*
G.R. No. 168056. September 1, 2005.
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_______________
* EN BANC.
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followed by R.A. No. 7716 or the Expanded VAT Law, R.A. No.
8241 or the Improved VAT Law, R.A. No. 8424 or the Tax Reform
Act of 1997, and finally, the presently beleaguered R.A. No. 9337,
also referred to by respondents as the VAT Reform Act.
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tality of his own judgment and not through the intervening mind
of another.
Same; Same; Exception to the Non-Delegation of Legislative
Powers; Words and Phrases; The powers which Congress is
prohibited from delegating are those which are strictly, or
inherently and exclusively, legislative—appertaining exclusively to
the legislative department; Purely legislative power has been
described as the authority to make a complete law—complete as to
the time when it shall take effect and as to whom it shall be
applicable—and to determine the expediency of its enactment; It is
the nature of the power, and not the liability of its use or the
manner of its exercise, which determines the validity of its
delegation.—With respect to the Legislature, Section 1 of Article
VI of the Constitution provides that “the Legislative power shall
be vested in the Congress of the Philippines which shall consist of
a Senate and a House of Representatives.” The powers which
Congress is prohibited from delegating are those which are
strictly, or inherently and exclusively, legislative. Purely
legislative power, which can never be delegated, has been
described as the authority to make a complete law—complete as to
the time when it shall take effect and as to whom it shall be
applicable—and to determine the expediency of its enactment.
Thus, the rule is that in order that a court may be justified in
holding a statute unconstitutional as a delegation of legislative
power, it must appear that the power involved is purely
legislative in nature—that is, one appertaining exclusively to the
legislative department. It is the nature of the power, and not the
liability of its use or the manner of its exercise, which determines
the validity of its delegation. Nonetheless, the general rule
barring delegation of legislative powers is subject to the following
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plementation of the law. The intent and will to increase the VAT
rate to 12% came from Congress and the task of the President is
to simply execute the legislative policy. That Congress chose to do
so in such a manner is not within the province of the Court to
inquire into, its task being to interpret the law.
Judicial Review; The Court does not rule on allegations which
are manifestly conjectural, as these may not exist at all—the Court
deals with facts, not fancies, on realities, not appearances.—The
insinuation by petitioners Pimentel, et al. that the President has
ample powers to cause, influence or create the conditions to bring
about either or both the conditions precedent does not deserve any
merit as this argument is highly speculative. The Court does not
rule on allegations which are manifestly conjectural, as these may
not exist at all. The Court deals with facts, not fancies; on
realities, not appearances. When the Court acts on appearances
instead of realities, justice and law will be short-lived.
Same; Separation of Powers; Statutory Construction;
Rewriting the law is a forbidden ground that only Congress may
tread upon.— Under the common provisos of Sections 4, 5 and 6 of
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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 2 4/5 of the GDP of the previous year or that the national
government deficit as a percentage of GDP of the previous year
does not exceed 1 1/2%. Therefore, no statutory construction or
interpretation is needed. Neither can conditions or limitations be
introduced where none is provided for. Rewriting the law is a
forbidden ground that only Congress may tread upon.
Taxation; Value-Added Tax; Fiscal Adequacy; Words and
Phrases; The principle of fiscal adequacy as a characteristic of a
sound tax system, which was originally stated by Adam Smith in
his Canons of Taxation, simply means that sources of revenues
must be adequate to meet government expenditures and their
variations.— That the first condition amounts to an incentive to
the President to increase the VAT collection does not render it
unconstitutional so long as there is a public purpose for which the
law was passed,
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Same; Same; Due Process; Vested Rights; The input tax is not
a property or a property right within the constitutional purview of
the due process clause—a VAT-registered person’s entitlement to
the creditable input tax is a mere statutory privilege; The right to
credit input tax as against the output tax is clearly a privilege
created by law, a privilege that also the law can remove or limit;
The distinction between statutory privileges and vested rights must
be borne in mind for persons have no vested rights in statutory
privileges.—The input tax is not a property or a property right
within the constitutional purview of the due process clause. A
VAT-registered person’s entitlement to the creditable input tax is
a mere statutory privilege. The distinction between statutory
privileges and vested rights must be borne in mind for persons
have no vested rights in statutory privileges. The state may
change or take away rights, which were created by the law of the
state, although it may not take away property, which was vested
by virtue of such rights. Under the previous system of single-stage
taxation, taxes paid at every level of distribution are not
recoverable from the taxes payable, although it becomes part of
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the cost, which is deductible from the gross revenue. When Pres.
Aquino issued E.O. No. 273 imposing a 10% multi-stage tax on all
sales, it was then that the crediting of the input tax paid on
purchase or importation of goods and services by VAT-registered
persons against the output tax was introduced. This was adopted
by the Expanded VAT Law (R.A. No. 7716), and The Tax Reform
Act of 1997 (R.A. No. 8424). The right to credit input tax as
against the output tax is clearly a privilege created by law, a
privilege that also the law can remove, or in this case, limit.
Same; Same; Congress admitted that the spread-out of the
creditable input tax in this case amounts to a 4-year interest-free
loan to the government; For whatever is the purpose of the 60-
month amortization, this involves executive economic policy and
legislative wisdom in which the Court cannot intervene.—It is
worth mentioning that Congress admitted that the spread-out of
the creditable input tax in this case amounts to a 4-year interest-
free loan to the government. In the same breath, Congress also
justified its move by saying that the provision was designed to
raise an annual revenue of 22.6 billion. The legislature also
dispelled the fear that the provision will fend off foreign
investments, saying that foreign investors have other tax
incentives provided by law, and citing the case of China, where
despite a 17.5% non-creditable VAT, foreign investments were not
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with respect to their payments for goods and services. Prior to its
amendment, Section 114(C) provided for different rates of value-
added taxes to be withheld—3% on gross payments for purchases
of goods; 6% on gross payments for services supplied by
contractors other than by public works contractors; 8.5% on gross
payments for services supplied by public work contractors; or 10%
on payment for the lease or use of properties or property rights to
nonresident owners. Under the present Section 114(C), these
different rates, except for the 10% on lease or property rights
payment to nonresidents, were deleted, and a uniform rate of 5%
is applied.
Same; Same; Words and Phrases; In tax usage, “final,” as
opposed to creditable, means full; As applied to value-added tax,
taxable transactions with the government are subject to a 5% tax
rate, which constitutes as full payment of the tax payable on the
transaction.—The Court observes, however, that the law used the
word final. In tax usage, final, as opposed to creditable, means
full. Thus, it is provided in Section 114(C): “final value-added tax
at the rate of five percent (5%).” In Revenue Regulations No. 02-
98, implementing R.A. No. 8424 (The Tax Reform Act of 1997), the
concept of final withholding tax on income was explained, to wit:
SECTION 2.57. Withholding of Tax at Source. (A) Final
Withholding Tax.—Under the final withholding tax system the
amount of income tax withheld by the withholding agent is
constituted as full and final payment
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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
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to pay. This principle was also lifted from Adam Smith’s Canons
of Taxation, and it states: I. The subjects of every state ought to
contribute towards the support of the government, as nearly as
possible, in proportion to their respective abilities; that is, in
proportion to the revenue which they respectively enjoy under the
protection of the state. Taxation is progressive when its rate goes
up depending on the resources of the person affected.
Same; Same; Same; The VAT is an antithesis of progressive
taxation—by its very nature, it is regressive; The principle of
progressive taxation has no relation with the VAT system
inasmuch as the VAT paid by the consumer or business for every
goods bought or services enjoyed is the same regardless of income.
—The VAT is an antithesis of progressive taxation. By its very
nature, it is regressive. The principle of progressive taxation has
no relation with the VAT system inasmuch as the VAT paid by
the consumer or business for every goods bought or services
enjoyed is the same regardless of income. In other words, the VAT
paid eats the same portion of an income, whether big or small.
The disparity lies in the income earned by a person or profit
margin marked by a business, such that the higher the income or
profit margin, the smaller the portion of the income or profit that
is eaten by VAT. A converso, the lower the income or profit
margin, the bigger the part that the VAT eats away. At the end of
the day, it is really the lower income group or businesses with
low-profit margins that is always hardest hit.
Same; Same; Same; The Constitution does not really prohibit
the imposition of indirect taxes, like the VAT.—The Constitution
does not really prohibit the imposition of indirect taxes, like the
VAT. What it simply provides is that Congress shall “evolve a
progressive system of taxation.” The Court stated in the Tolentino
case, thus: The Constitution does not really prohibit the
imposition of indirect taxes which, like the VAT, are regressive.
What it simply provides is that Congress shall ‘evolve a
progressive system of taxation.’ The constitutional provision has
been interpreted to mean simply that ‘direct taxes are . . . to be
preferred [and] as much as possible, indirect taxes should be
minimized.’ (E. FERNANDO, THE CONSTITUTION OF THE
PHILIPPINES 221 [Second ed. 1977]) Indeed, the mandate to
Congress is not to prescribe, but to evolve, a progressive tax
system. Otherwise, sales taxes, which perhaps are the oldest form
of indirect taxes, would have been prohibited with the procla-
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mation of Art. VIII, §17 (1) of the 1973 Constitution from which
the present Art. VI, §28 (1) was taken. Sales taxes are also
regressive. Resort to indirect taxes should be minimized but not
avoided entirely because it is difficult, if not impossible, to avoid
them by imposing such taxes according to the taxpayers' ability to
pay. In the case of the VAT, the law minimizes the regressive
effects of this imposition by providing for zero rating of certain
transactions (R.A. No. 7716, §3, amending §102 (b) of the NIRC),
while granting exemptions to other transactions. (R.A. No. 7716,
§4 amending §103 of the NIRC)
Same; Same; Judicial Review; The Court cannot strike down
a law as unconstitutional simply because of its yokes.—It has been
said that taxes are the lifeblood of the government. In this case, it
is just an enema, a first-aid measure to resuscitate an economy in
distress. The Court is neither blind nor is it turning a deaf ear on
the plight of the masses. But it does not have the panacea for the
malady that the law seeks to remedy. As in other cases, the Court
cannot strike down a law as unconstitutional simply because of its
yokes. Let us not be overly influenced by the plea that for every
wrong there is a remedy, and that the judiciary should stand
ready to afford relief. There are undoubtedly many wrongs the
judicature may not correct, for instance, those involving political
questions. . . . Let us likewise disabuse our minds from the notion
that the judiciary is the repository of remedies for all political or
social ills; We should not forget that the Constitution has
judiciously allocated the powers of government to three distinct
and separate compartments; and that judicial interpretation has
tended to the preservation of the independence of the three, and a
zealous regard of the prerogatives of each, knowing full well that
one is not the guardian of the others and that, for official wrong-
doing, each may be brought to account, either by impeachment,
trial or by the ballot box.
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are “not immediately involved are not thereby thrown open for a judicial
determination of constitutionality.”
Same; Same; Same; Taxation; The power to adjust the tax rate given
to the President is futuristic and may or may not be exercised—the Court
is therefore beseeched to render a conjectural judgment based on
hypothetical facts.—It is manifest that the constitutional challenge to
sections 4 to 6 of R.A. No. 9337 cannot hurdle the requirement of
ripeness. These sections give the President the power to raise the VAT rate
to 12% on January 1, 2006 upon satisfaction of certain fact-based
conditions. We are not endowed with the infallible gift of prophesy to
know whether these conditions are certain to happen. The power to
adjust the tax rate given to the President is futuristic and may or may
not be exercised. The Court is therefore beseeched to render a conjectural
judgment based on hypothetical facts. Such a supplication has to be
rejected.
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“third” chamber of Congress. Under the clear rules of both the Senate
and House, its power can go no further than settling differences in their
bills or joint resolutions. Sections 88 and 89, Rule XIV of the Rules of the
House of Representatives provide as follows: * * * Under both rules, it is
obvious that a Bicameral Conference Committee is a mere agent of the
House or the Senate with limited powers. The House contingent in the
Committee cannot, on its own, settle differences which are substantial in
character. If it is confronted with substantial differences, it has to go back
to the chamber that created it “for the latter’s appropriate action.” In
other words, it must take the proper instructions from the chambers that
created it. It cannot exercise its unbridled discretion. Where there is no
difference between the bills, it cannot make any change. Where the
difference is substantial, it has to return to the chamber of its origin and
ask for appropriate instructions. It ought to be indubitable that it cannot
create a new law, i.e., that which has never been discussed in either
chamber of Congress. Its parameters of power are not porous, for they are
hedged by the clear limitation that its only power is to settle differences
in bills and joint resolutions of the two chambers of Congress.
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Senate when they are not even in disagreement; The Constitution did not
establish a Bicameral Conference Committee that can act as a “third
house” of Congress with super veto power over bills passed by the Senate
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alter ego of Congress, but of the President.—I concur with the ponencia in
that there was no undue delegation of legislative power in the increase
from 10 percent to 12 percent of the VAT rate. I respectfully disagree,
however, with the statements therein that, first, the secretary of finance
is “acting as the agent of the legislative department” or an “agent of
Congress” in determining and declaring the event upon which its
expressed will is to take effect; and, second, that the secretary’s
personality “is in reality but a projection of that of Con-gress.” The
secretary of finance is not an alter ego of Congress, but of the President.
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Same; Same; Same; Same; In the exercise of its inherent power to tax,
the State validly interferes with the right to property of persons, natural or
artificial; The reduction of tax credits is a question of economic policy, not
of legal perlustration.—Petitioners have not been denied due process or,
as I have illustrated earlier, equal protection. In the exercise of its
inherent power to tax, the State validly interferes with the right to
property of persons, natural or artificial. Those similarly situated are
affected in the same way and treated alike, “both as to privileges
conferred and liabilities enforced.” RA 9337 was enacted precisely to
achieve the objective of raising revenues to defray the necessary expenses
of government. The means that this law employs are reasonably related
to the accomplishment of such objective, and not unduly oppressive. The
reduction of tax credits is a question of economic policy, not of legal
perlustration. Its determination is vested in Congress, not in this Court.
Since the purpose of the law is to raise revenues, it cannot be denied that
the means employed is reasonably related to the achievement of that
purpose. Moreover, the proper congressional procedure for its enactment
was followed; neither public notice nor public hearings were denied.
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Same; Same; Unlike the laws of physical science, the VAT system can
always be modified to suit modern fiscal demands.—It is contended that
the VAT should be proportional in nature. I submit that this
proportionality pertains to the rate imposable, not the credit allowable.
Private enterprises are subjected to a proportional VAT rate, but VAT
credits need not be. The VAT is, after all, a human concept that is neither
immutable nor invariable. In fact, it has changed after it was adopted as
a system of indirect taxation by other countries. Again unlike the laws of
physical science, the VAT system can always be modified to suit modern
fiscal demands. The State, through the Legislative Department, may
even choose to do away with it and revert to our previous system of
turnover taxes, sales taxes and compensating taxes, in which credits may
be disallowed altogether.
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a bill becomes a law, it must pass three readings. Hence, the ponencia’s
submission that despite its limited authority, the Bicameral Conference
Committee could “compromise the disagreeing provisions” by substituting
it with its own version—clearly violate the three-reading requirement, as
the committee’s version would no longer undergo the same since it would
be immediately put into vote by the respective houses. In effect, it is not a
bill that was passed by the entire Congress but by the members of the ad
hoc committee only, which of course is constitutionally infirm. I disagree
that the no-amendment rule referred only to “the procedure to be
followed by each house of Congress with regard to bills initiated in each
of said respective houses” because it would relegate the no-amendment
rule to a mere rule of procedure. To my mind, the no-amendment rule
should be construed as prohibiting the Bicameral Conference Committee
from introducing amendments and modifications to non-disagreeing
provisions of the House and Senate bills. In sum, the committee could
only either adopt the version of the House bill or the Senate bill, or adopt
neither. As Justice Reynato S. Puno said in his Dissenting Opinion in
Tolentino v. Secretary of Finance, there is absolutely no legal warrant for
the bold submission that a Bicameral Conference Committee possesses
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bearing and the benefits they need.” Also, this set-up provides security
against the abuse of power. As Chief Justice Marshall said: “In imposing
a tax, the legislature acts upon its constituents. The power may be
abused; but the interest, wisdom, and justice of the representative body,
and its relations with its constituents, furnish a sufficient security.”
Consequently, Section 24, Article VI of our Constitution enshrined the
principle of “no taxation without representation” by providing that “all . . .
revenue bills . . . shall originate exclusively in the House of
Representatives, but the Senate may propose or concur with
amendments.” This provision generally confines the power of taxation to
the Legislature.
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ers of the Constitution is to permit the delegation of the power to fix tax
rates or VAT rates to the President, such could have been easily achieved
by the mere inclusion of the term “tax rates” or “VAT rates” in the
enumeration. It is a dictum in statutory construction that what is
expressed puts an end to what is implied. Expressium facit cessare
tacitum. This is a derivative of the more familiar maxim express mention
is implied exclusion or expressio unius est exclusio alterius.
Considering that Section 28 (2), Article VI expressly speaks only of “tariff
rates, import and export quotas, tonnage and wharfage dues and other
duties and imposts,” by no stretch of imagination can this enumeration
be extended to include the VAT.
Same; Same; Same; Same; Same; Control Power; The two conditions
set forth by law would have been sufficient had it not been for the fact that
the President, being at the helm of the entire officialdom, has more than
enough power of control to bring about the existence of such conditions—
that the President’s exercise of an authority is practically within her
control is tantamount to giving no conditions at all.—At first glance, the
two conditions may appear to be definite standards sufficient to guide the
President. However, to my mind, they are ineffectual and malleable as
they give the President ample opportunity to exercise her authority in
arbitrary and discretionary fashion. The two conditions set forth by law
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would have been sufficient had it not been for the fact that the President,
being at the helm of the entire officialdom, has more than enough power
of control to bring about the existence of such conditions. Obviously, R.A.
No. 9337 allows the President to determine for herself whether the VAT
rate shall be increased or not at all. The fulfillment of the conditions is
entirely placed in her hands. If she wishes to increase the VAT rate, all
she has to do is to strictly enforce the VAT collection so as to exceed the 2
4/5% ceiling. The same holds true with the national government deficit.
She will just limit government expenses so as not to exceed the 1 1/2%
ceiling. On the other hand, if she does not wish to increase the VAT rate,
she may discourage the Secretary of Finance from making the
recommendation. That the President’s exercise of an authority is
practically within her control is tantamount to giving no conditions at all.
I believe this amounts to a virtual surrender of legislative power to her.
It must be stressed that the validity of a law is not tested by what has
been done but by what may be done under its provisions.
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begin or start solely and only in the House. Not the Senate. Not both
Chambers of Congress. But there is more to it than that. It also means
that “an act for taxation must pass the House first.” It is no consequence
what amendments the Senate adds. A perusal of the legislative history of
R.A. No. 9337 shows that it did not “exclusively originate” from the House
of Representatives.
Same; Same; The Senate in passing Senate Bill No. 1950, a tax
measure, merely took into account House Bills No. 3555 and 3705, but did
not concur with or amend either or both bills.—Senate Bill No. 1950 is not
based on any bill passed by the House of Representatives. It has a
legislative identity and existence separate and apart from House Bills
No. 3555 and 3705. Instead of concurring or proposing amendments,
Senate Bill No. 1950 merely “takes into consideration” the two House
Bills. To take into consideration means “to take into account.”
Consideration, in this sense, means “deliberation, attention, observation
or contemplation. Simply put, the Senate in passing Senate Bill No. 1950,
a tax measure, merely took into account House Bills No. 3555 and 3705,
but did not concur with or amend either or both bills. As a matter of fact,
it did not even take these two House Bills as a frame of reference. In
Tolentino, the majority subscribed to the view that Senate may amend
the House revenue bill by substitution or by presenting its own version of
the bill. In either case, the result is “two bills on the same subject.” This is
the source of the “germaneness” rule which states that the Senate bill
must be germane to the bill originally passed by the House of
Representatives. In Tolentino, this was not really an issue as both the
House and Senate Bills in question had one subject—the VAT.
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that the Senate could not, without violating the germaneness rule and
the principle of “exclusive origination,” propose tax matters not included
in the House Bills.
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ture to guard against the consequences of its own future passions, myopia,
or herd behavior.—It is well to recall the rationale for the “no-
amendment rule” and the “three-reading rule” in Article VI, Section 26(2)
of the Constitution. The proscription on amendments upon the last
reading is intended to subject all bills and their amendments to intensive
deliberation by the legislators and the ample ventilation of issues to
afford the public an opportunity to express their opinions or objections
thereon. Analogously, it is said that the “three-reading rule” operates “as
a self-binding mechanism that allows the legislature to guard against the
consequences of its own future passions, myopia, or herd behavior. By
requiring that bills be read and debated on successive days, legislature
may anticipate and forestall future occasions on which it will be seized by
deliberative pathologies.” As Jeremy Bentham, a noted political analyst,
put it: “[t]he more susceptible a people are of excitement and being led
astray, so much the more ought they to place themselves under the
protection of forms which impose the necessity of reflection, and prevent
surprises.”
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on the other hand, this is not done, then condition (ii) happens—the
budget deficit remains over 1.5%. What is the result of this? The result is
that in reality, the law does not impose any condition, or the rate increase
thereunder, from 10% to 12%, effective January 1, 2006, is unconditional.
For a condition is an event that may or may not happen, or one whose
occurrence is uncertain. Now while condition (i) is indeed uncertain and
condition (ii) is likewise uncertain, the combination of both makes the
occurrence of one of them certain. Accordingly, there is here no abdication
by Congress of its power to fix the rate of the tax since the rate increase
provided under the law, from 10% to 12%, is definite
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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.
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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,
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Same; Same; Same; 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.—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.
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Same; Same; Same; Clear and Present Danger Doctrine; 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 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
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Same; Same; Same; Same; If our society can take cold comfort in the
ability of the legislature to amend its enactments as the defense against
unconstitutional laws, what remains then as the function of judicial
review? The long-standing tradition has been reliance on the judicial
branch, and not the legislative branch, for salvation from unconstitutional
laws.—It is also asserted that if the implementation of the 70% cap
imposes an unequal effect on different types of businesses with varying
profit margins and capital requirements, then the remedy would be an
amendment of the law. Of course, the remedy of legislative amendment
applies to even the most unconstitutional of laws. But if our society can
take cold comfort in the ability of the 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.
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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.
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automatic badge of poor business skills, but a reality dictated by the laws
of the marketplace. The probability of profit is lower than that of capital
expenditures, and ultimately, many business establishments end up with
a higher input tax than output tax in a given quarter. This would be
especially true for small to medium enterprises who do not reap sufficient
profits from its business in the first place, and for those firms that opt to
also invest in capital expenses in addition to the overhead. Whatever
miniscule profit margins that can be obtained usually spell the difference
between life and death of the business. The possibility of profit is further
diminished by the fact that businesses have to shoulder the input VAT in
the purchase of their capital expenses. Yet the erstwhile VAT system was
not tainted by the label of oppressiveness and neither did it bear the
confiscatory mode. This was because of the immediate relief afforded from
the input taxes paid by the crediting system. In theory, VAT is not
supposed to affect the profit margin. If such margin is affected, it is only
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because of the prepayment of the input taxes, and this should be remedied
by the immediate recovery through the crediting system of the settled input
taxes. The new E-VAT law changes all that, and puts in jeopardy the
survival of small to medium enterprises.
Same; Same; The majority fails to consider one of the most important
concepts in finance, time value for money—the longer the amount remains
unutilized, the higher the degree of its depreciation in value, in
accordance with the concept of time value of money.—The majority fails to
consider one of the most important concepts in finance, time value for
money. Simply put, the value of one peso is worth more today than in
2006. Money that you hold today is worth more because you can invest it
and earn interest. By reason of the 70% cap, the amount of input VAT
credit that remains unutilized would continue accumulate for months
and years. The longer the amount remains unutilized, the higher the
degree of its depreciation in value, in accordance with the concept of time
value of money. Even assuming that the business eventually recovers the
input VAT credit, the sum recovered would have decreased in practical
value.
Same; Same; The raison d’etre of this 70% cap is to make it appear on
paper that the government is more solvent than it actually is; If the 70%
cap was designed in order to enhance revenue collection, then I submit
that the means employed stand beyond reason.—It would be sad, but fair,
if a business ceases because of its inability to
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Same; Same; The effect of the 70% cap is to effectively impose a tax
amounting to 3% of gross revenue.—Only stable businesses with
substantial cash flows, or extraordinarily successful enterprises will be
able to remain in operation should the 70% cap be retained. The effect of
the 70% cap is to effectively impose a tax amounting to 3% of gross
revenue. The amount may seem insignificant to those without working
knowledge of the ways of business, but anybody who is actually familiar
with business would be well aware the profit margins of the retailing and
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.
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of the very business life of the country.— The 70% cap is not merely an
unwise imposition. It is a burden designed, either through sheer
heedlessness or cruel calculation, to kill off the small and medium
enterprises that are the soul, if not the heart, of our economy. It is not
merely an undue taking of property, but constitutes an unjustified taking
of life as well. And what legitimate, germane purposes does this lethal
70% cap serve? It certainly does not increase the government’s revenue
since the unutilized creditable input VAT should be entered in the
government books as a debt payable as it is supposed to be eventually
repaid to the taxpayer, and so on the contrary it increases the
government’s debts. I do see that the 70% cap temporarily allows the
government to brag to the world of an increased cash flow. But this
situation would be akin to the provincial man who borrows from
everybody in the barrio
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Same; Same; What the majority fails to mention is that under Section
10 of the E-VAT Law, which amends Section 112 of the NIRC, the tax
credit or refund may not be done while the enterprise remains operational.
—Nonetheless, the majority notes that the excess creditable input tax
may be the subject of a tax credit certificate, which then could be used in
payment of internal revenue taxes, or a refund to the extent that such
input taxes have not been applied against output taxes. What the
majority fails to mention is that under Section 10 of the E-VAT Law,
which amends Section 112 of the NIRC, such credit or refund may not be
done while the enterprise remains operational.
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Same; Same; Due Process; Assets would fall under the purview of
property under the due process clause, and if the taxing arm of the State
recognizes that such property belongs to the taxpayer and not to the State,
then due respect should be given to such expert opinion.— The BIR itself
has recognized that unutilized input VAT is one of those assets, corporate
attributes or property rights that, in the event of a merger, are
transferred to the surviving corporation by operation of law. Assets would
fall under the purview of property under the due process clause, and if
the taxing arm of the State recognizes that such property belongs to the
taxpayer and not to the State, then due respect should be given to such
expert opinion. Even under the International Accounting Standards I
adverted to above, the unutilized input VAT credit may be recognized as
an asset “to the extent that it is probable that future taxable profit will
be available against which the unused tax losses and unused tax credits
can be utilised” If not probable, it would be recognized as a loss. Since
these international standards, duly recognized by the Securities and
Exchange Commission as controlling in this jurisdiction, attribute
tangible gain or loss to the VAT credit, it necessarily follows that there is
proprietary value attached to such gain or loss.
Same; Same; Same; To assert that the input VAT is merely a privilege
is to correspondingly claim that the business profit is similarly a mere
privilege.—The prepaid input tax represents unutilized profit, which can
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Same; Same; For some lucky enterprises who may be able to survive
the injury brought about by the 70% cap, this 60 month amortization
period might instead provide the mortal head wound.—Even existing
small to medium enterprises are imperiled by this 60 month amortization
restriction, especially considering the application of the 70% cap. The
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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.
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same thing or activity twice, when it should be taxed but once, for the
same purpose and with the same kind of character of tax. Double
taxation is not expressly forbidden in our constitution, but the Court has
recognized it as obnoxious “where the taxpayer is taxed twice for the
benefit of the same governmental entity or by the same jurisdiction for
the same purpose.” Certainly, both the 5% final tax withheld and the
general corporate income tax are both paid for the benefit of the national
government, and for the same incidence of taxation, the sale/lease of
goods and services to the government.
Same; Same; Intelligent tax policy should extend beyond the singular-
minded goal of raising State funds—the old-time philosophy behind the
taxing schemes of war-mongering monarchs and totalitarian states—and
should sincerely explore the concept of taxation as a means of providing
genuine incentives to private enterprise to spur economic growth, of
promoting egalitarian social justice that would allow everyone to their fair
share of the nation’s wealth.—The VAT system, in itself, is intelligently
designed, and stands as a fair means to raise revenue. It has been
adopted worldwide by countries hoping to employ an efficient means of
taxation. The concerns I have raised do not detract from my general
approval of the VAT system. I do lament though that our government’s
wholehearted adoption of the VAT system is endemic of what I deem a
flaw in our national tax policy in the last few decades. The power of
taxation, inherent in the State and ever so powerful, has been generally
employed by our financial planners for a solitary purpose: the raising of
revenue. Revenue generation is a legitimate purpose of taxation, but
standing alone, it is a woefully unsophisticated design. Intelligent tax
policy should extend beyond the singular-minded goal of raising State
funds—the old-time philosophy behind the taxing schemes of war-
mongering monarchs and totalitarian states—and should sincerely
explore the concept of taxation as a means of providing genuine
incentives to private enterprise to spur economic growth; of promoting
egalitarian social justice that would allow everyone to their fair share of
the nation’s wealth. Instead, we are condemned by a national policy
driven by the monomania for State revenue. It may be beyond my oath as
a Justice to compel the government to adopt an economic policy in
consonance with my personal views, but I offer these observations since
they lie at the very heart of the noxiousness of the assailed provisions of
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the E-VAT law. The 70% cap, the 60-month amortization period and the
5% withholding tax on govern-
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Same; Same; Under the device employed in the E-VAT law, the price
to be paid for a more sustainable liquidity of the government’s finances
will be the death of local business, and correspondingly, the demise of our
society.—I am not insensitive to the concerns raised by the respondents
as to the dire consequences to the economy should the E-VAT law be
struck down. I am aware that the granting of the petition in G.R. No.
168461 will negatively affect the cash flow of the government. If that
were the only relevant concern at stake, I would have no problems
denying the petition. Unfortunately, under the device employed in the E-
VAT law, the price to be paid for a more sustainable liquidity of the
government’s finances will be the death of local business, and
correspondingly, the demise of our society. It is a measure just as
draconian as the standard issue taxes of medieval tyrants.
Same; Same; Taxes may be the lifeblood of the state, but never at the
expense of the life of its subjects.—I am not normally inclined towards the
language of the overwrought, yet if the sky were indeed truly falling, how
else could that fact be communicated. The E-VAT Law is of multiple fatal
consequences. How are we to survive as a nation without the bulwark of
private industries? Perhaps the larger scale, 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.
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Taxation; Germaneness Rule; If we have one Code for all our national
internal revenue taxes, then there is no reason why we cannot have a
single statute amending provisions thereof even if they involve different
taxes under separate titles.—Although House Bills No. 3555 and 3705
were limited to the amendments of the provisions on VAT of the National
Internal Revenue Code of 1997, Senate Bill No. 1950 had a much wider
scope and included amendments of other provisions of the said Code,
such as those on income, percentage, and excise taxes. It should be borne
in mind that the very purpose of these three Bills and, subsequently, of
Rep. Act No. 9337, was to raise additional revenues for the government to
address the dire economic situation of the country. The National Internal
Revenue Code of 1997, as its title suggests, is the single Code that
governs all our national internal revenue taxes. While it does cover
different taxes, all of them are imposed and collected by the national
government to raise revenues. If we have one Code for all our national
internal revenue taxes, then there is no reason why we cannot have a
single statute amending provisions thereof even if they involve different
taxes under separate titles. I hereby submit that the amendments
introduced by the Bicameral Conference Committee to non-VAT
provisions of the National Internal Revenue Code of 1997 are not
unconstitutional for they are germane to the purpose of House Bills No.
3555 and 3705 and Senate Bill No. 1950, which is to raise national
revenues.
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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.
Same; Same; To say that Congress may not trifle with Section 110 of
the National Internal Revenue Code of 1997 would be to violate a basic
precept of constitutional law—that no law is irrepealable; There can be no
vested right to the continued existence of a statute, which precludes its
change or repeal.—The amendment of Section 110 of the National
Internal Revenue Code of 1997 by Rep. Act No. 9337, which imposed the
70% cap on input VAT credits, is a legitimate exercise by Congress of its
law-making power. To say that Congress may not trifle with Section 110
of the National Internal Revenue Code of 1997 would be to violate a basic
precept of constitutional law—that no law is irrepealable. There can be
no vested right to the continued existence of a statute, which precludes
its change or repeal.
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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
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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.
Same; Same; The 70% cap on input VAT credits was not imposed by
Congress arbitrarily—members of the Bicameral Conference Committee
settled on the said percentage so as to ensure that the government can
collect a minimum of 30% output VAT per taxpayer, to put a VAT-
taxpayer, at least, on equal footing with a VAT-exempt taxpayer under
Section 109(V) of the National Internal Revenue Code, as amended by
Rep. Act No. 9337.—I find that the 70% cap on input VAT credits was not
imposed by Congress arbitrarily. Members of the Bicameral Conference
Committee settled on the said percentage so as to ensure that the
government can collect a minimum of 30% output VAT per taxpayer. This
is to put a VAT-taxpayer, at least, on equal footing with a VAT-exempt
taxpayer under Section 109(V) of the National Internal Revenue Code, as
amended by Rep. Act No. 9337. The latter taxpayer is exempt from VAT
on the basis that his sale or lease of goods or properties or services do not
exceed P1,500,000; instead, he is subject to pay a three percent (3%) tax
on his gross receipts in lieu of the VAT. 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.
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AUSTRIA-MARTINEZ, J.:
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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.”
81
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LEGISLATIVE HISTORY
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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.
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J. And therefore, there is no justification for
PANGANIBAN: increasing the retail price by 10% to cover
the E-Vat tax. If you consider the excise
tax and the import duties, the Net Tax
would probably be in the neighborhood of
7%? We are not going into exact figures I
am just trying to deliver a point that
different industries, different products,
different services are hit differently. So
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
PANGANIBAN: companies, Mr. Counsel, are at present
imposed a Sales Tax of 3%. When this E-
Vat law took effect the Sales Tax was also
removed as a mitigating measure. So,
therefore, there is no justification to
increase the fares by 10% at best 7%,
correct?
ATTY. I guess so, Your Honor, yes.
BANIQUED:
J. There are other products that the people
PANGANIBAN: were complaining on 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
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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.
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of the law.
89
RESPONDENTS’ COMMENT
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ISSUES
PROCEDURAL ISSUE
SUBSTANTIVE ISSUES
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8
and services. Being an indirect tax on expenditure, the
seller of goods or services
9
may pass on the amount of tax
paid to the
10
buyer, with the seller acting merely as a tax
collector. The burden of VAT is intended to fall on the
immediate buyers and ultimately, the end-consumers.
In contrast, a direct tax is a tax for which a taxpayer is
directly liable on the transaction or business it engages in,
11
without transferring the burden to someone else.
Examples are individual and corporate12
income taxes,
transfer taxes, and residence taxes.
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”
13
was used
to determine the value-added tax payable. Under the “tax
credit method,” an entity can credit against or subtract
from the VAT charged on its sales or14outputs the VAT paid
on its purchases, inputs and imports.
It was only in 1987, when President Corazon C. Aquino
issued Executive Order No. 273, that the VAT system was
ra-
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PROCEDURAL ISSUE
I.
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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.”
93
Sec. 88. Conference Committee.—In the event that the House does
not agree with the Senate on the amendment to any bill or joint
resolution, the differences may be settled by the conference
committees of both chambers.
In resolving the differences with the Senate, the House panel
shall, as much as possible, adhere to and support the House Bill.
If the differences with the Senate are so substantial that they
materially impair the House Bill, the panel shall report such fact
to the House for the latter’s appropriate action.
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Sec. 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.
...
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24 Id., p. 670.
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. . . 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
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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 thinking26
of the Senate is basically
simple, let’s keep the VAT simple. (Emphasis supplied)
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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
32
of Congress, not to the conference committee
report. (Emphasis supplied)
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32 Id., p. 671.
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Section
27 Rates of Income Tax on Domestic Corporation
28(A) Tax on Resident Foreign Corporation
(1)
28(B) Inter-corporate Dividends
(1)
34(B) Inter-corporate Dividends
(1)
116 Tax on Persons Exempt from VAT
117 Percentage Tax on domestic carriers and keepers
ofGarage
119 Tax on franchises
121 Tax on banks and Non-Bank Financial
Intermediaries
148 Excise Tax on manufactured oils and other fuels
151 Excise Tax on mineral products
236 Registration requirements
237 Issuance of receipts or sales or commercial invoices
288 Disposition of Incremental Revenue
107
108
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35 Journal of the Senate, Session No. 67, March 7, 2005, pp. 727-728.
111
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 the36
blow of higher prices they will
have to pay as a result of VAT.
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36 Id., p. 726.
112
SUBSTANTIVE ISSUES
I.
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the Constitution:
(A) Rate and Base of Tax.—There shall be levied, assessed and collected
on every sale, barter or exchange of goods or properties, a value-added
tax equivalent to ten percent (10%) of the gross selling price or gross
value in money of the goods or properties sold, bartered or exchanged,
such tax to be paid by the seller or transferor: provided, that the
President, upon the recommendation of the Secretary of Finance,
shall, effective January 1, 2006, raise the rate of value-added tax
to twelve percent (12%), after any of the following conditions has
been satisfied.
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They argue that the VAT is a tax levied on the sale, barter
or exchange of goods and properties as well as on the sale
or exchange of services, which cannot be included within
the purview of tariffs under the exempted delegation as the
latter refers to customs duties, tolls or tribute payable upon
merchandise to the government and usually imposed on
goods or merchandise imported or exported.
Petitioners ABAKADA GURO Party List, et al., further
contend that delegating to the President the legislative
power to tax is contrary to republicanism. They insist that
accountability, responsibility and transparency should
dictate the actions of Congress and they should not pass to
the President the decision to impose taxes. They also argue
that the law
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37 See Angara vs. Electoral Commission, No. 45081, July 15, 1936, 63
Phil. 139, 156.
116
38
delegated, cannot be delegated.” This doctrine is based on
the ethical principle that such as delegated power
constitutes not only a right but a duty to be performed by
the delegate through the instrumentality of his own
judgment 39
and not through the intervening mind of
another.
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
40
to
determine the expediency of its enactment. Thus, the rule
is that in order that a court may be justified in holding a
statute unconstitutional as a delegation
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41 Pelaez vs. Auditor General, No. L-23825, December 24, 1965, 122
Phil. 965, 974; 15 SCRA 569, 577, citing Calalang vs. Williams, No. 47800,
December 2, 1940, 70 Phil. 726; Pangasinan Transp. Co. vs. Public Service
Commission, No. 47065, June 26, 1940, 70 Phil. 221; Cruz vs. Youngberg,
No. 34674, October 26, 1931, 56 Phil. 234; Alegre vs. Collector of Customs,
No. 30783, August 27, 1929, 53 Phil. 394 et seq.
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.
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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. Philippine Overseas Employment
Administration, No. L-76633, October 18, 1988, 166 SCRA 533, 543-544.
45 No. 45685, November 16, 1937, 65 Phil. 56.
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47
In Edu vs. Ericta, the Court reiterated:
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122
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53 Province of Batangas vs. Romulo, G.R. No. 152774, May 27, 2004,
429 SCRA 736; Enriquez vs. Court of Appeals, G.R. No. 140473, January
28, 2003, 396 SCRA 377; Codoy vs. Calugay, G.R. No. 123486, August 12,
1999, 312 SCRA 333.
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.
123
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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).
124
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125
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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.
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128
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
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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 65
spiral is
really have a front-end adjustment in our revenue base.
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130
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
67
questions of wisdom,
justice or expediency of legislation.”
II.
not
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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.
131
tax exceeds the output tax, the excess shall be carried over
to the succeeding
_______________
68 Sison vs. Ancheta, G.R. No. L-59431, July 25, 1984, 130 SCRA 654,
661.
132
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133
Second, when the output taxes exceed the input taxes, the
person shall be liable for the excess, which
69
has to be paid to
the Bureau of Internal Revenue (BIR); 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 70other internal revenue taxes, at the
taxpayer’s option.
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
71
directly liable for the payment of the tax is the
seller. 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.
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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).
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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.
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140
clear showing 84
of unreasonableness, discrimination, or
arbitrariness.
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.
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92
gas were reduced.
93
Percentage tax on domestic carriers
was removed. Power 94
producers are now exempt from
paying franchise tax.
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
95
to a 35% income tax rate,
from a previous 32%. Intercorporate dividends of non-
resident foreign corporations are still subject to 15% final
withholding tax but the tax credit allowed on 96
the
corporation’s domicile was increased to 20%. The
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C. Progressivity of Taxation
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144
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98 Reyes vs. Almanzor, G.R. Nos. 49839-46, April 26, 1991, 196 SCRA 322, 327.
145
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 99
transactions. (R.A. No. 7716, §4
amending §103 of the NIRC)”
CONCLUSION
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
_______________
99 Tolentino vs. Secretary of Finance, G.R. No. 115455, October 30, 1995, 249
SCRA 628, 659.
146
_______________
100 Vera vs. Avelino, G.R. No. L-543, August 31, 1946, 77 Phil. 365.
101 Ibid.
147
SEPARATE CONCURRING
AND DISSENTING OPINION
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148
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3
In Philippine Judges Association v. Prado, 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 4
was laid down in Tolentino v.
Secretary of Finance. 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
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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
_______________
3 G.R. No. 105371, 11 November 1993, 27 SCRA 703, 708, citing Davies,
Legislative Law and Process: In a Nutshell 81 (1986 ed.)
4 Supra note 1.
151
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PUNO, J.:
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153
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3 Id., at p. 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).
154
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)
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
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155
156
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the people that they can legitimately pass laws. Laws that are not
enacted by the people’s rightful representatives subvert the
people’s sovereignty. Bicameral Conference Committees, with
their ad hoc character and limited membership, cannot pass laws
for they do not represent the people. The Constitution does not
allow the tyranny of the majority. Yet, the respondents will
impose the worst kind of tyranny—the tyranny of the minority
over the majority. Secondly, the Constitution delineated in deft
strokes the steps to be followed in making laws. The overriding
purpose of these procedural rules is to assure that only bills that
successfully survive the searching scrutiny of the proper
committees of Congress and the full and unfettered deliberations
of both Houses can become laws. For this reason, a bill has to
undergo three (3) mandatory separate readings in each House. In
the case at bench, the additions and deletions made by the
Bicameral Conference Committee did not enjoy the enlightened
studies of appropriate committees. It is meet to note that the
complexities of modern day legislations have made our committee
system a significant part of the legislative process. Thomas Reed
called the committee system as “the eye, the ear, the hand, and
very often the brain of the house.” President Woodrow Wilson of
the United States once referred to the government of the United
States as “a government by the Chairmen of the Standing
Committees of Congress …”” Neither did these additions and
deletions of the Bicameral Conference Committee pass through
the coils of collective deliberation of the members of the two
Houses acting separately. Due to this short-circuiting of the
constitutional procedure of making laws, confusion shrouds the
enactment of R.A. No. 7716. Who inserted the additions and
deletions remains a mystery. Why they were inserted is a riddle.
To use a Churchillian phrase, lawmaking should not be a riddle
wrapped in an enigma. It cannot be, for Article II, section 28 of
the Constitution mandates the State to adopt and implement a
“policy of full public disclosure of all its transactions involving
public interest.” The Constitution could not have contemplated a
Congress of invisible and unaccountable John and Mary Does. A
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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
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xxx
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.
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
160
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)
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
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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.
161
162
Sec. 88. Conference Committee.—In the event that the House does
not agree with the Senate on the amendment to any bill or joint
resolution, the differences may be settled by the conference
committees of both chambers.
In resolving the differences with the Senate, the House panel
shall, as much as possible, adhere to and support the House Bill.
If the differences with the Senate are so substantial that they
materially impair the House Bill, the panel shall report such fact
to the House for the latter’s appropriate action.
163
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.
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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.
165
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Even the faintest eye contact with the above provisions will
reveal that: (a) both the House bill and the Senate bill
prohibited the passing on to consumers of the VAT on sales
of electricity and (b) the House bill prohibited the passing
on to consumers of the VAT on sales of petroleum products
while the Senate bill is silent on the prohibition.
In the guise of reconciling disagreeing provisions of the
House and the Senate bills on the matter, the Bicameral
Conference Committee deleted the “no pass on provision” on
both the sales of electricity and petroleum products. This
action by the Committee is not warranted by the rules of
either the Senate or the House. As aforediscussed, the only
power of a Bicameral Conference Committee is to reconcile
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Fifty percent of the local government unit’s share from VAT shall
be allocated and used exclusively for the following purposes:
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169
11
ments; (3) requiring that appropriation, revenue or tariff
bills, bills authorizing increase of public debt, bills of local
application, and private bills
12
originate exclusively in the
House of Representatives; (4) requiring that bills 13
embrace
one subject expressed in the title thereof; and (5)
mandating
_______________
rate 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.”
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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 follow-
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171
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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.”
172
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173
SEPARATE OPINION
PANGANIBAN, J.:
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Precedence of Mandatory
Constitutional Provisions
Over the Enrolled Bill Doctrine
3
I believe, however, that the enrolled bill doctrine is not
absolute. It may be all-encompassing in some countries like
_______________
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 Con-
174
4
Great Britain, but as applied to our jurisdiction, it must
yield to mandatory provisions of our 1987 Constitution. The
5
Court can take 6judicial notice of the form of government in
Great Britain. It is unlike that in our country and,
therefore,
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“[T]he signing of a bill by the Speaker of the House and the Senate
President and the certification of the Secretaries of both [h]ouses of
Congress that it was passed are conclusive of its due enactment.” Fariñas
v. Executive Secretary, supra, p. 529, per Callejo, Sr., J.
4 Mabanag v. Lopez Vito, supra, p. 12.
5 §1 of Rule 129 of the Rules of Court.
6 The United Kingdom has an uncodified Constitution, consisting of
both written and unwritten sources, capable of evolving to be responsive
to political and social change, and found partly in conventions and
customs and partly in statute. Its Parliament has the power to change or
abolish any written or unwritten element of the Constitution. There is
neither separation of powers nor formal checks and balances. Every bill
drafted has to be approved by both the House of Commons and the House
of Lords, before it receives the Royal Assent and becomes an Act of
Parliament. The House of Lords is the second chamber that complements
the work of the Commons, whose members are elected to represent their
constituents. The first is the House of Commons that alone may start bills
to raise taxes or authorize expenditures. Each bill goes through several
stages in each House. The first stage, called the first reading, is a mere
for-
175
7
the doctrine from which it originated could be modified
accordingly by our Constitution.
In fine, the enrolled bill doctrine applies mainly to the
internal rules and processes followed by Congress in its
principal duty of lawmaking. However, when the
Constitution imposes certain conditions, restrictions or
limitations on the exercise of congressional prerogatives,
the judiciary has both the power and the duty to strike
down congressional actions that are done in plain
contravention
8
of such conditions, restrictions or
limitations. Insofar as the present case is concerned, the
three most important restrictions or limitations to the
enrolled bill doctrine are the “origination,” “no-amendment”
and “three-reading” rules which I will discuss later.
Verily, these restrictions or limitations to the enrolled9
bill doctrine are safeguarded by the expanded
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 10part of
any branch or instrumentality
11
of the government.” Even
the ponente of Tolentino,
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First, the BCC had the option of adopting the House bills
either in part or in toto, endorsing them without changes.
_______________
12 Arroyo v. De Venecia, 343 Phil. 42, 61-62; 277 SCRA 268, 286, August
14, 1997, per Mendoza, J.
13 These refer to House Bill Nos. 3555 & 3705; and Senate Bill No.
1950.
177
Since these 14
bills had passed 15the three-reading
requirement under the Constitution, it readily becomes
apparent that no procedural impediment would arise. 16
There would also be no question as to their origination,
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.
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24
amendment by substitution. 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 25
as a body is withheld pending receipt of the House bill.”
After all, the initiative
26
for filing a revenue bill must come
from the House 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 at27 large approaches the
matter from a national perspective,
28
with a broader and
more circumspect outlook.
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
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35
been fixed. 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 36implement the increase of the VAT rate to 12
percent.
_______________
35 See Pelaez v. Auditor General, 122 Phil. 965, 974; 15 SCRA 569, 576-
577, 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
G.R. 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
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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?
183
37
This eventuality has been predetermined by Congress.
_______________
“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
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185
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Manufacturers Corp., G.R. No. 158540, August 3, 2005, 465 SCRA 532,
660.
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.”
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43
branches of44 government, outside the range of judicial
cognizance. “[T]he right to select the measure and objects
of taxation devolves upon the Congress, and not upon the
courts, and such selections are
45
valid unless constitutional
limitations are overstepped.” Moreover, each house of
Congress has the power46 and authority to determine the
rules of its proceedings. The contention that this case is
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47
from the Senate version) regarding income taxes are not
legally germane to the subject matter of the House bills.
Revising the income tax rates on domestic, resident foreign
and nonresident foreign corporations; increasing the tax
credit against taxes due from nonresident foreign
corporations on intercorporate dividends; and reducing the
allowable deduction for interest expense are legally
unrelated and not germane to the subject matter contained 48
in the House bills; they violate the origination principle.
The reasons are as follows:
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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), G.R. No. 152609, 462 SCRA 197, 215, 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.
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189
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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.
191
63
cluded limits of 5 percent and 11 percent on input tax,64
SB
1950 proposed an even spread over 60 months. The
decision to put a cap and fix its rate, so as to harmonize or
to find a compromise
65
in settling the apparent differences in
these versions, was within the sound discretion of the
BCC.
In like manner, HB 3555 contained provisions on the
withholding of creditable VAT at the rates66
of 5 percent, 8
percent, 10.5 percent, and 12 percent. HB 3705 had no
such equiva-
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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 contrac-
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tors; and 12% of the payments for the lease or use of properties orproperty
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-Lauré.html (Last
visited August 23, 2005, 3:25pm PST).
193
70
rect tax on consumption, called taxe sur la valeur ajoutée,
which was quickly adopted by the Direction Générale des
Impost, the new French tax authority of which he became
joint director. Consequently, taxpayers at all levels in the
production process, rather than retailers or tax authorities,
were forced
71
to administer and account for the tax them-
selves.
Since the unutilized input VAT can be carried over to
succeeding quarters, there is no undue deprivation of
property. Alternatively,
72
it can be passed on to the
consumers; there is no law prohibiting that. Merely
speculative and unproven, therefore, is73 the contention that
the law is arbitrary and oppressive. 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
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“Justice Panganiban:
So, the final consumer pays the tax?
“Atty. Baniqued:
Yes, Your Honor.
“Justice Panganiban:
The trade people in between the middlemen just take it as an 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).
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79
ally accepted accounting principles. These refer to
accounting concepts, measurement techniques, and
standards of presentation in a company’s financial
statements, and are not rooted in laws of nature, as are the
laws of physical science, for these are merely developed and
continually modified by
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80
local and international regulatory accounting bodies. To
state otherwise and recognize such asset account as a
vested right is to limit the taxing power of the State.
Unlimited, plenary, comprehensive and supreme, this
power cannot be unduly restricted by mere creations of the
State.
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.
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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
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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
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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. Court of Appeals, 361
Phil. 671, 687; 302 SCRA 1, 16, January 25, 1999, per Panganiban, J.).
See Commissioner of Internal Revenue v. Bank of Commerce, G.R. No.
149636, 459 SCRA 638, 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. Court
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of Appeals, 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. Commission on Elections, 420 Phil. 524, 530; 368
SCRA 453, 456, October 26, 2001, per Sandoval-Gutierrez, J.
87 Ichong v. Hernandez, 101 Phil. 1155, 1164, May 31, 1957, per
Labrador, J.
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“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.
201
“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 pet roleum, Your Honor.
“Justice Panganiban:
That may be true[,] but it’s not unconstitutional?
“Atty. Baniqued:
That may be true, Your Honor, but the very
limitation of the [seventy percent] input [VAT], when
applied to the case of the petroleum dealers[,] is
oppressive[.] [I]t’s unjust and it’s unreasonable, Your
Honor.
“Justice Panganiban:
But it can be passed as a part of sales, sales costs
rather.
“Atty. Baniqued:
But the petroleum dealers here themselves……
interrupted
“Justice Panganiban:
In your [b]alance [s]heet, it could be reflected as Cost
of Sales and therefore the price will go up?
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“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]
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“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.
203
“Atty. Baniqued:
Yes, we believe it is unconstitutional, Your Honor.
“Justice Panganiban:
You have a right to complain that it is oppressive, it is
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“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 imposit on 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:
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“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.
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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
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“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]
207
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:
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“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:
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90
taxes 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.
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Either mitigating meas-ures have to be put in place or
increased rates imposed, in
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“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].
“Atty. Baniqued:
Yes, Your Honor.
“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
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Rejecting Non-Conflicting
Provisions
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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]irlinecompanies, 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 justif ication to increase the fares
by 10 [percent;] at best 7 [percent], correct?
“Atty. Baniqued:
I guess so, Your Honor, yes.” (pp. 367-368).
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Summary
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YNARES-SANTIAGO, J.:
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98 338 Phil. 546, 604-605; 272 SCRA 18, 80, May 2, 1997, per
Panganiban, J.
99 420 Phil. 525, 531; 368 SCRA 453, 457, 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 Veterans Federation Party v. Commission on Elections, 396 Phil.
419, 452-453; 342 SCRA 244, 283, October 6, 2000, per Panganiban, J.;
(citing Garcia v. Commission on Elections, 227 SCRA 100, 107-108,
October 5, 1993).
215
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4 Supra, p. 811.
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1
the protection of the state.” 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:
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8
potestas delegata non delegare potest. As Judge Cooley
enunciated:
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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.
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16 17
dues and other duties and imposts, “by no stretch of
imagination can this enumeration be extended to include
the VAT.
And third, it does not relate merely to the
administrative implementation of R.A. No. 9337.
In testing whether a statute constitutes an undue
delegation of legislative power or not, it is usual to inquire
whether the statute was complete in all its terms and
provisions when it left the hands of the Legislature so that
nothing was left to the judgment
18
of any other appointee or
delegate of the legislature.
In the present case, the President is the delegate of the
Legislature, endowed with the power to raise the VAT rate
from 10% to 12% if any of the following conditions, to
reiterate, has been satisfied: (i) value-added tax collection
as a percentage of gross domestic product (GDP) of the
previous year exceeds two and four-fifths percent (2 4/5%)
or (ii) National Government deficit as a percentage of GDP
of the previous year exceeds one and one-half percent (1
1/2%).
At first glance, the two conditions may appear to be
definite standards sufficient to guide the President.
However, to my mind, they are ineffectual and malleable as
they give the President ample opportunity to exercise her
authority in arbitrary and discretionary fashion.
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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 p. 101.
226
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
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Senator Osmeña.
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 imp
rove your grades and I will give you an
allowance. That is the analogy of this.
xxxxxx
Senator Osmeña.
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 ang grade mo,
dadagdagan ko ang allowance mo. Katulad ng
sinabi natin dito. 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
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21 TSN, May 10, 2005, Annex ‘E” of the Petition in G.R. No. 168056.
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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.”
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25 Id.
26 City Mayor vs. The Chief of Philippine Constabulary, G.R. No. 20346,
October 31, 1967, 21 SCRA 665, 673.
27 Merriam-Webster’s Third New International Dictionary (1993 Ed.),
at p. 1592.
28 Davies, Legislative Law and Process, (2d. Ed. 1986), at p. 89.
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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 April 13, 2005.
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33 Supra.
233
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[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
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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.
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
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Conference Committees
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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
“noamendment” rules in Article VI, Section 26(2) of the
Constitution.
Sec. 88. Conference Committee.—In the event that the House does
not agree with the Senate on the amendments to any bill or joint
resolution, the differences may be settled by the conference
committees of both chambers.
In resolving the differences with the Senate, the House panel
shall, as much as possible, adhere to and support the House Bill.
If the differences with the Senate are so substantial that they
materially impair the House Bill, the panel shall report such fact
to the House for the latter’s appropriate action.
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5 Bernas SJ, J., The 1987 Constitution of the Republic of the Philippines, A
Commentary, pp. 702-703 (1996 Ed.).
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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.
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.
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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
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requisite
16
number of members have agreed to a particular
measure.
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AZCUNA, J.:
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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
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(10%) of the gross selling price or gross value in money of the goods or
properties sold, bartered or exchanged, such tax to be paid by the seller or
transferor: Provided, That the President, upon the recommendation of the
Secretary of Finance, shall, effective January 1, 2006, raise the rate of
value-added tax to twelve percent (12%), after any of the following
conditions has been satisfied:
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tions; (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 4
law without confusion and thereby
achieve its purpose.
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.
TINGA, J.:
1
The E-VAT Law, as it stands, will exterminate our
country’s small to medium enterprises. This will be the net
effect of affirming Section 8 of the law, which amends
Sections 110 of the National Internal Revenue Code (NIRC)
by imposing a seventy percent (70%) cap on the creditable
input tax a VAT-registered person may apply every quarter
and a mandatory sixty (60)-month amortization period on
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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 deny2
the
petitions in G.R. Nos. 168056, 168207, 168463, 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
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3 J. Vitug and E. Acosta, Tax Law and Jurisprudence (2nd ed., 2000),
at pp. 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.
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10 Carpio v. Executive Secretary, G.R. No. 96409 February 14, 1992, 206
SCRA 290, 298; citing In re Guarina, 24 Phil. 37.
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11
resolved in favor, of the constitutionality of a statute, 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 x x x.” This, after all is the
operative effect of the provision as it stands. In relation to
the operation of the tax increase, the denominated role of
the President and the Secretary of Finance may be
regarded as a superfluity, as their imprimatur as a
precondition to the increase of the VAT rate must have no
bearing.
Nonetheless, I cannot ignore the fact that both the
President and the Secretary of Finance have designated
roles in the implementation of the tax increase.
Considering that it is Congress, and not these officials,
which properly have imposed the increase in the VAT rate,
how should these roles be construed?
The enactment of a law should be distinguished from its
implementation. Even if it is Congress which exercises the
plenary power of taxation, it is not the body that
administers the implementation of the tax. Under Section 2
of the National Internal Revenue Code (NIRC), the
assessment and collection of all national internal revenue
taxes, and the enforcement of all forfeitures, penalties and
fines connected therewith had been previously delegated to
the Bureau of Internal Revenue, under 12
the supervision and
control of the Department of Finance.
Moreover, as intimated earlier, Congress may delegate
to other components of the government the power to
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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
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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 been16settled
in our ruling in Tolentino v. Secretary of Finance, 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:
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This power over the purse, may in fact be regarded as the most
complete and effectual weapon with which any constitution can
arm the immediate representatives of the people, for obtaining a
redress of every grievance,
18
and for carrying into effect every just
and salutary measure.
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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 presentation20
to the President of
“every bill passed by the Congress.” 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.
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II.
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cause pain and injury to the taxpayer, albeit for the greater
good of society. Perhaps whatever collective notion there
may be of what constitutes an arbitrary, confiscatory, and
unreasonable tax might draw more from the fairy
tale/legend traditions of absolute monarchs and the
oppressed peasants they tax. Indeed, it is easier to jump to
the conclusion that a tax is oppressive and unfair if it is
imposed by a tyrant or an authoritarian state.
But could an arbitrary, confiscatory or unreasonable tax
actually be enacted by a democratic state such as ours? Of
course it could, but these would exist in more palatable
guises. In a democratic society wherein statutes are
enacted by a representative legislature only after debate
and deliberation, tax statutes will most likely, on their
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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.
279
requirements,
34
then the remedy would be an amendment of
the law. Of course, the remedy of legislative amendment
applies to even the most unconstitutional of laws. But if
our society can take cold comfort in the ability of the
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.
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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.”
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is your basic Catch-22 situation—no matter which means
the enterprise employs to recover from the E-VAT Law, it
will still go down in flames.
Section 8 of the E-VAT law, while ostensibly even-
handed in application, fails to appreciate valid substantial
distinctions between large scale enterprises and small and
medium enterprises. The latter group, owing to the limited
capability for capital investment, subsists on modest profit
margins, whereas the former expects, by reason of its
substantial capital investments, a high margin. In
essentially prohibiting the recovery of small profit margins,
the E-VAT law effectively sends the message that only high
margin businesses are welcome to do business in the
Philippines. It stifles any entrepreneurial ambitions of
Filipinos unfortunate enough to have been born poor yet
seek a better life by sacrificing all to start a small business.
Pilipinas Shell Dealers, on whom the burden to establish
the violation of due process and equal protection lies, offers
the following chart of the income statement of a typical
petroleum dealer:
DEALER “A”
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Slide 1
Item Cost VAT
Sales 1,000,000.00 100,000.00
Purchases 800,000.00 80,000.00
Due BIR Due BIR with 70% cap
without cap
Output VAT 100,000.00 Output VAT 100,000.00
Actual Input 80,000.00 Allowable Input 70,000.00
VAT VAT
Net VAT 20,000.00 Net VAT 30,000.00
Payable Payable
Excess Input 10,000.00
VAT
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% of output Allowable 60,000.00
Input VAT
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VAT) 60,000.00
Net VAT 40,000.00 Net VAT Payable 40,000.00
Payable
Excess Input VAT ___0_____
Carry-over to next
quarter
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 10,000.00
Carry-over to next quarter
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297
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 100,000.00
Less: Input VAT
Excess Input VAT fr. 1st Qtr. 10,000.00
Input VAT-Current Qtr. 80,000.00
Total Available Input VAT 90,000.00
Allowable Input VAT (100,000 x 70,000.00 70,000.00
70%)
Net VAT Payable 30,000.00
Total Available Input VAT 90,000.00
Allowable Input VAT 70,000.00
Excess Input VAT to be carried over to 20,000.00
next Quarter
Quarter 3
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
Less: Input VAT
Excess Input VAT fr. 2nd Qtr. 20,000.00
Input VAT-Current Qtr. 80,000.00
Total Available Input VAT 100,000.00
Allowable Input VAT (100,000 x 70,000.00 70,000.00
70%)
Net VAT Payable 30,000.00
298
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Quarter 4
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
Less: Input VAT
Excess Input VAT fr. 3rd Qtr. 30,000.00
Input VAT-Current Qtr. 80,000.00
Total Available Input VAT 110,000.00
Allowable Input VAT (100,000 x 70,000.00 70,000.00
70%)
Net VAT Payable 30,000.00
Allowable Input VAT 110,000.00
Total Available Input VAT 70,000.00
Excess Input VAT to be 40,000.00
carried over to next quarter
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43 Decision, infra.
301
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.
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“[Q]: Is there a way by which such unapplied excess input tax credits can be
claimed for refund or issuance of TCC?
[A]: The only time application for refund/issuance of TCC is allowed for
input taxes incurred on the purchase of domestic goods/services is when
the same are directly attributable to zero-rated or effectively zero-rated
sales (of goods/services). x x x
For those engaged purely in domestic transactions, the only time that
unapplied input taxes may be applied for the issuance of TCC is when the
VAT registration of the taxpayer is cancelled due to retirement or
cessation of business or change in the status of the taxpayer as a VAT
registered taxpayer. As provided for in Section 112(B0, in case of cancellation of
VAT registration due to cessation of business or change in status of taxpayer, the
only recourse given to such taxpayer is to apply for the issuance of TCC on his
excess input tax credits which may be used in payment of
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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.
303
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304
50
the surviving corporation by operation of law. Assets
would fall under the purview of property under the due
process clause, and if the taxing arm of the State
recognizes that such property belongs to the taxpayer and
not to the State, then due respect should be given to such
expert opinion.
Even under the International Accounting Standards I
adverted to above, the unutilized input VAT credit may be
recognized as an asset “to the extent that it is probable that
future taxable profit will be available against which the 51
unused tax losses and unused tax credits can be utilised”
52
If not probable, it would be recognized as a loss. Since
these international standards, duly recognized by the
Securities and Exchange Commission as controlling in this
jurisdiction, attribute tangible gain or loss to the VAT
credit, it 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
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55
tax administration.” 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.
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Conclusions
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59 Id., at p. 856.
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CONCURRING OPINION
CHICO-NAZARIO, J.:
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2
without taxes, the government would be paralyzed.
Without the tax reforms introduced by Rep. Act No. 9337,
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this Court to look into the enactment of Rep. Act No. 9337
by Congress and, consequently, to review the applicability
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6
their own creation. In a number of cases, this Court
already made a determination of the extent of the powers of
the Bicameral Conference Committee after taking into
account the existing Rules of both Houses of Congress. In
gist, the power of the Bicameral Conference Committee to
reconcile or settle the differences in the two Houses’
respective bills is not limited to the conflicting provisions of
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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 7herein is the concluding paragraph in
Arroyo v. De Venecia, which reads—
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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.
318
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8 Supra, note 6.
319
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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.
320
321
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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
324
17
Code, as amended by Rep. Act No. 9337. The latter
taxpayer is exempt from VAT on the basis that his sale or
lease of goods or properties or services do not exceed
P1,500,000; instead, he is subject to pay a three percent
18
(3%) tax on his gross receipts in lieu of the VAT. 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.
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“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
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Supreme
20
Court. As this Court explained in Agustin v.
Edu, to wit—
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——o0o——
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