of the government.” Angara v. Electoral Commission, 63 Phil. 139,
158-159, July 15, 1936, per Laurel, J.; (cited in Francisco Jr. v. House of Representatives,
supra, pp. 121-122.)
[86]Cawaling Jr. v. COMELEC, 420 Phil. 524, 530, October 26, 2001, per Sandoval-
Gutierrez, J.
[87] Ichong v. Hernandez, 101 Phil. 1155, 1164, May 31, 1957, per Labrador, J.
[88] De Leon, The Fundamentals of Taxation (12th ed., 1998), p. 1.
[89] Except, as earlier discussed, for Sections 1, 2 and 3 of the law.
[90] §§13-20 of SB 1950 seek to amend Tax Code provisions on percentage taxes on
domestic carriers and keepers of garages in §117, and on international carriers in §118;
franchise taxes in §119; amusement taxes in §125; excise taxes on manufactured oils and
other fuels in §148; registration requirements in §236; issuance of receipts or sales or
commercial invoices in §237; and disposition of incremental revenues in §288.
[91] “[T]he removal of the excise tax on diesel x x x and other socially sensitive products
such as kerosene and fuel oil substantially lessened the impact of VAT. The reduction in
import duty x x x also eased the impact of VAT.” Manila Bulletin, “Impact of VAT on prices
of oil products should be less than 10%, says DoE,” by James A. Loyola, Business Bulletin
B-3, Friday, July 1, 2005, attached as Annex A to the Memorandum filed by the Association
of Pilipinas Shell Dealers, Inc.
The Transcript of the Oral Arguments in GR Nos. 168461, 168463, 168056, and 168207 on
July 14, 2005 also reveals the effect of mitigating measures upon petitioners in GR No.
168461:
“Justice Panganiban: As a matter of fact[,] a part of the mitigating measures

would be the elimination of the [e]xcise [t]ax and the

import duties. That is [why] it is not correct to say that
the [VAT] as to petroleum dealers increase to 10
[percent].

“Justice Panganiban: And[,] therefore, there is no justification for increasing

the retail price by 10 [percent] to cover the E-[VAT.] [I]f
you consider the excise tax and the import duties, the
[n]et [t]ax would probably be in the neighborhood of 7
[percent]? We are not going into exact figures[.] I am
just trying to deliver a point that different industries,
different products, different services are hit differently.
So it’s not correct to say that all prices must go up by 10
[percent].

“Atty. Baniqued: You’re right, Your Honor.

“Justice Panganiban: Now. For instance, [d]omestic [a]irline companies, Mr.

Counsel, are at present imposed a [s]ales [t]ax of 3
[percent]. When this E-[VAT] law took effect[,] the
[s]ales [t]ax was also removed as a mitigating measure.
So, therefore, there is no justification to increase the
fares by 10 [percent;] at best 7 [percent], correct?

“Atty. Baniqued: I guess so, Your Honor, yes.” (pp. 367-368).


[94] These bills refer to HB 3705 and SB 1950.

[95] §26(2), supra.

[96]“Each house may not by its rules ignore constitutional restraints or violate fundamental
rights, and there should be a reasonable relation between the mode or method of proceeding
established by the rule and the result which is sought to be attained.” US v. Ballin, 144 US 1,
5, 12 S.Ct. 507, 509, February 29, 1892, per Brewer, J.

[97]Panganiban, Leveling the Playing Field (2004), PRINTTOWN Group of Companies, pp.
46-47.

[98] 338 Phil. 546, 604-605, May 2, 1997, per Panganiban, J.

[99]
420 Phil. 525, 531, October 26, 2001, per Sandoval-Gutierrez, J.; (citing The Philippine
Judges Association v. Prado, 227 SCRA 703, 706, November 11, 1993, per Cruz, J.).

[100] VeteransFederation Party v. COMELEC, 396 Phil. 419, 452-453, October 6, 2000, per
Panganiban, J.; (citing Garcia v. COMELEC, 227 SCRA 100, 107-108, October 5, 1993).
CONCURRING AND DISSENTING OPINION

YNARES-SANTIAGO, J.:

The ponencia states that under the provisions of the Rules of the House of Representatives
and the Senate Rules, the Bicameral Conference Committee is mandated to settle differences
between the disagreeing provisions in the House bill and Senate bill. However, the ponencia
construed the term “settle” as synonymous to “reconcile” and “harmonize,” and as such, the
Bicameral Conference Committee may either (a) adopt the specific provisions of either the
House bill or Senate bill, (b) decide that neither provisions in the House bill or the
provisions in the Senate bill would be carried into the final form of the bill, and/or (c) try to
arrive at a compromise between the disagreeing provisions.

I beg to differ on the third proposition.

Indeed, Section 16(3), Article VI of the 1987 Constitution explicitly allows each House to
determine the rules of its proceedings. However, the rules must not contravene constitutional
provisions. The rule-making power of Congress should take its bearings from the
Constitution. If in the exercise of this rule-making power, Congress failed to set parameters
in the functions of the committee and allowed the latter unbridled authority to perform acts
which Congress itself is prohibited, like the passage of a law without undergoing the
requisite three-reading and the so-called no-amendment rule, then the same amount to grave
abuse of discretion which this Court is empowered to correct under its expanded certiorari
jurisdiction. Notwithstanding the doctrine of separation of powers, therefore, it is the duty of
the Court to declare as void a legislative enactment, either from want of constitutional
power to enact or because the constitutional forms or conditions have not been
observed.[1] When the Court declares as unconstitutional a law or a specific provision
thereof because procedural requirements for its passage were not complied, the Court is by
no means asserting its ascendancy over the Legislature, but simply affirming the supremacy
of the Constitution as repository of the sovereign will.[2] The judicial branch must ensure
that constitutional norms for the exercise of powers vested upon the two other branches are
properly observed. This is the very essence of judicial authority conferred upon the Court
under Section 1, Article VII of the 1987 Constitution.

The Rules of the House of Representatives and the Rules of the Senate provide that in the
event there is disagreement between the provisions of the House and Senate bills, the
differences shall be settled by a bicameral conference committee.

By this, I fully subscribe to the theory advanced in the Dissenting Opinion of Chief Justice
Hilario G. Davide, Jr. in Tolentino v. Secretary of Finance[3] that the authority of the
bicameral conference committee was limited to the reconciliation of disagreeing provisions
or the resolution of differences or inconsistencies. Thus, it could only either (a) restore,
wholly or partly, the specific provisions of the House bill amended by the Senate bill,
(b) sustain, wholly or partly, the 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.
When the Bicameral Conference Committee goes beyond its limited function by substituting
its own judgment for that of either of the two houses, it violates the internal rules of
Congress and contravenes material restrictions imposed by the Constitution, particularly on
the passage of law. While concededly, the internal rules of both Houses do not explicitly
limit the Bicameral Conference Committee to a consideration only of conflicting provisions,
it is understood that the provisions of the Constitution should be read into these rules as
imposing limits on what the committee can or cannot do. As such, it cannot perform its
delegated function in violation of the three-reading requirement and the no-amendment rule.
Section 26(2) of Article VI of the 1987 Constitution provides that:
(2) No bill shall be passed by either House shall become a law unless it has
passed three readings on separate days, and printed copies thereof in its final
form have been distributed to its Members three days before its passage, except
when the President certifies to the necessity of its immediate enactment to meet a
public calamity or emergency. Upon the last reading of a bill, no amendment
hereto shall be allowed, and the vote thereon shall be taken immediately
thereafter, and the yeas and nays entered in the Journal.
Thus, before a bill becomes a law, it must pass three readings. Hence, the 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,[4] there is absolutely no legal warrant for the
bold submission that a Bicameral Conference Committee possesses the power to add/delete
provisions in bills already approved on third reading by both Houses or an ex post veto
power.
In view thereof, it is my submission that the amendments introduced by the Bicameral

Conference Committee which are not found either in the House or Senate versions of the
VAT reform bills, but are inserted merely by the Bicameral Conference Committee and
thereafter included in Republic Act No. 9337, should be declared unconstitutional. The
insertions and deletions made do not merely settle conflicting provisions but materially
altered the bill, thus giving rise to the instant petitions.
I, therefore, join the concurring and dissenting opinion of Mr. Justice Reynato S. Puno.
[1] Cooley on Constitutional Limitations, 8th Ed., Vol. I, p. 332.

[2] Angara v. Electoral Commission, 63 Phil. 139, 158 [1936].

[3]G.R. Nos. 115455, 115525, 115543, 115544, 115754, 115781, 115852, 115873, 115931,
25 August 1994, 235 SCRA 630, 750.

[4] Supra, p. 811.

SANDOVAL – GUTIERREZ, J.:

Adam Smith, the great 18th – century political economist, enunciated the dictum that “the
subjects of every state ought to contribute to the support of government, as nearly as
possible, in proportion to their respective abilities; that is, in proportion to the revenue
which they respectively enjoy under the protection of the state.”[1] At no other time this
dictum becomes more urgent and obligatory as in the present time, when the Philippines is in
its most precarious fiscal position.

At this juncture, may I state that I join Mr. Senior Justice Reynato S. Puno in his Opinion,
specifically on the following points:
1. It is “high time to re-examine the test of germaneness proffered in Tolentino;”

2. The Bicameral Conference Committee “cannot exercise its unbridled discretion,” “it
cannot create a new law,” and its deletion of the “no pass on provision” common in
both Senate Bill No. 1950 and House Bill No. 3705 is “unconstitutional.”
In addition to the above points raised by Mr. Senior Justice Puno, may I expound on the
issues specified hereunder:

There is no reason to rush and stamp the imprimatur of validity to a tax law, R.A. 9337, that
contains patently unconstitutional provisions. I refer to Sections 4 to 6 which violate the
principle of non-delegation of legislative power. These Sections authorize the President,
upon recommendation of the Secretary of Finance, to raise the VAT rate from 10% to 12%
effective January 1, 2006, if the conditions specified therein are met, thus:
. . . That the President, upon the recommendation of the Secretary of Finance,

shall, effective January 1, 2006, raise the rate of value-added tax to twelve
percent (12%) after any of the following conditions has been satisfied:

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

(GDP) of the previous year exceeds two and four-fifth percent (2 4/5%);
or

exceeds one and one-half percent (1 ½%).
This proviso on the authority of the President is uniformly appended to Sections 4, 5 and 6
of R.A. No. 9337, provisions amending Sections 106, 107 and 108 of the NIRC,
respectively. Section 4 imposes a 10% VAT on sales of goods and properties, Section 5
imposes a 10% VAT on importation of goods, and Section 6 imposes a 10% VAT on sale of
services and use or lease of properties.

Petitioners in G.R. Nos. 168056,[2] 168207[3] and 168463[4] assail the constitutionality of
the above provisions on the ground that such stand-by authority granted to the President
constitutes: (1) undue delegation of legislative power; (2) violation of due process; and (3)
violation of the principle of “exclusive origination.” They cited as their basis Article VI,
Section 28 (2); Article III, Section 1; and Article VI, Section 24 of the Constitution.

I
Undue Delegation of
Legislative Power

Taxation is an inherent attribute of sovereignty.[5] It is a power that is purely legislative and

which the central legislative body cannot delegate either to the executive or judicial
department of government without infringing upon the theory of separation of powers.[6]
The rationale of this doctrine may be traced from the democratic principle of “no taxation
without representation.” The power of taxation being so pervasive, it is in the best interest of
the people that such power be lodged only in the Legislature. Composed of the people’s
representatives, it is “closer to the pulse of the people and… are therefore in a better position
to determine both the extent of the legal burden the people are capable of bearing and the
benefits they need.”[7] Also, this set-up provides security against the abuse of power. As
Chief Justice Marshall said: “In imposing a tax, the legislature acts upon its constituents. The
power may be abused; but the interest, wisdom, and justice of the representative body, and
its relations with its constituents, furnish a sufficient security.”

Consequently, Section 24, Article VI of our Constitution enshrined the principle of “no
taxation without representation” by providing that “all… revenue bills… shall originate
exclusively in the House of Representatives, but the Senate may propose or concur with
amendments.” This provision generally confines the power of taxation to the Legislature.

R.A. No. 9337, in granting to the President the stand-by authority to increase the VAT rate
from 10% to 12%, the Legislature abdicated its power by delegating it to the President. This
is constitutionally impermissible. The Legislature may not escape its duties and
responsibilities by delegating its power to any other body or authority. Any attempt to
abdicate the power is unconstitutional and void, on the principle that potestas delegata non
delegare potest.[8] As Judge Cooley enunciated:
"One of the settled maxims in constitutional law is, that the power conferred
upon the legislature to make laws cannot be delegated by that department to any
other body or authority. Where the sovereign power of the state has located
the authority, there it must remain; and by the constitutional agency alone
the laws must be made until the Constitution itself is changed. The power to
whose judgment, wisdom, and patriotism this high prerogative has been entrusted
cannot relieve itself of the responsibility by choosing other agencies upon which
the power shall be devolved, nor can it substitute the judgment, wisdom, and
patriotism of any other body for those to which alone the people have seen fit to
confide this sovereign trust."[9]

Of course, the rule which forbids the delegation of the power of taxation is not absolute and
inflexible. It admits of exceptions. Retired Justice Jose C. Vitug enumerated such exceptions,
to wit: (1) delegations to local governments (to be exercised by the local legislative bodies
thereof) or political subdivisions; (2) delegations allowed by the Constitution; and (3)
delegations relating merely to administrative implementation that may call for some degree
of discretionary powers under a set of sufficient standards expressed by law.[10]

Patently, the act of the Legislature in delegating its power to tax does not fall under any of
the exceptions.

First, it does not involve a delegation of taxing power to the local government. It is a
delegation to the President.

Second, it is not allowed by the Constitution. Section 28 (2), Article VI of the Constitution
enumerates the charges or duties, the rates of which may be fixed by the President pursuant
to a law passed by Congress, thus:
The Congress may, by law, authorize the President to fix within specified
limits, and subject to such limitations and restrictions as it may impose, tariff
rates, import and export quotas, tonnage and wharfage dues, and other duties
or imposts within the framework of the national development program of the
Government.
Noteworthy is the absence of tax rates or VAT rates in the enumeration. If the intention of
the Framers of the Constitution is to permit the delegation of the power to fix tax rates or
VAT rates to the President, such could have been easily achieved by the mere inclusion of
the term “tax rates” or “VAT rates” in the enumeration. It is a dictum in statutory
construction that what is expressed puts an end to what is implied. Expressium facit
cessare tacitum.[11] This is a derivative of the more familiar maxim express mention is
implied exclusion or expressio unius est exclusio alterius. Considering that Section 28 (2),
Article VI expressly speaks only of “tariff rates,[12] import[13] and export quotas,[14]
tonnage[15] and wharfage dues[16] and other duties and imposts,[17]” by no stretch of
imagination can this enumeration be extended to include the VAT.

https://elibrary.judiciary.gov.ph/assets/dtSearch/dtSearch_system_files/dtisapi6.dll?cmd=getdoc&DocId=47953&Index=%2a4aeb4dbdcceeda… 100/169
And third, it does not relate merely to the administrative implementation of R.A. No. 9337.
In testing whether a statute constitutes an undue delegation of legislative power or not, it is

usual to inquire whether the statute was complete in all its terms and provisions when it left
the hands of the Legislature so that nothing was left to the judgment of any other appointee
or delegate of the legislature.[18]
In the present case, the President is the delegate of the Legislature, endowed with the power
to raise the VAT rate from 10 % to 12% if any of the following conditions, to reiterate, has
been satisfied: (i) value-added tax collection as a percentage of gross domestic product
(GDP) of the previous year exceeds two and four-fifths percent (2 4/5%) or (ii) National
Government deficit as a percentage of GDP of the previous year exceeds one and one-half
percent (1 ½%).
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 ½% 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.[19]
II
Violation of Due Process
The constitutional safeguard of due process is briefly worded in Section 1, Article III of the
Constitution which states that, “no person shall be deprived of life, liberty or property
without due process of law.”[20]
Substantive due process requires the intrinsic validity of the law in interfering with the rights
of the person to his property. The inquiry in this regard is not whether or not the law is being
enforced in accordance with the prescribed manner but whether or not, to begin with, it is
a proper exercise of legislative power.
To be so, the law must have a valid governmental objective, i.e., the interest of the public
as distinguished from those of a particular class, requires the intervention of the State. This
objective must be pursued in a lawful manner, or in other words, the means employed must
be reasonably related to the accomplishment of the purpose and not unduly oppressive.
There is no doubt that R.A. No. 9337 was enacted pursuant to a valid governmental
objective, i.e. to raise revenues for the government. However, with respect to the means
employed to accomplish such objective, I am convinced that R.A. No. 9337, particularly
Sections 4, 5 and 6 thereof, are arbitrary and unduly oppressive.
A reading of the Senate deliberation reveals that the first condition constitutes a reward to
the President for her effective collection of VAT. Thus, the President may increase the VAT
rate from 10% to 12% if her VAT collection during the previous year exceeds 2 4/5% of the
Gross Domestic Product. I quote the deliberation:
Senator Lacson. Thank you, Mr. President. Now, I will go back to my

original question, my first question. Who are we
threatening to punish on the imposed condition No. 1 –
the public or the President?

Senator Recto That is not a punishment, that is supposed to be a

reward system.

Senator Lacson. Yes, an incentive. So we are offering an incentive to

the Chief Executive.

Senator Recto. That is right.

Senator Lacson – in order for her to be able to raise the VAT to 12 %.

Senator Recto. That is right. That is the intention, yes.

xxxxxx

Senator Osmena. All right. Therefore, with the lifting of exemptions it

stands to reason that Value-added tax collections as a
percentage of GDP will be much higher than… Now,
if it is higher than 2.5%, in other words, because they
collected more, we will allow them to even tax more.
Is that the meaning of this particular phrase?

Senator Recto. Yes, Mr. President, that is why it is as low as 2.8%. It

is like if a person has a son and his son asks him for
an allowance, I do not think that he would
immediately give his son an increase in allowance
unless he tells his son, You better improve your
grades and I will give you an allowance. That is the
analogy of this.

xxxxxx

Senator Osmena. So the gentleman is telling the President, If you

collect more than 138 billion, I will give you
additional powers to tax the people.

Senator Recto. x x x We are saying, kung mataas and grade mo,

dadagdagan ko an allowance mo. Katulad ng sinabi

natin ditto. What we are saying here is you prove to
me that you can collect it, then we will increase your
rate, you can raise your rate. It is an incentive.[21]
Why authorize the President to increase the VAT rate on the premise alone that she deserves
an “incentive” or “reward”? Indeed, why should she be rewarded for performing a duty
reposed upon her by law?

The rationale stated by Senator Recto is flawed. One of the principles of sound taxation is
fiscal adequacy. The proceeds of tax revenue should coincide with, and approximate the
needs of, government expenditures. Neither an excess nor a deficiency of revenue vis-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 exercised at one’s whim.

III

Exclusive Origination from the

House of Representatives
Section 24, Article VI of the Constitution provides:
SEC. 24. All appropriations, revenue or tariff bills, bills authorizing increase of
the public debt, bills of local application, and private bills shall originate
exclusively in the House of Representatives, but the Senate may propose or
concur with amendments.
In Tolentino vs. Secretary of Finance,[23] this Court expounded on the foregoing provision
by holding that:
“x x x To begin with, it is not the law – but the revenue bill – which is required
by the Constitution to ‘originate exclusively in the House of Representatives. It is
important to emphasize this, because a bill originating the in the House may
undergo such extensive changes in the Senate that the result may be a rewriting
of the whole x x x. At this point, what is important to note is that, as a result of
the Senate action, a distinct bill may be produced. To insist that a revenue statute
-- and not only the bill which initiated the legislative process culminating in the
enactment of the law – must substantially be the same as the House Bill would be
to deny the 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 amendments, as on other bills.”
The American people, in entrusting what James Madison termed “the power of the purse” to
their elected representatives, drew inspiration from the British practice and experience with
the House of Commons. As one commentator puts it:
“They knew the inestimable value of the House of Commons, as a component

branch of the British parliament; and they believed that it had at all times
furnished the best security against the oppression of the crown and the
aristocracy. While the power of taxation, of revenue, and of supplies
remained in the hands of a popular branch, it was difficult for usurpation to
exist for any length of time without check, and prerogative must yield of that
necessity which controlled at once the sword and the purse.”
But while the fundamental principle underlying the vesting of the power to propose revenue
bills solely in the House of Representatives is present in both the Philippines and US
Constitutions, stress must be laid on the differences between the two quoted provisions. For
one, the word “exclusively” appearing in Section 24, Article VI of our Constitution is
nowhere to be found in Section 7 (1), Article I of the US Constitution. For another, the
phrase “as on other bills,” present in the same provision of the US Constitution, is not
written in our Constitution.

The adverb “exclusively” means “in an exclusive manner.”[24] The term “exclusive” is
defined as “excluding or having power to exclude; limiting to or limited to; single, sole,
undivided, whole.”[25] In one case, this Court define the term “exclusive” as “possessed to
the exclusion of others; appertaining to the subject alone, not including, admitting, or
pertaining to another or others.”[26]

As for the term “originate,” its meaning are “to cause the beginning of; to give rise to; to
initiate; to start on a course or journey; to take or have origin; to be deprived; arise;
begin or start.”[27]

With the foregoing definitions in mind, it can be reasonably concluded that when Section 24,
Article VI provides that revenue bills shall originate exclusively from the House of
Representatives, what the Constitution mandates is that any revenue statute must begin or
start solely and only in the House. Not the Senate. Not both Chambers of Congress. But
there is more to it than that. It also means that “an act for taxation must pass the House
first.” It is no consequence what amendments the Senate adds.[28]

A perusal of the legislative history of R.A. No. 9337 shows that it did not “exclusively
originate” from the House of Representatives.

The House of Representatives approved House Bill Nos. 3555[29] and 3705[30]. These Bills
intended to amend Sections 106, 107, 108, 109, 110, 111 and 114 of the NIRC. For its part,
the Senate approved Senate Bill No. 1950,[31] taking into consideration House Bill Nos.
3555 and 3705. It intended to amend Sections 27, 28, 34, 106, 108, 109, 110, 112, 113, 114,
116, 117, 119, 121, 125, 148, 151, 236, 237 and 288 of the NIRC.
Thereafter, on April 13, 2005, a Committee Conference was created to thresh out the
disagreeing provisions of the three proposed bills.
In less than a month, the Conference Committee “after having met and discussed in full free
and conference,” came up with a report and recommended the approval of the consolidated
version of the bills. The Senate and the House of Representatives approved it.
On May 23, 2005, the enrolled copy of the consolidated version of the bills was transmitted
to President Arroyo, who signed it into law. Thus, the enactment of R.A. No. 9337, entitled
“An Act Amending Sections 27, 28, 34, 106, 107, 108, 109, 110, 111, 112, 113, 114, 116, 117,
119, 121, 148, 151, 236, 237 and 288 of the National Internal Revenue Code of 1997, As
Amended and For Other Purposes.”
Clearly, Senate Bill No. 1950 is not based on any bill passed by the House of
Representatives. It has a legislative identity and existence separate and apart from House
Bills No. 3555 and 3705. Instead of concurring or proposing amendments, Senate Bill No.
1950 merely “takes into consideration” the two House Bills. To take into consideration
means “to take into account.” Consideration, in this sense, means “deliberation, attention,
observation or contemplation.[32] Simply put, the Senate in passing Senate Bill No. 1950, a
tax measure, merely took into account House Bills No. 3555 and 3705, but did not concur
with or amend either or both bills. As a matter of fact, it did not even take these two House
Bills as a frame of reference.
In Tolentino, the majority subscribed to the view that Senate may amend the House revenue
bill by substitution or by presenting its own version of the bill. In either case, the result is
“two bills on the same subject.”[33] This is the source of the “germaneness” rule which
states that the Senate bill must be germane to the bill originally passed by the House of
Representatives. In Tolentino, this was not really an issue as both the House and Senate Bills
in question had one subject – the VAT.
The facts obtaining here is very much different from Tolentino. It is very apparent that House
Bills No. 3555 and 3705 merely intended to amend Sections 106, 107, 108, 109, 110, 111
and 114 of the NIRC of 1997, pertaining to the VAT provisions. On the other hand, Senate
Bill No. 1950 intended to amend Sections 27, 28, 34, 106, 108, 109, 110, 112, 113, 114, 116,
117, 119, 121, 125, 148, 151, 236, 237 and 288 of the NIRC, pertaining to matters outside of
VAT, such as income tax, percentage tax, franchise tax, taxes on banks and other financial
intermediaries, excise taxes, etc.
Thus, I am of the position that the Senate could not, without violating the germaneness rule
and the principle of “exclusive origination,” propose tax matters not included in the House
Bills.
WHEREFORE, I vote to CONCUR with the majority opinion except with respect to the
points above-mentioned.
[1] Book V of The Wealth of Nations.
[2]ABAKADA GURO Party List (Formerly AASJAS), Officers Samson S. Alcantara and
Ed Vincent S. Albano.
[3]Aquilino Q. Pimentel, Jr., Luisa P. Ejercito-Estrada, Jinggoy E. Estrada, Panfilo M.

Lacson, Alfredo S. Lim, Jamby A.S. Madrigal and Sergio R. Osmena III.
[4]Francis Joseph G. Escudero, Vincent Crisologo, Emmanuel Joel J. Villanueva, Rodolfo G.

Plaza, Darlene Antonino-Custodio, Oscar G. Malapitan, Benjamin C. Agarao, Jr., Juan
Edgardo M. Angara, Justin Marc SB. Chipeco, Florencio G. Noel, Mujiv S. Hataman,
Renato B. Magtubo, Joseph A. Santiago, Teofisto DL. Guingona III, Ruy Elias C. Lopez,
Rodolfo Q. Agbayani and Teodoro A. Casino.
[5]Luzon Stevedoring Co. vs. Court of Tax Appeals, L-302332, July 29, 1998, 163 SCRA
647 cited in Vitug, Acosta, Tax Law and Jurisprudence, Second Edition, at 7.
[6] PepsiCola Bottling Company of the Philippines vs. Municipality of Tanauan, Leyte, G.R.
No. L-31156, February 27, 1976, 69 SCRA 460. See also National Power Corporation vs.
Albay, G.R. No. 87479, June 4, 1990, 186 SCRA 198.
[7]Bernas, SJ, The 1987 Constitution of the Republic of the Philippines, A Commentary,
1996 Edition, at 687.
[8] People vs. Vera, 65 Phil. 56 (1937).
[9] Cooley on Constitutional Limitations, 8th ed., Vol. I, p. 224.
[10] Vitug, Acosta, Tax Law and Jurisprudence, Second Edition, at 8-9.
[11]Espiritu vs. Cipriano, G.R. No. 32743, February 15, 1974, 55 SCRA 533, 538, citing
Sutherlands Statutory Construction, Vol. 2, Section 4945, p. 412.
[12]A tariff is a list or schedule of articles on which a duty is imposed upon their
importation, with the rates at which they are severally taxed, it is also the custom or duty
payable on such articles. (Black’s Law Dictionary [6th Edition], 1990, at 1456).
[13]An import quota is a quantitative restriction on the importation of an article into a

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

merchandise and other commodities, while imposts are duties or impositions levied for
various reasons. (Crew Levick Co. vs. Commonwealth of Pennsylvania, 245 US 292, 62 L.
Ed. 295, 38 S. Ct. 126).
[18] People vs. Vera, supra.
[19] Walter E. Olsen & Co. vs. Aldanese and Trinidad (1922), 43 Phil., 259; 12 C. J., p. 786.
[20] Cruz, Constitutional Law, 1987 Edition, at 101.
[21] TSN, May 10, 2005, Annex ‘E” of the Petition in G.R. No. 168056.
[22] Vitug, Acosta, Tax Law and Jurisprudence, Second Edition, at 3.
[23] G.R. No. 115455, August 25, 1994, 235 SCRA 630.
[24] Merriam-Webster’s Third New International Dictionary (1993 Ed.), at 793.
[25] Id.
[26]City Mayor vs. The Chief of Philippine Constabulary, G.R. No. 20346, October 31,
1967, 21 SCRA 665, 673.
[28] Davies, Legislative Law and Process, (2d. Ed. 1986), at 89.
[29]Entitled “An Act Restructuring the Value-Added Tax, Amending for the Purpose Sections
106, 107, 108, 110 and 114 of the National Internal Revenue Code of 1997, As amended, and
For Other Purposes.” Approved on January 27, 2005.
[30] Entitled “An Act Amending Sections 106, 107, 108, 109, 110 and 111 of the National
Internal Revenue Code of 1997, As Amended, and For Other Purposes.” Approved on
February 28, 2005.
[31]Entitled “An Act Amending Sections 27, 28, 34, 106,108, 109,110, 112, 113, 114, 116,
117, 119, 121, 125, 148, 151, 236, 237 and 288 of the National Internal Revenue Code of
1997, As Amended, and For Other Purposes.” Approved on April1 3, 2005.

[33] Supra.

CALLEJO, SR., J.:

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

The present petitions provide an opportune

occasion for the Court to re-examine
Tolentino v. Secretary of Finance
In ruling that Congress, in enacting R.A. No. 9337, complied with the formal requirements
of the Constitution, the ponencia relies mainly on the Court’s rulings in Tolentino v.
Secretary of Finance.[1] To recall, Tolentino involved Republic Act No. 7716, which
similarly amended the NIRC by widening the tax base of the VAT system. The procedural
attacks against R.A. No. 9337 are substantially the same as those leveled against R.A. No.
7716, e.g., violation of the “Origination Clause” (Article VI, Section 24) and the “Three-
Reading Rule” and the “No-Amendment Rule” (Article VI, Section 26[2]) of the
Constitution.

The present petitions provide an opportune occasion for the Court to re-examine its rulings
in Tolentino particularly with respect to the scope of the powers of the Bicameral Conference
Committee vis-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 …
The result is a third version, which is considered an “amendment in the nature of

a substitute,” the only requirement for which being that the third version be
germane to the subject of the House and Senate bills.

Indeed, this Court recently held that it is within the power of a conference
committee to include in its report an entirely new provision that is not found
either in the House bill or in the Senate Bill. If the committee can propose an
amendment consisting of one or two provisions, collectively considered as an
“amendment in the nature of a substitute,” so long as such an amendment is
germane to the subject of the bills before the committee. After all, its report was
not final but needed the approval of both houses of Congress to become valid as
an act of the legislative department. The charge that in this case the Conference
Committee acted a third legislative chamber is thus without any basis.[2]
The majority opinion in Tolentino relied mainly on the practice of the United States
legislature in making the foregoing disquisition. It was held, in effect, that following the US
Congress’ practice where a conference committee is permitted to draft a bill that is entirely
different from the bills of either the House of Representatives or Senate, the Bicameral
Conference Committee is similarly empowered to make amendments not found in either the
House or Senate bills.

The ponencia upholds the acts of the Bicameral Conference Committee with respect to R.A.
No. 9337, following the said ruling in Tolentino.

To my mind, this unqualified adherence by the majority opinion in Tolentino, and now by the
ponencia, to the practice of the US Congress and its conference committee system ought to
be re-examined. There are significant textual differences between the US Federal
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 it, but if not he shall return it, with his Objections to
the House in which it shall have originated, who shall enter the Objections at
large on their Journal, and proceed to reconsider it. If after such Reconsideration
two thirds of that House shall agree to pass the Bill, it shall be sent together with
the Objections, to the other House, by which it shall, likewise, be reconsidered,
and if approved by two thirds of that House, it shall become a Law. But in all
such Cases the Votes of both Houses shall be determined by yeas and Nays, and
the Names of the Persons voting for and against the Bill shall be entered on the
Journal of each House respectively. If any Bill shall not be returned by the
President within ten Days (Sundays excepted) after it shall have been presented
to him, the Same shall be a Law, in like Manner as if he had signed it, unless the
Congress by their Adjournment prevent its return in which Case it shall not be a
Law.
[3] Every Order, Resolution, or Vote to Which the Concurrence of the Senate and
House of Representatives may be necessary (except on a question of
Adjournment) shall be presented to the President of the United States; and before
the Same shall take Effect, shall be approved by him, or being disapproved by
him, shall be repassed by two thirds of the Senate and House of Representatives,
according to the Rules and Limitations prescribed in the Case of a Bill.
On the other hand, Article VI of our Constitution prescribes for the following procedure for
enacting a law:
Sec. 26. (1) Every bill passed by Congress shall embrace only one subject which
shall be expressed in the title thereof.

(2) No bill passed by either House shall become a law unless it has passed three
readings on separate days, and printed copies thereof in its final form have been
distributed to its Members three days before its passage, except when the
President certifies to the necessity of its immediate enactment to meet a public
calamity or emergency. Upon the last reading of a bill, no amendment thereto
shall be allowed, and the vote thereon shall be taken immediately thereafter, and
the yeas and nays entered in the Journal.

Sec. 27. (1) Every bill passed by Congress shall, before it becomes a law, be
presented to the President. If he approves the same, he shall sign it; otherwise, he
shall veto it and return the same with his objections to the House where it
originated, which shall enter the objections at large in its Journal and proceed to
reconsider it. If, after such reconsideration, two-thirds of all the Members of such
House shall agree to pass the bill, it shall be sent, together with the objections, to
the other House by which it shall likewise be reconsidered, and if approved by
two-thirds of all the Members of that House, it shall become a law. In all such
cases, the votes of each House shall be determined by yeas and nays, and the
names of the Members voting for or against shall be entered in its Journal. The
President shall communicate his veto of any bill to the House where it originated
within thirty days after the date of receipt thereof; otherwise, it shall become a
law as if he had signed it.

(2) The President shall have the power to veto any particular item or items in an
appropriation, revenue, or tariff bill, but the veto shall not affect the item or items
to which he does not object.
Two distinctions are readily apparent between the two procedures:

1. Unlike the US Federal Constitution, our Constitution prescribes the “three-reading”

rule or that no bill shall become a law unless it shall have been read on three separate
days in each house except when its urgency is certified by the President; and

2. Unlike the US Federal Constitution, our Constitution prescribes the “no-amendment”

rule or that no amendments shall be allowed upon the last reading of the bill.
American constitutional experts have lamented that certain congressional procedures have
not been entrenched in the US Federal Constitution. According to a noted constitutional law
professor, the absence of the “three-reading” requirement as well as similar legislative-
procedure rules from the US Federal Constitution is a “cause for regret.”[3]

In this connection, it is interesting to note that the conference committee system in the US
Congress has been described in this wise:
Conference Committees

Another main mechanism of joint House and Senate action is the conference
committee. Inherited from the English Constitution, the conference committee
system is an evolutionary product whose principal threads were woven on the
loom of congressional practice into a unified pattern by the middle of the
nineteenth century. “By 1852,” writes Ada McCown, historian of the origin and
development of the conference committee, “the customs of presenting identical
reports from the committees of conference in both houses, of granting high
privilege to these conference reports, of voting upon the conference report as a
whole and permitting no amendment of it, of keeping secret the discussions
carried on in the meetings of the conference committee, had become established
in American parliamentary practice.”

Conference committees are composed of Senators and Representatives, usually

three each, appointed by the presiding officers of both houses, for the purpose of
adjusting differences between bills they have passed. This device has been
extensively used by every Congress since 1789. Of the 1157 laws enacted by the
78th Congress, for example, 107 went through conference and, of these, 36 were
appropriation bills on which the House had disagreed to Senate amendments. In
practice, most important legislation goes through the conference closet and is
there revised, sometimes beyond recognition, by the all-powerful conferees or
managers, as they are styled. A large body of law and practice has been built up
over the years governing conference procedure and reports.

Suffice it to say here that serious evils have marked the development of the
conference committee system. In the first place, it is highly prodigal of members’
time. McConachie calculated that the average time consumed in conference was
33 days per bill. Bills are sent to conference without reading the amendments of
the other chamber. Despite rules to the contrary, conferees do not confine
themselves to matters in dispute, but often initiate entirely new legislation and
even strike out identical provisions previously approved by both houses. This
happened during the 78th Congress, for instance, when an important amendment
to the surplus property bill, which had been approved by both houses, was
deleted in conference.

Conference committees, moreover, suffer like other committees from the

seniority rule. The senior members of the committees concerned, who are
customarily appointed as managers on the part of the House and Senate, are not
always the best informed on the questions at issue, nor do they always reflect the
majority sentiment of their houses. Furthermore, conference reports must be

accepted or rejected in toto without amendment and they are often so complex
and obscure that they are voted upon without knowledge of their contents. What
happens in practice is that Congress surrenders its legislative function to
irresponsible committees of conference. The standing rules against including new
and extraneous matter in conference reports have been gradually whittled away in
recent years by the decisions of presiding officers. Senate riders attached to
appropriation bills enable conference committees to legislate and the House
usually accepts them rather than withhold supply, thus putting it, as Senator Hoar
once declared, under a degrading duress.
It is also alleged that under this secret system lobbyist are able to kill legislation
they dislike and that “jokers” designed to defeat the will of Congress can be
inserted without detection. Senator George W. Norris once characterized the
conference committee as a third house of Congress. “The members of this
‘house,’ he said, “are not elected by the people. The people have no voice as to
who these members shall be ... This conference committee is many times, in very
important matters of legislation, the most important branch of our legislature.
There is no record kept of the workings of the conference committee. Its work is
performed, in the main, in secret. No constituent has any definite knowledge as to
how members of this conference committee vote, and there is no record to prove
the attitude of any member of the conference committee ... As a practical
proposition we have legislation, then, not by the voice of the members of the
Senate, not by the members of the House of Representatives, but we have
legislation by the voice of five or six men. And for practical purposes, in most
cases, it is impossible to defeat the legislation proposed by this conference
committee. Every experienced legislator knows that it is the hardest thing in the
world to defeat a conference report.”
Despite these admitted evils, impartial students of the conference committee

system defend it on net balance as an essential part of the legislative process.
Some mechanism for reconciling differences under bicameral system is obviously
indispensable. The remedy for the defects of the device is not to abolish it, but to
keep it under congressional control. This can be done by enforcing the rules
which prohibit the inclusion in conference reports of matter not committed to
them by either house and forbid the deletion of items approved by both bodies;
by permitting conference managers to report necessary new matter separately and
the houses to consider it apart from the conference report; by fixing a deadline
toward the close of a session after which no bills could be sent to conference, so
as to eliminate congestion at the end of the session – a suggestion made by the
elder Senator La Follete in 1919; by holding conferences in sessions open to the
public, letting conference reports lie over longer, and printing them in bill form
(with conference changes in italics) so as to allow members more time to
examine them and discover “jokers.”[4]
The “three-reading” and “no-amendment” rules, absent in the US Federal Constitution, but
expressly mandated by Article VI, Section 26(2) of our Constitution are mechanisms
instituted to remedy the “evils” inherent in a bicameral system of legislature, including the
conference committee system.

Sadly, the 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.” As posited by

Fr. Joaquin Bernas, a member of the Constitutional Commission:
In a bicameral system, bills are independently processed by both House of

Congress. It is not unusual that the final version approved by one House differs
from what has been approved by the other. The “conference committee,”
consisting of members nominated from both Houses, is an extra-constitutional
creation of Congress whose function is to propose to Congress ways of
reconciling conflicting provisions found in the Senate version and in the House
version of a bill. It performs a necessary function in a bicameral system.
However, since conference committees have merely delegated authority from
Congress, they should not perform functions that Congress itself may not do.
Moreover, their proposals need confirmation by both Houses of Congress.

In Tolentino v. Secretary of Finance, the Court had the opportunity to delve into
the limits of what conference committees may do. The petitioners contended that
the consolidation of the House and Senate bills made by the conference
committee contained provisions which neither the Senate bill nor the House bill
had. In her dissenting opinion, Justice Romero laid out in great detail the
provisions that had been inserted by the conference committee. These provisions,
according to the petitioners had been introduced “surreptitiously” during a closed
door meeting of the committee.

The 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. For this reason, the
Federal Congress is master of its own procedures. It is different with the
Philippine Congress. Our Congress indeed is also authorized to formulate its own
rules of procedure – but within limits not found in American law. For instance,
there is the “three readings on separate days” rule. Another important rule is that
no amendments may be introduced by either house during third reading. These
limitations were introduced by the 1935 and 1973 Constitutions and confirmed
by the 1987 Constitution as a defense against the inventiveness of the stealthy
and surreptitious. These, however, were disregarded by the Court in Tolentino in
favor of contrary American practice.

This is not to say that conference committees should not be allowed. But an effort
should be made to lay out the scope of what conference committees may do
according to the requirements and the reasons of the Philippine Constitution and
not according to the practice of the American Congress. For instance, if the two
Houses are not allowed to introduce and debate amendments on third reading,
can they circumvent this rule by coursing new provisions through the
instrumentality of a conference committee created by Congress and meeting in
secret? The effect of the Court’s uncritical embrace of the practice of the
American Congress and its conference committees is to dismantle the no-

amendment rule.[5]
The task at hand for the Court, but which the ponencia eschews, is to circumscribe the
powers of the Bicameral Conference Committee in light of the “three-reading” and “no-
amendment” rules in Article VI, Section 26(2) of the Constitution.

The Bicameral Conference Committee, in

deleting the “no pass on provision” contained in

Senate Bill No. 1950 and House Bill No. 3705,
violated Article VI , Section 26(2) of the Constitution

Pertinently, in his dissenting opinion in Tolentino, Justice Davide (now Chief Justice) opined
that the duty of the Bicameral Conference Committee was limited to the reconciliation of
disagreeing provisions or the resolution of differences or inconsistencies. This proposition
still applies as can be gleaned from the following text of Sections 88 and 89, Rule XIV of the
Rules of the House of Representatives:
Sec. 88. Conference Committee. – In the event that the House does not agree with
the Senate on the amendments to any bill or joint resolution, the differences may

such fact to the House for the latter’s appropriate action.

Sec. 89. Conference Committee Reports. -…Each report shall contain a detailed,
sufficiently explicit statement of the changes in or amendments to the subject
measure.


Conference Committee report in the same manner and procedure as it votes on a
and Rule XII, Section 35 of the Rules of the Senate:
the Senate.


separately.
Justice Davide further explained that under its limited authority, the Bicameral Conference
Committee could only (a) restore, wholly or partly, the specific provisions of the House Bill
amended by the Senate Bill; (b) sustain, wholly or partly, the Senate’s amendments, or (c) by
way of 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.
Justice Romero, who also dissented in Tolentino, added that the conference committee is not
authorized to initiate or propose completely new matters although under certain legislative
rules like the Jefferson’s Manual, a conference committee may introduce germane matters in
a particular bill. However, such matters should be circumscribed by the committee’s sole
authority and function to reconcile differences.
In the case of R.A. No. 9337, the Bicameral Conference Committee made an “amendment by
deletion” with respect to the “no pass on provision” contained in both House Bill (HB) No.
3705 and Senate Bill (SB) No. 1950. HB 3705 proposed to amend Sections 106 and 108 of
the NIRC by expressly stating therein that sellers of petroleum products and power
generation companies selling electricity are prohibited from passing on the VAT to the
consumers. SB 1950 proposed to amend Section 108 by likewise prohibiting power
generation companies from passing on the VAT to the consumers. However, these “no pass
on provisions” were altogether deleted by the Bicameral Conference Committee. At the
least, since there was no disagreement between HB 3705 and SB 1950 with respect to the
“no pass on provision” on the sale of electricity, the Bicameral Conference Committee acted
beyond the scope of its authority in deleting the pertinent proviso.
At this point, it is well to recall the rationale for the “no-amendment rule” and the “three-
reading rule” in Article VI, Section 26(2) of the Constitution. The proscription on
amendments upon the last reading is intended to subject all bills and their amendments to
intensive deliberation by the legislators and the ample ventilation of issues to afford the
public an opportunity to express their opinions or objections thereon.[6] Analogously, it is
said that the “three-reading rule” operates “as a self-binding mechanism that allows the
legislature to guard against the consequences of its own future passions, myopia, or herd
behavior. By requiring that bills be read and debated on successive days, legislature may
anticipate and forestall future occasions on which it will be seized by deliberative
pathologies.”[7] As Jeremy Bentham, a noted political analyst, put it: “[t]he more susceptible
a people are of excitement and being led astray, so much the more ought they to place
themselves under the protection of forms which impose the necessity of reflection, and
prevent surprises.”[8]
Reports of the Bicameral Conference Committee, especially in cases where substantial

amendments, or in this case deletions, have been made to the respective bills of either house
of Congress, ought to undergo the “three-reading” requirement in order to give effect to the
letter and spirit of Article VI, Section 26(2) of the Constitution.
The Bicameral Conference Committee Report that eventually became R.A. No. 9337, in fact,
bolsters the argument for the strict compliance by Congress of the legislative procedure
prescribed by the Constitution. As can be gleaned from the said Report, of the 9 Senators-
Conferees,[9] only 5 Senators[10] unqualifiedly approved it. Senator Joker P. Arroyo
expressed his qualified dissent while Senators Sergio R. Osmeña III and Juan Ponce Enrile
approved it with reservations. On the other hand, of the twenty-eight (28) Members of the
House of Representatives-Conferees,[11] fourteen (14)[12] approved the same with
reservations while three[13] voted no. All the reservations expressed by the conferees relate
to the deletion of the “no pass on provision.” Only eleven (11) unqualifiedly approved it. In
other words, even among themselves, the conferees were not unanimous on their Report.
Nonetheless, Congress approved it without even thoroughly discussing the reservations or
qualifications expressed by the conferees therein.
This “take it or leave it” stance vis-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 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[15] where the Court declined to go behind the 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 requisite number of
members have agreed to a particular measure.[16]
Thus, in Fariñas, the Court’s refusal to go behind the enrolled bill was based on the fact that
the alleged irregularities that attended the passage of R.A. No. 9006 merely involved the
internal rules of both houses of Congress. The procedural irregularities allegedly committed
by the conference committee therein did not amount to a violation of a provision of the
Constitution.[17]

In contrast, the act of the Bicameral Conference Committee of deleting the “no pass on
provision” of SB 1950 and HB 3705 infringe Article VI, Section 26(2) of the Constitution.
The violation of this constitutional provision warrants the exercise by the Court of its
constitutionally-ordained power to strike down any act of a branch or instrumentality of
government or any of its officials done with grave abuse of discretion amounting to lack or
excess of jurisdiction.[18]

ACCORDINGLY, I join the concurring and dissenting opinion of Mr. Justice Reynato S.
Puno and vote to dismiss the petitions with respect to Sections 4, 5 and 6 of Republic Act
No. 9337 for being premature. Further, I vote to declare as unconstitutional Section 21
thereof and the deletion of the “no pass on provision” contained in the constituent bills of
Republic Act No. 9337.

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

[2] Tolentino v. Secretary of Finance, supra, at 667-668.

[3]See, for example, Vermuele, A., The Constitutional Law of Congressional Procedure, 71
U. Chi. L. Rev. 361 (Spring 2004).

[4] Galloway, G., Congress at the Crossroads, pp. 98-100.

[5]Bernas SJ, J., The 1987 Constitution of the Republic of the Philippines, A Commentary,
pp. 702-703 (1996 Ed.).

[6] Dissenting Opinion of Justice Romero in Tolentino, supra.

[7] Vermuele, supra.

[8] Id. citing Bentham, J., Political Tactics.

[9]Senators Ralph G. Recto, Joker P. Arroyo, Manuel B. Villar, Richard J. Gordon, Rodolfo
G. Biazon, Edgardo G. Angara, M.A. Madrigal, Sergio R. Osmena III, Juan Ponce Enrile.
[10] Senators Recto, Villar, Gordon, Biazon.
[11] Representatives Jesli A. Lapus, Danilo E. Suarez, Arnulfo P. Fuentebella, Eric D.

Singson, Junie E. Cua, Teodoro L. Locsin, Jr., Salacnib Baterina, Edcel C. Lagman, Luis R.
Villafuerte, Herminio G. Teves, Eduardo G. Gullas, Joey Sarte Salceda, Prospero C.
Nograles, Exequiel B. Javier, Rolando G. Andaya, Jr., Guillermo P. Cua, Arthur D. Defensor,
Raul V. Del Mar, Ronaldo B. Zamora, Rolex P. Suplico, Jacinto V. Paras, Vincent P.
Crisologo, Alan Peter S. Cayetano, Joseph Santiago, Oscar G. Malapitan, Catalino Figueroa,
Antonino P. Roman and Imee R. Marcos.
[12]Representatives Suarez, Fuentebella, Cua, Locsin, Jr., Teves, Gullas, Javier, Cua,
Defensor, Crisologo, Cayetano, Santiago, Malapitan and Marcos.
[13] Representatives Del Mar, Suplico and Paras.
[14] Dissenting Opinion in Tolentino, supra.
[15] G.R. No. 147387, 10 December 2003, 417 SCRA 503.
[16] Id., pp. 529-530. (Emphases mine.)
[17] By way of explanation, the constitutional issues raised in Fariñas were (1) whether
Section 14 of R.A. No. 9006 was a rider or that it violated Article VI, Section 26(1) of the
Constitution requiring that “[e]very bill passed by Congress shall embrace only one subject
which shall be expressed in the title thereof;” and (2) whether Section 14 of R.A. No. 9006
violated the equal protection clause of the Constitution. On both issues the Court ruled in the
negative. To reiterate, unlike in the present cases, the acts of the conference committee with
respect to R.A. No. 9006 in 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.
[18] Article VIII, Section 1, CONSTITUTION.

AZCUNA, J.:

Republic Act No. 9337, the E-VAT law, is assailed as an unconstitutional abdication of
Congress of its power to tax through its delegation to the President of the decision to
increase the rate of the tax from 10% to 12%, effective January 1, 2006, after any of two
conditions has been satisfied.[1]
The two conditions are:



exceeds one and one-half percent (1 ½%).[2]
A scrutiny of these “conditions” shows that one of them is certain to happen on January 1,
2006.

The first condition is that the collection from the E-VAT exceeds 2 4/5% of the Gross
Domestic Product (GDP) of the previous year, a ratio that is known as the tax effort.

The second condition is that the national government deficit exceeds 1 ½% of the GDP of
the previous year.

Note that the law says that the rate shall be increased if any of the two conditions happens,
i.e., if condition (i) or condition (ii) occurs.

Now, in realistic terms, considering the short time-frame given, the only practicable way that
the present deficit of the national government can be reduced to 1 ½% 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 ½% or less, will trigger the happening of condition (i)
under the law. Thus, the happening of condition (i) or condition (ii) is in reality certain and
unavoidable, as of January 1, 2006.

This becomes all the more clear when we consider the figures provided during the oral
arguments.

The Gross Domestic Product for 2005 is estimated at P5.3 Trillion pesos.

The tax effort of the present VAT is now at 1.5%.

The national budgetary deficit against the GDP is now at 3%.

So to reduce the deficit to 1.5% from 3%, one has to increase the tax effort from VAT, now at
1.5%, to at least 3%, thereby exceeding the 2 4/5 percent ceiling in condition (i), making
condition (i) happen.

If, on the other hand, this is not done, then condition (ii) happens – the budget deficit
remains over 1.5%.

What is the result of this? The result is that in reality, the law does not impose any condition,
or the rate increase thereunder, from 10% to 12%, effective January 1, 2006, is
unconditional. For a condition is an event that may or may not happen, or one whose
occurrence is uncertain.[3] Now while condition (i) is indeed uncertain and condition (ii) is
likewise uncertain, the combination of both makes the occurrence of one of them certain.

Accordingly, there is here no abdication by Congress of its power to fix the rate of the tax
since the rate increase provided under the law, from 10% to 12%, is definite and certain to
occur, effective January 1, 2006. All that the President will do is state which of the two
conditions occurred and thereupon implement the rate increase.
At first glance, therefore, it would appear that the decision to increase the rate is to be made
by the President, or that the increase is still uncertain, as it is subject to the happening of any
of two conditions.
Nevertheless, the contrary is true and thus it would be best in these difficult and critical
times to let our people know precisely what burdens they are being asked to bear as the
necessary means to recover from a crisis that calls for a heroic sacrifice by all.
It is for this reason that the Court required respondents to submit a copy of the rules to
implement the E-VAT, particularly as to the impact of the tax on prices of affected
commodities, specially oil and electricity. For the onset of the law last July 1, 2005 was
confusing, resulting in across-the-board increases of 10% in the prices of commodities. This
is not supposed to be the effect of the law, as was made clear during the oral arguments,
because the law also contains provisions that mitigate the impact of the E-VAT through
reduction of other kinds of taxes and duties, and other similar measures, specially as to
goods that go into the supply chain of the affected products. A proper implementation of the
E-VAT, therefore, should cause only the appropriate incremental increase in prices, reflecting
the net incremental effect of the tax, which is not necessarily 10%, but possibly less,
depending on the products involved.
The introduction of the mitigating or cushioning measures through the Senate or through the
Bicameral Conference Committee, is also being questioned by petitioners as unconstitutional
for violating the rule against amendments after third reading and the rule that tax measures
must originate exclusively in the House of Representatives (Art. VI, Secs. 24 and 26 [2],
Constitution). For my part, I would rather give the necessary leeway to Congress, as long as
the changes are germane to the bill being changed, the bill which
originated from the House of Representatives, and these are so, since these were precisely
the mitigating measures that go hand-on-hand with the E-VAT, and are, therefore, essential --
and hopefully sufficient -- means to enable our people to bear the sacrifices they are being
asked to make. Such an approach is in accordance with the Enrolled Bill Doctrine that is the
prevailing rule in this jurisdiction. (Tolentino v. Secretary of Finance, 249 SCRA 628
[1994]). The exceptions I find are the provisions on corporate income taxes, which are not
germane to the E-VAT law, and are not found in the Senate and House bills.
I thus agree with Chief Justice Hilario G. Davide, Jr. in his separate opinion that the
following are not germane to the E-VAT legislation:
Amended TAX

CODE Provision Subject Matter

Section 27 Rate of income tax on domestic corporations

Section 28(A)(1) Rate of income tax on resident foreign corporations

Section 28(B)(1) Rate of income tax on non-resident foreign corporations

Section 28(B)(5-b) Rate of income tax on intercorporate dividends received

by non-resident foreign corporations

Section 34(B)(1) Deduction from gross income
Similarly, I agree with Justice Artemio V. Panganiban in his separate opinion that the
following are not germane to the E-VAT law:

“Sections 1, 2, and 3 of the Republic Act No. 9337…, in so far as these sections
(a) amend the rates of income tax on domestic, resident foreign, and nonresident
foreign corporations; (b) amend the tax credit against taxes due from nonresident
foreign corporations on the intercorporate dividends; and (c) reduce the allowable
deduction from interest expense.”

Respondents should, in any case, now be able to implement the E-VAT law without
confusion and thereby achieve its purpose.[4]

I vote to GRANT the petitions to the extent of declaring unconstitutional the provisions in
Republic Act. No. 9337 that are not germane to the subject matter and DENY said petitions
as to the rest of the law, which are constitutional.

[1]The Constitution states that “Congress may, by law, allow the President to fix within
specified limits, and subject to such limitations and restrictions as it may impose, tariff rates,
import and export quotas, tonnage and wharfage dues, and other duties as imposts within the
framework of the national development program of the Government.” (Art. VI, Sec. 28 [2],
emphasis supplied.)

Petitioners claim that the power does not extend to fixing the rates of taxes, since taxes are
not tariffs, import and export quotas, tonnage and wharfage dues, or other duties or imposts.

[2]Section 4, Republic Act No. 9337. The pertinent portion of the provision states:

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

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

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

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

exceeds one and one-half percent (1 ½%).”
[3] Condition has been defined by Escriche as “every future and uncertain event upon which
an obligation or provision is made to depend.” It is a future and uncertain event upon which
the acquisition or resolution of rights is made to depend by those who execute the juridical
act. Futurity and uncertainty must concur as characteristics of the event.

...

An event which is not uncertain but must necessarily happen cannot be a condition; the
obligation will be considered as one with a term. (IV TOLENTINO, COMMENTARIES
AND JURISPRUDENCE ON THE CIVIL CODE OF THE PHILIPPINES, 144).

[4] I voted for the issuance of the temporary restraining order to prevent the disorderly
implementation of the law that would have defeated its very purpose and disrupted the entire
VAT system, resulting in less revenues. The rationale, therefore, of the rule against enjoining
the collection of taxes, that taxes are the lifeblood of Government, leaned in favor of the
temporary restraining order.
DISSENTING and CONCURRING OPINION

TINGA, J.:

The E-VAT Law,[1] as it stands, will exterminate our 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 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.

I respectfully submit these views while maintaining the deepest respect for the prerogative of
the legislature to impose taxes, and of the national government to chart economic policy.
Such respect impels me to vote to deny the petitions in G.R. Nos. 168056, 168207, 168463,
[2] and 168730, even as I acknowledge certain merit in the challenges against the E-VAT law
that are asserted in those petitions. In the final analysis, petitioners therein are unable to
convincingly demonstrate the constitutional infirmity of the provisions they seek to assail.
The only exception is Section 21 of the law, which I consider unconstitutional, for reasons I
shall later elaborate.
However, I see the petition in G.R. No. 168461 as meritorious and would vote to grant it.
Accordingly, I dissent and hold as unconstitutional Section 8 of Republic Act No. 9337,
insofar as it amends Section 110(A) and (B) of the National Internal Revenue Code (NIRC)
as well as Section 12 of the same law, with respect to its amendment of Section 114(C) of the
NIRC.
The first part of my discussion pertains to the petitions in G.R. Nos. 168056, 168207,
168463, and 168730, while the second part is devoted to what I deem the most crucial issue
before the Court, the petition in G.R. No. 168461.
I.
Undue Delegation and the Increase

Of the VAT Rate
My first point pertains to whether or not Sections 4, 5 and 6 of the E-VAT Law constitutes an
undue delegation of legislative power. In appreciating the aspect of undue delegation as
regards taxation statutes, the fundamental point remains that the power of taxation is
inherently legislative,[3] and may be imposed or revoked only by the legislature.[4] In
tandem with Section 1, Article VI of the Constitution which institutionalizes the law-making
power of Congress, Section 24 under the same Article crystallizes this principle, as it
provides that “[a]ll appropriation, revenue or tariff bills … shall originate exclusively in the
House of Representatives.”[5]
Consequently, neither the executive nor judicial branches of government may originate tax
measures. Even if the President desires to levy new taxes, the imposition cannot be done by
mere executive fiat. In such an instance, the President would have to rely on Congress to
enact tax laws.
Moreover, this plenary power of taxation cannot be delegated by Congress to any other
branch of government or private persons, unless its delegation is authorized by the
Constitution itself.[6] In this regard, the situation stands different from that in the recent case
Southern Cross v. PHILCEMCOR,[7] wherein I noted in my ponencia that the Tariff
Commission and the DTI Secretary may be regarded as agents of Congress for the purpose
of imposing safeguard measures. That pronouncement was made in light of Section 28(2)
Article VI, which allows Congress to delegate to the President through law the power to
impose tariffs and imposts, subject to limitations and restrictions as may be ordained by
Congress. In the case of taxes, no such constitutional authorization exists, and the discretion
to ascertain the rates, subjects, and conditions of taxation may not be delegated away by
Congress.
However, as the majority correctly points out, the power to ascertain the facts or conditions
as the basis of the taking into effect of a law may be delegated by Congress,[8] and that the
details as to the enforcement and administration of an exercise of taxing power may be
delegated to executive agencies, including the power to determine the existence of facts on
which its operation depends.[9]
Proceeding from these principles, Sections 4, 5, and 6 of the E-VAT Law warrant
examination. The provisions read:
SEC. 4. Sec. 106 of the same Code, as amended, is hereby further amended to
read as follows:
SEC. 106. Value-Added Tax on Sale of Goods or Properties. —

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

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

percent (2 4/5%) or


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
added tax to twelve percent (12%) after any of the following

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

Domestic Product (GDP) of the previous year exceeds two and
four-fifth percent (2 4/5%) or

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

year 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 of Lease

of Properties-

collected, a value-added tax equivalent to ten percent (10%) of
gross receipts derived from the sale or exchange of services;
Secretary of Finance, shall, effective January 1, 2006, raise the rate of
value-added tax to twelve percent (12%), after any of the following

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

percent (2 4/5%) or


previous year exceed same and on-half percent (1 ½%).
The petitioners deem as noxious the proviso common to these provisions that “the President,
upon the recommendation of the Secretary of Finance, shall, effective January 1, 2006, raise
the rate of value-added tax to twelve percent (12%),” after the satisfaction of the twin
conditions that value-added tax collection as a percentage of Gross Domestic Product (GDP)
of the previous year exceeds two and four-fifth percent (2 4/5%); or that the national
government deficit as a percentage of GDP of the previous year exceed same and on-half
percent (1 ½%).

At first blush, it does seem that the assailed provisions are constitutionally deficient. It is
Congress, and not the President, which is authorized to raise the rate of VAT from 10% to
12%, no matter the circumstance. Yet a closer analysis of the proviso reveals that this is not
exactly the operative effect of the law. The qualifier “shall” denotes a mandatory, rather than
discretionary function on the part of the President to raise the rate of VAT to 12% upon the
existence of any of the two listed conditions.

Since the President is not given any discretion in refusing to raise the VAT rate to 12%, there
is clearly no delegation of the legislative power to tax by Congress to the executive branch.
The use of the word “shall” obviates any logical construction that would allow the President
leeway in not raising the tax rate. More so, it is accepted that the principle of constitutional
construction that every presumption should be indulged in favor of constitutionality and the
court in considering the validity of the 'statute in question should give it such reasonable
construction as can be reached to bring it within the fundamental law.[10] While all
reasonable doubts should be resolved in favor, of the constitutionality of a statute,[11] it
should necessarily follow that the construction upheld should be one that is not itself noxious
to the Constitution.

Congress should be taken to task for imperfect draftsmanship at least. Much trouble would
have been avoided had the provisos instead read: “that effective January 1, 2006, the rate of
value-added tax shall be raised to twelve percent (12%), after any of the following
conditions has been satisfied xxx.” This, after all is the operative effect of the provision as it
stands. In relation to the operation of the tax increase, the denominated role of the President
and the Secretary of Finance may be regarded as a superfluity, as their imprimatur as a
precondition to the increase of the VAT rate must have no bearing.
Nonetheless, I cannot ignore the fact that both the President and the Secretary of Finance
have designated roles in the implementation of the tax increase. Considering that it is
Congress, and not these officials, which properly have imposed the increase in the VAT rate,
how should these roles be construed?
The enactment of a law should be distinguished from its implementation. Even if it is

Congress which exercises the plenary power of taxation, it is not the body that administers
the implementation of the tax. Under Section 2 of the National Internal Revenue Code
(NIRC), the assessment and collection of all national internal revenue taxes, and the
enforcement of all forefeitures, penalties and fines connected therewith had been previously
delegated to the Bureau of Internal Revenue, under the supervision and control of the
Department of Finance.[12]
Moreover, as intimated earlier, Congress may delegate to other components of the

government the power to ascertain the facts or conditions as the basis of the taking into
effect of a law. It follows that ascertainment of the existence of the two conditions precedent
for the increase as stated in the law could very well be delegated to the President or the
Secretary of Finance.[13]
Nonetheless, the apprehensions arise that the process of ascertainment of the listed
conditions delegated to the Secretary of Finance and the President effectively vest
discretionary authority to raise the VAT rate on the President, through the subterfuges that
may be employed to delay the determination, or even to manipulate the factual premises.
Assuming arguendo that these feared abuses may arise, I think it possible to seek judicial
enforcement of the increased VAT rate, even without the participation or consent of the
President or Secretary of Finance, upon indubitable showing that any of the two listed
conditions do exist. After all, the Court is ruling that the increase in the VAT rate is
mandatory and beyond the discretion of the President to impose or delay.
The majority states that in making the recommendation to the President on the existence of
either of the two conditions, the Secretary of Finance is acting as the agent of the legislative
branch, to determine and declare the event upon which its expressed will is to take effect.[14]
This recognition of agency must be qualified. I do not doubt the ability of Congress to
delegate to the Secretary of Finance administrative functions in the implementation of tax
laws, as it does under Section 2 of the NIRC. Yet it would be impermissible for Congress to
delegate to the Secretary of Finance the plenary function of enacting a tax law. As stated
earlier, the situation stands different from that in Southern Cross wherein the Constitution
itself authorizes the delegation by Congress through a law to the President of the discretion
to impose tariff measures, subject to restrictions and limitations provided in the law.[15]
Herein, Congress cannot delegate to either the President or the Secretary of Finance the
discretion to raise the tax, as such power belongs exclusively to the legislative branch.
Perhaps the term “agency” is not most suitable in describing the delegation exercised by
Congress in this case, for agency implies that the agent takes on attributes of the principal by
reason of representative capacity. In this case, whatever “agency” that can be appreciated
would be of severely limited capacity, encompassing as it only could the administration, not
enactment, of the tax measure.
I do not doubt the impression left by the provisions that it is the President, and not Congress,
which is authorized to raise the VAT rate. On paper at least, these imperfect provisions could
be multiple sources of mischief. On the political front, whatever blame or scorn that may be
attended with the increase of the VAT rate would fall on the President, and not on Congress
which actually increased the tax rate. On the legal front, a President averse to increasing the
VAT rate despite the existence of the two listed conditions may take refuge in the infelicities
of the provision, and refuse to do so on the ground that the law, as written, implies some
form of discretion on the part of the President who was, after all, “authorized” to increase the
tax rate. It is critical for the Court to disabuse this notion right now.
The Continued Viability of

Tolentino v. Secretary of Finance
One of the more crucial issues now before us, one that has seriously divided the Court,
pertains to the ability of the Bicameral Conference Committee to introduce amendments to
the final bill which were not contained in the House bill from which the E-VAT Law
originated. Most of the points addressed by the petitioners have been settled in our ruling in
Tolentino v. Secretary of Finance,[16] yet a revisit of that precedent is urged upon this Court.
On this score, I offer my qualified concurrence with the ponencia.
Two key provisions of the Constitution come into play: Sections 24 and 26(2), Article VI of
the Constitution. They read:
Section 24: All appropriation, revenue or tariff bills, bills authorizing increase of
the public debt, bills of local application, and private bills shall originate
exclusively in the House of Representatives, but the Senate may propose or
concur with amendments.

Section 26(2): No bill passed by either House shall become a law unless it has
passed three readings on separate days, and printed copies thereof in its final
form have been distributed to its Members three days before its passage, except
when the President certifies to the necessity of its immediate enactment to meet a
public calamity or emergency. Upon the last reading of a bill, no amendment
thereto shall be allowed, and the vote thereon shall be taken immediately
thereafter, and the yeas and nays entered in the Journal.
Section 24 is also known as the origination clause, which derives origin from British
practice. From the assertion that the power to tax the public at large must reside in the
representatives of the people, the principle evolved that money bills must originate in the
House of Commons and may not be amended by the House of Lords.[17] The principle was
adopted across the shores in the United States, and was famously described by James
Madison in The Federalist Papers as follows:
This power over the purse, may in fact be regarded as the most compleat and
effectual weapon with which any constitution can arm the immediate
representatives of the people, for obtaining a redress of every grievance, and for
carrying into effect every just and salutary measure.[18]
There is an eminent difference from the British system from which the principle emerged,
and from our own polity. To this day, only members of the British House of Commons are
directly elected by the people, with the members of the House of Lords deriving their seats
from hereditary peerage. Even in the United States, members of the Senate were not directly
elected by the people, but chosen by state legislatures, until the adoption of the Seventeenth
Amendment in 1913. Hence, the rule assured the British and American people that tax
legislation arises with the consent of the sovereign people, through their directly elected
representatives. In our country though, both members of the House and Senate are directly
elected by the people, hence the vitality of the original conception of the rule has somewhat
lost luster.
Still, the origination clause deserves obeisance in this jurisdiction, simply because it is
provided in the Constitution. At the same time, its proper interpretation is settled precedent,
as enunciated in Tolentino:
To begin with, it is not the law — but the revenue bill — which is required by the
Constitution to "originate exclusively" in the House of Representatives. It is
important to emphasize this, because a bill originating in the House may undergo
such extensive changes in the Senate that the result may be a rewriting of the
whole. The possibility of a third version by the conference committee will be
discussed later. At this point, what is important to note is that, as a result of the
Senate action, a distinct bill may be produced. To insist that a revenue statute —
and not only the bill which initiated the legislative process culminating in the
enactment of the law — must substantially be the same as the House bill would
be to deny the Senate's power not only to "concur with amendments" but also to "
propose amendments." It would be to violate the coequality of legislative power
of the two houses of Congress and in fact make the House superior to the Senate.
[19]
The vested power of the Senate to “ propose or concur with amendments” necessarily
implies the ability to adduce transformations from the original House bill into the final law.
Since the House and Senate sit separately in sessions, the only opportunity for the Senate to
introduce its amendments would be in the Bicameral Conference Committee, which emerges
only after both the House and the Senate have approved their respective bills.

In the present petitions, Tolentino comes under fire on two fronts. The first controversy
arises from the adoption in Tolentino of American legislative practices relating to bicameral
committees despite the difference in constitutional frameworks, particularly the limitation
under Section 26(2), Article VI which does not exist in the American Constitution.

The majority points out that the “no amendment rule” refers only to the procedure to be
followed by each house of Congress with regard to bills initiated in the house concerned,
before said bills are transmitted to the other house for its concurrence or amendment. I agree
with this statement. Clearly, the procedure under Section 26(2), Article VI only relates to the
passage of a bill before the House and Senate, and not the process undertaken afterwards in
the Bicameral Conference Committee.

Indeed, Sections 26 and 27 of Article VI, which detail the procedure how a bill becomes a
law, are silent as to what occurs between the passage by both houses of their respective bills,
and the presentation to the President of “every bill passed by the Congress”.[20] Evidently,
“Congress” means both Houses, such that a bill approved by the Senate but not by the House
is not presented to the President for approval. There is obviously a need for joint concurrence
by the House and Senate of a bill before it is transmitted to the President, but the
Constitution does not provide how such concurrence is acquired. This lacuna has to be filled,
otherwise no bill may be transmitted to the President.
Even if the Bicameral Conference Committee is not a constitutionally organized body, it has
existed as the necessary conclave for both chambers of Congress to reconcile their respective
versions of a prospective law. The members of the Bicameral Conference Committee may
possess in them the capacity to represent their particular chamber, yet the collective is
neither the House nor the Senate. Hence, the procedure contained in Section 26(2), Article
VI cannot apply to the Bicameral Conference Committee.
Tellingly, the version approved by the Bicameral Conference Committee still undergoes
deliberation and approval by both Houses. Only one vote is taken to approve the reconciled
bill, just as only one vote is taken in order to approve the original bill. Certainly, it could not
be contended that this final version surreptitiously evades approval of either the House or
Senate.
The second front concerns the scope and limitations of the Bicameral Conference Committee
to amend, delete, or otherwise modify the bills as approved by the House and the Senate.
Tolentino adduced the principle, adopted from American practice, that the version as
approved by the Bicameral Conference Committee need only be germane to the subject of
the House and Senate bills in order to be valid.[21] The majority, in applying the test of
germaneness, upholds the contested provisions of the E-VAT Law. Even the members of the
Court who prepared to strike down provisions of the law applying germaneness nonetheless
accept the basic premise that such test is controlling.
I agree that any amendment made by the Bicameral Conference Committee that is not
germane to the subject matter of the House or Senate Bills is not valid. It is the only valid
ground by which an amendment introduced by the Bicameral Conference Committee may be
judicially stricken.
The germaneness standard which should guide Congress or the Bicameral Conference
Committee should be appreciated in its normal but total sense. In that regard, my views
contrast with that of Justice Panganiban, who asserts that provisions that are not “legally
germane” should be stricken down. The legal notion of germaneness is just but one
component, along with other factors such as economics and politics, which guides the
Bicameral Conference Committee, or the legislature for that matter, in the enactment
of laws. After all, factors such as economics or politics are expected to cast a pervasive
influence on the legislative process in the first place, and it is essential as well to allow such
“non-legal” elements to be considered in ascertaining whether Congress has complied with
the criteria of germaneness.
Congress is a political body, and its rationale for legislating may be guided by factors
other than established legal standards. I deem it unduly restrictive on the plenary
powers of Congress to legislate, to coerce the body to adhere to judge-made standards,
such as a standard of “legal germaneness”. The Constitution is the only legal standard
that Congress is required to abide by in its enactment of laws.
Following these views, I cannot agree with the position maintained by the Chief Justice,
Justices Panganiban and Azcuna that the provisions of the law that do not pertain to VAT
should be stricken as unconstitutional. These would include, for example, the provisions
raising corporate income taxes. The Bicameral Conference Committee, in evaluating the
proposed amendments, necessarily takes into account not just the provisions relating to the
VAT, but the entire revenue generating mechanism in place. If, for example, amendments to
non-VAT related provisions of the NIRC were intended to offset the expanded coverage for
the VAT, then such amendments are germane to the purpose of the House and Senate Bills.
Moreover, it would be myopic to consider that the subject matter of the House Bill is solely
the VAT system, rather than the generation of revenue. The majority has sufficiently
demonstrated that the legislative intent behind the bills that led to the E-VAT Law was the
generation of revenue to counter the 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]
[I]t is contended that section 5(b) of R.A. No. 8180 on tariff differential violates
the provision 17 of the Constitution requiring every law to have only one subject
which should be expressed in its title. We do not concur with this contention. As
a policy, this Court has adopted a liberal construction of the one title - one
subject rule. We have consistently ruled that the title need not mirror, fully
index or catalogue all contents and minute details of a law. A law having a
single general subject indicated in the title may contain any number of
provisions, no matter how diverse they may be, so long as they are not
inconsistent with or foreign to the general subject, and may be considered in
furtherance of such subject by providing for the method and means of
carrying out the general subject. We hold that section 5(b) providing for tariff
differential is germane to the subject of R.A. No. 8180 which is the deregulation
of the downstream oil industry. The section is supposed to sway prospective
investors to put up refineries in our country and make them rely less on imported
petroleum.[23]
I submit that if the amendments are attuned to the goal of revenue generation, the stated
purpose of the original House Bills, then the test of germaneness is satisfied. It might seem
that the goal of revenue generation, which is stated in virtually all tax or tariff bills, is so
encompassing in scope as to justify the inclusion by the Bicameral Conference Committee of
just about any revenue generation measure. This may be so, but it does not mean that the test
of germaneness would be rendered inutile when it comes to revenue laws.
I do believe that the test of germaneness was violated by the E-VAT Law in one regard.
Section 21 of the law, which was not contained in either the House or Senate Bills, imposes
restrictions on the use by local government units of their incremental revenue from the VAT.
These restrictions are alien to the principal purposes of revenue generation, or the purposes
of restructuring the VAT system. I could not see how the provision, which relates to
budgetary allocations, is germane to the E-VAT Law. Since it was introduced only in the
Bicameral Conference Committee, the test of germaneness is essential, and the provision
does not pass muster. I join Justice Puno and the Chief Justice in voting to declare Section 21
as unconstitutional.

I also offer this brief comment regarding the deletion of the so-called “no pass on”
provisions, which several of my colleagues deem unconstitutional. Both the House and
Senate Bills contained these provisions that would prohibit the seller/producer from passing
on the cost of the VAT payments to the consumers. However, an examination of the said bills
reveal that the “no pass on” provisions in the House Bill affects a different subject of
taxation from that of the Senate Bill. In the House Bill No. 3705, the taxpayers who are
prohibited from passing on the VAT payments are the sellers of petroleum products and
electricity/power generation companies. In Senate Bill No. 1950, no prohibition was adopted
as to sellers of petroleum products, but enjoined therein are electricity/power generation
companies but also transmission and distribution companies.
I consider such deletions as valid, for the same reason that I deem the amendments valid.
The deletion of the two disparate “no pass on” provisions which were approved by the
House in one instance, and only by the Senate in the other, remains in the sphere of
compromise that ultimately guides the approval of the final version. Again, I point out that
even while the two provisions may have been originally approved by the House and Senate
respectively, their subsequent deletion by the Bicameral Conference Committee is still
subject to approval by both chambers of Congress when the final version is submitted for
deliberation and voting.
Moreover, the fact that the nature of the “no pass on” provisions adopted by the House
essentially differs from that of the Senate necessarily required the corrective relief from the
Bicameral Conference Committee. The Committee could have either insisted on the House
version, the Senate version, or both versions, and it is not difficult to divine that any of these
steps would have obtained easy approval. Hence, the deletion altogether of the “no pass on”
provisions existed as a tangible solution to the possible impasse, and the Committee should
be accorded leeway to implement such a compromise, especially considering that the
deletion would have remained germane to the law, and would not be constitutionally
prohibited since the prohibition on amendments under Section 26(2), Article VI does not
apply to the Committee.
An outright declaration that the deletion of the two elementally different “no-pass on”
provisions is unconstitutional, is of dubious efficacy in this case. Had such pronouncement
gained endorsement of a majority of the Court, it could not result in the ipso facto restoration
of the provision, the omission of which was ultimately approved in both the House and
Senate. Moreover, since the House version of the “no pass on” is quite different from that of
the Senate, there would be a question as to whether the House version, the Senate version, or
both versions would be reinstated. And of course, if it were the Court which would be called
upon to choose, such would be way beyond the bounds of judicial power.
Indeed, to intimate that the Court may require Congress to reinstate a provision that failed to
meet legislative approval would result in a blatant violation of the principle of separation of
powers, with the Court effectively dictating to Congress the content of its legislation. The
Court cannot simply decree to Congress what laws or provisions to enact, but is limited to
reviewing those enactments which are actually ratified by the legislature.
II.
My earlier views, as are the submissions I am about to offer, are rooted in nothing more than
constitutional interpretation. Perhaps my preceding discussion may lead to an impression
that I whole-heartedly welcome the passage of the E-VAT Law. Yet whatever relief I may
have over the enactment of a law designed to relieve our country’s financial woes are sadly
obviated with the realization that a key amendment introduced in the law is not only
unconstitutional, but of fatal consequences. The clarion call of judicial review is most critical
when it stands as the sole barrier against the deprivation of life, liberty and property without
due process of law. It becomes even more impelling now as we are faced with provisions of
the E-VAT Law which, though in bland disguise, would operate as the most destructive of
tax measures enacted in generations.
Tax Statutes and the Due Process Clause
It is the duty of the courts to nullify laws that contravene the due process clause of the Bill of
Rights. This task is at the heart not only of judicial review, but of the democratic system, for
the fundamental guarantees in the Bill of Rights become merely hortatory if their judicial
enforcement is unavailing. Even if the void law in question is a tax statute, or one that
encompasses national economic policy, the courts should not shirk from striking it down
notwithstanding any notion of deference to the executive or legislative branch on questions
of policy. Neither Congress nor the President has the right to enact or enforce
unconstitutional laws.
The Bill of Rights is by no means the only constitutional yardstick by which the validity of a
tax law can be measured. Nonetheless, it stands as the most unyielding of constitutional
standards, given its position of primacy in the fundamental law way above the articles on
governmental power.[24] If the question lodged, for example, hinges on the proper exercise
of legislative powers in the enactment of the tax law, leeway can be appreciated in favor of
affirming the legislature’s inherent power to levy taxes. On the other hand, no quarter can be
ceded, no concession yielded, on the people’s fundamental rights as enshrined in the Bill of
Rights, even if the sacrifice is ostensibly made “in the national interest.” It is my
understanding that “the national interests,” however comported, always subsumes in the first
place recognition and enforcement of the Bill of Rights, which manifests where we stand as
a democratic society.
The constitutional safeguard of due process is embodied in the fiat “No person shall be
deprived of life, liberty or property without due process of law”.[25] The purpose of the
guaranty is to prevent governmental encroachment against the life, liberty and property of
individuals; to secure the individual from the arbitrary exercise of the powers of the
government, unrestrained by the established principles of private rights and distributive
justice; to protect property from confiscation by legislative enactments, from seizure,
forfeiture, and destruction without a trial and conviction by the ordinary mode of judicial
procedure; and to secure to all persons equal and impartial justice and the benefit of the
general law.[26]
In Magnano Co. v. Hamilton,[27] the U.S. Supreme Court recognized that the due process
clause may be utilized to strike down a taxation statute, “if the act be so arbitrary as to
compel the conclusion that it does not involve an exertion of the taxing power, but
constitutes, in substance and effect, the direct exertion of a different and forbidden power, as,
for example, the confiscation of property.”[28] Locally, Sison v. Ancheta[29] has long
provided sanctuary for persons assailing the constitutionality of taxing statutes. The oft-
quoted pronouncement of Justice Fernando follows:
2. The power to tax moreover, to borrow from Justice Malcolm, "is an

attribute of sovereignty. It is the strongest of all the powers of government."
It is, of course, to be admitted that for all its plenitude, the power to tax
is not unconfined. There are restrictions. The Constitution sets forth
such limits. Adversely affecting as it does property rights, both the due
process and equal protection clauses may properly be invoked, as
petitioner does, to invalidate in appropriate cases a revenue measure. If

it were otherwise, there would be truth to the 1803 dictum of Chief Justice
Marshall that "the power to tax involves the power to destroy." In a separate
opinion in Graves v. New York, Justice Frankfurter, after referring to it as
an "unfortunate remark," characterized it as "a flourish of rhetoric
[attributable to] the intellectual fashion of the times [allowing] a free use of
absolutes." This is merely to emphasize that it is not and there cannot be
such a constitutional mandate. Justice Frankfurter could rightfully
conclude: "The web of unreality spun from Marshall's famous dictum was
brushed away by one stroke of Mr. Justice Holmes's pen: 'The power to tax
is not the power to destroy while this Court sits.'" So it is in the Philippines.
3. This Court then is left with no choice. The Constitution as the

fundamental law overrides any legislative or executive act that runs
counter to it. In any case therefore where it can be demonstrated that
the challenged statutory provision — as petitioner here alleges — fails
to abide by its command, then this Court must so declared and adjudge
it null. The inquiry thus is centered on the question of whether the
imposition of a higher tax rate on taxable net income derived from business
or profession than on compensation is constitutionally infirm.
4. The difficulty confronting petitioner is thus apparent. He alleges

arbitrariness. A mere allegation, as here, does not suffice. There must be a
factual foundation of such unconstitutional taint. Considering that petitioner
here would condemn such a provision as void on its face, he has not made
out a case. This is merely to adhere to the authoritative doctrine that where
the due process and equal protection clauses are invoked, considering that
they are not fixed rules but rather broad standards, there is a need for proof
of such persuasive character as would lead to such a conclusion. Absent
such a showing, the presumption of validity must prevail.
5. It is undoubted that the due process clause may be invoked where a

taxing statute is so arbitrary that it finds no support in the
Constitution. An obvious example is where it can be shown to amount
to the confiscation of property. That would be a clear abuse of power. It
then becomes the duty of this Court to say that such an arbitrary act
amounted to the exercise of an authority not conferred. That properly
calls for the application of the Holmes dictum. It has also been held
that where the assailed tax measure is beyond the jurisdiction of the
state, or is not for a public purpose, or, in case of a retroactive statute is
so harsh and unreasonable, it is subject to attack on due process
grounds.[30]
Sison pronounces more concretely how a tax statute may contravene the due process clause.
Arbitrariness, confiscation, overstepping the 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
ponencia cites Sison in asserting that due process and equal protection are broad standards
which need proof of such persuasive character to lead to such a conclusion.

It is difficult though to put into quantifiable terms how onerous a taxation statute must be
before it contravenes the due process clause.[31] After all, the inherent nature of taxation is to
cause pain and injury to the taxpayer, albeit for the greater good of society. Perhaps whatever
collective notion there may be of what constitutes an arbitrary, confiscatory, and
unreasonable tax might draw more from the fairy tale/legend traditions of absolute monarchs
and the oppressed peasants they tax. Indeed, it is easier to jump to the conclusion that a tax is
oppressive and unfair if it is imposed by a tyrant or an authoritarian state.
But could an arbitrary, confiscatory or unreasonable tax actually be enacted by a democratic

state such as ours? Of course it could, but these would exist in more palatable guises. In a
democratic society wherein statutes are enacted by a representative legislature only after
debate and deliberation, tax statutes will most likely, on their face, seem fair and even-
handed. After all, if Congress passes a tax law that on facial examination is obviously harsh
and unfair, it faces the wrath of the voting public, to say nothing of the media.
In testing the validity of a tax statute as against the due process clause, I think that the Court
should go beyond a facial examination of the statute, and seek to understand how exactly it
would operate. The express terms of a statute, especially tax laws, are usually inadequate in
spelling out the practical effects of its implementation. The devil is usually in the details.
Admittedly, the degree of difficulty involved of judicial review of tax laws has increased
with the growing complexities of business, economic and accounting practices. These are
sciences which laymen are not normally equipped by their general education to fully grasp,
hence the possible insecurity on their part when confronted with such questions on these
fields.
However, we should not cede ground to those transgressions of the people’s fundamental
rights simply because the mechanism employed to violate constitutional guarantees is
steeped in disciplines not normally associated with the legal profession. Venality cannot be
allowed to triumph simply due to its sophistication. This petition imputes in the E-VAT Law
unconstitutional oppression of the fatal variety, but in order to comprehend exactly how and
why that is so, one has to delve into the complex milieu of the VAT system. The party
alleging the 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.
These arguments are conjectural for the same reason that the bare statement “firing a
gunshot into the head will cause a fatal wound” would be conjectural. Some people are
lucky enough to survive gunshot wounds to the head, while many others are not. Yet just
because the fear of mortality would be merely speculative, it does not mean that there should
be less compulsion to avoid a situation of getting shot in the head.
Indeed, the Court has long responded to strike down prospective actions, even if the injury
has not yet even occurred. One of the most significant legal principles of the last century,
the “clear and present danger” doctrine in free speech cases, in fact emanates from the
prospectivity, and not the actuality of danger. The Court has not been hesitant to nullify
acts which might cause injury, owing to the presence of a clear and present danger of a
substantive evil which the State has the right to prevent. It has even extended the “clear and
present danger rule” beyond the confines of freedom of expression to the realm of freedom
of religion, as noted by Justice Puno in his ponencia in Estrada v. Escritor.[32]
Justice Teodoro Padilla goes further in his concurring opinion in Basco v. PAGCOR, and
asserts that the clear and present danger test squarely applies to the due process clause: “The
courts, as the decision states, cannot inquire into the wisdom, morality or expediency of
policies adopted by the political departments of government in areas which fall within
their authority, except only when such policies pose a clear and present danger to the
life, liberty or property of the individual.”
I see no reason why the clear and present danger test cannot apply in this case, or any
case wherein a taxing statute poses a clear and present danger to the life, liberty or
property of the individual. The application of this standard frees the Court from
inutility in the face of patently unconstitutional tax laws that have been enacted but are
yet to be fully operational.
If for example, Congress deems it wise to impose the most draconian of tax measures â”€
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 â”€ there certainly would
be a massive public outcry, and an expectation that the Court would immediately nullify the
offensive measures even before they are actually imposed. Applying the clear and present
danger test, the Court is empowered to strike down the noxious measures even before they
are implemented. Yet with this “bar on speculativeness” as argued by the majority, the Court
could easily refuse to pay heed to the prayers for injunctive relief, and instead demand that
the taxing subjects must first suffer before the Court can act.
In the same vein, the claim that my arguments strike at the wisdom, rather than the
constitutionality of the law are misplaced. Concededly, the assailed provisions of the E-VAT
law are basically unwise. But any provision of law that directly contradicts the Constitution,
especially the Bill of Rights, are similarly unwise, as they run inconsistent with the
fundamental law of the land, the enunciated state policies and the elemental guarantees
assured by the State to its people. Not every unwise law is unconstitutional, but every
unconstitutional law is unwise, for an unconstitutional law contravenes a primordial
principle or guarantee on which our polity is founded.
If it can be shown that the E-VAT Law violates these provisions of the Constitution,
especially the due process clause, then the Court should accordingly act and nullify. Such is
the essence of judicial review, which stands as the sole barrier to the implementation of an
unconstitutional law.
The Separate Opinion of Justice Panganiban notes that “[t]he Court cannot step beyond the
confines of its constitutional power, if there is absolutely no clear showing of grave abuse of
discretion in the enactment of the law”[33]. This, I feel, is an unduly narrow view of judicial
review, implying that such merely encompasses the procedural aspect by which a law is
enacted. If the policy of the law, and/or the means by which such policy is implemented run
counter to the Constitution, then the Court is empowered to strike down the law, even if the
legislative and executive branches act within their discretion in legislating and signing the
law.
It is also asserted that if the implementation of the 70% cap imposes an unequal effect on
different types of businesses with varying profit margins and capital requirements, then the
remedy would be an amendment of the law.[34] Of course, the remedy of legislative
amendment applies to even the most unconstitutional of laws. But if our society can take
cold comfort in the ability of the legislature to amend its enactments as the defense against
unconstitutional laws, what remains then as the function of judicial review? This legislative
capacity to amend unconstitutional laws runs concurrently with the judicial capacity to strike
down unconstitutional laws. In fact, the long-standing tradition has been reliance on the
judicial branch, and not the legislative branch, for salvation from unconstitutional laws.
I do recognize that the Separate Opinion of Justice Panganiban ultimately proceeds from the
premise that the assailed provisions of the E-VAT Law may be merely unwise, but not
unconstitutional. Hence, its preference to rely on Congress to amend the offending
provisions rather than judicial nullification. But I maintain that the assailed provisions of the
E-VAT Law violate the due process clause of the Constitution and must be stricken down.
The Nature of VAT
To understand why Sections 8 and 12 of the E-VAT law contravenes the due process clause,
it is essential to understand the nature of the value-added tax itself. Filipino consumers may
comprehend VAT at its elemental form, having been accustomed for several years now in
paying an extra 10% of the listed selling price for a wide class of consumer goods. From the
perspective of the end consumer, such as the patron who purchases a meal from a fastfood
restaurant, VAT is simply a tax on transactions involving the sale of goods. The tax is
shouldered by the buyer, and is based on a percentage of the purchase price. Since an excise
or percentage tax shares the same characteristics, there could be some confusion as between
such taxes and the VAT.
However, VAT is distinguishable from the standard excise or percentage taxes in that it is
imposable not only on the final transaction involving the end user, but on previous stages as
well so long as there was a sale involved. Thus, VAT does not simply pertain to the extra
percentage paid by the buyer of a fast-food meal, but also that paid by restaurant itself to its
suppliers of raw food products. This multi-stage system is more acclimated to the vagaries of
the modern industrial climate, which has long surpassed the stage when there was only one
level of transfer between the farmer who harvests the crop and the person who eats the crop.
Indeed, from the extraction or production of the raw material to its final consumption by a
user, several transactions or sales materialize. The VAT system assures that the government
shall reap income for every transaction that is had, and not just on the final sale or transfer.
The European Union, which has long required its member states to apply the VAT system,
provided the following definition of the tax which I deem clear and comprehensive:
The principle of the common system of value added tax involves the application
to goods and services of a general tax on consumption exactly proportional to
the price of the goods and services, whatever the number of transactions that
take place in the production and distribution process before the stage at which
tax is charged.

On each transaction, value added tax, calculated on the price of the goods or
services at the rate applicable to such goods or services, shall be chargeable
after deduction of the amount of value added tax borne directly by the
various cost components.[35]
The above definition alludes to a key characteristic of the VAT system, that the imposable
tax remains proportional to the price of goods and services no matter the number of
transactions that takes place.

There is another key characteristic of the VAT â”€ that no matter how many the taxable
transactions that precede the final purchase or sale, it is the end-user, or the consumer, that
ultimately shoulders the tax. Despite its name, VAT is generally not intended to be a tax on
value added, but rather as a tax on consumption. Hence, there is a mechanism in the VAT
system that enables firms to offset the tax they have paid on their own purchases of goods
and services against the tax they charge on their sales of goods and services.[36] Section 105
of the NIRC assures that ”the amount of tax may be shifted or passed on to the buyer,
transferee or lessee of the goods, properties or services.” The assailed provisions of the E-
VAT law strike at the heart of this accepted principle.

And there is one final basic element of the VAT system integral to this disquisition: the mode
by which the tax is remitted to the government. In simple theory, the VAT payable can be
remitted to the government immediately upon the occurrence of the transaction, but such a
demand proves excessively unwieldy. The number of VAT covered transactions a modern
enterprise may contract in a single day, plus the recognized principle that it is the final end
user who ultimately shoulders the tax; render the remittance of the tax on a per transaction
basis impossible.

Thus, the VAT is delivered by the purchaser not directly to the government but to the seller,
who then collates the VAT received and remits it to the government every quarter. The
process may seem simple if cast in this manner, but there is a wrinkle, due to the offsetting
mechanism designed to ultimately make the end consumer bear the cost of the VAT.

The Concepts of Input and

Output VAT
This mechanism is employed through the introduction of two concepts, the input tax and the
output tax. Section 110(A) of the National Internal Revenue Code defines the input tax as the
VAT due from or paid by a VAT-registered person on the importation of goods or local
purchase of goods and services in the course of trade or business, from a VAT registered
person.

Let us put this in operational terms. A VAT registered person, engaged in an enterprise,
necessarily purchases goods such as raw materials and machinery in order to produce
consumer goods. The purchase of such raw materials and machineries is subject to VAT,
hence the enterprise pays an additional 10% of the purchase price to the supplier as VAT.
This extra amount paid by the enterprise constitutes its input VAT. The enterprise likewise
pays input VAT when it purchases services covered by the tax, or rentals of property.
Since VAT is a final tax that is supposed to be ultimately shouldered by the end consumer,
the VAT system allows for a mechanism by which the business is able to recover the input
VAT that it paid. This comes into play when the business, having transformed the raw
materials into consumer goods, sells these goods to the public. As widely known, the
consumer pays to the business an additional amount of 10% of the purchase price as VAT. As
to the business, this VAT payments it collects from the consumer represents output VAT,
which is formally described under Section 110(A) of the NIRC as “the value-added tax due
on the sale or lease of taxable goods or properties or services by” by any VAT-registered
person.
The output VAT collected by the business from the consumers accumulates, until the end of
every quarter, when the enterprise is obliged to remit the collected output VAT to the
government. This is where the crediting mechanism comes into play. Since the business is
entitled to recover the prepaid input VAT, it does so in every quarter by applying the amount
of prepaid input VAT against the collected output VAT which is to be remitted. If the output
VAT collected exceeds the prepaid input VAT, then the amount of input VAT is deducted
from the output VAT, and it is entitled to remit only the remainder as output VAT to the
government. To illustrate, if Business X collects P1,000,000.00 as output VAT and incurs
P500,000.00 as input VAT, the P500,000.00 is deducted from the P1,000,000.00 output VAT,
and X is required to remit only P500,000.00 of the output VAT it collected from customers.
On the other hand, if the input VAT prepaid exceeds the output VAT collected, then the
business need not remit any amount as output VAT for the quarter. Moreover, the difference
between the input VAT and the output VAT may be credited as input VAT by the business in
the succeeding quarter. Thus, if in the First Quarter of a year, Business X prepays
P1,000,000.00 as input VAT, and collects only P500,000.00 as output VAT, it need not remit
any amount of output VAT to the government. Moreover, in the Second Quarter, Business X
can credit the remaining P500,000.00 as part of its input VAT for that quarter. Hence, if in
the Second Quarter, X actually prepays P400,000.00 as input VAT, and collects P500,000.00
as output VAT, it may add the P500,000.00 input VAT from the previous quarter to the
P400,000.00 prepaid in the current quarter, bringing the total input VAT it could claim to
P900,000.00. Since the input VAT of P900,000.00 now exceeds the output VAT collected of
P500,000, then X need not remit any output VAT as well to the government for the Second
Quarter.
However, reality is far bleaker than that befaced by Business X. The VAT collected and
remitted is not the most relevant statistic evaluated by the business. The figure of primary
concern of the enterprise would be the profit margin, which is simply the excess of revenue
less expenditures. Revenue is derived from the gross sales of the business. Expenditures
encompass all expenses incurred by the business including overhead expenses, wages and
purchases of capital goods. Crucially, expenditures would include the input VAT prepaid by
the business on its capital expenditures.
Since a significant amount of the capital outlay incurred by a business is subjected to the
prepayment of input taxes, the necessity of recovering these losses through the output VAT
collected becomes more impelling. These output taxes are obviously proportional to the
volume of gross sales the higher the gross sales â”€ the higher the output VAT collected. The
output taxes collected on sales answer for not only those input taxes paid on the
purchase of the raw materials, but also for the input taxes paid on the multifarious
overhead expenses covered by VAT. The burden carried by the sales volume on the
stability, if not survival of the business thus just became more crucial. The maintenance of
the proper equilibrium is not an easy matter. Increasing the selling price of the goods sold
does not necessarily increase the gross sales, as it could have the counter-effect of repelling
the consumer and diminishing the number of goods sold. At the same time, keeping the
selling price low may increase the volume of goods sold, but not necessarily the amount of
gross sales.
Profit is a chancy matter, and in cases of small to medium enterprises, usually small if any. It
is quite common for retail and distribution enterprises to incur profits of less than 1% of their
gross revenues. Low profitability is not an automatic badge of poor business skills, but a
reality dictated by the laws of the marketplace. The probability of profit is lower than that of
capital expenditures, and ultimately, many business establishments end up with a higher
input tax than output tax in a given quarter. This would be especially true for small to
medium enterprises who do not reap sufficient profits from its business in the first place, and
for those firms that opt to also invest in capital expenses in addition to the overhead.
Whatever miniscule profit margins that can be obtained usually spell the difference between
life and death of the business.
The possibility of profit is further diminished by the fact that businesses have to shoulder the
input VAT in the purchase of their capital expenses. Yet the erstwhile VAT system was not
tainted by the label of oppressiveness and neither did it bear the confiscatory mode.
This was because of the immediate relief afforded from the input taxes paid by the
crediting system. In theory, VAT is not supposed to affect the profit margin. If such
margin is affected, it is only because of the prepayment of the input taxes, and this
should be remedied by the immediate recovery through the crediting system of the
settled input taxes.
The new E-VAT law changes all that, and puts in jeopardy the survival of small to
medium enterprises.
The Effects of the 70% Cap on Creditable Input VAT
The first radical shift introduced by the E-VAT law to the creditable input system â”€ the
70% cap on the creditable input tax that may be carried over into the next quarter â”€ is
provided in Section 8 of the law, which amends Section 110(A) of the NIRC, among others.
Section 110(A) as amended would now read:
Sec. 110. Tax Credits. –

(B) Excess Output or Input Tax. – If at the end of any taxable quarter the
output tax exceeds the input tax, the excess shall be paid by the VAT-
registered person. If the input tax exceeds the output tax, the excess shall
be carried over to the succeeding quarter or quarters. Provided, That the
input tax inclusive of input VAT carried over from the previous
quarter that may be credited in every quarter shall not exceed
seventy percent (70%) of the output VAT: Provided, however, That
any input tax attributable to zero rated sales by a VAT-registered person
may at his option be refunded or credited against other internal revenue

taxes, subject to the provisions of Section 112. (emphasis supplied)
All hope for entrepreneurial stability is dashed with the imposition of the 70% cap. Under
the E-VAT Law, the business, regardless of stability or financial capability, is obliged to
remit to the government every quarter at least 30% of the output VAT collected from
customers, or roughly 3% of the amount of gross sales. Thus, if a quarterly gross sales of Y
Business totaled P1,000,000, and Y is prudent enough to keep its capital expenses down to
P980,000, it would then appear on paper that Y incurred a profit of P20,000. However, with
the 70% cap, Y would be obliged to remit to the government P30,000, thus wiping out the
profit margin for the quarter. Y would be entitled to credit the excess input VAT it prepaid
for the next quarter, but the continuous operation of the 70% cap obviates whatever benefits
this may give, and cause the accumulation of the unutilized creditable input VAT which
should be returned to the business.

The difference is even more dramatic if seen how the unutilized creditable input VAT
accumulates over a one year period. To illustrate, Business Y prepays the following amounts
of input VAT over a one-year period: P100,000.00 - First Quarter; P100,000.00 – 2nd
Quarter; P34,000.00 – 3rd Quarter; and P50,000.00 – 4th Quarter. On the other hand, Y
collects the following amounts of output VAT from consumers: P60,000.00 - First Quarter;
P60,000.00 – 2nd Quarter; P100,000.00 – 3rd Quarter; and P50,000.00 – 4th Quarter.
Applying the 70% cap, which would limit the amount of the declarable input VAT to 70% in
a quarter, the following results obtain, as presented in tabular form:

Particulars 1st Quarter 2nd Quarter 3rd Quarter 4th Quarter

Output VAT 60,000 60,000 100,000 50,000
Input VAT 100,000 100,000 34,000 50,000
(Actual) + [input] [input] [input]
Carry Over +58,000 +116,000 +80,000
[excess [excess [excess
creditable] creditable] creditable]
158,000 150,000 130,000

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

VAT Payable
18,000 18,000 30,000 15,000

Creditable (100,000 – (158,000 – (150,000- (130,000-
Input VAT
42,000) 42,000) 70,000) 35,000)
58,000 116,000 80,000 95,000
This stands in contrast to same business VAT accountability under the present system, using
the same variables of output VAT and input VAT. The need to distinguish a declarable input
VAT is obviated with the elimination of the 70% cap.

Particulars 1st Quarter 2nd Quarter 3rd Quarter 4th Quarter

Output VAT 60,000 60,000 100,000 50,000
Input VAT 100,000 34,000 50,000
(Actual) + [input] [input] [input]
Carry Over +40,000 +80,000 + 14,000
[excess [excess (excess
creditable] creditable] creditable)
100,000 140,000 114,000 50,000

VAT Payable 0 0 0 0
Creditable
Input VAT
40,000 80,000 14,000 14,000
The difference is dramatic, as is the impact on the 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.[37] Simply put, the value of one peso is worth more today than in 2006. Money that
you hold today is worth more because you can invest it and earn interest.[38] By reason of
the 70% cap, the amount of input VAT credit that remains unutilized would continue
accumulate for months and years. The longer the amount remains unutilized, the higher the
degree of its depreciation in value, in accordance with the concept of time value of money.
Even assuming that the business eventually recovers the input VAT credit, the sum recovered
would have decreased in practical value.

It would be sad, but fair, if a business ceases because of its inability to compete with
other businesses. It would be utter malevolence to condemn an enterprise to death
solely through the employment of a deceptive accounting wizardry. For the raison
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 collection. But to do so by depriving low profit enterprises of
whatever meager income earned and consequently assuring the death of these industries goes
beyond any valid State purpose.

Only stable businesses with substantial cash flows, or extraordinarily successful enterprises
will be able to remain in operation should the 70% cap be retained. The effect of the 70%
cap is to effectively impose a tax amounting to 3% of gross revenue. The amount may seem
insignificant to those without working knowledge of the ways of business, but anybody who
is actually familiar with business would be well aware the profit margins of the retailing and
distribution sectors typically amount to less than 1% of the gross revenues. A taxpayer has to
earn a margin of at least 3% on gross revenue in order to recoup the losses sustained due to
the 70% cap. But as stated earlier, profits are chancy, and the entrepreneur does not have full
control of the conditions that lead to profit.
Even more galling is the fact that the 70% cap, oppressive as it already is to the business
establishment, even limits the options of the business to recover the unutilized input VAT
credit. During the deliberations, the argument was raised that the problem presented by the
70% cap was a business problem, which can only be solved by business. Yet there is only
one viable option for the enterprise to resolve the problem, and that is to increase the selling
price of goods.[39] It would be incorrect to assume that increase the volume of the goods sold
could solve the problem, since for items with the same purchasing cost, the effect of the 70%
cap remains constant regardless of an increase in volume.
But the additional burden is not limited to the increase of prices by the retailer to the end
consumer. Since VAT is a transaction tax, every level of distribution becomes subject not
only to the VAT, but also to the 70% cap. The problem increases due to a cascading effect as
the number of distribution levels increases since it will result in the collection of an effective
3% percentage tax at every distribution level.
In analyzing the effects of the 70% cap, and appreciating how it violates the due process
clause, we should not focus solely on the end consumers. Undoubtedly, consumers will face
hardships due to the increased prices, but their threshold of physical survival, as individual
people, is significantly less than that of enterprises. Somehow, I do not think the new E-VAT
would generally deprive consumers of the bare necessities such as food, water, shelter and
clothing. There may be significant deprivation of comfort as a result, but not of life.
The same does not hold true for businesses. The standard of “deprivation of life” of juridical
persons employs different variables than that of natural persons. What food and water may
be for persons, profit is for an enterprise the bare necessity for survival. For businesses, the
implementation of the same law, with the 70% cap and 60-month amortization period, would
mean the deprivation of profit, which is the determinative necessity for the survival of a
business.
It is easy to admonish both the consumer and the enterprise to cut back on expenditures to
survive the new E-VAT Law. However, this can be realistically expected only of the
consumer. The small/medium enterprise cannot just cut back easily on expenditures in order
to survive the implementation of the E-VAT Law. For such businesses, expenditures do not
normally contemplate unnecessary expenses such as executive perks which can be dispensed
with without injury to the enterprises. These expenditures pertain to expenses necessary for
the survival of the enterprise, such as wages, overhead and purchase of raw materials. Those
three basic items of expenditure cannot simply be reduced, as to do so with impair the ability
of the business to operate on a daily basis.
And reduction of expenditures is not the exclusive antidote to these impositions under the E-
VAT Law, as there must also be a corresponding increase in the amount of gross sales. To do
so though, would require an increase in the selling price, dampening consumer enthusiasm,
and further impairing the ability of the enterprise to recover from the E-VAT Law. This is
your basic Catch-22[40] situation — no matter which means the enterprise employs to
recover from the E-VAT Law, it will still go down in flames.
Section 8 of the E-VAT law, while ostensibly even-handed in application, fails to appreciate
valid substantial distinctions between large scale enterprises and small and medium
enterprises. The latter group, owing to the limited capability for capital investment, subsists
on modest profit margins, whereas the former expects, by reason of its substantial capital
investments, a high margin. In essentially prohibiting the recovery of small profit
margins, the E-VAT law effectively sends the message that only high margin businesses
are welcome to do business in the Philippines. It stifles any entrepreneurial ambitions
of Filipinos unfortunate enough to have been born poor yet seek a better life by
sacrificing all to start a small business.
Among the enunciated State policies in the Constitution, as stated in Section 20, Article II, is
that “the State recognizes the indispensable role of the private sector, encourages private
enterprise, and provides incentives to needed investments.”[41] The provision, as with other
declared State policies in the Constitution, have sufficient import and consequence such that
in assessing the constitutionality of the governmental action, these provisions should be
considered and weighed as against the rationale for the assailed State action.[42] The
incompatibility of the 70% cap with this provision is patent.
Pilipinas Shell Dealers, on whom the burden to establish the violation of due process and
equal protection lies, offers the following chart of the income statement of a typical
petroleum dealer:
QUARTERLY PROFIT AND LOSS STATEMENT

DEALER “A”
VAT
VAT (without
Price (with
70% cap)
70% cap)
Sales/Output 32,748,534 3,274,853.40 3,274,853.40
Cost of Sales
31,834,717 3,183,471.70
Gross Margin 913,817
Operating Expenses Non-
vatable items 536,249

Vatable Items
317,584
31,758.40
Total Cost 853,833
Net Profit 59,984
Total Input Tax
3,215,230.10 2,292,397.38
VAT Payable
59,623.30 982,456.02
Unutilized Input VAT 922,832.72
*computed by multiplying output VAT by 70% [3,274,853.40 x 70% =

2,292.397.38]

The presentation of the Pilipinas Shell Dealers more or less jibes with my own observations
on the impact of the 70% cap. The dealer whose income is illustrated above has to outlay a
cash amount of P922,832.72 more than what would have been shelled out if the 70% cap
were not in place. Considering that the net profit of the dealer is only P59,984.00, the
consequences could very well be fatal, especially if these state of events persist in
succeeding quarters.
The burden of proof was on the Pilipinas Shell Dealers’ to prove their allegations, and
accordingly, these figures have been duly presented to the Court for appreciation and
evaluation. Instead, the majority has shunted aside these presentations as being merely
theoretical, despite the fact that they present a clear and present danger to the very life of our
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[43]
optimism.
The obligation of the majority to refute on the merits the arguments of the Petroleum Dealers
becomes even more grave considering that the respondents have abjectly failed to
convincingly dispute the claims. During oral arguments, respondents attempted to counter
the arguments that the 70% cap was oppressive and confiscatory by presenting the following
illustration, which I fear is severely misleading:
Slide 1
Item Cost VAT
Sales 1,000,000.00 100,000.00
Purchases 800,000.00 80,000.00
Due BIR without cap Due BIR with 70% cap
Output VAT 100,000.00 Output VAT 100,000.00
Actual Input VAT 80,000.00 Allowable Input 70,000.00
VAT
Net VAT Payable 20,000.00 Net VAT Payable 30,000.00

Excess Input VAT 10,000.00

Carry-over to next quarter
Slide 2
____________________________________________________
Item Cost VAT
Sales 1,000,000.00 100,000.00
Purchases 600,000.00 60,000.00
Due BIR without cap Due BIR with 70% cap
Output VAT 100,000.00 Output VAT 100,000.00
Actual Input VAT 60,000.00 Allowable Input 60,000.00
VAT
Net VAT Payable 40,000.00 Net VAT Payable 40,000.00
Excess Input VAT 0
Carry-over to next quarter
This presentation of the respondents is grossly deceptive, as it fails to account for the excess
creditable input VAT that remains unutilized due to the 70% cap. This excess or creditable
input VAT is supposed to be carried over for the computation of the input VAT of the next
quarter. Instead, this excess or creditable input VAT magically disappears from the table of
the respondents. In their memorandum, the Pilipinas Shell Dealers counter with their own
presentation using the same variables as respondents’, but taking into account the excess
creditable input VAT and extending the situation over a one-year period. I cite with approval
the following chart of the Pilipinas Shell Dealers:
Slide 1
Quarter 1
Item No. Cost VAT
Sales 1,000,000.00 100,000.00
Purchases 800,000.00 80,000.00

Due BIR with 70% cap

Output VAT 100,000.00

Allowable Input VAT 70,000.00
Net VAT Payable 30,000.00

Excess Input Vat

Carry-over to next quarter 10,000.00
Quarter 2
Cost VAT
Sales 1,000,000.00 100,000.00
Purchases 800,000.00 80,000.00

Due BIR with 7-% cap

Output VAT
Less: Input VAT 100,000.00

Excess Input VAT fr. 1st Quarter 10,000.00

Input VAT-Current Qtr 80,000.00
Total Available Input VAT 90,000.00
Allowable Input VAT (100,000 x 70%) 70,000.00 70,000.00
Net VAT Payable 30,000.00
========
Allowable Input VAT 70,000.00
Excess Input VAT to be carried over to next Quarter 20,000.00
========
Quarter 3
Cost VAT
Sales 1,000,000.00 100,000.00
Purchases 800,000.00 80,000.00
Output VAT
Less: Input VAT

100,000.00
Excess Input VAT fr. 2nd Quarter 20,000.00
Net VAT Payable
30,000.00

=========
Total Available Input VAT
100,000.00
Allowable Input VAT
70,000.00
Excess Input VAT to be carried over to next quarter 30,000.00

=========
Quarter 4

Cost VAT
Sales 1,000,000.00 100,000.00
Purchases 800,000.00 80,000.00

Output VAT
Less: Input VAT

100,000.00
Excess Input VAT fr. 2nd Quarter 20,000.00
Net VAT Payable
30,000.00

=========
Total Available Input VAT
110,000.00
Allowable Input VAT
70,000.00
Excess Input VAT to be carried over to next quarter 40,000.00

=========
The 70% cap is not merely an unwise imposition. It is a burden designed, either
through sheer heedlessness or cruel calculation, to kill off the small and medium
enterprises that are the soul, if not the heart, of our economy. It is not merely an undue
taking of property, but constitutes an unjustified taking of life as well.

And what legitimate, germane purposes does this lethal 70% cap serve? It certainly
does not increase the 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 in order to show off money and maintain
the pretense of prosperity to visiting city relatives. The illusion of wealth is hardly a
legitimate state purpose, especially if projected at the expense of the very business life
of the country.
The majority, in an effort to belittle these concerns, points out that that the excess input tax
remains creditable in succeeding quarters. However, as seen in the above illustration, the
actual application of the excess input tax will always be limited by the amount of output
taxes collected in a quarter, as a result of the 70% cap. Thus, it is entirely possible that a
VAT-registered person, through the accumulation of unutilized input taxes, would have in a
quarter an express creditable input tax of P50,000,000, but would be allowed to actually
credit only P70,000 if the output tax collected for that quarter were only P100,000.
The burden of the VAT may fall at first to the immediate buyers, but it is supposed to be
eventually shifted to the end-consumer. The 70% cap effectively prevents this from
happening, as it limits the ability of the business to recover the prepaid input taxes. This is
unconscionable, since in the first place, these intervening players — the manufacturers,
producers, traders, retailers — are not even supposed to sustain the losses incurred by reason
of the prepayment of the input taxes. Worse, they would be obliged every quarter to pay to
the government from out of their own pockets the equivalent of 30% of the output taxes, no
matter their own particular financial condition. Worst, this twin yoke on the taxpayer of
having to sustain a debit equivalent to 30% of output taxes, and having to await forever in
order to recover the prepaid taxes would impair the cash flow and prove fatal for a shocking
number of businesses which, as they now stand, have to make do with a minimum profit that
stands to be wiped out with the introduction of the 70% cap.
Nonetheless, the majority notes that the excess creditable input tax may be the subject of a
tax credit certificate, which then could be used in payment of internal revenue taxes, or a
refund to the extent that such input taxes have not been applied against output taxes.[43]
What the majority fails to mention is that under Section 10 of the E-VAT Law, which
amends Section 112 of the NIRC, such credit or refund may not be done while the
enterprise remains operational:
SEC. 10. Section 112 of the same Code, as amended, is hereby further amended
to read as follows:
SEC. 112. Refunds or Tax Credits of Input Tax.—

xxx

“(B) Cancellation of VAT Registration.— A person whose

registration has been cancelled due to retirement from or
cessation of business or due to changes or cessation of status
under Section 106(C) of this Code may, within two (2) years from
the date of cancellation, apply for the issuance of a tax credit
certificate for any unused input tax which may be used in
payment of his other internal revenue taxes.

xxx
This stands in marked contrast to Section 112(B) of the NIRC as it read prior to this
amendment. Under the previous rule, a VAT-registered person was entitled to apply for the
tax credit certificate or refund paid on capital goods even while it remained in operation:
SEC. 112. Refunds or Tax Credits of Input Tax.—
xxx
“(B) Capital Goods .— A VAT-registered person may apply for the issuance of a
tax credit certificate or refund of input taxes paid on capital goods imported or
locally purchased, to the extent that such input taxes have not been applied
against output taxes. The application may be made only within two (2) years after
the close of the taxable quarter when the importation or purchase was made.
This provision, which could have provided foreseeable and useful relief to the VAT-
registered person, was deleted under the new E-VAT Law. At present, the refund or tax credit
certificate may only be issued upon two instances: on zero-rated or effectively zero-rated
sales, and upon cancellation of VAT registration due to retirement from or cessation of
business.[44] This is the cruelest cut of all. Only after the business ceases to be may the
State be compelled to repay the entire amount of the unutilized input tax. It is like a
macabre form of sweepstakes wherein the winner is to be paid his fortune only when he
is already dead. Aanhin pa ang damo kung patay na ang kabayo.

Moreover, the inability to immediately credit or otherwise recover the unutilized input VAT
could cause such prepaid amount to actually be recognized in the accounting books as a loss.
Under international accounting practices, the unutilized input VAT due to the 70% cap would
not even be recognized as a deferred asset. The same would not hold true if the 70% cap
were eliminated. Under the International Accounting Standards[45], the unutilized input VAT
credit is recognized as an asset “to the extent that it is probable that future taxable profit will
be available against which the unused tax losses and unused tax credits can be utili[z]ed”[46]
Thus, if the immediate accreditation of the input VAT credit can be obtained, as it would
without the 70% cap, the asset could be recognized.

However, the same Standards hold that “[t]o the extent that it is not probable that taxable
profit will be available against which the unused tax losses or unused tax credits can be
utilised, the deferred tax asset is not recogni[z]ed”.[47] As demonstrated, the continuous
operation of the 70% cap precludes the recovery of input VAT prepaid months or years prior.
Moreover, the inability to claim a refund or tax credit certificate until after the business has
already ceased virtually renders it improbable for the input VAT to be recovered. As such,
under the International Accounting Standards, it is with all likelihood that the prepaid input
VAT, ostensibly creditable, would actually be reflected as a loss.[48] What heretofore was
recognized as an asset would now, with the imposition of the 70% cap, be now considered as
a loss, enhancing the view that the 70% cap is ultimately confiscatory in nature.

This leads to my next point. The majority asserts that the input tax is not a property or
property right within the purview of the due process clause.[49] I respectfully but strongly
disagree.

Tellingly, the BIR itself has recognized that unutilized input VAT is one of those assets,
corporate attributes or property rights that, in the event of a merger, are transferred to the
surviving corporation by operation of law.[50] Assets would fall under the purview of
property under the due process clause, and if the taxing arm of the State recognizes that such
property belongs to the taxpayer and not to the State, then due respect should be given to
such expert opinion.
Even under the International Accounting Standards I adverted to above, the unutilized input
VAT credit may be recognized as an asset “to the extent that it is probable that future taxable
profit will be available against which the unused tax losses and unused tax credits can be
utili[z]ed”[51] If not probable, it would be recognized as a loss.[52] Since these international
standards, duly recognized by the Securities and Exchange Commission as controlling in this
jurisdiction, attribute tangible gain or loss to the VAT credit, it necessarily follows that there
is proprietary value attached to such gain or loss.
Moreover, the prepaid input tax represents unutilized profit, which can only be utilized if it is
refunded or credited to output taxes. To assert that the input VAT is merely a privilege is to
correspondingly claim that the business profit is similarly a mere privilege. The Constitution
itself recognizes the right to profit by private enterprises. As I stated earlier, one of the
enunciated State policies under the Constitution is the recognition of the indispensable role
of the private sector, the encouragement of private enterprise, and the provision of incentives
to needed investments.[53] Moreover, the Constitution also requires the State to recognize
the right of enterprises to reasonable returns on investments, and to expansion and
growth.[54] This, I believe, encompasses profit.
60-Month Amortization Period
Another portion of Section 8 of the E-VAT Law is unconstitutional, essentially for the same
reasons as above. The relevant portion reads:
read as follows:
"SEC. 110. Tax Credits. –

(A) Creditable Input Tax. –

....

Provided, That the input tax on goods purchased or imported in a

calendar month for use in trade or business for which deduction
for depreciation is allowed under this Code, shall be spread evenly
over the month of acquisition and the fifty-nine (59) succeeding
months if the aggregate acquisition cost for such goods, excluding
the VAT component thereof, exceeds One million pesos
(P1,000,000): Provided, however, That if the estimated useful life of
the capital good is less than five (5) years, as used for depreciation
purposes, then the input VAT shall be spread over such a shorter
period: Provided, finally, that in the case of purchase of services, lease
or use of properties, the input tax shall be creditable to the purchaser,
lessee or licensee upon payment of the compensation, rental, royalty
or fee.
Again, this provision unreasonably severely limits the ability of an enterprise to recover its
prepaid input VAT. On its face, it might appear injurious primarily to high margin
enterprises, whose purchase of capital goods in a given quarter would routinely exceed
P1,000,000.00. The amortization over a five-year period of the input VAT on these capital
goods would definitely eat up into their profit margin. But it is still possible for such big
businesses to survive despite this new restriction, and their financial pain alone may not be
sufficient to cause the invalidity of a taxing statute.
However, this amortization plan will prove especially fatal to start-ups and other new
businesses, which need to purchase capital goods in order to start up their new
businesses. It is a known fact in the financial community that a majority of businesses start
earning profit only after the second or third year, and many enterprises do not even get to
survive that long. The first few years of a business are the most crucial to its survival, and
any financial benefits it can obtain in those years, no matter how miniscule, may spell the
difference between life and death. For such emerging businesses, it is already difficult under
the present system to recover the prepaid input VAT from the output VAT collected from
customers because initial sales volumes are usually low. With this further limitation,
diminishing as it does any opportunity to have a sustainable cash flow, the ability of new
businesses to survive the first three years becomes even more endangered.
Even existing small to medium enterprises are imperiled by this 60 month amortization
restriction, especially considering the application of the 70% cap. The additional purchase of
capital goods bears as a means of adding value to the consumer good, as a means to justify
the increased selling price. However, the purchase of capital goods in excess of
P1,000,000.00 would impose another burden on the small to medium enterprise by further
restricting their ability to immediately recover the entire prepaid input VAT (which would
exceed at least P100,000.00), as they would be compelled to wait for at least five years
before they can do so. Another hurdle is imposed for such small to medium enterprise to
obtain the profit margin critical to survival. For some lucky enterprises who may be able
to survive the injury brought about by the 70% cap, this 60 month amortization period
might instead provide the mortal head wound.
Moreover, the increased administrative burden on the taxpayer should not be discounted,
considering this Court’s previous recognition of the aims of the VAT system to “rationalize
the system of taxes on goods and services, [and] simplify tax administration”.[57] With the
amortization requirement, the taxpayer would be forced to segregate assets into several
classes and strictly monitor the useful life of assets so that proper classification can be made.
The administrative requirements of the taxpayer in order to monitor the input VAT from the
purchase of capital assets thus has exponentially increased.
5% Withholding VAT on Sales
Pilipinas Shell Dealers argue that Section 12 of the E-VAT law, which amends Section
114(C) of the NIRC, is also unconstitutional. The provision is supremely unwise,
oppressive and confiscatory in nature, and ruinous to private enterprise and even State
development. The provision reads:
SEC. 12. Section 114 of the same Code, as amended, is hereby further amended
to read as follows:
"SEC. 114. Return and Payment of Value-Added Tax. –

xxx

“(C) Withholding of Value-added Tax. – The Government or any of its

political subdivisions, instrumentalities or agencies, including
government-owned or –controlled corporations (GOCCs) shall, before

making payment on account of each purchase of goods and services
which are subject to the value-added tax imposed in Sections 106 and
108 of this Code, deduct and withhold a final value-added tax at the
rate of five percent (5%) of the gross payment thereof: Provided, That
the payment for lease or use of properties or property rights to
nonresident owners shall be subject to ten percent (10%) withholding
tax at the time of payment. For purposes of this Section, the payor or
person in control of the payment shall be considered as the
withholding payment. xxx
The principle that the Government and its subsidiaries may deduct and withhold a final
value-added tax on its purchase of goods and services is not new, as the NIRC had allowed
such deduction and withholding at the rate of 3% of the gross payment for the purchase of
goods, and 6% of the gross receipts for services. However, the NIRC had also provided
that this tax withheld would also be creditable against the VAT liability of the seller or
contractor, a mechanism that was deleted by the E-VAT law. The deletion of this credit
apparatus effectively compels the private enterprise transacting with the government to
shoulder the output VAT that should have been paid by the government in excess of 5%
of the gross selling price, and at the same time unduly burdens the private enterprise
by precluding it from applying any creditable input VAT on the same transaction.
Notably, the removal of the credit mechanism runs contrary to the essence of the VAT
system, which characteristically allows the crediting of input taxes against output taxes.
Without such crediting mechanism, which allows the shifting of the VAT to only the
final end user, the tax becomes a straightforward tax on business or income. The effect
on the enterprise doing business with the government would be that two taxes would be
imposed on the income by the business derived on such transaction: the regular
personal or corporate income tax on such income, and this final withholding tax of 5%.

Granted that Congress is not bound to adopt with strict conformity the VAT system, and that
it has to power to impose new taxes on business income, this amendment to Section 114(C)
of the NIRC still remains unconstitutional. It unfairly discriminates against entities which
contract with the government by imposing an additional tax on the income derived
from such transactions. The end result of such discrimination is double taxation on
income that is both oppressive and confiscatory.

It is a legitimate purpose of a tax law to devise a manner by which the government

could save money on its own transactions, but it is another matter if a private
enterprise is punished for doing business with the government. The erstwhile NIRC
worked towards such advantage, by allowing the government to reduce its cash outlay on
purchases of goods and services by withholding the payment of a percentage thereof. While
the new E-VAT law retains this benefit to the government, at the same time it burdens the
private enterprise with an additional tax by refusing to allow the crediting of this tax
withheld to the 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.
The provision squarely contradicts Section 20, Article II of the Constitution as it

vacuously discourages private enterprise, and provides disincentives to needed
investments such as those expected by the State from private businesses. Whatever
advantages may be gained by the temporary increase in the government coffers would be
overturned by the disadvantages of having a reduced pool of private enterprises willing to do
business with the government. Moreover, since government contracts with private
enterprises will still remain a necessary fact of life, the amendment to Section 114(C) of the
NIRC introduced by the E-VAT Law.
Double taxation means taxing for the same tax period the same thing or activity twice, when
it should be taxed but once, for the same purpose and with the same kind of character of tax.
[56] Double taxation is not expressly forbidden in our constitution, but the Court has
recognized it as obnoxious “where the taxpayer is taxed twice for the benefit of the same
governmental entity or by the same jurisdiction for the same purpose.”[57] Certainly, both the
5% final tax withheld and the general corporate income tax are both paid for the benefit of
the national government, and for the same incidence of taxation, the sale/lease of goods and
services to the government.
The Court, in Re: Request of Atty. Bernardo Zialcita[58] had cause to make the following
observation I submit apropos to the case at bar, on double taxation in a case involving the
attempt of the BIR to tax the commuted accumulated leave credits of a government lawyer
upon his retirement:
Section 284 of the Revised Administrative Code grants to a government

employee 15 days vacation leave and 15 days sick leave for every year of service.
Hence, even if the government employee absents himself and exhausts his leave
credits, he is still deemed to have worked and to have rendered services. His
leave benefits are already imputed in, and form part of, his salary which in
turn is subject to withholding tax on income. He is taxed on the entirety of
his salaries without any deductions for any leaves not utilized. It follows then
that the money values corresponding to these leave benefits both the used
and unused have already been taxed during the year that they were earned.
To tax them again when the retiring employee receives their money value as
a form of government concern and appreciation plainly constitutes an
attempt to tax the employee a second time. This is tantamount to double
taxation.[59]
Conclusions
The VAT system, in itself, is intelligently designed, and stands as a fair means to raise
revenue. It has been adopted worldwide by countries hoping to employ an efficient means of
taxation. The concerns I have raised do not detract from my general approval of the VAT
system.
I do lament though that our 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
â”€ the old-time philosophy behind the taxing schemes of war-mongering monarchs and
totalitarian states â”€ 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 government transactions
were selfishly designed to increase government revenue at the expense of the survival of
local industries.
I am not insensitive to the concerns raised by the respondents as to the dire consequences to
the economy should the E-VAT law be struck down. I am aware that the granting of the
petition in G.R. No. 168461 will negatively affect the cash flow of the government. If that
were the only relevant concern at stake, I would have no problems denying the petition.
Unfortunately, under the device employed in the E-VAT law, the price to be paid for a
more sustainable liquidity of the 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.
I am not normally inclined towards the language of the overwrought, yet if the sky were
indeed truly falling, how else could that fact be communicated. The E-VAT Law is of
multiple fatal consequences. How are we to survive as a nation without the bulwark of
private industries? Perhaps the larger scale, established businesses may ultimately remain
standing, but they will be unable to sustain the void left by the demise of small to medium
enterprises. Or worse, domestic industry would be left in the absolute control of monopolies,
combines or cartels, whether dominated by foreigners or local oligarchs. The destruction of
subsisting industries would be bad enough, the destruction of opportunity and the
entrepreneurial spirit would be even more grievous and tragic, as it would mark as well the
end of hope. Taxes may be the lifeblood of the state, but never at the expense of the life of its
subjects.
Accordingly, I VOTE to:
1) DENY the Petitions in G.R. Nos. 168056, 168207, and 168730 for lack
of merit;
2) PARTIALLY GRANT the Petition in G.R. Nos. 168463 and declare
Section 21 of the E-VAT Law as unconstitutional;

3) GRANT the Petition in G.R. No. 168461 and declare as unconstitutional
Section 8 of Republic Act No. 9337, insofar as it amends Section 110(A)
and (B) of the National Internal Revenue Code (NIRC) as well as
Section 12 of the same law, with respect to its amendment of Section
114(C) of the NIRC.
[1] Republic Act No. 9337. Referred to intext as “E-VAT Law.”

[2]Except insofar as it prays that Section 21 of the E-VAT Law be declared unconstitutional.
Infra.

[3] J. Vitug and E. Acosta, Tax Law and Jurisprudence (2nd ed., 2000), at 7-8.
[4] See
National Power Corporation v. Province of Albay, G.R. No. 87479, 4 June 1990, 186
SCRA 198, 203.

[5] See Section 24, Article VI, Constitution.

[6]The recognized exceptions, both expressly provided by the Constitution, being the tariff
clause under Section 28(2), Article VI, and the powers of taxation of local government units
under Section 5, Article X.

[7] G.R. No. 158540, 8 July 2005, 434 SCRA 65.

[8] See People v. Vera, 65 Phil. 56, 117 (1937).

[9] Decision, infra.

[10] Carpio v. Executive Secretary, GR No. 96409 February 14,1992, 206 SCRA 290, 298;
citing In re Guarina, 24 Phil. 37.

[11] People v. Vera, supra note 8.

[12] See Section 2, National Internal Revenue Code.

[13] There are two eminent tests for valid delegation, the “completeness test” and the
“sufficient standard test”. The law must be complete in its essential terms and conditions
when it leaves the legislature so that there will be nothing left for the delegate to do when it
reaches him except enforce it. U.S. v. Ang Tang Ho, 43 Phil. 1, 6-7 (1922). On the other
hand, a sufficient standard is intended to map out the boundaries of the 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.

[14]Decision, infra, citing Alunan v. Mirasol, G.R. No. 108399, 31 July 1997, 276 SCRA
501, 513-514.
[15]Notwithstanding, the Court in Southern Cross did rule that Section 5 of the Safeguard
Measures Act, which required a positive final determination by the Tariff Commission
before the DTI or Agriculture Secretaries could impose general safeguard measures,
operated as a valid restriction and limitation on the exercise by the executive branch of
government of its tariff powers.
[16] G.R. No. 115455, 25 August 1994, 235 SCRA 630.
[17]
M. Evans, ‘A SOURCE OF FREQUENT AND OBSTINATE ALTERCATIONS’: THE
HISTORY AND APPLICATION OF THE ORIGINATION CLAUSE.
[18]The Federalist No. 58, at 394 (J. Madison) (J.Cooke ed. 1961), cited in J. M. Medina,
The Orignation Clause in the American Constitution: A Comparative Survey, 23 Tulsa Law
Journal 2, at 165.
[19] Tolentino v. Secretary of Finance, supra note 16 at 661.
[20] See Section 27(1), Article VI, CONSTITUTION.
[21] Tolentino v. Secretary of Finance, supra note 16 at 668.
[22] G.R. No. 124360, 5 November 1997, 281 SCRA 330.
[23] Id. at 349-350.
[24] People v. Tudtud, G.R. No. 144037, 26 September 2003, 412 SCRA 142, 168.
[25]See Section 1, Article III, CONSTITUTION. Private corporations and partnerships are
persons within the scope of the guaranty insofar as their property is concerned. Smith Bell &
Co. v. Natividad, 40 Phil. 136, 145 (1919).
[26] 16 C.J.S., at 1150-1151.
[27] 292 U.S. 40 (1934).
[28] Id. at 44.
[29] G.R. No. L-59431, 25 July 1984, 130 SCRA 654.
[30] Id. at 660-662.
[31]Justice Isagani Cruz offers the following examples of taxes that contravene the due
process clause: “A tax, for example, that would claim 80 percent of a 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 of the
tax to be imposed on it.” I. CRUZ, CONSTITUTIONAL LAW, p. 85.
[32] “After defining religion, the Court, citing Tanada and Fernando, made this statement,
viz:
The constitutional guaranty of the free exercise and enjoyment of religious

profession and worship carries with it the right to disseminate religious
information. Any restraint of such right can only be justified like other restraints
of freedom of expression on the grounds that there is a clear and present danger
of any substantive evil which the State has the right to prevent. (Tanada and
Fernando on the Constitution of the Philippines, vol. 1, 4th ed., p. 297) (emphasis
supplied)
This was the Court's maiden unequivocal affirmation of the "clear and present danger" rule
in the religious freedom area, and in Philippine jurisprudence, for that matter.” Estrada v.
Escritor, A.M. No. P-02-1651, 4 August 2003, 408 SCRA 1.

[33] Separate Opinion, infra.

[34] Ibid.

[35]Art. 2, European Commission First Council Directive 67/227 of 11 April 1967 on the
Harmonization of Legislation of Member States Concerning Turnover Taxes, 1971 O.J. (L
71) 1301.

[36] Liam & Ebrill, THE MODERN VAT.

[37]“The most basic law in finance!” Understand the Time Value of Money. http://www.free-
financial-advice.net/time-value-of-money.html. Last visited, 30 August 2005.

[38] Time Value of Money. http://www.jetobjects.com/components/finance/

TVM/concepts.html. Last visited, 30 August 2005.

[39]There is also the option for the business to go underground and avoid VAT registration,
and consequently avoid remitting VAT payments to the government. It would be facetious
though for a Justice of the Supreme Court to characterize this illegal option as “viable.”

[40] In Joseph Heller’s Catch-22, Yossarian, a World War II pilot reasoned that if he feigned
insanity, he would be necessarily exempt from assignment to dangerous bombing runs in
enemy territory. However, his superiors reasoned that if he were truly insane, he then would
be heedless enough to be sent on those dangerous bombing runs he had sought to avoid in
the first place.

[41]Pangloss was a famed character ridiculed in Voltaire’s Candide, renowned for his
absolute blind faith in optimism, no matter how dire the circumstances.
[42] Id. at 29-30.
[43] Decision, infra.
[44]
This is confirmed by the BIR in its draft Revenue Memorandum Circular dated 12 July
2005, submitted by respondents in its Compliance dated 16 August 2005:
“[Q]: Is there a way by which such unapplied excess input tax credits can be
claimed for refund or issuance of TCC?

[A]: The only time application for refund/issuance of TCC is allowed for
input taxes incurred on the purchase of domestic goods/services is when the
same are directly attributable to zero-rated or effectively zero-rated sales (of
goods/services). xxx

For those engaged purely in domestic transactions, the only time that
unapplied input taxes may be applied for the issuance of TCC is when the
VAT registration of the taxpayer is cancelled due to retirement or cessation
of business or change in the status of the taxpayer as a VAT registered
taxpayer. As provided for in Section 112(B0, in case of cancellation of VAT
registration due to cessation of business or change in status of taxpayer, the only
recourse given to such taxpayer is to apply for the issuance of TCC on his excess
input tax credits which may be used in payment of his other internal revenue
taxes, application for refund thereof is not an option.”

See Annexes “18-N” and “18-O”, Compliance dated 12 July 2005.

[45]
See SRC Rule 68(1)(b)(c), IMPLEMENTING RULES AND REGULATIONS TO THE
SECURITIES AND REGULATIONS CODE.

[46] Section 34, INTERNATIONAL ACCOUNTING STANDARDS 12.

[47] Section 36, id.

[48]In his Separate Opinion, Justice Panganiban asserts that the deferred input tax credit is
not really confiscated by the government, as it remains an asset in the accounting records of
a business. See Separate Opinion, infra. By the same logic, a law requiring all businesses to
surrender to the government 100% of its gross sales subject to reimbursement only after a
five year period, would pass muster, since the amount is “not really confiscated by the
government as it remains an asset in the accounting records of a business.”

[51]JusticePanganiban cites United Paracale Mining Co. v. De la Rosa (cited as 221 SCRA
108, 115, April 7, 1993) to bolster his stated position that ““[t]here is no vested right in a
deferred input tax account; it is a mere statutory privilege”. Separate Opinion, infra. United
Paracale does not pertain to any deferred input taxes, but instead to “mining claims which
according to [petitioners] is private property would constitute impairment of vested rights
since by shifting the forum of the petitioner’s case from the courts to the Bureau of Mines…
[the] substantive rights to full protection of its property rights shall be greatly impaired.”
United Paracale Mining Co. v. Hon. Dela Rosa, G.R. Nos. 63786-87, 7 April 1993, 221
SCRA 108, `115. Clearly, United Paracale is not even a tax case, involving as it does,
questions of the jurisdiction of the Bureau of Mines.
[50] See Part III, Paragraph 3, Revenue Memorandum Ruling No. 1-2002.
[51] Section 32, International Accounting Standards 12.
[52] Supra note 47.
[53] Supra note 9.
[54] Section 3, Article XIII, CONSTITUTION.
[55]
Kapatiran ng Mga Naglilingkod sa Pamahalaan ng Pilipinas, Inc. et al. v. Tan, G.R. No.
L-81311, 30 June 1988.
[56] J. Vitug and E. Acosta, supra note 3 at 41.
[57]
Pepsi-Cola Bottling Co. of the Philippines, Inc. v. Municipality of Tanauan, G.R. No. L-
31156, 27 February 1976, 69 SCRA 460, 466-67; citing CIR v. Lednicky, L-18169, July 31,
1964, 11 SACRA 609 and SMB, Inc. v. City of Cebu, L-20312, February 26, 1972, 43
SCRA 280.
[58] A.M. No. 90-6-015-SC, 18 October 1990, 190 SCRA 851.
[59] Id. at 856.
CONCURRING OPINION

CHICO-NAZARIO, J.:

Five petitions were filed before this Court questioning the constitutionality of Republic Act
No. 9337. Rep. Act No. 9337, which amended certain provisions of the National Internal
Revenue Code of 1997,[1] by essentially increasing the tax rates and expanding the coverage
of the Value-Added Tax (VAT). Undoubtedly, during these financially difficult times, more
taxes would be additionally burdensome to the citizenry. However, like a bitter pill, all
Filipino citizens must bear the burden of these new taxes so as to raise the much-needed
revenue for the ailing Philippine economy. Taxation is the indispensable and inevitable price
for a civilized society, and without taxes, the government would be paralyzed.[2] Without the
tax reforms introduced by Rep. Act No. 9337, the then Secretary of the Department of
Finance, Cesar V. Purisima, assessed that “all economic scenarios point to the National
Government’s inability to sustain its precarious fiscal position, resulting in severe erosion of
investor confidence and economic stagnation.”[3]

Finding Rep. Act No. 9337 as not unconstitutional, both in its procedural enactment and in
its substance, I hereby concur in full in the foregoing majority opinion, penned by my
esteemed colleague, Justice Ma. Alicia Austria-Martinez.
According to petitioners, the enactment of Rep. Act No. 9337 by Congress was riddled with
irregularities and violations of the Constitution. In particular, they alleged that: (1) The
Bicameral Conference Committee exceeded its authority to merely settle or reconcile the
differences among House Bills No. 3555 and 3705 and Senate Bill No. 1950, by including in
Rep. Act No. 9337 provisions not found in any of the said bills, or deleting from Rep. Act
No. 9337 or amending provisions therein even though they were not in conflict with the
provisions of the other bills; (2) The amendments introduced by the Bicameral Conference
Committee violated Article VI, Section 26(2), of the Constitution which forbids the
amendment of a bill after it had passed third reading; and (3) Rep. Act No. 9337 contravened
Article VI, Section 24, of the Constitution which prescribes that revenue bills should
originate exclusively from the House of Representatives.
Invoking the expanded power of judicial review granted to it by the Constitution of 1987,
petitioners are calling upon this Court to look into the enactment of Rep. Act No. 9337 by
Congress and, consequently, to review the applicability of the enrolled bill doctrine in this
jurisdiction. Under the said doctrine, the enrolled bill, as signed by the Speaker of the House
of Representatives and the Senate President, and certified by the Secretaries of both Houses
of Congress, shall be conclusive proof of its due enactment.[4]
Petitioners’ arguments failed to convince me of the wisdom of abandoning the enrolled bill
doctrine. I believe that it is more prudent for this Court to remain conservative and to
continue its adherence to the enrolled bill doctrine, for to abandon the said doctrine would be
to open a 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]
Moreover, this Court must attribute good faith and accord utmost respect to the acts of a co-
equal branch of government. While it is true that its jurisdiction has been expanded by the
Constitution, the exercise thereof should not violate the basic principle of separation of
powers. The expanded jurisdiction does not contemplate judicial supremacy over the other
branches of government. Thus, in resolving the procedural issues raised by the petitioners,
this Court should limit itself to a determination of compliance with, or conversely, the
violation of a specified procedure in the Constitution for the passage of laws by Congress,
and not of a mere internal rule of proceedings of its Houses.

It bears emphasis that most of the irregularities in the enactment of Rep. Act No. 9337
concern the amendments introduced by the Bicameral Conference Committee. The
Constitution is silent on such a committee, it neither prescribes the creation thereof nor does
it prohibit it. The creation of the Bicameral Conference Committee is authorized by the
Rules of both Houses of Congress. That the Rules of both Houses of Congress provide for
the creation of a Bicameral Conference Committee is within the prerogative of each House
under the Constitution to determine its own rules of proceedings.
The Bicameral Conference Committee is a creation of necessity and practicality considering

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

this Court either to set aside a legislative action as void because the Court thinks
the house has disregarded its own rules of procedure, or to allow those defeated
in the political arena to seek a rematch in the judicial forum when petitioners can
find remedy in that department. The Court has not been invested with a roving
commission to inquire into complaints, real or imagined, of legislative
skullduggery. It would be acting in excess of its power and would itself be guilty
of grave abuse of its discretion were it to do so. . . .
Present jurisprudence allows the Bicameral Conference Committee to amend, add, and
delete provisions of the Bill under consideration, even in the absence of conflict thereon
between the Senate and House versions, but only so far as said provisions are germane to the
purpose of the Bill.[8] Now, there is a question as to whether the Bicameral Conference
Committee, which produced Rep. Act No. 9337, exceeded its authority when it included
therein amendments of provisions of the National Internal Revenue Code of 1997 not related
to VAT.
Although House Bills No. 3555 and 3705 were limited to the amendments of the provisions
on VAT of the National Internal Revenue Code of 1997, Senate Bill No. 1950 had a much
wider scope and included amendments of other provisions of the said Code, such as those on
income, percentage, and excise taxes. It should be borne in mind that the very purpose of
these three Bills and, subsequently, of Rep. Act No. 9337, was to raise additional revenues
for the government to address the dire economic situation of the country. The National
Internal Revenue Code of 1997, as its title suggests, is the single Code that governs all our
national internal revenue taxes. While it does cover different taxes, all of them are imposed
and collected by the national government to raise revenues. If we have one Code for all our
national internal revenue taxes, then there is no reason why we cannot have a single statute
amending provisions thereof even if they involve different taxes under separate titles. I
hereby submit that the amendments introduced by the Bicameral Conference Committee to
non-VAT provisions of the National Internal Revenue Code of 1997 are not unconstitutional
for they are germane to the purpose of House Bills No. 3555 and 3705 and Senate Bill No.
1950, which is to raise national revenues.
Furthermore, the procedural issues raised by the petitioners were already addressed and
resolved by this Court in Tolentino v. Executive Secretary.[9] Since petitioners failed to
proffer novel factual or legal argument in support of their positions that were not previously
considered by this Court in the same case, then I am not compelled to depart from the
conclusions made therein.
The majority opinion has already thoroughly discussed each of the substantial issues raised
by the petitioners. I would just wish to discuss additional matters pertaining to the petition of
the petroleum dealers in G.R. No. 168461.
They claim that the provision of Rep. Act No. 9337 limiting their input VAT credit to only
70% of their output VAT deprives them of their property without due process of law. They
argue further that such 70% cap violates the equal protection and uniformity of taxation
clauses under Article III, Section 1, and Article VI, Section 28(1), respectively, of the
Constitution, because it will unduly prejudice taxpayers who have high input VAT and who,
because of the cap, cannot fully utilize their input VAT as credit.
I cannot sustain the petroleum dealers’ position for the following reasons –
First, I adhere to the view that the input VAT is not a property to which the taxpayer has
vested rights. Input VAT consists of the VAT a VAT-registered person had paid on his
purchases or importation of goods, properties, and services from a VAT-registered supplier;
more simply, it is VAT paid. It is not, as averred by petitioner petroleum dealers, a property
that the taxpayer acquired for valuable consideration.[10] A VAT-registered person incurs
input VAT because he complied with the National Internal Revenue Code of 1997, which
imposed the VAT and made the payment thereof mandatory; and not because he paid for it or
purchased it for a price.
Generally, when one pays taxes to the government, he cannot expect any direct and concrete
benefit to himself for such payment. The benefit of payment of taxes shall redound to the
society as a whole. However, by virtue of Section 110(A) of the National Internal Revenue
Code of 1997, prior to its amendment by Rep. Act No. 9337, a VAT-registered person is
allowed, subject to certain substantiation requirements, to credit his input VAT against his
output VAT.
Output VAT is the VAT imposed by the VAT-registered person on his own sales of goods,
properties, and services or the VAT he passes on to his buyers. Hence, the VAT-registered
person selling the goods, properties, and services does not pay for the output VAT; said
output VAT is paid for by his consumers and he only collects and remits the same to the
government.
The crediting of the input VAT against the output VAT is a statutory privilege, granted by
Section 110 of the National Internal Revenue Code of 1997. It gives the VAT-registered
person the opportunity to recover the input VAT he had paid, so that, in effect, the input VAT
does not constitute an additional cost for him. While it is true that input VAT credits are
reported as assets in a VAT-registered 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
Congress of its law-making power. To say that Congress may not trifle with Section 110 of
the National Internal Revenue Code of 1997 would be to violate a basic precept of
constitutional law – that no law is irrepealable.[11] There can be no vested right to the
continued existence of a statute, which precludes its change or repeal.[12]
It bears to emphasize that Rep. Act No. 9337 does not totally remove the privilege of
crediting the input VAT against the output VAT. It merely limits the amount of input VAT one
may credit against his output VAT per quarter to an amount equivalent to 70% of the output
VAT. What is more, any input VAT in excess of the 70% cap may be carried-over to the next
quarter.[13] It is certainly a departure from the VAT crediting system under Section 110 of the
National Internal Revenue Code of 1997, but it is an innovation that Congress may very well
introduce, because –
VAT will continue to evolve from its pioneering original structure. Dynamically,
it will be subjected to reforms that will make it conform to many factors, among
which are: the changing requirements of government revenue; the social,
economic and political vicissitudes of the times; and the conflicting interests in
our society. In the course of its evolution, it will be injected with some oddities
and inevitably transformed into a structure which its revisionists believe will be
an improvement overtime.[14]
Second, assuming for the sake of argument, that the input VAT credit is indeed a property,
the petroleum dealers’ right thereto has not vested. A right is deemed vested and subject to
constitutional protection when –
“. . . [T]he right to enjoyment, present or prospective, has become the property of

some particular person or persons as a present interest. The right must be
absolute, complete, and unconditional, independent of a contingency, and a mere
expectancy of future benefit, or a contingent interest in property founded on
anticipated continuance of existing laws, does not constitute a vested right. So,
inchoate rights which have not been acted on are not vested.” (16 C. J. S. 214-
215)[15]
Under the National Internal Revenue Code of 1997, before it was amended by Rep. Act No.
9337, the sale or importation of petroleum products were exempt from VAT, and instead,
were subject to excise tax.[16] Petroleum dealers did not impose any output VAT on their
sales to consumers. Since they had no output VAT against which they could credit their input
VAT, they shouldered the costs of the input VAT that they paid on their purchases of goods,
properties, and services. Their sales not being subject to VAT, the petroleum dealers had no
input VAT credits to speak of.

It is only under Rep. Act No. 9337 that the sales by the petroleum dealers have become
subject to VAT and only in its implementation may they use their input VAT as credit against
their output VAT. While eager to use their input VAT credit accorded to it by Rep. Act No.
9337, the petroleum dealers reject the limitation imposed by the very same law on such use.

It should be remembered that prior to Rep. Act No. 9337, the petroleum dealers’ input VAT
credits were inexistent – they were unrecognized and disallowed by law. The petroleum
dealers had no such property called input VAT credits. It is only rational, therefore, that they
cannot acquire vested rights to the use of such input VAT credits when they were never
entitled to such credits in the first place, at least, not until Rep. Act No. 9337.

My view, at this point, when Rep. Act No. 9337 has not yet even been implemented, is that
petroleum dealers’ right to use their input VAT as credit against their output VAT unlimitedly
has not vested, being a mere expectancy of a future benefit and being contingent on the
continuance of Section 110 of the National Internal Revenue Code of 1997, prior to its
amendment by Rep. Act No. 9337.

Third, although the petroleum dealers presented figures and computations to support their
contention that the cap shall lead to the demise of their businesses, I remain unconvinced.

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

In view of the foregoing, I vote for the denial of the present petitions and the upholding of
the constitutionality of Rep. Act No. 9337 in its entirety.

[1] Presidential Decree No. 1158, as amended up to Rep. Act No. 8424.

[2]Commissioner of Internal Revenue v. Algue, Inc., G.R. No. L-28896, 17 February 1988,
158 SCRA 9.

[3]Paragraph 3.3 of the Verification and Affidavit of Merit, executed by the then Secretary of
the Department of Finance, Cesar V. Purisima, dated 04 July 2005, attached as Annex A of
the Very Urgent Motion to Lift Temporary Restraining Order, filed by the Office of the
Solicitor General on 04 July 2005.

[4]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.

[6]Tolentino v. Secretary of Finance, G.R. No. 115544, 25 August 1994, 235 SCRA 630;
Philippine Judges Association v. Prado, G.R. No. 105371, 11 November 1993, 227 SCRA
703.

[7] G.R. No. 127255, 14 August 1997, 277 SCRA 268, 299.
[8] Supra, note 6.
[9] Supra, note 3.
[10]Petition for Prohibition (Under Rule 65 with Prayer for the Issuance of a Temporary
Restraining Order and/or Writ of Preliminary Injunction) in G.R. No. 168461 entitled,
Association of Pilipinas Shell Dealers, Inc., et al. v. Purisima, et al., p. 17, paragraph 52.
[11]Asociacion de Agricultores de Talisay-Silay, Inc. v. Talisay-Silay Milling Co., Inc., G.R.

No. L-19937, 19 February 1979, 88 SCRA 294; Duarte v. Dade, 32 Phil. 36 (1915).
[12]Traux v. Corrigan, 257 U.S. 312, 66 L. Ed. 254, as quoted in Asociacion de Agricultores
de Talisay-Silay, Inc. v. Talisay-Silay Milling Co., Inc., Id., p. 452.
[13]Section 110(B) of the National Internal Revenue Code of 1997, as amended by Section 8
of Rep. Act No. 9337.
[14]
VICTORIO A. DEOFERIO, JR. AND VICTORINO C. MAMALATEO, THE VALUE
ADDED TAX IN THE PHILIPPINES 48 (2000).
[15] Benguet Consolidated Mining Co. v. Pineda, 98 Phil 711, 722 (1956).
[16] Section 109(e) of the National Internal Revenue Code of 1997.
[17] TSN, 18 April 2005, IV-2, p. 5.
[18] Section 116 of the National Internal Revenue Code, as amended by Rep. Act No. 9337.
[19] 34 Phil. 969, 973 (1916).
[20] G.R. No. L-49112, 02 February 1979, 88 SCRA 195.
[21] Id., pp. 210-211.
RESOLUTION

AUSTRIA-MARTINEZ, J.:

In view of the Court’s Resolution dated July 12, 2005, which required Former Finance
Secretary Cesar V. Purisima to show cause why he should not be held in contempt of court
for conduct which puts the Court and its Members into dishonor, disrepute and discredit, and
degrades the administration of justice, Purisima filed his Compliance thereto, stating that:
It is not true that I claimed or even insinuated that this Honorable Court was
pressured or influenced by President Gloria Macapagal Arroyo or Malacañang
Palace to issue a Temporary Restraining Order (“TRO”) in the instant cases.
What I stated was simply that President Arroyo had on several occasions
discussed with the economic team the possibility of postponing the
implementation of Republic Act No. 9337. While I believe that President Arroyo
wanted to postpone the implementation of the said law, I never claimed or
insinuated that this Honorable Court was influenced or pressured to issue the
TRO against its implementation.
I do not deny that I was extremely disappointed when this Honorable Court
issued the TRO, which was a serious setback to our fiscal consolidation program.
And my disappointment grew when I felt that the Government specifically the
Executive branch, was not doing enough to have the TRO lifted. At the height of
my disappointment, and after hearing of rumors that Executive officials may have
been instrumental in procuring the TRO, I did enquire from the other cabinet
officials whether Malacañang had a hand in the issuance of the order. I felt that it
was my right and duty as Finance Secretary to make such an inquiry, given that
before the issuance of the TRO, the President had inquired about the possibility
of deferring the implementation of Republic Act No. 9337. But surely, my
inquiries whether Malacañang did so, did not amount to, as it was not intended to
have the effect of, claiming outright or necessarily insinuating that Malacañang
did so, or to hold, in any manner, this Honorable Court in contempt.[1]
Purisima cites the July 11, 2005 edition of the Philippine Star and the July 10, 2005 edition
of the Philippine Daily Inquirer, which reported that

Purisima did not directly accuse the President of influencing the Court in issuing the TRO,
and that he would neither confirm nor deny the reports that the President had a hand in its
issuance.

The Court finds Purisima’s explanation unsatisfactory.

The Court reproduces excerpts from some of the reports contained in the newspapers with
regard to Purisima’s statements, to wit:
(1) July 10, 2005, The Philippine Star, Opinion Section (It’s the Economy,
Stupid!)
The present political crisis will inevitably boil down to the economy
as the real issue that will ultimately bring down the Arroyo
Administration. What we are hearing from people close to the Palace
is that the TRO issued by the Supreme Court on the EVAT is the real
reason why 10 Cabinet members, specially Cesar Purisima and
Johnny Santos, resigned. Cesar Purisima further pointed out that her
decision-making process has adversely affected the economy. The
frustrated economic team felt that GMA had actually influenced the
Supreme Court to issue the TRO to postpone the bad effects of the
EVAT on prices purely for her political survival. If indeed that is true,
then it just confirms that our present political system has really gone
from bad to worse. What I found disgusting is that the plotters,

especially Cesar Purisima, sounded like Judas Iscariot. They could
just have simply resigned without making a spectacle out of it.
(2) July 10, 2005, The Daily Tribune (SC Denies Palace Pressed Issuance of E-
VAT TRO)
Reports had claimed that the former economic team of Mrs. Arroyo
decided to resign over the weekend due in part to the administration’s
lobbying the SC to issue a restraining order on the e-VAT, apparently
to prevent the public from further seething against the government
over the continuous spiraling of the prices of basic goods and
services.

Finance officials led by Purisima previously expressed dismay over

the suspension of the e-VAT as they claimed that the TRO would cost
the government at least P140 million a day in unrealized revenues.

Purisima hinted that Mrs. Arroyo had a hand in the SC’s TRO to save
her presidency.
(3) July 11, 2005, Manila Standard Today (Palace Debunks Purisima Claim on
EVAT)
Malacañang yesterday branded as “ridiculous” the insinuations that

President Gloria Macapagal Arroyo had a hand in the Supreme
Court’s July 1 order suspending the implementation of the Expanded
Value-Added Tax Law.

At the same time, Justice Secretary Raul Gonzalez slammed resigned

Finance Secretary Cesar Purisima and ex-Trade Secretary Juan Santos
for claiming that the President had wanted the implementation of the
law delayed so she would not get too much political flak for the tax
measure.
(4) July 11, 2005, The Philippine Star, Business Section (The Last Straw that
Broke a Cabinet)
For ex-Finance Secretary Cesar Purisima, the implementation of the

EVAT law was a major pillar to strengthen the country’s finances, to
get our fiscal house in order. As far as he and the rest of the economic
management team he heads are concerned, they are operating under
the fiscal equivalent of a red alert. They have scored some early
victories, like the increase in revenue collections in recent months, but
they know that they are still far from being in the clear.

That was why Purisima felt truly betrayed when he reportedly got a
phone call from an official telling him “yung hinihingi nyo sa
Supreme Court binigay na.” He didn’t have any pending requests
from the Court so he wondered, refusing to accept the reality of his
worst fear: The EVAT had been sacrificed by the Palace.
(5) July 12, 2005, The Philippine Daily Inquirer (No GMA Influence on e-VAT
freeze-SC)
Bunye made the reaffirmation after Purisima and former Trade

Secretary Juan Santos insinuated that the President might have
influenced the Supreme Court to grant the TRO.
At the time the reports came out, Purisima did not controvert the truth or falsity of the
statements attributed to him. It was only after the Court issued the show-cause order that
Purisima saw it fit to deny having uttered these statements. By then, it was already impressed
upon the public’s mind that the issuance of the TRO was the product of machinations on the
Court by the executive branch.

If it were true that Purisima felt that the media misconstrued his actions, then he should have
immediately rectified it. He should not have waited until the Court required him to explain
before he denied having made such statements. And even then, his denials were made as a
result of the Court’s show-cause order and not by any voluntary act on his part that will show
utter regret for having been “misquoted.” Purisima should know that these press releases
placed the Court into dishonor, disrespect, and public contempt, diminished public
confidence, promoted distrust in the Court, and assailed the integrity of its Members. The
Court already took a beating before Purisima made any disclaimer. The damage has been
done, so to speak.

WHEREFORE, Cesar V. Purisima is found GUILTY of indirect contempt of court and

FINED in the amount of Twenty Thousand Pesos (P20,000.00) to be paid within ten (10)
days from finality of herein Resolution.

SO ORDERED.

Davide, Jr., C.J., Puno, Panganiban, Quisumbing, Sandoval-Gutierrez, Carpio, Corona,

Carpio-Morales, Callejo, Sr., Azcuna, Tinga, Chico-Nazario, and Garcia, JJ., concur.
Ynares-Santiago, J., on leave.
[1] Compliance, pp. 2-3.
Source: Supreme Court E-Library | Date created: October 02, 2014
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8 - (G.R. No. 168056, September 01, 2005)

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8 - (G.R. No. 168056, September 01, 2005)

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9/1/22, 1:34 PM [ G.R. No.

168056, September 01, 2005 ]

[G.R. NO. 168207]

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

[G.R. NO. 168461]

ASSOCIATION OF PILIPINAS SHELL DEALERS, INC.

STYLE OF “CMA MOTORISTS CENTER”; SUSAN M. ENTRATA

[G.R. NO. 168463]

FRANCIS JOSEPH G. ESCUDERO, VINCENT CRISOLOGO,

[G.R. NO. 168730]

BATAAN GOVERNOR ENRIQUE T. GARCIA, JR. PETITIONER, VS.

THE BUREAU OF CUSTOMS, RESPONDENTS.

-Anne Robert Jacques Turgot (1727-1781)

J. : . . . But before I go into the details of your presentation, let me

ATTY. : No, Your Honor.

ATTY. : . . . and therefore that was meant to temper the impact . . .

ATTY. : Yes, Your Honor.

J. : As a matter of fact a part of the mitigating measures would be

ATTY. : Yes, Your Honor.

J. : And therefore, there is no justification for increasing the retail

ATTY. : You’re right, Your Honor.

J. : Now. For instance, Domestic Airline companies, Mr. Counsel,

ATTY. : I guess so, Your Honor, yes.

J. : There are other products that the people were complaining on

ATTY. : Yes, Your Honor.

J. : Alright. So that’s one reason why we had to issue a TRO

G.R. No. 168056

. . . That the President, upon the recommendation of the Secretary of Finance,

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

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

Petitioners argue that the law is unconstitutional, as it constitutes abandonment by Congress

G.R. No. 168207

G.R. No. 168461

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

G.R. No. 168463

1) Sections 4, 5, and 6 of R.A. No. 9337 constitute an undue delegation of

2) The Bicameral Conference Committee acted without jurisdiction in

3) Insertion by the Bicameral Conference Committee of Sections 27, 28, 34,

G.R. No. 168730

The Court defined the issues, as follows:

a. Article VI, Section 24, and

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

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

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

RULING OF THE COURT

The Court will now discuss the issues in logical sequence.

a. Article VI, Section 24, and

A. The Bicameral Conference Committee

1) Inserting the stand-by authority in favor of the President in Sections 4, 5, and 6

be settled by the conference committees of both chambers.

Sec. 89. Conference Committee Reports. – . . . Each report shall contain a

The Chairman of the House panel may be interpellated on the Conference

Rule XII, Section 35 of the Rules of the Senate states:

Each Conference Committee Report shall contain a detailed and sufficiently

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

Striking down such argument, the Court held thus:

But the cases, both here and abroad, in varying forms of

With regard to “Stand-By Authority” in favor of President

With regard to the “no pass-on” provision

With regard to 70% limit on input tax credit

With regard to amendments to be made to NIRC provisions regarding income and

No similar provision No similar provision Provided for

(A) Creditable Input Tax. – . . .