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Abakada Guro Party List v.

Ermita
Case Reference No., September 1, 2005

FACTS:
The instant case is a consolidation of petitions assailing the constitutionality of certain
provisions of RA 9337 or the Expanded-VAT Law which increased the 10% VAT into 12% VAT, effective
January 1, 2006.
In GR No. 168056, petitioners ABAKADA GURO Party List, et. al. questioned the constitutionality
of Sections 4, 5 and 6 of RA 9336 prior to its effectivity. Sec. 4 imposes a 10% VAT on sale of goods and
properties, Sec. 5 imposes a 10% VAT on importation of goods, and Sec. 6 imposes 10% VAT on sale of
services and lease of properties. These questioned provisions contain a uniform proviso that authorizes
the President, upon recommendation of Finance Secretary, to raise the VAT rate to 12% after certain
conditions therein have been satisfied. According to petitioners, the law is unconstitutional as it
constitutes ABANDONMENT by Congress of its EXCLUSIVE POWER to FIX the rate of TAXES under the
Constitution.
In GR No. 168207, Sen. Aquilino Pimentel, Jr. et. al., also assailed the constitutionality of Secs. 4.
5 and 6. Aside from questioning the so-called standby authority of the President, petitioners also
contended that the said sections VIOLATED the DUE PROCESS clause, 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 met;
(2) The rate is UNFAIR and UNREASONABLE since the people are UNSURE of the applicable VAT
rate from year to year; and
(3) The increase should only be based on FISCAL ADEQUACY.
In GR No. 168461, the Association of Pilipinas Shell Dealers, Inc., et. al., assailed the
constitutionality of Secs. 8 and 12 for being arbitrary, oppressive, excessive and confiscatory. Sec. 8
requires that the input tax on depreciable goods shall be amortized over a 60-month period if the
acquisition, excluding VAT components, exceeds P1M. It also imposes a 70% limit on the amount of
input tax to be credited against the output tax. Sec. 12, meanwhile, authorizes the Government to
DEDUCT a 5% WITHOLDING TAX on gross payment of goods and services subject to 10% VAT. They said
that these provisions DEPRIVE the people of their PROPERTY WITHOUT DUE PROCESS of law as they limit
the amount of tax input that may be claimed. These provisions also violated the EQUAL PROTECTION
clause as the limitation on the credible input tax is NOT BASED on real and substantial differences to
meet a valid classification. Lastly, they contended that the 70% limit is NOT PROGRESSIVE and that it is
the smaller businesses with higher input tax to output tax ratio that will suffer the consequences for it
wipes out whatever meager margins the petitioner make.

In GR No. 168730, Gov. Enrique Garcia alleged that the limitation on the credible input tax
ALLOWS VAT-registered establishments to RETAIN a portion of the taxes they collect, thus violating the
principle that taxes should be for PUBLIC PURPOSES. He further claimed that allowing the
establishments to pass on the tax to the consumers is INEQUITABLE, in violation of Art. VI, Sec. 28(1) of
the Constitution.
On the other hand, the OSG, on behalf of the respondents, contended that RA 9337 enjoys
presumption of constitutionality and petitioners failed to cast doubt on its validity. The procedural
issues raised have already been settled in the case of Tolentino v. Sec. of Finance. With respect to the
issue of undue delegation of legislative power to the President, respondents contended that the law is
complete as it leaves no discretion to the President but to increase the rate to 12% once any of the two
conditions provided arise.
ISSUE:

RULING:
NO, RA 9337 is NOT unconstitutional.
The VAT is a tax on SPENDING and CONSUMPTION, thus, levied on the sale, barter, exchange or
lease of goods or properties and services. Being an INDIRECT TAX on expenditure, the seller may pass on
the amount of tax paid to the buyer, with the seller acting merely as a tax collector. 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.
NO Undue Delegation of Legislative Power
The instant case is NOT a delegation of legislative power but simply a delegation of
ASCERTAINMENT OF FACTS upon which enforcement and administration of the increase rate under the
law is contingent. It leaves the entire operation or non-operation of the 12% rate upon factual matters
outside of the control of the executive. Thus, NO DISCRETION would be exercised by the President,
highlighted by the use of the word shall in the proviso. Therefore, it is a MINISTERIAL DUTY of the
President. Also, the Congress simply granted the Secretary of Finance the AUTHORITY to ASCERTAIN the
existence of any of the conditions, making it as its tool and not a subordinate of the President.
Congress did NOT delegate the power to tax the mere implementation of the law. Congress
DOES NOT abdicate its functions when it describes WHAT job must be done, WHO must do it and WHAT
is the SCOPE of his authority.

The 12% Increase VAT DOES NOT Impose an Unfair and Unnecessary Additional Tax Burden