ABAKADA v.

Ermita
Julius Anthony Ragay
Facts: RA 9337, or the VAT Reform Act was enacted. It imposed a Value Added Tax
on sale of goods and properties, importation of goods, sale of services, among
others. The law also had a provision wherein the President was authorized to
increase the rate of the VAT from 10% to 12%. ABAKADA GURO Partylist assailed the
law for being constitutionally infirm on various grounds.
Issue: whether VAT is a progressive tax. If not, is it unconstitutional?
Ruling: VAT is not progressive. It is not unconstitutional.
Taxation is progressive when its rate goes up depending on the resources of the
person affected. 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.
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. Indeed, the mandate to Congress is not to prescribe, but
to evolve, a progressive tax system. Otherwise, sales taxes, which perhaps are the
oldest form of indirect taxes, would have been prohibited with the proclamation of
Art. VIII, 17 (1) of the 1973 Constitution from which the present Art. VI, 28 (1) was
taken. Sales taxes are also regressive. Resort to indirect taxes should be minimized
but not avoided entirely because it is difficult, if not impossible, to avoid them by
imposing such taxes according to the taxpayers' ability to pay. In the case of the
VAT, the law minimizes the regressive effects of this imposition by providing for zero
rating of certain transactions (R.A. No. 7716, 3, amending 102 (b) of the NIRC), while
granting exemptions to other transactions.
Issue: Does the VAT violate uniformity in taxation?
Ruling: No. Uniformity in taxation means that all taxable articles or kinds of property
of the same class shall be taxed at the same rate. Different articles may be taxed at
different amounts provided that the rate is uniform on the same class everywhere
with all people at all times. In this case, the tax law is uniform as it provides a
standard rate of 0% or 10% (or 12%) on all goods and services.
Issue: was there an undue delegation of legislative power to the president?
Ruling: no. there is no undue delegation of legislative power but only of the
discretion as to the execution of a law. This is constitutionally permissible. Congress
does not abdicate its functions or unduly delegate power when it describes what job
must be done, who must do it, and what is the scope of his authority; in our
complex economy that is frequently the only way in which the legislative process
can go forward.