Abakada v. Ermita

SUPREME COURT REPORTS ANNOTATED VOLUME 469 27/04/2019, 6+10 AM
14 SUPREME COURT REPORTS ANNOTATED

Abakada Guro Party List vs. Ermita
*
G.R. No. 168056. September 1, 2005.
ABAKADA GURO PARTY LIST (Formerly AASJAS)

OFFICERS SAMSON S. ALCANTARA and ED VINCENT
S. ALBANO, petitioners, vs. THE HONORABLE
EXECUTIVE SECRETARY EDUARDO ERMITA;
HONORABLE SECRETARY OF THE DEPARTMENT OF
FINANCE CESAR PURISIMA; and HONORABLE
COMMISSIONER OF INTERNAL REVENUE
GUILLERMO PARAYNO, JR., respondents.
*
G.R. No. 168207. September 1, 2005.
AQUILINO Q. PIMENTEL, JR., LUISA P. EJERCITO-

ESTRADA, JINGGOY E. ESTRADA, PANFILO M.
LACSON, ALFREDO S. LIM, JAMBY A.S. MADRIGAL,
AND SERGIO R. OSMEÑA III, petitioners, vs.
EXECUTIVE SECRETARY EDUARDO R. ERMITA,
CESAR V. PURISIMA, SECRETARY OF FINANCE,
GUILLERMO L. PARAYNO, JR., COMMISSIONER OF
THE BUREAU OF INTERNAL REVENUE, respondents.
*
G.R. No. 168461. September 1, 2005.
ASSOCIATION OF PILIPINAS SHELL DEALERS, INC.

represented by its President, ROSARIO ANTONIO;
PETRON DEALERSÊ ASSOCIATION represented by its
President, RUTH E. BARBIBI; ASSOCIATION OF
CALTEX DEALERSÊ OF THE PHILIPPINES represented
by its President, MERCEDITAS A. GARCIA; ROSARIO
ANTONIO doing business under the name and style of
http://www.central.com.ph/sfsreader/session/0000016a5bb047bf44bc2e63003600fb002c009e/p/AQJ147/?username=Guest Page 1 of 351

„ANB NORTH SHELL SERVICE STATION‰; LOURDES

MARTINEZ doing business under the name and style of
„SHELL GATE·N. DOMINGO‰; BETH-ZAIDA TAN doing
business under the name and style of „ADVANCE SHELL
STATION‰; REYNALDO P. MONTOYA
_______________
* EN BANC.
15
VOL. 469, SEPTEMBER 1, 2005 15

doing business under the name and style of „NEW

LAMUAN SHELL SERVICE STATION‰; EFREN SOTTO
doing business under the name and style of „RED FIELD
SHELL SERVICE STATION‰; DONICA CORPORATION
represented by its President, DESI TOMACRUZ; RUTH E.
MARBIBI doing business under the name and style of
„R&R PETRON STATION‰; PETER M. UNGSON doing
business under the name and style of „CLASSIC STAR
GASOLINE SERVICE STATION‰; MARIAN SHEILA A.
LEE doing business under the name and style of „NTE
GASOLINE & SERVICE STATION‰; JULIAN CESAR P.
POSADAS doing business under the name and style of
„STARCARGA ENTERPRISES‰; ADORACION MAÑEBO
doing business under the name and style of „CMA
MOTORISTS CENTER‰; SUSAN M. ENTRATA doing
business under the name and style of „LEONAÊS
GASOLINE STATION and SERVICE CENTER‰;
CARMELITA BALDONADO doing business under the
name and style of „FIRST CHOICE SERVICE CENTER‰;
MERCEDITAS A. GARCIA doing business under the name
and style of „LORPED SERVICE CENTER‰; RHEAMAR A.
RAMOS doing business under the name and style of
„RJRAM PTT GAS STATION‰; MA. ISABEL VIOLAGO
doing business under the name and style of „VIOLAGO-
PTT SERVICE CENTER‰; MOTORISTSÊ HEART
CORPORATION represented by its Vice-President for
Operations, JOSELITO F. FLORDELIZA; MOTORISTSÊ

HARVARD CORPORATION represented by its Vice-
President for Operations, JOSELITO F. FLORDELIZA;
MOTORISTSÊ HERITAGE CORPORATION represented by
its Vice-President for Operations, JOSELITO F.
FLORDELIZA; PHILIPPINE STANDARD OIL
CORPORATION represented by its Vice-President for
Operations, JOSELITO F. FLORDELIZA; ROMEO
MANUEL doing business under the name and style of
„ROMMAN GASOLINE STATION‰; ANTHONY ALBERT
CRUZ III doing business under the name and style of
„TRUE SERVICE STATION‰, petitioners, vs. CESAR V.
PURISIMA, in his capacity as Secretary of the Department
of
16

Finance and GUILLERMO L. PARAYNO, JR., in his

capacity as Commissioner of Internal Revenue,
respondents.
G.R. No. 168463. September 1, 2005.*
FRANCIS JOSEPH G. ESCUDERO, VINCENT

CRISOLOGO, EMMANUEL JOEL J. VILLANUEVA,
RODOLFO G. PLAZA, DARLENE ANTONINO-
CUSTODIO, OSCAR G. MALAPITAN, BENJAMIN C.
AGARAO, JR. JUAN EDGARDO M. ANGARA, JUSTIN
MARC SB. CHIPECO, FLORENCIO G. NOEL, MUJIV S.
HATAMAN, RENATO B. MAGTUBO, JOSEPH A.
SANTIAGO, TEOFISTO DL. GUINGONA III, RUY ELIAS
C. LOPEZ, RODOLFO Q. AGBAYANI and TEODORO A.
CASIÑO, petitioners, vs. CESAR V. PURISIMA, in his
capacity as Secretary of Finance, GUILLERMO L.
PARAYNO, JR., in his capacity as Commissioner of
Internal Revenue, and EDUARDO R. ERMITA, in his
capacity as Executive Secretary, respondents.

G.R. No. 168730. September 1, 2005.*
BATAAN GOVERNOR ENRIQUE T. GARCIA, JR.,

petitioner, vs. HON. EDUARDO R. ERMITA, in his
capacity as the Executive Secretary; HON. MARGARITO
TEVES, in his capacity as Secretary of Finance; HON.
JOSE MARIO BUNAG, in his capacity as the OIC
Commissioner of the Bureau of Internal Revenue; and
HON. ALEXANDER AREVALO, in his capacity as the OIC
Commissioner of the Bureau of Customs, respondents.
Taxation; Value-Added Tax (VAT); Words and Phrases; The VAT

is a tax on spending or consumption·it is levied on the sale, barter,
exchange or lease of goods or properties and services; Being an
indirect tax on expenditure, the seller of goods or services may pass
on the amount of tax paid to the buyer; In contrast, a direct tax is a
tax for which a taxpayer is directly liable on the transaction or
business it engages in, without transferring the burden to someone
else.·As a prelude, the Court deems it apt to restate the general
principles and
17
concepts of value-added tax (VAT), as the confusion and inevitably,

litigation, breeds from a fallacious notion of its nature. The VAT is a
tax on spending or consumption. It is levied on the sale, barter,
exchange or lease of goods or properties and services. Being an
indirect tax on expenditure, the seller of goods or services may pass
on the amount of tax paid to the buyer, with the seller acting merely
as a tax collector. The burden of VAT is intended to fall on the
immediate buyers and ultimately, the end-consumers. In contrast, a
direct tax is a tax for which a taxpayer is directly liable on the
transaction or business it engages in, without transferring the
burden to someone else. Examples are individual and corporate
income taxes, transfer taxes, and residence taxes.
Same; Same; Same; In the Philippines, the value-added system

of sales taxation has long been in existence, albeit in a different mode

·prior to 1978, the system was a single-stage tax computed under
the „cost deduction method‰ and was payable only by the original
sellers, then the single-stage system was subsequently modified, and
a mixture of the „cost deduction method‰ and „tax credit method‰
was used to determine the value-added tax payable; Under the „tax
credit method,‰ an entity can credit against or subtract from the VAT
charged on its sales or outputs the VAT paid on its purchases, inputs
and imports.·In the Philippines, the value-added system of sales
taxation has long been in existence, albeit in a different mode. Prior
to 1978, the system was a single-stage tax computed under the „cost
deduction method‰ and was payable only by the original sellers. The
single-stage system was subsequently modified, and a mixture of
the „cost deduction method‰ and „tax credit method‰ was used to
determine the value-added tax payable. Under the „tax credit
method,‰ an entity can credit against or subtract from the VAT
charged on its sales or outputs the VAT paid on its purchases,
inputs and imports. It was only in 1987, when President Corazon C.
Aquino issued Ex-ecutive Order No. 273, that the VAT system was
rationalized by imposing a multi-stage tax rate of 0% or 10% on all
sales using the „tax credit method.‰ E.O. No. 273 was followed by
R.A. No. 7716 or the Expanded VAT Law, R.A. No. 8241 or the
Improved VAT Law, R.A. No. 8424 or the Tax Reform Act of 1997,
and finally, the presently beleaguered R.A. No. 9337, also referred
to by respondents as the VAT Reform Act.
18
Congress; Bicameral Conference Committee; Legislative Rules;

It should be borne in mind that the power of internal regulation and
discipline are intrinsic in any legislative body, and pursuant to this
inherent constitutional power to promulgate and implement its own
rules of procedure, the respective rules of each house of Congress
provided for the creation of a Bicameral Conference Committee.·
Petitioners now beseech the Court to define the powers of the Bi-
cameral Conference Committee. It should be borne in mind that the
power of internal regulation and discipline are intrinsic in any
legislative body for, as unerringly elucidated by Justice Story, „[i]f

the power did not exist, it would be utterly impracticable to transact

the business of the nation, either at all, or at least with decency,
deliberation, and order.‰ Thus, Article VI, Section 16 (3) of the
Constitution provides that „each House may determine the rules of
its proceed-ings.‰ Pursuant to this inherent constitutional power to
promulgate and implement its own rules of procedure, the
respective rules of each house of Congress provided for the creation
of a Bicameral Conference Committee.
Same; Same; Same; Separation of Powers; Judicial Review;
Congress is the best judge of how it should conduct its own business
expeditiously and in the most orderly manner; If a change is desired
in the practice [of the Bicameral Conference Committee] it must be
sought in Congress since this question is not covered by any
constitutional provision but is only an internal rule of each house;
Even the expanded jurisdiction of the Supreme Court cannot apply
to questions regarding only the internal operation of Congress, thus,
the Court is wont to deny a review of the internal proceedings of a co-
equal branch of government.·Akin to the Fariñas case, the present
petitions also raise an issue regarding the actions taken by the
conference committee on matters regarding CongressÊ compliance
with its own internal rules. As stated earlier, one of the most basic
and inherent power of the legislature is the power to formulate
rules for its proceedings and the discipline of its members. Congress
is the best judge of how it should conduct its own business
expeditiously and in the most orderly manner. It is also the sole
concern of Congress to instill discipline among the members of its
conference committee if it believes that said members violated any
of its rules of proceedings. Even the expanded jurisdiction of this
Court cannot apply to questions regarding only the internal
operation of Congress, thus, the Court is wont to deny a review of
the internal proceedings of a co-equal branch of
19
government. Moreover, as far back as 1994 or more than ten years

ago, in the case of Tolentino vs. Secretary of Finance, the Court

already made the pronouncement that „[i]f a change is desired in

the practice [of the Bicameral Conference Committee] it must be
sought in Congress since this question is not covered by any
constitutional provision but is only an internal rule of each
house.‰To date, Congress has not seen it fit to make such changes
adverted to by the Court. It seems, therefore, that Congress finds
the practices of the bicameral conference committee to be very
useful for purposes of prompt and efficient legislative action.
Same; Same; Same; Words and Phrases; The term „settle‰ is
synonymous to „reconcile‰ and „harmonize‰; To reconcile or
harmonize disagreeing provisions, the Bicameral Conference
Committee may then (a) adopt the specific provisions of either the
House bill or Senate bill, (b) decide that neither provisions in the
House bill or the provisions in the Senate bill would be carried into
the final form of the bill, and/or (c) try to arrive at a compromise
between the disagreeing provisions.·Under the provisions of both
the Rules of the House of Representatives and Senate Rules, the
Bicameral Conference Committee is mandated to settle the
differences between the disagreeing provisions in the House bill and
the Senate bill. The term „settle‰ is synonymous to „reconcile‰ and
„harmonize.‰ To reconcile or harmonize disagreeing provisions, the
Bicameral Conference Committee may then (a) adopt the specific
provisions of either the House bill or Senate bill, (b) decide that
neither provisions in the House bill or the provisions in the Senate
bill would be carried into the final form of the bill, and/or (c) try to
arrive at a compromise between the disagreeing provisions.
Same; Same; Same; It is within the power of a conference
committee to include in its report an entirely new provision that is
not found either in the House bill or in the Senate bill·if the
committee can propose an amendment consisting of one or two
provisions, there is no reason why it cannot propose several
provisions, collectively considered as an „amendment in the nature
of a substitute,‰ so long as such amendment is germane to the subject
of the bills before the committee.·All the changes or modifications
made by the Bicameral Conference Committee were germane to
subjects of the provisions referred to it for reconciliation. Such being
the case, the Court does not see any grave abuse of discretion
amounting to lack or excess of
20

jurisdiction committed by the Bicameral Conference Committee. In

the earlier cases of Philippine Judges Association vs. Prado and
Tolentino vs. Secretary of Finance, the Court recognized the
longstanding legislative practice of giving said conference
committee ample latitude for compromising differences between the
Senate and the House. Thus, in the Tolentino case, it was held that:
. . . it is within the power of a conference committee to include in its
report an entirely new provision that is not found either in the
House bill or in the Senate bill. If the committee can propose an
amendment consisting of one or two provisions, there is no reason
why it cannot propose several provisions, collectively considered as
an „amendment in the nature of a substitute,‰ so long as such
amendment is germane to the subject of the bills before the
committee. After all, its report was not final but needed the
approval of both houses of Congress to become valid as an act of the
legislative department. The charge that in this case the
Conference Committee acted as a third legislative chamber
is thus without any basis.
Same; Same; Same; „No Amendment‰ Rule; The „no-amend-
ment rule‰ refers only to the procedure to be followed by each house
of Congress with regard to bills initiated in each of said respective
houses, before said bill is transmitted to the other house for its
concurrence or amendment·Art. VI, Sec. 26 (2) of the Constitution
cannot be taken to mean that the introduction by the Bicameral
Conference Committee of amendments and modifications to
disagreeing provisions in bills that have been acted upon by both
houses of Congress is prohibited.·The Court reiterates here that
the „no-amendment rule‰ refers only to the procedure to be followed
by each house of Congress with regard to bills initiated in each of
said respective houses, before said bill is transmitted to the other
house for its concurrence or amendment. Verily, to construe said
provision in a way as to proscribe any further changes to a bill after
one house has voted on it would lead to absurdity as this would
mean that the other house of Congress would be deprived of its
constitutional power to amend or introduce changes to said bill.
Thus, Art. VI, Sec. 26 (2) of the Constitution cannot be taken to
mean that the introduction by the Bicameral Conference Committee
of amendments and modifications to disagreeing provisions in bills

that have been acted upon by both houses of Congress is prohibited.
21
Same; Origin of Bills; Revenue Bills; Since there is no question

that the revenue bill originated in the House of Representatives, the
Senate was acting within its constitutional power to introduce
amendments to the House bill when it included provisions in Senate
Bill No. 1950 amending corporate income taxes, percentage, excise
and franchise taxes·Article VI, Section 24 of the Constitution does
not contain any prohibition or limitation on the extent of the
amendments that may be introduced by the Senate to the House
revenue bill.·In the present cases, petitioners admit that it was
indeed House Bill Nos. 3555 and 3705 that initiated the move for
amending provisions of the NIRC dealing mainly with the value-
added tax. Upon transmittal of said House bills to the Senate, the
Senate came out with Senate Bill No. 1950 proposing amendments
not only to NIRC provisions on the value-added tax but also
amendments to NIRC provisions on other kinds of taxes. Is the
introduction by the Senate of provisions not dealing directly with
the value-added tax, which is the only kind of tax being amended in
the House bills, still within the purview of the constitutional
provision authorizing the Senate to propose or concur with
amendments to a revenue bill that originated from the House? * * *
Since there is no question that the revenue bill exclusively
originated in the House of Representatives, the Senate was acting
within its constitutional power to introduce amendments to the
House bill when it included provisions in Senate Bill No. 1950
amending corporate income taxes, percentage, excise and franchise
taxes. Verily, Article VI, Section 24 of the Constitution does not
contain any prohibition or limitation on the extent of the
amendments that may be introduced by the Senate to the House
revenue bill.
Same; Same; Same; The main purpose of the bills emanating
from the House of Representatives is to bring in sizeable revenues for
the government to supplement our countryÊs serious financial
problems, and improve tax administration and control of the

leakages in revenues from income taxes and value-added taxes, and

the Senate, approaching the measures from the point of national
perspective, can introduce amendments within the purposes of those
bills, like providing ways that would soften the impact of the VAT
measure on the consumer.·The main purpose of the bills emanating
from the House of Representatives is to bring in sizeable revenues
for the government to supplement our countryÊs serious financial
problems, and improve tax administration and control of the
leakages in revenues
22
from income taxes and value-added taxes. As these house bills were
transmitted to the Senate, the latter, approaching the measures
from the point of national perspective, can introduce amendments
within the purposes of those bills. It can provide for ways that
would soften the impact of the VAT measure on the consumer, i.e.,
by distributing the burden across all sectors instead of putting it
entirely on the shoulders of the consumers.
Same; Same; Same; Germaneness Rule; The amendments made
on provisions in the tax on income of corporations are germane to the
purpose of the house bills which is to raise revenues for the
government, and the sections referring to other percentage and excise
taxes are germane to the reforms to the VAT system, as these sections
would cushion the effects of VAT on consumers.·As the Court has
said, the Senate can propose amendments and in fact, the
amendments made on provisions in the tax on income of
corporations are germane to the purpose of the house bills which is
to raise revenues for the government. Likewise, the Court finds the
sections referring to other percentage and excise taxes germane to
the reforms to the VAT system, as these sections would cushion the
effects of VAT on consumers. Considering that certain goods and
services which were subject to percentage tax and excise tax would
no longer be VAT-exempt, the consumer would be burdened more as
they would be paying the VAT in addition to these taxes. Thus,
there is a need to amend these sections to soften the impact of VAT.

Separation of Powers; Delegation of Powers; A logical corollary

to the doctrine of separation of powers is the principle of non-
delegation of powers, a doctrine based on the ethical principle that
such as delegated power constitutes not only a right but a duty to be
performed by the delegate through the instrumentality of his own
judgment and not through the intervening mind of another.·The
principle of separation of powers ordains that each of the three
great branches of government has exclusive cognizance of and is
supreme in matters falling within its own constitutionally allocated
sphere. A logical corollary to the doctrine of separation of powers is
the principle of non-delegation of powers, as expressed in the Latin
maxim: potestas delegata non delegari potest which means „what
has been delegated, cannot be delegated.‰ This doctrine is based on
the ethical principle that such as delegated power constitutes not
only a right but a duty to be performed by the delegate through the
instrumen-
23
tality of his own judgment and not through the intervening mind of
another.
Same; Same; Exception to the Non-Delegation of Legislative
Powers; Words and Phrases; The powers which Congress is
prohibited from delegating are those which are strictly, or inherently
and exclusively, legislative·appertaining exclusively to the
legislative department; Purely legislative power has been described
as the authority to make a complete law·complete as to the time
when it shall take effect and as to whom it shall be applicable·and
to determine the expediency of its enactment; It is the nature of the
power, and not the liability of its use or the manner of its exercise,
which determines the validity of its delegation.·With respect to the
Legislature, Section 1 of Article VI of the Constitution provides that
„the Legislative power shall be vested in the Congress of the
Philippines which shall consist of a Senate and a House of
Representatives.‰ The powers which Congress is prohibited from
delegating are those which are strictly, or inherently and

exclusively, legislative. Purely legislative power, which can never be

delegated, has been described as the authority to make a complete
law·complete as to the time when it shall take effect and as to
whom it shall be applicable·and to determine the expediency of its
enactment. Thus, the rule is that in order that a court may be
justified in holding a statute unconstitutional as a delegation of
legislative power, it must appear that the power involved is purely
legislative in nature·that is, one appertaining exclusively to the
legislative department. It is the nature of the power, and not the
liability of its use or the manner of its exercise, which determines
the validity of its delegation. Nonetheless, the general rule barring
delegation of legislative powers is subject to the following
recognized limitations or exceptions: (1) Delegation of tariff powers
to the President under Section 28 (2) of Article VI of the
Constitution; (2) Delegation of emergency powers to the President
under Section 23 (2) of Article VI of the Constitution; (3) Delegation
to the people at large; (4) Delegation to local governments; and (5)
Delegation to administrative bodies.
Same; Same; Same; Tests of Valid Delegation; A delegation is
valid only if the law (a) is complete in itself, setting forth therein the
policy to be executed, carried out, or implemented by the delegate,
and (b) fixes a standard·the limits of which are sufficiently
determinate and determinable·to which the delegate must conform
in the per-
24
formance of his functions; A sufficient standard is one which defines

legislative policy, marks its limits, maps out its boundaries and
specifies the public agency to apply it.·In every case of permissible
delegation, there must be a showing that the delegation itself is
valid. It is valid only if the law (a) is complete in itself, setting forth
therein the policy to be executed, carried out, or implemented by the
delegate; and (b) fixes a standard·the limits of which are
sufficiently determinate and determinable·to which the delegate
must conform in the performance of his functions. A sufficient

standard is one which defines legislative policy, marks its limits,

maps out its boundaries and specifies the public agency to apply it.
It indicates the circumstances under which the legislative command
is to be effected. Both tests are intended to prevent a total
transference of legislative authority to the delegate, who is not
allowed to step into the shoes of the legislature and exercise a
power essentially legislative.
Same; Same; Taxation; While the power to tax cannot be
delegated to executive agencies, details as to the enforcement and
administration of an exercise of such power may be left to them,
including the power to determine the existence of facts on which its
operation depends, the rationale being that the preliminary
ascertainment of facts as basis for the enactment of legislation is not
of itself a legislative function but is simply ancillary to legislation;
The Constitution as a continuously operative charter of government
does not require that Congress find for itself every fact upon which it
desires to base legislative action or that it make for itself detailed
determinations which it has declared to be prerequisite to
application of legislative policy to particular facts and circumstances
impossible for Congress itself properly to investigate.·The
legislature may delegate to execu-tive officers or bodies the power to
determine certain facts or conditions, or the happening of
contingencies, on which the operation of a statute is, by its terms,
made to depend, but the legislature must prescribe sufficient
standards, policies or limitations on their authority. While the
power to tax cannot be delegated to executive agencies, details as to
the enforcement and administration of an exercise of such power
may be left to them, including the power to determine the existence
of facts on which its operation depends. The rationale for this is
that the preliminary ascertainment of facts as basis for the
enactment of legislation is not of itself a legislative function, but is
simply ancillary to legislation. Thus, the duty of correlating
informa-
25

tion and making recommendations is the kind of subsidiary activity

which the legislature may perform through its members, or which it
may delegate to others to perform. Intelligent legislation on the
complicated problems of modern society is impossible in the absence
of accurate information on the part of the legislators, and any
reasonable method of securing such information is proper. The
Constitution as a continuously operative charter of government
does not require that Congress find for itself every fact upon which
it desires to base legislative action or that it make for itself detailed
determinations which it has declared to be prerequisite to
application of legislative policy to particular facts and
circumstances impossible for Congress itself properly to investigate.
Same; Same; Same; Statutory Construction; The case before the
Court is not a delegation of legislative power·it is simply a
delegation of ascertainment of facts upon which enforcement and
administration of the increase rate under the law is contingent; No
discretion would be exercised by the President; The use of the word
„shall‰ connotes a mandatory order.·The case before the Court is
not a delegation of legislative power. It is simply a delegation of
ascertainment of facts upon which enforcement and administration
of the increase rate under the law is contingent. The legislature has
made the operation of the 12% rate effective January 1, 2006,
contingent upon a specified fact or condition. It leaves the entire
operation or non-operation of the 12% rate upon factual matters
outside of the control of the executive. No discretion would be
exercised by the President. Highlighting the absence of discretion is
the fact that the word shall is used in the common proviso. The use
of the word shall connotes a mandatory order. Its use in a statute
denotes an imperative obligation and is inconsistent with the idea
of discretion. Where the law is clear and unambiguous, it must be
taken to mean exactly what it says, and courts have no choice but to
see to it that the mandate is obeyed. Thus, it is the ministerial duty
of the President to immediately impose the 12% rate upon the
existence of any of the conditions specified by Congress. This is a
duty which cannot be evaded by the President. Inasmuch as the law
specifically uses the word shall, the exercise of discretion by the
President does not come into play. It is a clear directive to impose
the 12% VAT rate when the specified conditions are present. The
time of taking into effect of the 12% VAT rate is based on the
happening of a certain specified contingency, or upon
26

the ascertainment of certain facts or conditions by a person or body

other than the legislature itself.
Same; Same; Presidency; Control Power; Doctrine of Qualified
Political Agency; When one speaks of the Secretary of Finance as the
alter ego of the President, it simply means that as head of the
Department of Finance he is the assistant and agent of the Chief
Executive·as such, he occupies a political position and holds office
in an advisory capacity, and, in the language of Thomas Jefferson,
„should be of the President's bosom confidence‰ and, in the language
of Attorney-General Cushing, is „subject to the direction of the
President.‰· When one speaks of the Secretary of Finance as the
alter ego of the President, it simply means that as head of the
Department of Finance he is the assistant and agent of the Chief
Executive. The multifarious executive and administrative functions
of the Chief Executive are performed by and through the executive
departments, and the acts of the secretaries of such departments,
such as the Department of Finance, performed and promulgated in
the regular course of business, are, unless disapproved or
reprobated by the Chief Executive, presumptively the acts of the
Chief Executive. The Secretary of Finance, as such, occupies a
political position and holds office in an advisory capacity, and, in the
language of Thomas Jefferson, „should be of the PresidentÊs bosom
confidence‰ and, in the language of Attorney-General Cushing, is
„subject to the direction of the President.‰
Same; Same; Same; Same; Same; In the present case, in making
his recommendation to the President on the existence of either of the
two conditions, the Secretary of Finance is not acting as the alter ego
of the President or even her subordinate, and he is not subject to the
power of control and direction of the President·he is acting as the
agent of the legislative department, to determine and declare the
event upon which its expressed will is to take effect, becoming the
means or tool by which legislative policy is determined and
implemented.·In the present case, in making his recommendation
to the President on the existence of either of the two conditions, the
Secretary of Finance is not acting as the alter ego of the President
or even her subordinate. In such instance, he is not subject to the

power of control and direction of the President. He is acting as the

agent of the legislative department, to determine and declare the
event upon which its expressed will is to take effect. The Secretary
of Finance
27
becomes the means or tool by which legislative policy is determined

and implemented, considering that he possesses all the facilities to
gather data and information and has a much broader perspective to
properly evaluate them. His function is to gather and collate
statistical data and other pertinent information and verify if any of
the two conditions laid out by Congress is present. His personality
in such instance is in reality but a projection of that of Congress.
Thus, being the agent of Congress and not of the President, the
President cannot alter or modify or nullify, or set aside the findings
of the Secretary of Finance and to substitute the judgment of the
former for that of the latter.
Same; Same; Congress does not abdicate its functions or unduly
delegate power when it describes what job must be done, who must
do it, and what is the scope of his authority·in our complex
economy that is frequently the only way in which the legislative
process can go forward.·Congress simply granted the Secretary of
Finance the authority to ascertain the existence of a fact, namely,
whether by December 31, 2005, the value-added tax collection as a
percentage of Gross Domestic Product (GDP) of the previous year
exceeds two and four-fifth percent (2 4/5%) or the national
government deficit as a percentage of GDP of the previous year
exceeds one and one-half percent (1 1/2%). If either of these two
instances has occurred, the Secretary of Finance, by legislative
mandate, must submit such information to the President. Then the
12% VAT rate must be imposed by the President effective January
1, 2006. There is no undue delegation of legislative power but
only of the discretion as to the execution of a law. This is
constitutionally permissible. Congress does not abdicate its
functions or unduly delegate power when it describes what job must

be done, who must do it, and what is the scope of his authority; in
our complex economy that is frequently the only way in which the
legislative process can go forward.
Same; Same; Taxation; Value-Added Tax; The intent and will to
increase the VAT rate to 12% came from Congress and the task of the
President is to simply execute the legislative policy.·As to the
argument of petitioners ABAKADA GURO Party List, et al. that
delegating to the President the legislative power to tax is contrary
to the principle of republicanism, the same deserves scant
consideration. Congress did not delegate the power to tax but the
mere im-
28
plementation of the law. The intent and will to increase the VAT
rate to 12% came from Congress and the task of the President is to
simply execute the legislative policy. That Congress chose to do so in
such a manner is not within the province of the Court to inquire
into, its task being to interpret the law.
Judicial Review; The Court does not rule on allegations which
are manifestly conjectural, as these may not exist at all·the Court
deals with facts, not fancies, on realities, not appearances.·The
insinuation by petitioners Pimentel, et al. that the President has
ample powers to cause, influence or create the conditions to bring
about either or both the conditions precedent does not deserve any
merit as this argument is highly speculative. The Court does not
rule on allegations which are manifestly conjectural, as these may
not exist at all. The Court deals with facts, not fancies; on realities,
not appearances. When the Court acts on appearances instead of
realities, justice and law will be short-lived.
Same; Separation of Powers; Statutory Construction; Rewriting
the law is a forbidden ground that only Congress may tread upon.·
Under the common provisos of Sections 4, 5 and 6 of R.A. No. 9337,
if any of the two conditions set forth therein are satisfied, the
President shall 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,
29
which in this case, is mainly to raise revenue. In fact, fiscal

adequacy dictated the need for a raise in revenue. The principle of
fiscal adequacy as a characteristic of a sound tax system was
originally stated by Adam Smith in his Canons of Taxation (1776),
as: IV. Every tax ought to be so contrived as both to take out and to
keep out of the pockets of the people as little as possible over and
above what it brings into the public treasury of the state. It simply
means that sources of revenues must be adequate to meet
government expenditures and their variations.
Same; Same; Due Process; Equal Protection; Where the due
process and equal protection clauses are invoked, considering that
they are not fixed rules but rather broad standards, there is a need
for proof of such persuasive character as would lead to such a
conclusion.·The doctrine is that where the due process and equal
protection clauses are invoked, considering that they are not fixed
rules but rather broad standards, there is a need for proof of such
persuasive character as would lead to such a conclusion. Absent

such a showing, the presumption of validity must prevail.

Same; Same; Words and Phrases; Input Tax is defined under
Section 110(A) of the NIRC, as amended, as the value-added tax due
from or paid by a VAT-registered person on the importation of goods
or local purchase of good and services, including lease or use of
property, in the course of trade or business, from a VAT-registered
person, and Output Tax is the value-added tax due on the sale or
lease of taxable goods or properties or services by any person
registered or required to register under the law.·Section 8 of R.A.
No. 9337, amending Section 110(B) of the NIRC imposes a
limitation on the amount of input tax that may be credited against
the output tax. It states, in part: „[P]rovided, that the input tax
inclusive of the input VAT carried over from the previous quarter
that may be credited in every quarter shall not exceed seventy
percent (70%) of the output VAT: ⁄‰‰ Input Tax is defined under
Section 110(A) of the NIRC, as amended, as the value-added tax due
from or paid by a VAT-registered person on the importation of goods
or local purchase of good and services, including lease or use of
property, in the course of trade or business, from a VAT-registered
person, and Output Tax is the value-added tax due on the sale or
lease of taxable goods or properties or services by any person
registered or required to register under the law.
30
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 personÊs 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 personÊs entitlement to the creditable input tax is a mere
statutory privilege. The distinction between statutory privileges

and vested rights must be borne in mind for persons have no vested
rights in statutory privileges. The state may change or take away
rights, which were created by the law of the state, although it may
not take away property, which was vested by virtue of such rights.
Under the previous system of single-stage taxation, taxes paid at
every level of distribution are not recoverable from the taxes
payable, although it becomes part of the cost, which is deductible
from the gross revenue. When Pres. Aquino issued E.O. No. 273
imposing a 10% multi-stage tax on all sales, it was then that the
crediting of the input tax paid on purchase or importation of goods
and services by VAT-registered persons against the output tax was
introduced. This was adopted by the Expanded VAT Law (R.A. No.
7716), and The Tax Reform Act of 1997 (R.A. No. 8424). The right to
credit input tax as against the output tax is clearly a privilege
created by law, a privilege that also the law can remove, or in this
case, limit.
Same; Same; Congress admitted that the spread-out of the
creditable input tax in this case amounts to a 4-year interest-free
loan to the government; For whatever is the purpose of the 60-month
amortization, this involves executive economic policy and legislative
wisdom in which the Court cannot intervene.·It is worth
mentioning that 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
31
deterred. Again, for whatever is the purpose of the 60-month

amortization, this involves executive economic policy and legislative
wisdom in which the Court cannot intervene.

Same; Same; With regard to the 5% creditable withholding tax

imposed on payments made by the government for taxable
transactions, Section 114 (C) of the National Internal Revenue Code
merely provides a method of collection, or as stated by respondents, a
more simplified VAT withholding system·the government in this
case is constituted as a withholding agent with respect to their
payments for goods and services.·With regard to the 5% creditable
withholding tax imposed on payments made by the government for
taxable transactions, Section 12 of R.A. No. 9337, which amended
Section 114 of the NIRC, reads: * * * Section 114(C) merely provides
a method of collection, or as stated by respondents, a more
simplified VAT withholding system. The government in this case is
constituted as a withholding agent with respect to their payments
for goods and services. Prior to its amendment, Section 114(C)
provided for different rates of value-added taxes to be withheld·3%
on gross payments for purchases of goods; 6% on gross payments for
services supplied by contractors other than by public works
contractors; 8.5% on gross payments for services supplied by public
work contractors; or 10% on payment for the lease or use of
properties or property rights to nonresident owners. Under the
present Section 114(C), these different rates, except for the 10% on
lease or property rights payment to nonresidents, were deleted, and
a uniform rate of 5% is applied.
Same; Same; Words and Phrases; In tax usage, „final,‰ as
opposed to creditable, means full; As applied to value-added tax,
taxable transactions with the government are subject to a 5% tax
rate, which constitutes as full payment of the tax payable on the
transaction.·The Court observes, however, that the law used the
word final. In tax usage, final, as opposed to creditable, means full.
Thus, it is provided in Section 114(C): „final value-added tax at the
rate of five percent (5%).‰ In Revenue Regulations No. 02-98,
implementing R.A. No. 8424 (The Tax Reform Act of 1997), the
concept of final withholding tax on income was explained, to wit:
SECTION 2.57. Withholding of Tax at Source. (A) Final
Withholding Tax.·Under the final withholding tax system the
amount of income tax withheld by the withholding agent is
constituted as full and final payment
32

of the income tax due from the payee on the said income. The
liability for payment of the tax rests primarily on the payor as a
withholding agent. Thus, in case of his failure to withhold the tax or
in case of underwithholding, the deficiency tax shall be collected
from the payor/withholding agent. . . . (B) Creditable Withholding
Tax.·Under the creditable withholding tax system, taxes withheld
on certain income payments are intended to equal or at least
approximate the tax due of the payee on said income. . . . Taxes
withheld on income payments covered by the expanded withholding
tax (referred to in Sec. 2.57.2 of these regulations) and
compensation income (referred to in Sec. 2.78 also of these
regulations) are creditable in nature. As applied to value-added tax,
this means that taxable transactions with the government are
subject to a 5% rate, which constitutes as full payment of the tax
payable on the transaction. This represents the net VAT payable of
the seller. The other 5% effectively accounts for the standard input
VAT (deemed input VAT), in lieu of the actual input VAT directly or
attributable to the taxable transaction.
Same; Same; It is clear that Congress intended to treat
differently transactions with the government; Since it has not been
shown that the class subject to the final 5% final withholding tax
has been unreasonably narrowed, there is no reason to invalidate the
provision.·The Court need not explore the rationale behind the
provision. It is clear that Congress intended to treat differently
taxable transactions with the government. This is supported by the
fact that under the old provision, the 5% tax withheld by the
government remains creditable against the tax liability of the seller
or contractor, to wit: SEC. 114. Return and Payment of Value-added
Tax.·(C) Withholding of Creditable Value-added Tax.·The
Government or any of its political subdivisions, instrumentalities or
agencies, including government-owned or controlled corporations
(GOCCs) shall, before making payment on account of each purchase
of goods from sellers and services rendered by contractors which are
subject to the value-added tax imposed in Sections 106 and 108 of
this Code, deduct and withhold the value-added tax due at the rate
of three percent (3%) of the gross payment for the purchase of goods
and six percent (6%) on gross receipts for services rendered by
contractors on every sale or installment payment which shall be

creditable against the value-added tax liability of the seller

or contractor: Provided, however, That in the case of government
public works
33
contractors, the withholding rate shall be eight and one-half percent

(8.5%): Provided, further, That the payment for lease or use of
properties or property rights to nonresident owners shall be subject
to ten percent (10%) withholding tax at the time of payment. For
this purpose, the payor or person in control of the payment shall be
considered as the withholding agent. The valued-added tax
withheld under this Section shall be remitted within ten (10) days
following the end of the month the withholding was made.
(Emphasis supplied) As amended, the use of the word final and the
deletion of the word creditable exhibits CongressÊs intention to treat
transactions with the government differently. Since it has not been
shown that the class subject to the 5% final withholding tax has
been unreasonably narrowed, there is no reason to invalidate the
provision. Petitioners, as petroleum dealers, are not the only ones
subjected to the 5% final withholding tax. It applies to all those who
deal with the government.
Same; Same; Judicial Review; The Court will not engage in a
legal joust where premises are what ifs, arguments, theoretical and
facts, uncertain·any disquisition by the Court on this point will
only be, as Shakespeare describes life in Macbeth, „full of sound and
fury, signifying nothing‰; It need not take an astute businessman to
know that it is a matter of exception that a business will sell goods or
services without profit or value-added.·Petitioners also argue that
by imposing a limitation on the creditable input tax, the
government gets to tax a profit or value-added even if there is no
profit or value-added. PetitionersÊ stance is purely hypothetical,
argumentative, and again, one-sided. The Court will not engage in a
legal joust where premises are what ifs, arguments, theoretical and
facts, uncertain. Any disquisition by the Court on this point will
only be, as Shake-speare describes life in Macbeth, „full of sound

and fury, signifying nothing.‰ WhatÊs more, petitionersÊ contention

assumes the proposition that there is no profit or value-added. It
need not take an astute businessman to know that it is a matter of
exception that a business will sell goods or services without profit or
value-added. It cannot be overstressed that a business is created
precisely for profit.
Same; Same; Equal Protection; The power of the State to make
reasonable and natural classifications for the purposes of taxation
has long been established.·The equal protection clause under the
Constitution means that „no person or class of persons shall be de-
34
prived of the same protection of laws which is enjoyed by other

persons or other classes in the same place and in like
circumstances.‰ The power of the State to make reasonable and
natural classifications for the purposes of taxation has long been
established. Whether it relates to the subject of taxation, the kind of
property, the rates to be levied, or the amounts to be raised, the
methods of assessment, valuation and collection, the StateÊs power
is entitled to presumption of validity. As a rule, the judiciary will
not interfere with such power absent a clear showing of
unreasonableness, discrimination, or arbitrariness.
Same; Same; Same; The equal protection clause does not require
the universal application of the laws on all persons or things without
distinction; While the implementation of the law may yield varying
end results depending on oneÊs profit margin and value-added, the
Court cannot go beyond what the legislature has laid down and
interfere with the affairs of business.·Petitioners point out that the
limitation on the creditable input tax if the entity has a high ratio
of input tax, or invests in capital equipment, or has several
transactions with the government, is not based on real and
substantial differences to meet a valid classification. The argument
is pedantic, if not outright baseless. The law does not make any
classification in the subject of taxation, the kind of property, the
rates to be levied or the amounts to be raised, the methods of

assessment, valuation and collection. PetitionersÊ alleged

distinctions are based on variables that bear different
consequences. While the implementation of the law may yield
varying end results depending on oneÊs profit margin and value-
added, the Court cannot go beyond what the legislature has laid
down and interfere with the affairs of business. The equal
protection clause does not require the universal application of the
laws on all persons or things without distinction. This might in fact
sometimes result in unequal protection. What the clause requires is
equality among equals as determined according to a valid
classification. By classification is meant the grouping of persons or
things similar to each other in certain particulars and different
from all others in these same particulars.
Same; Same; Same; Uniformity of Taxation; The rule of uniform
taxation does not deprive Congress of the power to classify subjects of
taxation, and only demands uniformity within the particular class.
·Uniformity in taxation means that all taxable articles or
35
kinds of property of the same class shall be taxed at the same rate.
Different articles may be taxed at different amounts provided that
the rate is uniform on the same class everywhere with all people at
all times. In this case, the tax law is uniform as it provides a
standard rate of 0% or 10% (or 12%) on all goods and services.
Sections 4, 5 and 6 of R.A. No. 9337, amending Sections 106, 107
and 108, respectively, of the NIRC, provide for a rate of 10% (or
12%) on sale of goods and properties, importation of goods, and sale
of services and use or lease of properties. These same sections also
provide for a 0% rate on certain sales and transaction. Neither does
the law make any distinction as to the type of industry or trade that
will bear the 70% limitation on the creditable input tax, 5-year
amortization of input tax paid on purchase of capital goods or the
5% final withholding tax by the government. It must be stressed
that the rule of uniform taxation does not deprive Congress of the
power to classify subjects of taxation, and only demands uniformity

within the particular class.

Same; Same; Equitable Taxation; R.A. No. 9337 is equitable.·
R.A. No. 9337 is also equitable. The law is equipped with a
threshold margin. The VAT rate of 0% or 10% (or 12%) does not
apply to sales of goods or services with gross annual sales or
receipts not exceeding P1,500,000.00. Also, basic marine and
agricultural food products in their original state are still not subject
to the tax, thus ensuring that prices at the grassroots level will
remain accessible. As was stated in Kapatiran ng mga Naglilingkod
sa Pamahalaan ng Pilipinas, Inc. vs. Tan: The disputed sales tax is
also equitable. It is imposed only on sales of goods or services by
persons engaged in business with an aggregate gross annual sales
exceeding P200,000.00. Small corner sari-sari stores are
consequently exempt from its application. Likewise exempt from
the tax are sales of farm and marine products, so that the costs of
basic food and other necessities, spared as they are from the
incidence of the VAT, are expected to be relatively lower and within
the reach of the general public.
Same; Same; Progressive Taxation; Progressive taxation is built
on the principle of the taxpayerÊs ability to pay·taxation is
progressive when its rate goes up depending on the resources of the
person affected.·Petitioners contend that the limitation on the
creditable input tax is anything but regressive. It is the smaller
business with higher input tax-output tax ratio that will suffer the
consequences. Progressive taxation is built on the principle of the
taxpayerÊs ability
36
to pay. This principle was also lifted from Adam SmithÊs 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 Âevolve a progressive system of taxation.Ê The
constitutional provision has been interpreted to mean simply that
Âdirect taxes are . . . to be preferred [and] as much as possible,
indirect taxes should be minimized.Ê (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-
37

mation of Art. VIII, §17 (1) of the 1973 Constitution from which the
present Art. VI, §28 (1) was taken. Sales taxes are also regressive.
Resort to indirect taxes should be minimized but not avoided
entirely because it is difficult, if not impossible, to avoid them by
imposing such taxes according to the taxpayers' ability to pay. In
the case of the VAT, the law minimizes the regressive effects of this
imposition by providing for zero rating of certain transactions (R.A.
No. 7716, §3, amending §102 (b) of the NIRC), while granting
exemptions to other transactions. (R.A. No. 7716, §4 amending §103
of the NIRC)
Same; Same; Judicial Review; The Court cannot strike down a
law as unconstitutional simply because of its yokes.·It has been
said that taxes are the lifeblood of the government. In this case, it is
just an enema, a first-aid measure to resuscitate an economy in
distress. The Court is neither blind nor is it turning a deaf ear on
the plight of the masses. But it does not have the panacea for the
malady that the law seeks to remedy. As in other cases, the Court
cannot strike down a law as unconstitutional simply because of its
yokes. Let us not be overly influenced by the plea that for every
wrong there is a remedy, and that the judiciary should stand ready
to afford relief. There are undoubtedly many wrongs the judicature
may not correct, for instance, those involving political questions. . . .
Let us likewise disabuse our minds from the notion that the
judiciary is the repository of remedies for all political or social ills;
We should not forget that the Constitution has judiciously allocated
the powers of government to three distinct and separate
compartments; and that judicial interpretation has tended to the
preservation of the independence of the three, and a zealous regard
of the prerogatives of each, knowing full well that one is not the
guardian of the others and that, for official wrong-doing, each may
be brought to account, either by impeachment, trial or by the ballot
box.
DAVIDE, JR., C.J., Separate Concurring and Dissenting

Opinion:
Congress; Origin of Bills; Revenue Bills; Taxation; Value-Added Tax;

It was beyond the ambit of the authority of the Senate to propose
amendments to provisions not covered by the House Bills or not related to
the subject matter of the House Bills, which is VAT.· Obviously, these
provisions do not deal with VAT. It must be noted that the House Bills
initiated amendments to provisions pertaining to VAT only. Doubtless,

the Senate has the constitutional power to
38
concur with the amendments to the VAT provisions introduced in the

House Bills or even to propose its own version of VAT measure. But that
power does not extend to initiation of other tax measures, such as
introducing amendments to provisions on corporate income taxes,
percentage taxes, franchise taxes, and excise taxes like what the Senate
did in these cases. It was beyond the ambit of the authority of the Senate
to propose amendments to provisions not covered by the House Bills or
not related to the subject matter of the House Bills, which is VAT. To
allow the Senate to do so would be tantamount to vesting in it the power
to initiate revenue bills·a power that exclusively pertains to the House
of Representatives under Section 24, Article VI of the Constitution,
which provides: Sec. 24. All appropriation, revenue or tariff bills, bills
authorizing increase of the public debt, bills of local application, and
private bills shall originate exclusively in the House of Representatives
but the Senate may propose or concur with amendments.
PUNO, J., Concurring and Dissenting Opinion:
Judicial Review; Requisites; Ripeness Doctrine; The power of judicial

review under Article VIII, Section 5(2) of the 1987 Constitution is limited
to the review of „actual cases and controversies;‰ The basic rationale of the
doctrine of ripeness is „to prevent the courts, through premature
adjudication, from entangling themselves in abstract disagreements.‰·
The power of judicial review under Article VIII, section 5(2) of the 1987
Constitution is limited to the review of „actual cases and controversies.‰
As rightly stressed by retired Justice Vicente V. Mendoza, this
requirement gives the judiciary „the opportunity, denied to the
legislature, of seeing the actual operation of the statute as it is applied to
actual facts and thus enables it to reach sounder judgment‰ and
„enhances public acceptance of its role in our system of government.‰ It
also assures that the judiciary does not intrude on areas committed to
the other branches of government and is confined to its role as defined by
the Constitution. Apposite thereto is the doctrine of ripeness whose basic

rationale is „to prevent the courts, through premature adjudication, from

entangling themselves in abstract disagreements.‰ Central to the
doctrine is the determination of „whether the case involves uncertain or
contingent future events that may not occur as anticipated, or indeed may
not occur at all.‰ The ripeness requirement must be satisfied for each
challenged legal provision and parts of a statute so that those which
39
are „not immediately involved are not thereby thrown open for a judicial
determination of constitutionality.‰
Same; Same; Same; Taxation; The power to adjust the tax rate given
to the President is futuristic and may or may not be exercised·the Court
is therefore beseeched to render a conjectural judgment based on
hypothetical facts.·It is manifest that the constitutional challenge to
sections 4 to 6 of R.A. No. 9337 cannot hurdle the requirement of
ripeness. These sections give the President the power to raise the VAT rate
to 12% on January 1, 2006 upon satisfaction of certain fact-based
conditions. We are not endowed with the infallible gift of prophesy to
know whether these conditions are certain to happen. The power to
adjust the tax rate given to the President is futuristic and may or may
not be exercised. The Court is therefore beseeched to render a conjectural
judgment based on hypothetical facts. Such a supplication has to be
rejected.
Congress; Bicameral Conference Committee; A Bicameral Conference
Committee has limited powers and cannot be allowed to act as if it were a
„third house‰ of Congress.·With due respect, I submit that the most
important constitutional issue posed by the petitions at bar relates to the
parameters of power of a Bicameral Conference Committee. Most of the
issues in the petitions at bar arose because the Bicameral Conference
Committee concerned exercised powers that went beyond reconciling the
differences between Senate Bill No. 1950 and House Bill Nos. 3705 and
3555. In Tolentino v. Secretary of Finance, I ventured the view that a
Bicameral Conference Committee has limited powers and cannot be
allowed to act as if it were a „third house‰ of Congress. I further warned
that unless its roving powers are reigned in, a Bicameral Conference
Committee can wreck the lawmaking process which is a cornerstone of

the democratic, republican regime established in our Constitution. The

passage of time fortifies my faith that there ought to be no legal u-turn
on this preeminent principle.
Same; Same; It is only by strictly following the contours of powers of
a Bicameral Conference Committee, as delineated by the rules of the
House and the Senate, that we can prevent said Committee from acting as
a „third‰ chamber of Congress.·I respectfully submit that it is only by
strictly following the contours of powers of a Bicameral Conference
Committee, as delineated by the rules of the House and the Senate, that
we can prevent said Committee from acting as a
40
„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 latterÊs appropriate action.‰
In other words, it must take the proper instructions from the chambers
that created it. It cannot exercise its unbridled discretion. Where there is
no difference between the bills, it cannot make any change. Where the
difference is substantial, it has to return to the chamber of its origin and
ask for appropriate instructions. It ought to be indubitable that it cannot
create a new law, i.e., that which has never been discussed in either
chamber of Congress. Its parameters of power are not porous, for they are
hedged by the clear limitation that its only power is to settle differences
in bills and joint resolutions of the two chambers of Congress.
Same; Same; Amendments which did not harmonize conflicting

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

are entirely new and extraneous concepts which fall beyond the median
thereof. They transgress the limits of the Bicameral Conference
CommitteeÊs authority and must be struck down. I cannot therefore
subscribe to the thesis of the majority that „the changes introduced by
the Bicameral Conference Committee on disagreeing provisions were
meant only to reconcile and harmonize the disagreeing provisions for it
did not inject any idea or intent that is wholly foreign to the subject
embraced by the original provisions.‰ Same; Same; Germaneness Rule; It
is high time to re-examine the test of germaneness proffered in Tolentino v.
Secretary of Finance, 235 SCRA 630 (1994)·the test of germaneness is
overly broad and is the fountainhead of mischief for it allows the
Bicameral Conference Committee to change provisions in the bills of the
House and the
41
Senate when they are not even in disagreement; The Constitution did not
establish a Bicameral Conference Committee that can act as a „third
house‰ of Congress with super veto power over bills passed by the Senate
and the House.·The majority further defends the constitutionality of the
above provisions by holding that „all the changes or modifications were
germane to subjects of the provisions referred to it for reconciliation.‰
With due respect, it is high time to re-examine the test of germaneness
proffered in Tolentino. The test of germaneness is overly broad and is the
fountainhead of mischief for it allows the Bicameral Conference
Committee to change provisions in the bills of the House and the Senate
when they are not even in disagreement. Worse still, it enables the
Committee to introduce amendments which are entirely new and have
not previously passed through the coils of scrutiny of the members of
both houses. The Constitution did not establish a Bicameral Conference
Committee that can act as a „third house‰ of Congress with super veto
power over bills passed by the Senate and the House. We cannot concede
that super veto power without wrecking the delicate architecture of
legislative power so carefully laid down in our Constitution. The clear
intent of our fundamental law is to install a lawmaking structure
composed only of two houses whose members would thoroughly debate
proposed legislations in representation of the will of their respective

constituents. The institution of this lawmaking structure is unmistakable

from the following provisions: (1) requiring that legislative power shall
be vested in a bicameral legislature; (2) providing for quorum
requirements; (3) requiring that appropriation, revenue or tariff bills,
bills authorizing increase of public debt, bills of local application, and
private bills originate exclusively in the House of Representatives; (4)
requiring that bills embrace one subject expressed in the title thereof;
and (5) mandating that bills undergo three readings on separate days in
each House prior to passage into law and prohibiting amendments on the
last reading thereof. A Bicameral Conference Committee with
untrammeled powers will destroy this lawmaking structure. At the very
least, it will diminish the free and open debate of proposed legislations
and facilitate the smuggling of what purports to be laws.
Same; Same; Republicanism; It cannot be overemphasized that in a
republican form of government, laws can only be enacted by all the duly
elected representatives of the people·it cuts against conventional wisdom
in democracy to lodge this power in the hands of a few
42
or in the claws of a committee.·It cannot be overemphasized that in a

republican form of government, laws can only be enacted by all the duly
elected representatives of the people. It cuts against conventional wisdom
in democracy to lodge this power in the hands of a few or in the claws of a
committee. It is for these reasons that the argument that we should
overlook the excesses of the Bicameral Conference Committee because its
report is anyway approved by both houses is a futile attempt to square
the circle for an unconstitutional act is void and cannot be redeemed by
any subsequent ratification.
Same; Same; Same; No doomsday scenario will ever justify the

thrashing of the Constitution·the Constitution is meant to be our rule
both in good times as in bad times.·In conclusion, I wish to stress that
this is not the first time nor will it be last that arguments will be foisted
for the Court to merely wink at assaults on the Constitution on the
ground of some national interest, sometimes clear and at other times
inchoate. To be sure, it cannot be gainsaid that the country is in the
vortex of a financial crisis. The broadsheets scream the disconcerting

news that our debt payments for the year 2006 will exceed Pph1 billion
daily for interest alone. Experts underscore some factors that will further
drive up the debt service expenses such as the devaluation of the peso,
credit downgrades and a spike in interest rates. But no doomsday
scenario will ever justify the thrashing of the Constitution. The
Constitution is meant to be our rule both in good times as in bad times. It
is the CourtÊs uncompromising obligation to defend the Constitution at
all times lest it be condemned as an irrelevant relic.
PANGANIBAN, J., Separate Opinion:
Congress; Enrolled Bill Doctrine; The enrolled bill doctrine may be

all-encompassing in some countries like Great Britain, but as applied to
our jurisdiction, it must yield to mandatory provisions of our 1987
Constitution.·I believe, however, that the enrolled bill doctrine is not
absolute. It may be all-encompassing in some countries like Great
Britain, but as applied to our jurisdiction, it must yield to mandatory
provisions of our 1987 Constitution. The Court can take judicial notice of
the form of government in Great Britain. It is unlike that in our country
and, therefore, the doctrine from which it originated could be modified
accordingly by our Constitution. In fine, the enrolled bill doctrine applies
mainly to the internal
43
rules and processes followed by Congress in its principal duty of

lawmaking. However, when the Constitution imposes certain conditions,
restrictions or limitations on the exercise of congressional prerogatives,
the judiciary has both the power and the duty to strike down
congressional actions that are done in plain contravention of such
conditions, restrictions or limitations. Insofar as the present case is
concerned, the three most important restrictions or limitations to the
enrolled bill doctrine are the „origination,‰ „no-amend-ment‰ and „three-
reading‰ rules which I will discuss later.
Same; Bicameral Conference Committee (BCC); The Bicameral
Conference Committee created by Congress to iron out differences between
the Senate and the House of Representatives versions of the E-VAT bills is

one such „branch or instrumentality of the govern-ment,‰ over which this

Court may exercise certiorari review to determine whether or not grave
abuse of discretion has been committed; and, specifically, to find out
whether the constitutional conditions, restrictions and limitations on law-
making have been violated.·The Bicameral Conference Committee
(BCC) created by Congress to iron out differences between the Senate
and the House of Representatives versions of the E-VAT bills is one such
„branch or instrumentality of the government,‰ over which this Court
may exercise certiorari review to determine whether or not grave abuse
of discretion has been committed; and, specifically, to find out whether
the constitutional conditions, restrictions and limitations on law-making
have been violated. In general, the BCC has at least five options in
performing its functions: (1) adopt the House version in part or in toto,
(2) adopt the Senate version in part or in toto, (3) consolidate the two
versions, (4) reject non-conflicting provisions, and (5) adopt completely
new provisions not found in either version. This, therefore, is the simple
question: In the performance of its function of reconciling conflicting
provisions, has the Committee blatantly violated the Constitution?
Same; Presidency; Separation of Powers; Control Power; Doctrine of

Qualified Political Agency; I respectfully disagree with the statements
that, first, the Secretary of Finance is „acting as the agent of the
legislative department‰ or an „agent of Congress‰ in determining and
declaring the event upon which its expressed will is to take effect; and,
second, that the SecretaryÊs personality „is in reality but a projection of
that of Congress‰·the Secretary of Finance is not an
44
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 secretaryÊs
personality „is in reality but a projection of that of Con-gress.‰ The
secretary of finance is not an alter ego of Congress, but of the President.

The mandate given by RA 9337 to the secretary is not equipollent to an

authority to make laws. In passing this law, Congress did not restrict or
curtail the constitutional power of the President to retain control and
supervision over the entire Executive Department. The law should be
construed to be merely asking the President, with a recommendation
from the PresidentÊs alter ego in finance matters, to determine the
factual bases for making the increase in VAT rate operative. Indeed, as I
have mentioned earlier, the fact-finding condition is a mere
administrative, not legislative, function.
Same; Bicameral Conference Committee; I respectfully submit that
the amendments made by the BCC (that were culled from the Senate
version) regarding income taxes are not legally germane to the subject
matter of the House bills.·I respectfully submit that the amendments
made by the BCC (that were culled from the Senate version) regarding
income taxes are not legally germane to the subject matter of the House
bills. Revising the income tax rates on domestic, resident foreign and
nonresident foreign corporations; increasing the tax credit against taxes
due from nonresident foreign corporations on intercorporate dividends;
and reducing the allowable deduction for interest expense are legally
unrelated and not germane to the subject matter contained in the House
bills; they violate the origination principle.
Taxation; Value-Added Tax (VAT); It was Maurice Lauré, a French

engineer, who invented the VAT.·It was Maurice Lauré, a French
engineer, who invented the VAT. In 1954, he had the idea of imposing an
indirect tax on consumption, called taxe sur la valeur ajoutée, which was
quickly adopted by the Direction Générale des Impost, the new French
tax authority of which he became joint director. Consequently, taxpayers
at all levels in the production process,
45
rather than retailers or tax authorities, were forced to administer and

account for the tax themselves.
Same; Same; Due Process; Vested Rights; There is no vested right in a

deferred input tax·it is a mere statutory privilege which the State may
modify or withdraw, being merely an asset granted by operation of law.

·There is no vested right in a deferred input tax account; it is a mere

statutory privilege. The State may modify or withdraw such privilege,
which is merely an asset granted by operation of law. Moreover, there is
no vested right in generally accepted accounting principles. These refer
to accounting concepts, measurement techniques, and standards of
presentation in a companyÊs financial statements, and are not rooted in
laws of nature, as are the laws of physical science, for these are merely
developed and continually modified by local and international regulatory
accounting bodies. To state otherwise and recognize such asset account
as a vested right is to limit the taxing power of the State. Unlimited,
plenary, comprehensive and supreme, this power cannot be unduly
restricted by mere creations of the State.
Same; Same; Same; Same; In the exercise of its inherent power to tax,
the State validly interferes with the right to property of persons, natural
or artificial; The reduction of tax credits is a question of economic policy,
not of legal perlustration.·Petitioners have not been denied due process
or, as I have illustrated earlier, equal protection. In the exercise of its
inherent power to tax, the State validly interferes with the right to
property of persons, natural or artificial. Those similarly situated are
affected in the same way and treated alike, „both as to privileges
conferred and liabilities enforced.‰ RA 9337 was enacted precisely to
achieve the objective of raising revenues to defray the necessary
expenses of government. The means that this law employs are
reasonably related to the accomplishment of such objective, and not
unduly oppressive. The reduction of tax credits is a question of economic
policy, not of legal perlustration. Its determination is vested in Congress,
not in this Court. Since the purpose of the law is to raise revenues, it
cannot be denied that the means employed is reasonably related to the
achievement of that purpose. Moreover, the proper congressional
procedure for its enactment was followed; neither public notice nor public
hearings were denied.
46
Same; Same; Unlike the laws of physical science, the VAT system can
always be modified to suit modern fiscal demands.·It is contended that
the VAT should be proportional in nature. I submit that this
proportionality pertains to the rate imposable, not the credit allowable.

Private enterprises are subjected to a proportional VAT rate, but VAT

credits need not be. The VAT is, after all, a human concept that is neither
immutable nor invariable. In fact, it has changed after it was adopted as
a system of indirect taxation by other countries. Again unlike the laws of
physical science, the VAT system can always be modified to suit modern
fiscal demands. The State, through the Legislative Department, may
even choose to do away with it and revert to our previous system of
turnover taxes, sales taxes and compensating taxes, in which credits may
be disallowed altogether.
YNARES-SANTIAGO, J., Concurring and Dissenting Opinion:
Congress; Bicameral Conference Committee; Judicial Review; If in

the exercise of this rule-making power, Congress failed to set parameters
in the functions of the Bicameral Conference Committee and allowed the
latter unbridled authority to perform acts which Congress itself is
prohibited, like the passage of a law without undergoing the requisite
three-reading and the so-called no-amendment rule, then the same
amount to grave abuse of discretion which this Court is empowered to
correct under its expanded certiorari jurisdiction.· Section 16(3), Article
VI of the 1987 Constitution explicitly allows each House to determine the
rules of its proceedings. However, the rules must not contravene
constitutional provisions. The rule-making power of Congress should
take its bearings from the Constitution. If in the exercise of this rule-
making power, Congress failed to set parameters in the functions of the
committee and allowed the latter unbridled authority to perform acts
which Congress itself is prohibited, like the passage of a law without
undergoing the requisite three-reading and the so-called no-amendment
rule, then the same amount to grave abuse of discretion which this Court
is empowered to correct under its expanded certiorari jurisdiction.
Notwithstanding the doctrine of separation of powers, therefore, it is the
duty of the Court to declare as void a legislative enactment, either from
want of constitutional power to enact or because the constitutional forms
or conditions have not been observed.
47
Same; Same; I fully subscribe to the theory advanced in the

Dissenting Opinion of Chief Justice Hilario G. Davide, Jr. in Tolentino v.

Secretary of Finance that the authority of the bicameral conference
committee was limited to the reconciliation of disagreeing provisions or
the resolution of differences or inconsistencies·the Bicameral Conference
Committee is authorized only to adopt either the version of the House bill
or the Senate bill, or adopt neither.·The Rules of the House of
Representatives and the Rules of the Senate provide that in the event
there is disagreement between the provisions of the House and Senate
bills, the differences shall be settled by a bicameral conference
committee. By this, I fully subscribe to the theory advanced in the
Dissenting Opinion of Chief Justice Hilario G. Davide, Jr. in Tolentino v.
Secretary of Finance that the authority of the bicameral conference
committee was limited to the reconciliation of disagreeing provisions or
the resolution of differences or inconsistencies. Thus, it could only either
(a) restore, wholly or partly, the specific provisions of the House bill
amended by the Senate bill, (b) sustain, wholly or partly, the SenateÊs
amendments, or (c) by way of a compromise, to agree that neither
provisions in the House bill amended by the Senate nor the latterÊs
amendments thereto be carried into the final form of the former.
Otherwise stated, the Bicameral Conference Committee is authorized
only to adopt either the version of the House bill or the Senate bill, or
adopt neither. It cannot, as the ponencia proposed, „try to arrive at a
compromise,‰ such as introducing provisions not included in either the
House or Senate bill, as it would allow a mere ad hoc committee to
substitute the will of the entire Congress and without undergoing the
requisite three-reading, which are both constitutionally proscribed. To
allow the committee unbridled discretion to overturn the collective will of
the whole Congress defies logic considering that the bills are passed
presumably after study, deliberation and debate in both houses. A lesser
body like the Bicameral Conference Committee should not be allowed to
substitute its judgment for that of the entire Congress, whose will is
expressed collectively through the passed bills.
Same; Same; No-Amendment Rule; The ponenciaÊs submission that
despite its limited authority, the Bicameral Conference Committee could
„compromise the disagreeing provisions‰ by substituting it with its own
version clearly violates the three-reading requirement, as the committeeÊs
version would no longer undergo the same since it would be immediately
put into vote by the respective houses.·Before
48

a bill becomes a law, it must pass three readings. Hence, the ponenciaÊs
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 committeeÊs version would no longer undergo the
same since it would be immediately put into vote by the respective
houses. In effect, it is not a bill that was passed by the entire Congress
but by the members of the ad hoc committee only, which of course is
constitutionally infirm. I disagree that the no-amendment rule referred
only to „the procedure to be followed by each house of Congress with
regard to bills initiated in each of said respective houses‰ because it
would relegate the no-amendment rule to a mere rule of procedure. To
my mind, the no-amendment rule should be construed as prohibiting the
Bicameral Conference Committee from introducing amendments and
modifications to non-disagreeing provisions of the House and Senate
bills. In sum, the committee could only either adopt the version of the
House bill or the Senate bill, or adopt neither. As Justice Reynato S.
Puno said in his Dissenting Opinion in Tolentino v. Secretary of Finance,
there is absolutely no legal warrant for the bold submission that a
Bicameral Conference Committee possesses the power to add/delete
provisions in bills already approved on third reading by both Houses or
an ex post veto power.
SANDOVAL-GUTIERREZ, J., Concurring and Dissenting

Opinion:
Congress; Taxation; Separation of Powers; Delegation of Powers;

Taxation is a power that is purely legislative and which the central
legislative body cannot delegate either to the executive or judicial
department of government without infringing upon the theory of
separation of powers.·Taxation is an inherent attribute of sovereignty. It
is a power that is purely legislative and which the central legislative
body cannot delegate either to the executive or judicial department of
government without infringing upon the theory of separation of powers.
The rationale of this doctrine may be traced from the democratic
principle of „no taxation without representation.‰ The power of taxation
being so pervasive, it is in the best interest of the people that such power
be lodged only in the Legislature. Composed of the peopleÊs

representatives, it is „closer to the pulse of the people and . . . are

therefore in a better position to determine both the extent of the legal
burden the people are capable of
49
bearing and the benefits they need.‰ Also, this set-up provides security
against the abuse of power. As Chief Justice Marshall said: „In imposing
a tax, the legislature acts upon its constituents. The power may be
abused; but the interest, wisdom, and justice of the representative body,
and its relations with its constituents, furnish a sufficient security.‰
Consequently, Section 24, Article VI of our Constitution enshrined the
principle of „no taxation without representation‰ by providing that „all . . .
revenue bills . . . shall originate exclusively in the House of
Representatives, but the Senate may propose or concur with
amendments.‰ This provision generally confines the power of taxation to
the Legislature.
Same; Same; Same; Same; Value-Added Tax; R.A. No. 9337, in

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

seen fit to confide this sovereign trust.‰

Same; Same; Same; Same; Same; Tariff Powers; If the intention of
the Framers of the Constitution is to permit the delegation of the power to
fix tax rates or VAT rates to the President, such could have been easily
achieved by the mere inclusion of the term „tax rates‰ or „VAT rates‰ in the
enumeration.·Noteworthy is the absence of tax rates or VAT rates in the
enumeration. If the intention of the Fram-
50
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 PresidentÊs exercise of an authority is practically within her
control is tantamount to giving no conditions at all.·At first glance, the
two conditions may appear to be definite standards sufficient to guide the
President. However, to my mind, they are ineffectual and malleable as
they give the President ample opportunity to exercise her authority in
arbitrary and discretionary fashion. The two conditions set forth by law
would have been sufficient had it not been for the fact that the President,
being at the helm of the entire officialdom, has more than enough power
of control to bring about the existence of such conditions. Obviously, R.A.
No. 9337 allows the President to determine for herself whether the VAT
rate shall be increased or not at all. The fulfillment of the conditions is
entirely placed in her hands. If she wishes to increase the VAT rate, all

she has to do is to strictly enforce the VAT collection so as to exceed the 2

4/5% ceiling. The same holds true with the national government deficit.
She will just limit government expenses so as not to exceed the 1 1/2%
ceiling. On the other hand, if she does not wish to increase the VAT rate,
she may discourage the Secretary of Finance from making the
recommendation. That the PresidentÊs 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.
51
Same; Taxation; One of the principles of sound taxation is fiscal

adequacy·neither an excess nor a deficiency of revenue vis-à-vis the
needs of government would be in keeping with the principle; Our Senators
must have forgotten that for every increase of taxes, the burden always
redounds to the people; Taxation is not a power to be exercised at oneÊs
whim.·Why authorize the President to increase the VAT rate on the
premise alone that she deserves an „incentive‰ or „reward‰? Indeed, why
should she be rewarded for performing a duty reposed upon her by law?
The rationale stated by Senator Recto is flawed. One of the principles of
sound taxation is fiscal adequacy. The proceeds of tax revenue should
coincide with, and approximate the needs of, government expenditures.
Neither an excess nor a deficiency of revenue vis-à–-vis the needs of
government would be in keeping with the principle. Equating the grant of
authority to the President to increase the VAT rate with the grant of
additional allowance to a studious son is highly inappropriate. Our
Senators must have forgotten that for every increase of taxes, the burden
always redounds to the people. Unlike the additional allowance given to
a studious son that comes from the pocket of the granting parent alone,
the increase in the VAT rate would be shouldered by the masses. Indeed,
mandating them to pay the increased rate as an award to the President
is arbitrary and unduly oppressive. Taxation is not a power to be
exercised at oneÊs whim.
Same; Origination Rule; Words and Phrases; It can be reasonably
concluded that when Section 24, Article VI provides that revenue bills
shall originate exclusively from the House of Representatives, what the

Constitution mandates is that any revenue statute must begin or start

solely and only in the House.·The adverb „exclusively‰ means „in an
exclusive manner.‰ The term „exclusive‰ is defined as „excluding or
having power to exclude; limiting to or limited to; single, sole, undivided,
whole.‰ In one case, this Court define the term „exclusive‰ as „possessed
to the exclusion of others; appertaining to the subject alone, not
including, admitting, or pertaining to another or others.‰ As for the term
„originate,‰ its meaning are „to cause the beginning of; to give rise to; to
initiate; to start on a course or journey; to take or have origin; to be
deprived; arise; begin or start.‰ With the foregoing definitions in mind, it
can be reasonably concluded that when Section 24, Article VI provides
that revenue bills shall originate exclusively from the House of
Representatives, what the Constitution mandates is that any revenue
statute must
52
begin or start solely and only in the House. Not the Senate. Not both
Chambers of Congress. But there is more to it than that. It also means
that „an act for taxation must pass the House first.‰ It is no consequence
what amendments the Senate adds. A perusal of the legislative history of
R.A. No. 9337 shows that it did not „exclusively originate‰ from the House
of Representatives.
Same; Same; The Senate in passing Senate Bill No. 1950, a tax
measure, merely took into account House Bills No. 3555 and 3705, but did
not concur with or amend either or both bills.·Senate Bill No. 1950 is
not based on any bill passed by the House of Representatives. It has a
legislative identity and existence separate and apart from House Bills
No. 3555 and 3705. Instead of concurring or proposing amendments,
Senate Bill No. 1950 merely „takes into consideration‰ the two House
Bills. To take into consideration means „to take into account.‰
Consideration, in this sense, means „deliberation, attention, observation
or contemplation. Simply put, the Senate in passing Senate Bill No.
1950, a tax measure, merely took into account House Bills No. 3555 and
3705, but did not concur with or amend either or both bills. As a matter
of fact, it did not even take these two House Bills as a frame of reference.
In Tolentino, the majority subscribed to the view that Senate may amend

the House revenue bill by substitution or by presenting its own version of

the bill. In either case, the result is „two bills on the same subject.‰ This
is the source of the „germaneness‰ rule which states that the Senate bill
must be germane to the bill originally passed by the House of
Representatives. In Tolentino, this was not really an issue as both the
House and Senate Bills in question had one subject·the VAT.
Same; Same; Germaneness Rule; The Senate could not, without
violating the germaneness rule and the principle of „exclusive
origination,‰ propose tax matters not included in the House Bills.·The
facts obtaining here is very much different from Tolentino. It is very
apparent that House Bills No. 3555 and 3705 merely intended to amend
Sections 106, 107, 108, 109, 110, 111 and 114 of the NIRC of 1997,
pertaining to the VAT provisions. On the other hand, Senate Bill No.
1950 intended to amend Sections 27, 28, 34, 106, 108, 109, 110, 112, 113,
114, 116, 117, 119, 121, 125, 148, 151, 236, 237 and 288 of the NIRC,
pertaining to matters outside of VAT, such as income tax, percentage tax,
franchise tax, taxes on banks and other financial intermediaries, excise
taxes, etc. Thus, I am of the position
53
that the Senate could not, without violating the germaneness rule and
the principle of „exclusive origination,‰ propose tax matters not included
in the House Bills.
CALLEJO, SR., J., Concurring and Dissenting Opinion:
Congress; Bicameral Conference Committee; Foreign Jurisprudence;

There are significant textual differences between the US Federal
ConstitutionÊs and our ConstitutionÊs prescribed congressional procedure
for enacting laws·the degree of freedom accorded by the US Federal
Constitution to the US Congress markedly differ from that accorded by
our Constitution to the Philippine Congress.·To my mind, this
unqualified adherence by the majority opinion in Tolentino, and now by
the ponencia, to the practice of the US Congress and its conference
committee system ought to be re-examined. There are significant textual
differences between the US Federal ConstitutionÊs and our ConstitutionÊs

prescribed congressional procedure for enacting laws. Accordingly, the

degree of freedom accorded by the US Federal Constitution to the US
Congress markedly differ from that accorded by our Constitution to the
Philippine Congress.
Same; Three-Reading Rule; No-Amendment Rule; The „three-
reading‰ and „no-amendment‰ rules, absent in the US Federal
Constitution, but expressly mandated by Article VI, Section 26(2) of our
Constitution are mechanisms instituted to remedy the „evils‰ inherent in a
bicameral system of legislature, including the conference committee
system.·The „three-reading‰ and „no-amendment‰ rules, absent in the
US Federal Constitution, but expressly mandated by Article VI, Section
26(2) of our Constitution are mechanisms instituted to remedy the „evils‰
inherent in a bicameral system of legislature, including the conference
committee system. Sadly, the ponenciaÊs refusal to apply Article VI,
Section 26(2) of the Constitution on the Bicameral Conference Committee
and the amendments it introduced to R.A. No. 9337 has „effectively
dismantled‰ the „three-reading rule‰ and „no-amendment rule.‰
Same; Same; Same; The proscription on amendments upon the last

reading is intended to subject all bills and their amendments to intensive
deliberation by the legislators and the ample ventilation of issues to afford
the public an opportunity to express their opinions or objections thereon;
Analogously, it is said that the „three-reading rule‰ operates „as a self-
binding mechanism that allows the legisla-
54
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.‰
AZCUNA, J., Concurring and Dissenting Opinion:
Congress; Separation of Powers; Delegation of Powers; There is here

no abdication by Congress of its power to fix the rate of the tax since the
rate increase provided under the law, from 10% to 12%, is definite and
certain to occur, effective 1 January 2006.·The Gross Domestic Product
for 2005 is estimated at P5.3 Trillion pesos. The tax effort of the present
VAT is now at 1.5%. The national budgetary deficit against the GDP is
now at 3%. So to reduce the deficit to 1.5% from 3%, one has to increase
the tax effort from VAT, now at 1.5%, to at least 3%, thereby exceeding
the 2 4/5 percent ceiling in condition (i), making condition (i) happen. If,
on the other hand, this is not done, then condition (ii) happens·the
budget deficit remains over 1.5%. What is the result of this? The result is
that in reality, the law does not impose any condition, or the rate increase
thereunder, from 10% to 12%, effective January 1, 2006, is unconditional.
For a condition is an event that may or may not happen, or one whose
occurrence is uncertain. Now while condition (i) is indeed uncertain and
condition (ii) is likewise uncertain, the combination of both makes the
occurrence of one of them certain. Accordingly, there is here no abdication
by Congress of its power to fix the rate of the tax since the rate increase
provided under the law, from 10% to 12%, is definite
55
and certain to occur, effective January 1, 2006. All that the President will
do is state which of the two conditions occurred and thereupon
implement the rate increase.
Same; Germaneness Rule; I would rather give the necessary leeway to
Congress, as long as the changes are germane to the bill being changed,
the bill which originated from the House of Representatives, and these are

so, since these were precisely the mitigating measures that go hand-on-
hand with E-VAT, and are, therefore, essential·and hopefully sufficient·
means to enable our people to bear the sacrifices they are being asked to
make; The provisions on corporate income taxes, which are not germane to
the E-VAT law, are not found in the Senate and House bills.·The
introduction of the mitigating or cushioning measures through the
Senate or through the Bicameral Conference Committee, is also being
questioned by petitioners as unconstitutional for violating the rule
against amendments after third reading and the rule that tax measures
must originate exclusively in the House of Representatives (Art. VI, Secs.
24 and 26 [2], Constitution). For my part, I would rather give the
necessary leeway to Congress, as long as the changes are germane to the
bill being changed, the bill which originated from the House of
Representatives, and these are so, since these were precisely the
mitigating measures that go hand-on-hand with the E-VAT, and are,
therefore, essential·and hopefully sufficient·means to enable our
people to bear the sacrifices they are being asked to make. Such an
approach is in accordance with the Enrolled Bill Doctrine that is the
prevailing rule in this jurisdiction. (Tolentino v. Secretary of Finance, 249
SCRA 628 [1994]). The exceptions I find are the provisions on corporate
income taxes, which are not germane to the E-VAT law, and are not found
in the Senate and House bills.
TINGA, J., Dissenting and Concurring Opinion:
Taxation; Value-Added Tax; Judicial Review; Due Process; Taxes may

be inherently punitive, but when the fine line between damage and
destruction is crossed, the courts must step forth and cut the hangmanÊs
noose.·The E-VAT Law, as it stands, will exterminate our countryÊs 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
56

amortization period on the input tax on goods purchased or imported in a

calendar month if the acquisition cost of such goods exceeds One Million
Pesos (P1,000,000.00). Taxes may be inherently punitive, but when the
fine line between damage and destruction is crossed, the courts must step
forth and cut the hangmanÊs noose. Justice Holmes once confidently
asserted that „the power to tax is not the power to destroy while this
Court sits,‰ and we should very well live up to this expectation not only
of the revered Holmes, but of the Filipino people who rely on this Court
as the guardian of their rights. At stake is the right to exist and subsist
despite taxes, which is encompassed in the due process clause.
Same; Same; Origination Rule; Article VI, Section 24 of the
Constitution, also known as the origination clause, derives origin from
British practice·from the assertion that the power to tax the public at
large must reside in the representatives of the people, the principle evolved
that money bills must originate in the House of Commons and may not be
amended by the House of Lords; In our country though, both members of
the House and Senate are directly elected by the people, hence the vitality
of the original conception of the rule has somewhat lost luster.·Section 24
is also known as the origination clause, which derives origin from British
practice. From the assertion that the power to tax the public at large
must reside in the representatives of the people, the principle evolved
that money bills must originate in the House of Commons and may not
be amended by the House of Lords. The principle was adopted across the
shores in the United States, and was famously described by James
Madison in The Federalist Papers as follows: This power over the purse,
may in fact be regarded as the most complete and effectual weapon with
which any constitution can arm the immediate representatives of the
people, for obtaining a redress of every grievance, and for carrying into
effect every just and salutary measure. There is an eminent difference
from the British system from which the principle emerged, and from our
own polity. To this day, only members of the British House of Commons
are directly elected by the people, with the members of the House of
Lords deriving their seats from hereditary peerage. Even in the United
States, members of the Senate were not directly elected by the people,
but chosen by 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,
57

through their directly elected representatives. In our country though,

both members of the House and Senate are directly elected by the people,
hence the vitality of the original conception of the rule has somewhat lost
luster.
Same; Same; Bicameral Conference Committee; Germaneness Rule; I

agree that any amendment made by the Bicameral Conference Committee
that is not germane to the subject matter of the House or Senate Bills is
not valid.·Tolentino adduced the principle, adopted from American
practice, that the version as approved by the Bicameral Conference
Committee need only be germane to the subject of the House and Senate
bills in order to be valid. The majority, in applying the test of
germaneness, upholds the contested provisions of the E-VAT Law. Even
the members of the Court who prepared to strike down provisions of the
law applying germaneness nonetheless accept the basic premise that
such test is controlling. I agree that any amendment made by the
Bicameral Conference Committee that is not germane to the subject
matter of the House or Senate Bills is not valid. It is the only valid
ground by which an amendment introduced by the Bicameral Conference
Committee may be judicially stricken.
Same; Same; Same; Same; I deem it unduly restrictive on the plenary

powers of Congress to legislate, to coerce the body to adhere to judge-made
standards, such as a standard of „legal germaneness.‰· The
germaneness standard which should guide Congress or the Bicameral
Conference Committee should be appreciated in its normal but total
sense. In that regard, my views contrast with that of Justice Panganiban,
who asserts that provisions that are not „legally germane‰ should be
stricken down. The legal notion of germaneness is just but one component,
along with other factors such as economics and politics, which guides the
Bicameral Conference Committee, or the legislature for that matter, in the
enactment of laws. After all, factors such as economics or politics are
expected to cast a pervasive influence on the legislative process in the
first place, and it is essential as well to allow such „non-legal‰ elements
to be considered in ascertaining whether Congress has complied with the
criteria of germaneness. Congress is a political body, and its rationale for
legislating may be guided by factors other than established legal
standards. I deem it unduly restrictive on the plenary powers of Congress
to legislate, to coerce the body to adhere to judge-made standards,

58
such as a standard of „legal germaneness.‰ The Constitution is the only

legal standard that Congress is required to abide by in its enactment of
laws.
Same; Same; Same; Same; It would be myopic to consider that the

subject matter of the House Bill is solely the VAT system, rather than the
generation of revenue·the mere fact that the law is popularly known as
the E-VAT Law, or that most of its provisions pertain to the VAT, or
indirect taxes, does not mean that any and all amendments which are
introduced by the Bicameral Conference Committee must pertain to the
VAT system.·I cannot agree with the position maintained by the Chief
Justice, Justices Panganiban and Azcuna that the provisions of the law
that do not pertain to VAT should be stricken as unconstitutional. These
would include, for example, the provisions raising corporate income
taxes. The Bicameral Conference Committee, in evaluating the proposed
amendments, necessarily takes into account not just the provisions
relating to the VAT, but the entire revenue generating mechanism in
place. If, for example, amendments to non-VAT related provisions of the
NIRC were intended to offset the expanded coverage for the VAT, then
such amendments are germane to the purpose of the House and Senate
Bills. Moreover, it would be myopic to consider that the subject matter of
the House Bill is solely the VAT system, rather than the generation of
revenue. The majority has sufficiently demonstrated that the legislative
intent behind the bills that led to the E-VAT Law was the generation of
revenue to counter the countryÊs dire fiscal situation. The mere fact that
the law is popularly known as the E-VAT Law, or that most of its
provisions pertain to the VAT, or indirect taxes, does not mean that any
and all amendments which are introduced by the Bicameral Conference
Committee must pertain to the VAT system.
Same; Same; Same; Same; Municipal Corporations; Local

Government Units; Section 21 of the law, which was not contained in
either the House or Senate Bills, imposes restrictions on the use by local
government units of their incremental revenue from the VAT·these
restrictions are alien to the principal purposes of revenue generation, or
the purposes of restructuring the VAT system.·I do believe that the test

of germaneness was violated by the E-VAT Law in one regard. Section 21

of the law, which was not contained in either the House or Senate Bills,
imposes restrictions on the use by local
59
government units of their incremental revenue from the VAT. These

restrictions are alien to the principal purposes of revenue generation, or
the purposes of restructuring the VAT system. I could not see how the
provision, which relates to budgetary allocations, is germane to the E-
VAT Law. Since it was introduced only in the Bicam-eral Conference
Committee, the test of germaneness is essential, and the provision does
not pass muster. I join Justice Puno and the Chief Justice in voting to
declare Section 21 as unconstitutional.
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.
Same; Same; Same; An outright declaration that the deletion of the
two elementally different „no-pass on‰ provisions is unconstitutional, is of
dubious efficacy in this case.·An outright declaration that the deletion
of the two elementally different „no-pass on‰ provi-
60
sions is unconstitutional, is of dubious efficacy in this case. Had such

pronouncement gained endorsement of a majority of the Court, it could
not result in the ipso facto restoration of the provision, the omission of
which was ultimately approved in both the House and Senate. Moreover,
since the House version of the „no pass on‰ is quite different from that of
the Senate, there would be a question as to whether the House version,
the Senate version, or both versions would be reinstated. And of course, if
it were the Court which would be called upon to choose, such would be
way beyond the bounds of judicial power. Indeed, to intimate that the
Court may require Congress to reinstate a provision that failed to meet
legislative approval would result in a blatant violation of the principle of
separation of powers, with the Court effectively dictating to Congress the
content of its legislation. The Court cannot simply decree to Congress
what laws or provisions to enact, but is limited to reviewing those
enactments which are actually ratified by the legislature.
Same; Same; Due Process; It is difficult though to put into

quantifiable terms how onerous a taxation statute must be before it
contravenes the due process clause.·Sison pronounces more concretely
how a tax statute may contravene the due process clause. Arbitrariness,
confiscation, overstepping the stateÊs jurisdiction, and lack of a public
purpose are all grounds for nullity encompassed under the due process
invocation. Yet even these more particular standards as enunciated in
Sison are quite exacting, and difficult to reach. Even the constitutional
challenge posed in Sison failed to pass muster. The majority cites Sison
in asserting that due process and equal protection are broad standards
which need proof of such persuasive character to lead to such a
conclusion. It is difficult though to put into quantifiable terms how
onerous a taxation statute must be before it contravenes the due process

clause. After all, the inherent nature of taxation is to 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.
61
Same; Same; Same; In testing the validity of a tax statute as against

the due process clause, the Court should go beyond a facial examination of
the statute, and seek to understand how exactly it would operate.·Could
an arbitrary, confiscatory or unreasonable tax actually be enacted by a
democratic state such as ours? Of course it could, but these would exist
in more palatable guises. In a democratic society wherein statutes are
enacted by a representative legislature only after debate and
deliberation, tax statutes will most likely, on their face, seem fair and
even-handed. After all, if Congress passes a tax law that on facial
examination is obviously harsh and unfair, it faces the wrath of the
voting public, to say nothing of the media. In testing the validity of a tax
statute as against the due process clause, I think that the Court should
go beyond a facial examination of the statute, and seek to understand
how exactly it would operate. The express terms of a statute, especially
tax laws, are usually inadequate in spelling out the practical effects of its
implementation. The devil is usually in the details.
Same; Same; Same; We should not cede ground to those
transgressions of the peopleÊs fundamental rights simply because the
mechanism employed to violate constitutional guarantees is steeped in
disciplines not normally associated with the legal profession.·The degree
of difficulty involved of judicial review of tax laws has increased with the
growing complexities of business, economic and accounting practices.
These are sciences which laymen are not normally equipped by their
general education to fully grasp, hence the possible insecurity on their
part when confronted with such questions on these fields. However, we
should not cede ground to those transgressions of the peopleÊs
fundamental rights simply because the mechanism employed to violate

constitutional guarantees is steeped in disciplines not normally

associated with the legal profession. Venality cannot be allowed to
triumph simply due to its sophistication. This petition imputes in the E-
VAT Law unconstitutional oppression of the fatal variety, but in order to
comprehend exactly how and why that is so, one has to delve into the
complex milieu of the VAT system. The party alleging the lawÊs
unconstitutionality of course has the burden to demonstrate the
violations in understandable terms, but if such proof is presented, the
CourtÊs duty is to engage accordingly.
62
Same; Same; Same; Judicial Review; I do not see as an impediment

to the annulment of a tax law the fact that it has yet to be implemented, or
the fear that doing so constitutes an undue attack on the wisdom, rather
than the legality of a statute.·I do not see as an impediment to the
annulment of a tax law the fact that it has yet to be implemented, or the
fear that doing so constitutes an undue attack on the wisdom, rather
than the legality of a statute. However, my position in this petition has
been challenged on those grounds, and I see it fit to refute these
preemptive allegations before delving into the operative aspect of the E-
VAT Law. If there is cause to characterize my arguments as speculative, it
is only because the E-VAT Law has yet to be implemented. No person as of
yet can claim to have sustained actual injury by reason of the
implementation of the assailed provisions in G.R. No. 168461. Yet this
should not mean that the Court is impotent from declaring a provision of
law as violative of the due process clause if it is clear that its
implementation will cause the illegal deprivation of life, liberty or
property without due process of law. This is especially so if, as in this
case, the injury is of mathematical certainty, and the extent of the loss
quantifiable through easy reference to the most basic of business
practices. These arguments are conjectural for the same reason that the
bare statement „firing a gunshot into the head will cause a fatal wound‰
would be conjectural. Some people are lucky enough to survive gunshot
wounds to the head, while many others are not. Yet just because the fear
of mortality would be merely speculative, it does not mean that there
should be less compulsion to avoid a situation of getting shot in the head.
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
63
of religion, as noted by Justice Puno in his ponencia in Estrada v.

Escritor.
Same; Same; Same; Same; Not every unwise law is unconstitutional,

but every unconstitutional law is unwise, for an unconstitutional law
contravenes a primordial principle or guarantee on which our polity is
founded.·In the same vein, the claim that my arguments strike at the
wisdom, rather than the constitutionality of the law are misplaced.
Concededly, the assailed provisions of the E-VAT law are basically
unwise. But any provision of law that directly contradicts the
Constitution, especially the Bill of Rights, are similarly unwise, as they
run inconsistent with the fundamental law of the land, the enunciated
state policies and the elemental guarantees assured by the State to its
people. Not every unwise law is unconstitutional, but every
unconstitutional law is unwise, for an unconstitutional law contravenes a
primordial principle or guarantee on which our polity is founded.
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.
Same; Same; VAT is distinguishable from the standard excise or
percentage taxes in that it is imposable not only on the final transaction
involving the end user, but on previous stages as well so long as there was
a sale involved.·VAT is distinguishable from the standard excise or
percentage taxes in that it is imposable not only on
64
the final transaction involving the end user, but on previous stages as
well so long as there was a sale involved. Thus, VAT does not simply
pertain to the extra percentage paid by the buyer of a fast-food meal, but
also that paid by restaurant itself to its suppliers of raw food products.
This multi-stage system is more acclimated to the vagaries of the modern
industrial climate, which has long surpassed the stage when there was
only one level of transfer between the farmer who harvests the crop and
the person who eats the crop. Indeed, from the extraction or production of
the raw material to its final consumption by a user, several transactions
or sales materialize. The VAT system assures that the government shall
reap income for every transaction that is had, and not just on the final
sale or transfer.
Same; Same; There is another key characteristic of the VAT·that no

matter how many the taxable transactions that precede the final purchase
or sale, it is the end-user, or the consumer, that ultimately shoulders the
tax·despite its name, VAT is generally not intended to be a tax on value
added, but rather as a tax on consumption.·There is another key
characteristic of the VAT·that no matter how many the taxable
transactions that precede the final purchase or sale, it is the end-user, or

the consumer, that ultimately shoulders the tax. Despite its name, VAT is
generally not intended to be a tax on value added, but rather as a tax on
consumption. Hence, there is a mechanism in the VAT system that
enables firms to offset the tax they have paid on their own purchases of
goods and services against the tax they charge on their sales of goods and
services. Section 105 of the NIRC assures that „the amount of tax may be
shifted or passed on to the buyer, transferee or lessee of the goods,
properties or services.‰ The assailed provisions of the E-VAT law strike at
the heart of this accepted principle.
Same; Same; In theory, VAT is not supposed to affect the profit
margin·if such margin is affected, it is only because of the prepayment of
the input taxes, and this should be remedied by the immediate recovery
through the crediting system of the settled input taxes; The new E-VAT
law changes all that, and puts in jeopardy the survival of small to
medium enterprises.·Profit is a chancy matter, and in cases of small to
medium enterprises, usually small if any. It is quite common for retail
and distribution enterprises to incur profits of less than 1% of their gross
revenues. Low profitability is not an
65
automatic badge of poor business skills, but a reality dictated by the laws
of the marketplace. The probability of profit is lower than that of capital
expenditures, and ultimately, many business establishments end up with
a higher input tax than output tax in a given quarter. This would be
especially true for small to medium enterprises who do not reap
sufficient profits from its business in the first place, and for those firms
that opt to also invest in capital expenses in addition to the overhead.
Whatever miniscule profit margins that can be obtained usually spell the
difference between life and death of the business. The possibility of profit
is further diminished by the fact that businesses have to shoulder the
input VAT in the purchase of their capital expenses. Yet the erstwhile VAT
system was not tainted by the label of oppressiveness and neither did it
bear the confiscatory mode. This was because of the immediate relief
afforded from the input taxes paid by the crediting system. In theory, VAT
is not supposed to affect the profit margin. If such margin is affected, it is
only because of the prepayment of the input taxes, and this should be

remedied by the immediate recovery through the crediting system of the

settled input taxes. The new E-VAT law changes all that, and puts in
jeopardy the survival of small to medium enterprises.
Same; Same; The majority fails to consider one of the most important
concepts in finance, time value for money·the longer the amount remains
unutilized, the higher the degree of its depreciation in value, in
accordance with the concept of time value of money.·The majority fails to
consider one of the most important concepts in finance, time value for
money. Simply put, the value of one peso is worth more today than in
2006. Money that you hold today is worth more because you can invest it
and earn interest. By reason of the 70% cap, the amount of input VAT
credit that remains unutilized would continue accumulate for months
and years. The longer the amount remains unutilized, the higher the
degree of its depreciation in value, in accordance with the concept of time
value of money. Even assuming that the business eventually recovers the
input VAT credit, the sum recovered would have decreased in practical
value.
Same; Same; The raison dÊetre 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
66
compete with other businesses. It would be utter malevolence to condemn

an enterprise to death solely through the employment of a deceptive
accounting wizardry. For the raison dÊetre of this 70% cap is to make it
appear on paper that the government is more solvent than it actually is.
Conceding for the nonce, there is a temporary advantage gained by the
government by this 70% cap, as the steady remittance by businesses of
the 30% output VAT would assure a cash flow. Such collection may only
momentarily resolve an endemic problem in our local tax system, the
problem of collection itself. If the 70% cap was designed in order to
enhance revenue collection, then I submit that the means employed
stand beyond reason. If sheer will proves insufficient in assuring that the
State all taxes due it, there should be allowable discretion for the

government to formulate creative means to enhance collection. But to do

so by depriving low profit enterprises of whatever meager income earned
and consequently assuring the death of these industries goes beyond any
valid State purpose.
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.
Same; Same; Due Process; The standard of „deprivation of life‰ of

juridical persons employs different variables than that of natural persons.
·In analyzing the effects of the 70% cap, and appreciating how it
violates the due process clause, we should not focus solely on the end
consumers. Undoubtedly, consumers will face hardships due to the
increased prices, but their threshold of physical survival, as individual
people, is significantly less than that of enterprises. Somehow, I do not
think the new E-VAT would generally deprive
67
consumers of the bare necessities such as food, water, shelter and

clothing. There may be significant deprivation of comfort as a result, but
not of life. The same does not hold true for businesses. The standard of
„deprivation of life‰ of juridical persons employs different variables than
that of natural persons. What food and water may be for persons, profit
is for an enterprise·the bare necessity for survival. For businesses, the
implementation of the same law, with the 70% cap and 60-month
amortization period, would mean the deprivation of profit, which is the
determinative necessity for the survival of a business.

Same; Same; Same; Catch-22; This is your basic Catch-22 situation·

no matter which means the enterprise employs to recover from the E-VAT
Law, it will still go down in flames.·Reduction of expenditures is not the
exclusive antidote to these impositions under the E-VAT Law, as there
must also be a corresponding increase in the amount of gross sales. To do
so though, would require an increase in the selling price, dampening
consumer enthusiasm, and further impairing the ability of the enterprise
to recover from the E-VAT Law. This is your basic Catch-22 situation·no
matter which means the enterprise employs to recover from the E-VAT
Law, it will still go down in flames.
Same; Same; In essentially prohibiting the recovery of small profit
margins, the E-VAT law effectively sends the message that only high
margin businesses are welcome to do business in the Philip-pines·it
stifles any entrepreneurial ambitions of Filipinos unfortunate enough to
have been born poor yet seek a better life by sacrificing all to start a small
business.·Section 8 of the E-VAT law, while ostensibly even-handed in
application, fails to appreciate valid substantial distinctions between
large scale enterprises and small and medium enterprises. The latter
group, owing to the limited capability for capital investment, subsists on
modest profit margins, whereas the former expects, by reason of its
substantial capital investments, a high margin. In essentially prohibiting
the recovery of small profit margins, the E-VAT law effectively sends the
message that only high margin businesses are welcome to do business in
the Philippines. It stifles any entrepreneurial ambitions of Filipinos
unfortunate enough to have been born poor yet seek a better life by
sacrificing all to start a small business.
68
Same; Same; Sadly, the majority refuses to confront the figures or

engage in a meaningful demonstration of how these assailed provisions
truly operate·instead, it counters with platitudes and bromides that do
not intellectually satisfy.·The burden of proof was on the Pilipinas Shell
DealersÊ to prove their allegations, and accordingly, these figures have
been duly presented to the Court for appreciation and evaluation.
Instead, the majority has shunted aside these presentations as being
merely theoretical, despite the fact that they present a clear and present
danger to the very life of our nationÊs enterprises. The majorityÊs position

would have been more credible had it faced the issue squarely, and
endeavored to demonstrate in like numerical fashion why the 70% cap is
not oppressive, confiscatory, or otherwise violative of the due process
clause. Sadly, the majority refuses to confront the figures or engage in a
meaningful demonstration of how these assailed provisions truly operate.
Instead, it counters with platitudes and bromides that do not
intellectually satisfy. Considering that the very vitality, if not life of our
domestic economy is at stake, I think it derelict to our duty to block out
these urgent concerns presented to the Court with blind faith tinged with
irrational Panglossian optimism.
Same; Same; The 70% cap is not merely an unwise imposition·it is a
burden designed, either through sheer heedlessness or cruel calculation, to
kill off the small and medium enterprises that are the soul, if not the
heart, of our economy, and it is not merely an undue taking of property,
but constitutes an unjustified taking of life as well; The illusion of wealth
is hardly a legitimate state purpose, especially if projected at the expense
of the very business life of the country.· The 70% cap is not merely an
unwise imposition. It is a burden designed, either through sheer
heedlessness or cruel calculation, to kill off the small and medium
enterprises that are the soul, if not the heart, of our economy. It is not
merely an undue taking of property, but constitutes an unjustified taking
of life as well. And what legitimate, germane purposes does this lethal
70% cap serve? It certainly does not increase the governmentÊs 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
governmentÊs 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
69
in order to show off money and maintain the pretense of prosperity to

visiting city relatives. The illusion of wealth is hardly a legitimate state
purpose, especially if projected at the expense of the very business life of
the country.

Same; Same; What the majority fails to mention is that under Section
10 of the E-VAT Law, which amends Section 112 of the NIRC, the tax
credit or refund may not be done while the enterprise remains operational.
·Nonetheless, the majority notes that the excess creditable input tax
may be the subject of a tax credit certificate, which then could be used in
payment of internal revenue taxes, or a refund to the extent that such
input taxes have not been applied against output taxes. What the
majority fails to mention is that under Section 10 of the E-VAT Law,
which amends Section 112 of the NIRC, such credit or refund may not be
done while the enterprise remains operational.
Same; Same; The inability to immediately credit or otherwise recover
the unutilized input VAT could cause such prepaid amount to actually be
recognized in the accounting books as a loss; What heretofore was
recognized as an asset would now, with the imposition of the 70% cap, be
now considered as a loss, enhancing the view that the 70% cap is
ultimately confiscatory in nature.·The inability to immediately credit or
otherwise recover the unutilized input VAT could cause such prepaid
amount to actually be recognized in the accounting books as a loss.
Under international accounting practices, the unutilized input VAT due
to the 70% cap would not even be recognized as a deferred asset. The
same would not hold true if the 70% cap were eliminated. Under the
International Accounting Standards, the unutilized input VAT credit is
recognized as an asset „to the extent that it is probable that future
taxable profit will be available against which the unused tax losses and
unused tax credits can be utili[z]ed‰ Thus, if the immediate accreditation
of the input VAT credit can be obtained, as it would without the 70% cap,
the asset could be recognized. However, the same Standards hold that
„[t]o the extent that it is not probable that taxable profit will be available
against which the unused tax losses or unused tax credits can be utilised,
the deferred tax asset is not recognised.‰ As demonstrated, the
continuous operation of the 70% cap precludes the recovery of input VAT
prepaid months or years prior. Moreover, the inability to claim a refund
or tax credit certificate until after the business has
70
already ceased virtually renders it improbable for the input VAT to be

recovered. As such, under the International Accounting Standards, it is

with all likelihood that the prepaid input VAT, ostensibly creditable,
would actually be reflected as a loss. What heretofore was recognized as
an asset would now, with the imposition of the 70% cap, be now
considered as a loss, enhancing the view that the 70% cap is ultimately
confiscatory in nature.
Same; Same; Due Process; Assets would fall under the purview of
property under the due process clause, and if the taxing arm of the State
recognizes that such property belongs to the taxpayer and not to the State,
then due respect should be given to such expert opinion.· The BIR itself
has recognized that unutilized input VAT is one of those assets, corporate
attributes or property rights that, in the event of 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
only be utilized if it is refunded or credited to output taxes. To assert that
the input VAT is merely a privilege is to correspondingly claim that the
business profit is similarly a mere privilege. The Constitution itself
recognizes the right to profit by private enterprises. As I stated earlier,
one of the enunciated State policies under the Constitution is the
recognition of the indispensable role of the private sector, the
encouragement of private enterprise, and the provision of incentives to
needed investments. Moreover, the Constitution also requires the State to
recognize the right of
71

enterprises to reasonable returns on investments, and to expansion and

growth. This, I believe, encompasses profit.
Same; Same; The amortization over a five-year period of the input

VAT on these capital goods would definitely eat up into the profit margin
of enterprises.·Again, this provision unreasonably severely limits the
ability of an enterprise to recover its prepaid input VAT. On its face, it
might appear injurious primarily to high margin enterprises, whose
purchase of capital goods in a given quarter would routinely exceed
P1,000,000.00. The amortization over a five-year period of the input VAT
on these capital goods would definitely eat up into their profit margin.
But it is still possible for such big businesses to survive despite this new
restriction, and their financial pain alone may not be sufficient to cause
the invalidity of a taxing statute. However, this amortization plan will
prove especially fatal to start-ups and other new businesses, which need to
purchase capital goods in order to start up their new businesses. It is a
known fact in the financial community that a majority of businesses start
earning profit only after the second or third year, and many enterprises
do not even get to survive that long. The first few years of a business are
the most crucial to its survival, and any financial benefits it can obtain in
those years, no matter how miniscule, may spell the difference between
life and death. For such emerging businesses, it is already difficult under
the present system to recover the prepaid input VAT from the output VAT
collected from customers because initial sales volumes are usually low.
With this further limitation, diminishing as it does any opportunity to
have a sustainable cash flow, the ability of new businesses to survive the
first three years becomes even more endangered.
Same; Same; For some lucky enterprises who may be able to survive
the injury brought about by the 70% cap, this 60 month amortization
period might instead provide the mortal head wound.·Even existing
small to medium enterprises are imperiled by this 60 month
amortization restriction, especially considering the application of the
70% cap. The additional purchase of capital goods bears as a means of
adding value to the consumer good, as a means to justify the increased
selling price. However, the purchase of capital goods in excess of
P1,000,000.00 would impose another burden on the small to medium
enterprise by further restricting their ability to immediately recover the
entire prepaid input VAT (which would exceed at least
72

P100,000.00), as they would be compelled to wait for at least five years

before they can do so. Another hurdle is imposed for such small to
medium enterprise to obtain the profit margin critical to survival. For
some lucky enterprises who may be able to survive the injury brought
about by the 70% cap, this 60 month amortization period might instead
provide the mortal head wound.
Same; Same; The deletion of the credit apparatus·where tax
withheld would also be creditable against the VAT liability of the seller or
contractor·effectively compels the private enterprise transacting with the
government to shoulder the output VAT that should have been paid by the
government in excess of 5% of the gross selling price, and at the same time
unduly burdens the private enterprise by precluding it from applying any
creditable input VAT on the same transaction.·The principle that the
Government and its subsidiaries may deduct and withhold a final value-
added tax on its purchase of goods and services is not new, as the NIRC
had allowed such deduction and withholding at the rate of 3% of the
gross payment for the purchase of goods, and 6% of the gross receipts for
services. However, the NIRC had also provided that this tax withheld
would also be creditable against the VAT liability of the seller or
contractor, a mechanism that was deleted by the E-VAT law. The deletion
of this credit apparatus effectively compels the private enterprise
transacting with the government to shoulder the output VAT that should
have been paid by the government in excess of 5% of the gross selling
price, and at the same time unduly burdens the private enterprise by
precluding it from applying any creditable input VAT on the same
transaction. Notably, the removal of the credit mechanism runs contrary
to the essence of the VAT system, which characteristically allows the
crediting of input taxes against output taxes. Without such crediting
mechanism, which allows the shifting of the VAT to only the final end
user, the tax becomes a straightforward tax on business or income. The
effect on the enterprise doing business with the government would be that
two taxes would be imposed on the income by the business derived on such
transaction: the regular personal or corporate income tax on such income,
and this final withholding tax of 5%.
Same; Same; It is a legitimate purpose of a tax law to devise a

manner by which the government could save money on its own
transactions, but it is another matter if a private enterprise is punished

for doing business with the government.·Granted that Congress is not
73
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 businessÊs input VAT.
Same; Same; Section 114(C) of the NIRC squarely contradicts Section

20, Article II of the Constitution as it vacuously discourages private
enterprise, and provides disincentives to needed investments such as those
expected by the State from private businesses.·The provision squarely
contradicts Section 20, Article II of the Constitution as it vacuously
discourages private enterprise, and provides disincentives to needed
investments such as those expected by the State from private businesses.
Whatever advantages may be gained by the temporary increase in the
government coffers would be overturned by the disadvantages of having
a reduced pool of private enterprises willing to do business with the
government. Moreover, since government contracts with private
enterprises will still remain a necessary fact of life, the amendment to
Section 114(C) of the NIRC introduced by the E-VAT Law.
Same; Same; Double Taxation; Words and Phrases; Double taxation

means taxing for the same tax period the same thing or activity twice,
when it should be taxed but once, for the same purpose and with the same
kind of character of tax; Double taxation is not expressly forbidden in our

constitution, but the Court has recognized it as obnoxious „where the

taxpayer is taxed twice for the benefit of the same governmental entity or
by the same jurisdiction for the same purpose.‰·Double taxation means
taxing for the same tax period the
74
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 nationÊs 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
governmentÊs 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 nationÊs wealth. Instead, we are condemned by a national policy
driven by the monomania for State revenue. It may be beyond my oath as
a Justice to compel the government to adopt an economic policy in
consonance with my personal views, but I offer these observations since
they lie at the very heart of the noxiousness of the assailed provisions of
the E-VAT law. The 70% cap, the 60-month amortization period and the
5% withholding tax on govern-
75
ment transactions were selfishly designed to increase government

revenue at the expense of the survival of local industries.
Same; Same; Under the device employed in the E-VAT law, the price
to be paid for a more sustainable liquidity of the governmentÊs 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
governmentÊs 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.
CHICO-NAZARIO, J., Concurring Opinion:
Congress; Enrolled Bill Doctrine; I believe that it is more prudent for

this Court to remain conservative and to continue its adherence to the
enrolled bill doctrine, for to abandon the said doctrine would be to open a
PandoraÊs Box, giving rise to a situation more fraught with evil and
mischief.·PetitionersÊ arguments failed to
76
convince me of the wisdom of abandoning the enrolled bill doctrine. I

believe that it is more prudent for this Court to remain conservative and
to continue its adherence to the enrolled bill doctrine, for to abandon the
said doctrine would be to open a PandoraÊs Box, giving rise to a situation
more fraught with evil and mischief. Statutes enacted by Congress may
not attain finality or conclusiveness unless declared so by this Court.
This would undermine the authority of our statutes because despite
having been signed and certified by the designated officers of Congress,
their validity would still be in doubt and their implementation would be
greatly hampered by allegations of irregularities in their passage by the
Legislature. Such an uncertainty in the statutes would indubitably result
in confusion and disorder. In all probability, it is the contemplation of
such a scenario that led an American judge to proclaim, thus·. . . Better,
far better, that a provision should occasionally find its way into the
statute through mistake, or even fraud, than, that every Act, state and
national, should at any and all times be liable to put in issue and
impeached by the journals, loose papers of the Legislature, and parol
evidence. Such a state of uncertainty in the statute laws of the land
would lead to mischiefs absolutely intolerable. . . .
Same; Bicameral Conference Committee; It does perplex me that

members of both Houses would again ask the Court to define and limit the

powers of the Bicameral Conference Committee when such committee is of

their own creation; That the majority of the members of both Houses
refuses to amend the Rules on the Bicameral Conference Committee is an
indication that it is still satisfied therewith.·It does perplex me that
members of both Houses would again ask the Court to define and limit
the powers of the Bicameral Conference Committee when such
committee is of their own creation. In a number of cases, this Court
already made a determination of the extent of the powers of the
Bicameral Conference Committee after taking into account the existing
Rules of both Houses of Congress. In gist, the power of the Bicameral
Conference Committee to reconcile or settle the differences in the two
HousesÊ respective bills is not limited to the conflicting provisions of the
bills; but may include matters not found in the original bills but germane
to the purpose thereof. If both Houses viewed the pronouncement made
by this Court in such cases as extreme or beyond what they intended,
they had the power to amend their respective Rules to clarify or limit
even further the scope of the authority which they grant to the Bicameral
Conference
77
Committee. PetitionersÊ grievance that, unfortunately, they cannot bring

about such an amendment of the Rules on the Bicameral Conference
Committee because they are members of the minority, deserves scant
consideration. That the majority of the members of both Houses refuses
to amend the Rules on the Bicameral Conference Committee is an
indication that it is still satisfied therewith. At any rate, this is how
democracy works·the will of the majority shall be controlling.
Taxation; Germaneness Rule; If we have one Code for all our national
internal revenue taxes, then there is no reason why we cannot have a
single statute amending provisions thereof even if they involve different
taxes under separate titles.·Although House Bills No. 3555 and 3705
were limited to the amendments of the provisions on VAT of the National
Internal Revenue Code of 1997, Senate Bill No. 1950 had a much wider
scope and included amendments of other provisions of the said Code,
such as those on income, percentage, and excise taxes. It should be borne
in mind that the very purpose of these three Bills and, subsequently, of

Rep. Act No. 9337, was to raise additional revenues for the government
to address the dire economic situation of the country. The National
Internal Revenue Code of 1997, as its title suggests, is the single Code
that governs all our national internal revenue taxes. While it does cover
different taxes, all of them are imposed and collected by the national
government to raise revenues. If we have one Code for all our national
internal revenue taxes, then there is no reason why we cannot have a
single statute amending provisions thereof even if they involve different
taxes under separate titles. I hereby submit that the amendments
introduced by the Bicameral Conference Committee to non-VAT
provisions of the National Internal Revenue Code of 1997 are not
unconstitutional for they are germane to the purpose of House Bills No.
3555 and 3705 and Senate Bill No. 1950, which is to raise national
revenues.
Same; Value-Added Tax; Since the privilege of an input VAT credit is
granted by law, then an amendment of such law may limit the exercise of
or may totally withdraw the privilege.·The crediting of the input VAT
against the output VAT is a statutory privilege, granted by Section 110 of
the National Internal Revenue Code of 1997. It gives the VAT-registered
person the opportunity to recover the input VAT he had paid, so that, in
effect, the input VAT does not
78
constitute an additional cost for him. While it is true that input VAT
credits are reported as assets in a VAT-registered personÊs 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.
Same; Same; It should be remembered that prior to Rep. Act No.
9337, the petroleum dealersÊ input VAT credits were inexistent·they were
unrecognized and disallowed by law·the petroleum dealers had no such
property called input VAT credits.·Under the National Internal Revenue
Code of 1997, before it was amended by Rep. Act No. 9337, the sale or
importation of petroleum products were exempt from VAT, and instead,
were subject to excise tax. Petroleum dealers did not impose any output
VAT on their sales to consumers. Since they had no output VAT against
which they could credit their input VAT, they shouldered the costs of the
input VAT that they paid on their purchases of goods, properties, and
services. Their sales not being subject to VAT, the petroleum dealers had
no input VAT credits to speak of. It is only under Rep. Act No. 9337 that
the sales by the petroleum dealers have become subject to VAT and only
in its implementation may they use their input VAT as credit against
their output VAT. While eager to use their input VAT credit
79
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 dealersÊ input
VAT credits were inexistent·they were unrecognized and disallowed by
law. The petroleum dealers had no such property called input VAT
credits. It is only rational, therefore, that they cannot acquire vested
rights to the use of such input VAT credits when they were never entitled
to such credits in the first place, at least, not until Rep. Act No. 9337. My
view, at this point, when Rep. Act No. 9337 has not yet even been
implemented, is that petroleum dealersÊ 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.
80
SPECIAL CIVIL ACTION in the Supreme Court.
The facts are stated in the opinion of the Court.

Carlos G. Baniqued and Laura Victoria Yuson-Layug for
petitioners in G.R. No. 168461.
Eugenio H. Villareal, Dionisio B. Marasigan, Ma. Rosa-lie
Taguian, Agustin C. Bacungan III and Roland Allan C. Abarquez

for petitioners in G.R. No. 168463.

Samson S. Alcantara, Ed Vincent S. Albano and Rene B.
Gorospe for petitioners in G.R. No. 168056.
Luis Ma. Gil L. Gana for petitioners in G.R. No. 168207.
The Solicitor General for public respondents.
AUSTRIA-MARTINEZ, J.:
The expenses of government, having for their object the interest of

all, should be borne by everyone, and the more man enjoys the
advantages of society, the more he ought to hold himself honored in
contributing to those expenses.
·Anne Robert Jacques Turgot (1727-1781)

French statesman and economist
Mounting budget deficit, revenue generation, inadequate fiscal

allocation for education, increased emoluments for health workers,
and wider coverage for full value-added tax benefits . . . these are
1
the reasons why Republic Act No. 9337 (R.A. No. 9337) was
enacted. Reasons, the wisdom of which, the Court even with its
extensive constitutional power of review, cannot probe. The
petitioners in these cases, however, question not only the wisdom of
the law, but also perceived constitutional infirmities in its passage.
_______________
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
Every law enjoys in its favor the presumption of

constitutionality. Their arguments notwithstanding, petitioners
failed to justify their call for the invalidity of the law. Hence, R.A.

No. 9337 is not unconstitutional.
LEGISLATIVE HISTORY
R.A. No. 9337 is a consolidation of three legislative bills

namely, House Bill Nos. 3555 and 3705, and Senate Bill
No. 1950. 2
House Bill No. 3555 was introduced on first reading
on January 7, 2005. The House Committee on Ways and
Means approved the bill, in substitution of House Bill No.
1468, which Representative (Rep.) Eric D. Singson
introduced on August 8, 2004. The President certified the
bill on January 7, 2005 for immediate enactment. On
January 27, 2005, the House of Representatives approved
the bill on second and third
3
reading.
House Bill No. 3705 on the other hand, substituted
House Bill No. 3105 introduced by Rep. Salacnib F.
Baterina, and House Bill No. 3381 introduced by Rep.
Jacinto V. Paras. Its „mother bill‰ is House Bill No. 3555.
The House Committee on Ways and Means approved the
bill on February 2, 2005. The President also certified it as
urgent on February 8, 2005. The House of Representatives
approved the bill on second and third reading on February
28, 2005.
_______________
2 Entitled, „An Act Restructuring the Value-Added Tax, Amending for

the Purpose Sections 106, 107, 108, 110 and 114 of the National Internal
Revenue Code of 1997, As Amended, and For Other Purposes.‰
3 Entitled, „An Act Amending Sections 106, 107, 108, 109, 110 and 111
of the National Internal Revenue Code of 1997, As Amended, and For
Other Purposes.‰
82

Meanwhile, the Senate Committee

4
on Ways and Means
approved Senate Bill No. 1950 on March 7, 2005, „in
substitution of Senate Bill Nos. 1337, 1838 and 1873,

taking into consideration House Bill Nos. 3555 and 3705.‰
Senator Ralph G. Recto sponsored Senate Bill No. 1337,
while Senate Bill Nos. 1838 and 1873 were both sponsored
by Sens. Franklin M. Drilon, Juan M. Flavier and Francis
N. Pangilinan. The President certified the bill on March 11,
2005, and was approved by the Senate on second and third
reading on April 13, 2005.
On the same date, April 13, 2005, the Senate agreed to
the request of the House of Representatives for a
committee conference on the disagreeing provisions of the
proposed bills.
Before long, the Conference Committee on the
Disagreeing Provisions of House Bill No. 3555, House Bill
No. 3705, and Senate Bill No. 1950, „after having met and
discussed in full free and conference,‰ recommended the
approval of its report, which the Senate did on May 10,
2005, and with the House of Representatives agreeing
thereto the next day, May 11, 2005.
On May 23, 2005, the enrolled copy of the consolidated
House and Senate version was transmitted to the
President, who signed the same into law on May 24, 2005.
Thus, came R.A. No. 9337. 5
July 1, 2005 is the effectivity date of R.A. No. 9337.
When said date came, the Court issued a temporary
restraining order, effective immediately and continuing
until further orders, enjoining respondents from enforcing
and implementing the law.
Oral arguments were held on July 14, 2005.
Significantly, during the hearing, the Court speaking
through Mr. Justice
_______________
4 Entitled, „An Act Amending Sections 27, 28, 34, 106, 108, 109, 110,
112, 113, 114, 116, 117, 119, 121, 125, 148, 151, 236, 237 and 288 of the
National Internal Revenue Code of 1997, As Amended, and For Other
Purposes.‰
5 Section 26, R.A. No. 9337.
83


Artemio V. Panganiban, voiced the rationale for its

issuance of the temporary restraining order on July 1,
2005, to wit:
J. . . . But before I go into the details of your

PANGANIBAN: presentation, let me just tell you a little
background. You know when the law took
effect on July 1, 2005, the Court issued a
TRO at about 5 oÊclock in the afternoon.
But before that, there was a lot of
complaints aired on television and on
radio. Some people in a gas station were
complaining that the gas prices went up
by 10%. Some people were complaining
that their electric bill will go up by 10%.
Other times people riding in domestic air
carrier were complaining that the prices
that theyÊll have to pay would have to go
up by 10%. While all that was being
aired, per your presentation and per our
own understanding of the law, thatÊs not
true. ItÊs not true that the e-vat law
necessarily increased prices by 10%
uniformly isnÊt it?
ATTY. No, Your Honor.
BANIQUED:
J. It is not?
PANGANIBAN:
ATTY. ItÊs not, because, Your Honor, there isan
BANIQUED: Executive Order that granted the
Petroleum companies some subsidy . .
.interrupted
J. ThatÊs correct . . .
PANGANIBAN:
ATTY. . . . and therefore that was meant to
BANIQUED: temper the impact . . . interrupted
J. . . . mitigating measures . . .
PANGANIBAN:

ATTY. Yes, Your Honor.

BANIQUED:
J. As a matter of fact a part of the
PANGANIBAN: mitigating measures would be the
eliminationof the Excise Tax and the
import duties.That is why, it is not
correct to say that
84

the VAT as to petroleum dealers

increased prices by 10%.
BANIQUED:
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 itÊs not correct to say
that all prices must go up by 10%.
ATTY. YouÊre 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
thatÊs one reason among many others
this Court had to issue TRO because of
the confusion in the implementation.
ThatÊs why we added as an issue in this
case, even if itÊs 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
85

3% only, in some cases it should be 6%

depending on these mitigating measures
and the location and situation of each
product, of each service, of each company,
isnÊt it?
BANIQUED:
J. Alright. So thatÊs one reason why we had

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

G.R. No. 168056
Before R.A. No. 9337 took effect, petitioners ABAKADA

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

of Finance, shall, effective January 1, 2006, raise the rate of value-
added tax to twelve percent (12%), after any of the following
conditions has been satisfied:
_______________
6 TSN, July 14, 2005.
86

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

Domestic Product (GDP) of the previous year
exceeds two and four-fifth percent (2 4/5%); or
(ii) National government deficit as a percentage of GDP
of the previous year exceeds one and one-half
percent (1 1/2%).
Petitioners argue that the law is unconstitutional, as it

constitutes abandonment by Congress of its exclusive
authority to fix the rate of taxes under Article VI, Section

28(2) of the 1987 Philippine Constitution.
G.R. No. 168207
On June 9, 2005, Sen. Aquilino Q. Pimentel, Jr., et al., filed

a petition for certiorari likewise assailing the
constitutionality of Sections 4, 5 and 6 of R.A. No. 9337.
Aside from questioning the so-called stand-by authority
of the President to increase the VAT rate to 12%, on the
ground that it amounts to an undue delegation of
legislative power, petitioners also contend that the increase
in the VAT rate to 12% contingent on any of the two
conditions being satisfied violates the due process clause
embodied in Article III, Section 1 of the Constitution, as it
imposes an unfair and additional tax burden on the people,
in that: (1) the 12% increase is ambiguous because it does
not state if the rate would be returned to the original 10%
if the conditions are no longer satisfied; (2) the rate is
unfair and unreasonable, as the people are unsure of the
applicable VAT rate from year to year; and (3) the increase
in the VAT rate, which is supposed to be an incentive to the
President to raise the VAT collection to at least 2 4/5 of the
GDP of the previous year, should only be based on fiscal
adequacy.
Petitioners further claim that the inclusion of a stand-by
authority granted to the President by the Bicameral
Conference Committee is a violation of the „no-amendment
rule‰ upon last reading of a bill laid down in Article VI,
Section 26(2) of the Constitution.
87

G.R. No. 168461
Thereafter, a petition for prohibition was filed on June 29,

2005, by the Association of Pilipinas Shell Dealers, Inc., et
al., assailing the following provisions of R.A. No. 9337:

1) Section 8, amending Section 110 (A)(2) of the NIRC,

requiring that the input tax on depreciable goods
shall be amortized over a 60-month period, if the
acquisition, excluding the VAT components, exceeds
One Million Pesos (P1, 000,000.00);
2) Section 8, amending Section 110 (B) of the NIRC,
imposing a 70% limit on the amount of input tax to
be credited against the output tax; and
3) Section 12, amending Section 114 (c) of the NIRC,
authorizing the Government or any of its political
subdivisions, instrumentalities or agencies,
including GOCCs, to deduct a 5% final withholding
tax on gross payments of goods and services, which
are subject to 10% VAT under Sections 106 (sale of
goods and properties) and 108 (sale of services and
use or lease of properties) of the NIRC.
Petitioners contend that these provisions are

unconstitutional for being arbitrary, oppressive, excessive,
and confisca-tory.
PetitionersÊ argument is premised on the constitutional
right of non-deprivation of life, liberty or property without
due process of law under Article III, Section 1 of the
Constitution. According to petitioners, the contested
sections impose limitations on the amount of input tax that
may be claimed. Petitioners also argue that the input tax
partakes the nature of a property that may not be
confiscated, appropriated, or limited without due process of
law. Petitioners further contend that like any other
property or property right, the input tax credit may be
transferred or disposed of, and that by limiting the same,
the government gets to tax a profit or value-added even if
there is no profit or value-added.
Petitioners also believe that these provisions violate the
constitutional guarantee of equal protection of the law
under Article III, Section 1 of the Constitution, as the
limitation on
88

the creditable input tax if: (1) the entity has a high ratio of
input tax; or (2) invests in capital equipment; or (3) has
several transactions with the government, is not based on
real and substantial differences to meet a valid
classification.
Lastly, petitioners contend that the 70% limit is
anything but progressive, violative of Article VI, Section
28(1) of the Constitution, and that it is the smaller
businesses with higher input tax to output tax ratio that
will suffer the consequences thereof for it wipes out
whatever meager margins the petitioners make.
G.R. No. 168463
Several members of the House of Representatives led by

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

undue delegation of legislative power, in violation of
Article VI, Section 28(2) of the Constitution;
2) The Bicameral Conference Committee acted
without jurisdiction in deleting the no pass on
provisions present in Senate Bill No. 1950 and
House Bill No. 3705; and
3) Insertion by the Bicameral Conference Committee 7
of Sections 27, 28, 34, 116, 117, 119, 121, 125, 148,
151, 236, 237 and 288, which were present in
Senate Bill No. 1950, violates Article VI, Section
24(1) of the Constitution, which provides that all
appropriation, revenue or tariff bills shall originate
exclusively in the House of Representatives
G.R. No. 168730
On the eleventh hour, Governor Enrique T. Garcia filed a

petition for certiorari and prohibition on July 20, 2005,

alleg-
_______________
7 Section 125 of the National Internal Revenue Code, as amended, was

not amended by R.A. No. 9337, as can be gleaned from the title and body
of the law.
89

ing unconstitutionality of the law on the ground that the

limitation on the creditable input tax in effect allows VAT-
registered establishments to retain a portion of the taxes
they collect, thus violating the principle that tax collection
and revenue should be solely allocated for public purposes
and expenditures. Petitioner Garcia further claims that
allowing these establishments to pass on the tax to the
consumers is inequitable, in violation of Article VI, Section
28(1) of the Constitution.
RESPONDENTSÊ COMMENT
The Office of the Solicitor General (OSG) filed a Comment

in behalf of respondents. Preliminarily, respondents
contend that R.A. No. 9337 enjoys the presumption of
constitutionality and petitioners failed to cast doubt on its
validity.
Relying on the case of Tolentino vs. Secretary of Finance,
235 SCRA 630 (1994), respondents argue that the
procedural issues raised by petitioners, i.e., legality of the
bicameral proceedings, exclusive origination of revenue
measures and the power of the Senate concomitant thereto,
have already been settled. With regard to the issue of
undue delegation of legislative power to the President,
respondents contend that the law is complete and leaves no
discretion to the President but to increase the rate to 12%
once any of the two conditions provided therein arise.
Respondents also refute petitionersÊ argument that the

increase to 12%, as well as the 70% limitation on the

creditable input tax, the 60-month amortization on the
purchase or importation of capital goods exceeding
P1,000,000.00, and the 5% final withholding tax by
government agencies, is arbitrary, oppressive, and
confiscatory, and that it violates the constitutional principle
on progressive taxation, among others.
Finally, respondents manifest that R.A. No. 9337 is the
anchor of the governmentÊs fiscal reform agenda. A reform
in the value-added system of taxation is the core revenue
measure
90

that will tilt the balance towards a sustainable

macroeconomic environment necessary for economic
growth.
ISSUES
The Court defined the issues, as follows:
PROCEDURAL ISSUE
Whether R.A. No. 9337 violates the following provisions of

the Constitution:
a. Article VI, Section 24, and

b. Article VI, Section 26(2)
SUBSTANTIVE ISSUES
1. Whether Sections 4, 5 and 6 of R.A. No. 9337,

amending Sections 106, 107 and 108 of the NIRC,
violate the following provisions of the Constitution:

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

2. Whether Section 8 of R.A. No. 9337, amending

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

b. Article III, Section 1
RULING OF THE COURT
As a prelude, the Court deems it apt to restate the general

principles and concepts of value-added tax (VAT), as the
confusion and inevitably, litigation, breeds from a fallacious
notion of its nature.
The VAT is a tax on spending or consumption. It is
levied on the sale, barter, exchange or lease of goods or
properties
91

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-
_______________
8 Section 105, National Internal Revenue of the Philippines, as

amended.
9 Ibid.
10 Deoferio, Jr., V.A. and Mamalateo, V.C., The Value Added Tax in the
Philippines (First Edition 2000).
11 Maceda vs. Macaraig, Jr., G.R. No. 88291, May 31, 1991, 197 SCRA
771.
12 Maceda vs. Macaraig, Jr., G.R. No. 88291, June 8, 1993, 223 SCRA
217.
13 Id., Deoferio, Jr., V.A. and Mamalateo, V.C., The Value Added Tax in
the Philippines (First Edition 2000).
14 Commissioner of Internal Revenue vs. Seagate Technology (Phils.),
G.R. No. 153866, February 11, 2005, 451 SCRA 132.
92

tionalized by imposing a multi-stage tax 15 rate of 0% or 10%

on all sales using the „tax credit method.‰
E.O. No. 273 was 16
followed by R.A. No. 7716 or the
Expanded
17
VAT Law, R.A. No. 8241 or the Improved18 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.
The Court will now discuss the issues in logical
sequence.

PROCEDURAL ISSUE
I.
Whether R.A. No. 9337 violates the following provisions of

the Constitution:
a. Article VI, Section 24, and

A. The Bicameral Conference Committee
Petitioners Escudero, et al., and Pimentel, et al., allege that

the Bicameral Conference Committee exceeded its
authority by:
1) Inserting the stand-by authority in favor of the

President in Sections 4, 5, and 6 of R.A. No. 9337;
_______________
15 Kapatiran ng mga Naglilingkod sa Pamahalaan ng Pilipi-nas, Inc.

vs. Tan, G.R. Nos. L-81311, L-81820, L-81921, L-82152, June 30, 1988,
163 SCRA 371.
16 Entitled, „An Act Restructuring the Value-Added Tax (VAT) System,
Widening its Tax Base and Enhancing its Administration, And for these
Purposes Amending and Repealing the Relevant Provisions of the
National Internal Revenue Code, as amended, and for other Purposes.‰
17 Entitled, „An Act Amending Republic Act No. 7716, otherwise
known as the Value-Added Tax Law and Other Pertinent Provisions of
the National Internal Revenue Code, as Amended.‰
18 Entitled, „An Act Amending the National Internal Revenue Code, as
Amended, and for other Purposes.‰
93

2) Deleting entirely the no pass-on provisions found in

both the House and Senate bills;

3) Inserting the provision imposing a 70% limit on the
amount of input tax to be credited against the
output tax; and
4) Including the amendments introduced only by
Senate Bill No. 1950 regarding other kinds of taxes
in addition to the value-added tax.
Petitioners now beseech the Court to define the powers of

the Bicameral Conference Committee.
It should be borne in mind that the power of internal
regulation and discipline are intrinsic in any legislative
body for, as unerringly elucidated by Justice Story, „[i]f the
power did not exist, it would be utterly impracticable to
transact the business of the nation, either
19
at all, or at least
with decency, deliberation, and order.‰ Thus, Article VI,
Section 16 (3) of the Constitution provides that „each
House may determine the rules of its proceedings.‰
Pursuant to this inherent constitutional power to
promulgate and implement its own rules of procedure, the
respective rules of each house of Congress provided for the
creation of a Bicameral Conference Committee.
Thus, Rule XIV, Sections 88 and 89 of the Rules of House
of Representatives provides as follows:
Sec. 88. Conference Committee.·In the event that the House does
not agree with the Senate on the amendment to any bill or joint
resolution, the differences may be settled by the conference
committees of both chambers.
In resolving the differences with the Senate, the House panel
shall, as much as possible, adhere to and support the House Bill. If
the differences with the Senate are so substantial that they
materially impair the House Bill, the panel shall report such fact to
the House for the latterÊs appropriate action.
_______________
19 Story, Commentaries 835 (1833).
94

Sec. 89. Conference Committee Reports.·. . . Each report shall

contain a detailed, sufficiently explicit statement of the changes in
or amendments to the subject measure.
...
The Chairman of the House panel may be interpellated on the
Conference Committee Report prior to the voting thereon. The
House shall vote on the Conference Committee Report in the same
manner and procedure as it votes on a bill on third and final
reading.
Rule XII, Section 35 of the Rules of the Senate states:
Sec. 35. In the event that the Senate does not agree with the House
of Representatives on the provision of any bill or joint resolution,
the differences shall be settled by a conference committee of both
Houses which shall meet within ten (10) days after their
composition. The President shall designate the members of the
Senate Panel in the conference committee with the approval of the
Senate.
Each Conference Committee Report shall contain a detailed and
sufficiently explicit statement of the changes in, or amendments to
the subject measure, and shall be signed by a majority of the
members of each House panel, voting separately.
A comparative presentation of the conflicting House and Senate
provisions and a reconciled version thereof with the explanatory
statement of the conference committee shall be attached to the
report.
...
The creation of such conference committee was apparently

in response to a problem, not addressed by any
constitutional provision, where the two houses of Congress
find themselves in disagreement over changes or
amendments introduced by the other house in a legislative
bill. Given that one of the most basic powers of the
legislative branch is to formulate and implement its own
rules of proceedings and to discipline its members, may the
Court then delve into the details of how Congress complies
with its internal rules or how it conducts its business of
passing legislation? Note that in the present petitions, the
issue is not whether provisions of the rules of both houses

creating the bicameral conference committee are
95

unconstitutional, but whether the bicameral conference

committee has strictly complied with the rules of both
houses, thereby remaining within the jurisdiction conferred
upon it by Congress.
20
In the recent case of Fariñas vs. The Executive Secretary,
the Court En Banc, unanimously reiterated and
emphasized its adherence to the „enrolled bill doctrine,‰
thus, declining therein petitionersÊ plea for the Court to go
behind the enrolled copy of the bill. Assailed in said case
was CongressÊs creation of two sets of bicameral conference
committees, the lack of records of said committeesÊ
proceedings, the alleged violation of said committees of the
rules of both houses, and the disappearance or deletion of
one of the provisions in the compromise bill submitted by
the bicameral conference committee. It was argued that
such irregularities in the passage of the law nullified R.A.
No. 9006, or the Fair Election Act.
Striking down such argument, the Court held thus:
Under the „enrolled bill doctrine,‰ the signing of a bill by the

Speaker of the House and the Senate President and the certification
of the Secretaries of both Houses of Congress that it was passed are
conclusive of its due enactment. A review of cases reveals the
CourtÊs consistent adherence to the rule. The Court finds no
reason to deviate from the salutary rule in this case where
the irregularities alleged by the petitioners mostly involved
the internal rules of Congress, e.g., creation of the 2nd or
3rd Bicameral Conference Committee by the House. This
Court is not the proper forum for the enforcement of these
internal rules of Congress, whether House or Senate.
Parliamentary rules are merely procedural and with their
observance the courts have no concern. Whatever doubts
there may be as to the formal validity of Rep. Act No. 9006
must be resolved in its favor. The Court reiterates its ruling in
Arroyo vs. De Venecia, viz.:

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

expression, all deny to the courts the power to inquire into
allegations that, in enacting a law, a House
_______________
20 G.R. No. 147387, December 10, 2003, 417 SCRA 503.
96

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 Âthe rules adopted by
deliberative bodies are subject to revocation, modification or waiver at
the pleasure of the body adopting them.Ê And it has been said that
„Parliamentary rules are merely procedural, and with their
observance, the courts have no concern. They may be waived or
disregarded by the legislative body.‰ Consequently, „mere failure
to conform to parliamentary usage will not invalidate the action
(taken by a deliberative body) when the requisite number of
21
members have agreed to a particular measure.‰ (Emphasis
supplied)
The foregoing declaration is exactly in point with the

present cases, where petitioners allege irregularities
committed by the conference committee in introducing
changes or deleting provisions22in the House and Senate
bills. Akin to the Fariñas case, the present petitions also
raise an issue regarding the actions taken by the
conference committee on matters regarding CongressÊ
compliance with its own internal rules. As stated earlier,
one of the most basic and inherent power of the legislature
is the power to formulate rules for its proceedings and the
discipline of its members. Congress is the best judge of how
it should conduct its own business expeditiously and in the
most orderly manner. It is also the sole concern of Congress
to instill discipline among the members of its conference
committee if it believes that said members violated any of

its rules of proceedings. Even the expanded jurisdiction of

this Court cannot apply to questions regarding only the
internal operation of Congress, thus, the Court is wont to
deny a review of the internal proceedings of a co-equal
branch of government.
_______________
21 Id., pp. 529-530.

22 Supra., Note 20.
97

Moreover, as far back as 1994 or more than ten23years ago,

in the case of Tolentino vs. Secretary of Finance, the Court
already made the pronouncement that „[i]f a change is
desired in the practice [of the Bicameral Conference
Committee] it must be sought in Congress since this
question is not covered by any constitutional
24
provision but
is only an internal rule of each house.‰ To date, Congress
has not seen it fit to make such changes adverted to by the
Court. It seems, therefore, that Congress finds the
practices of the bicameral conference committee to be very
useful for purposes of prompt and efficient legislative
action.
Nevertheless, just to put minds at ease that no blatant
irregularities tainted the proceedings of the bicameral
conference committees, the Court deems it necessary to
dwell on the issue. The Court observes that there was a
necessity for a conference committee because a comparison
of the provisions of House Bill Nos. 3555 and 3705 on one
hand, and Senate Bill No. 1950 on the other, reveals that
there were indeed disagreements. As pointed out in the
petitions, said disagreements were as follows:
House Bill No. House Bill No. Senate Bill No.

3555 3705 1950
With regard to „Stand-By Authority‰ in favor of President

Provides for 12% Provides for 12% Provides for a

VAT on every sale VAT in general on single rate of 10%
of goods or sales of goods or VAT on sale of
properties properties and goods or
(amending Sec. reduced rates for properties
106 of NIRC); 12% sale of certain (amending Sec.
VAT on locally 106 of NIRC), 10%
importation of manufactured VAT on sale of
goods (amending goods and services including
Sec. 107 of NIRC); petroleum sale of electricity
and 12% VAT on products and raw by generation
sale of services and materials to be companies, trans-
use used in
_______________
23 G.R. No. 115455, August 25, 1994, 235 SCRA 630.

24 Id., p. 670.
98

or lease of the manufacturethereof mission

properties(amending (amending Sec. 106 of and
Sec. 108 of NIRC) NIRC);12% VAT on distribution
importation of goods companies,
and reduced rates for and use or
certain imported lease of
products including properties
petroleum products (amending
(amending Sec. 107 of Sec. 108 of
NIRC); and 12% VAT NIRC)
on sale of services and
use or lease of
properties and a
reduced rate for certain
services including
power generation
(amending Sec. 108 of
NIRC)

With regard to the „no pass-on‰ provision

No Provides that the Provides that the VAT
similar VAT imposed on imposed onsales of electricity
provision power generation bygeneration companies and
and on the sale of services of transmission
petroleum companies and distribution
products shall be companies, as well as those
absorbed by of franchise grantees of
generation electric utilities shall not
companies or apply to residential end-
sellers, users. VAT shall be absorbed
respectively, and by generation, transmission,
shall not be and distribution companies.
passed on to
consumers
99

With regard to 70% limit on input tax credit

Provides that the input tax credit No Provides
for capital goods on which a VAT similar that the
has been paid shall be equally provision input tax
distributed over 5 years or the credit for
depreciable life of such capital capital
goods; the input tax credit for goods on
goods and services other than which a VAT
capital goods shall not exceed 5% has been
of the total amount of such goods paid shall
and services; and for persons be equally
engaged in retail trading of goods, distributed
the allowable input tax credit over 5 years
shall not exceed 11% of the total or the
amount of goods purchased. depreciable
life of such
capital
goods; the
input tax
credit for
goods and

services
other than
capital
goods shall
not exceed
90% of the
output VAT.
With regard to amendments to be made to NIRC provisions

regarding income and excise taxes
No No Provided for amendments to several
similar similar NIRC provisions regarding corporate
provision provision income, percentage, franchise and
excise taxes
The disagreements between the provisions in the House

bills and the Senate bill were with regard to (1) what rate
of VAT is to be imposed; (2) whether only the VAT imposed
on
100

electricity generation, transmission and distribution

companies should not be passed on to consumers, as
proposed in the Senate bill, or both the VAT imposed on
electricity generation, transmission and distribution
companies and the VAT imposed on sale of petroleum
products should not be passed on to consumers, as proposed
in the House bill; (3) in what manner input tax credits
should be limited; (4) and whether the NIRC provisions on
corporate income taxes, percentage, franchise and excise
taxes should be amended.
There being differences and/or disagreements on the
foregoing provisions of the House and Senate bills, the
Bicameral Conference Committee was mandated by the
rules of both houses of Congress to act on the same by
settling said differences and/or disagreements. The
Bicameral Conference Committee acted on the disagreeing

provisions by making the following changes:
1. With regard to the disagreement on the rate of VAT

to be imposed, it would appear from the Conference
Committee Report that the Bicameral Conference
Committee tried to bridge the gap in the difference
between the 10% VAT rate proposed by the Senate,
and the various rates with 12% as the highest VAT
rate proposed by the House, by striking a
compromise whereby the present 10% VAT rate
would be retained until certain conditions arise, i.e.,
the value-added tax collection as a percentage of
gross domestic product (GDP) of the previous year
exceeds 2 4/5%, or National Government deficit as a
percentage of GDP of the previous year exceeds 1
1/2%, when the President, upon recommendation of
the Secretary of Finance shall raise the rate of VAT
to 12% effective January 1, 2006.
2. With regard to the disagreement on whether only
the VAT imposed on electricity generation,
transmission and distribution companies should not
be passed on to consumers or whether both the VAT
imposed on electricity generation, transmission and
distribution companies and the VAT imposed on
sale of petroleum products may be passed on to con-
101
VOL. 469, SEPTEMBER 1, 2005 101

sumers, the Bicameral Conference Committee chose

to settle such disagreement by altogether deleting
from its Report any no pass-on provision.
3. With regard to the disagreement on whether input
tax credits should be limited or not, the Bicameral
Conference Committee decided to adopt the position
of the House by putting a limitation on the amount
of input tax that may be credited against the output
tax, although it crafted its own language as to the
amount of the limitation on input tax credits and

the manner of computing the same by providing

thus:
(A) Creditable Input Tax.·. . .

...
Provided, The input tax on goods purchased or imported in a
calendar month for use in trade or business for which deduction for
depreciation is allowed under this Code, shall be spread evenly over
the month of acquisition and the fifty-nine (59) succeeding months
if the aggregate acquisition cost for such goods, excluding the VAT
component thereof, exceeds one million Pesos (P1,000,000.00):
PROVIDED, however, that if the estimated useful life of the capital
good is less than five (5) years, as used for depreciation purposes,
then the input VAT shall be spread over such shorter period: . . .
(B) Excess Output or Input Tax.·If at the end of any taxable
quarter the output tax exceeds the input tax, the excess shall be
paid by the VAT-registered person. If the input tax exceeds the
output tax, the excess shall be carried over to the succeeding
quarter or quarters: PROVIDED that the input tax inclusive of
input VAT carried over from the previous quarter that may be
credited in every quarter shall not exceed seventy percent (70%) of
the output VAT: PROVIDED, HOWEVER, THAT any input tax
attributable to zero-rated sales by a VAT-registered person may at
his option be refunded or credited against other internal revenue
taxes, . . .
4. With regard to the amendments to other provisions

of the NIRC on corporate income tax, franchise,
percentage and excise taxes, the conference
committee decided to include such amendments and
basically adopted the provisions found in Senate
Bill No. 1950, with some changes as to the rate of
the tax to be imposed.
102

Under the provisions of both the Rules of the House of

Representatives and Senate Rules, the Bicameral

Conference Committee is mandated to settle the differences

between the disagreeing provisions in the House bill and
the Senate bill. The term25 „settle‰ is synonymous to
„reconcile‰ and „harmonize.‰ To reconcile or harmonize
disagreeing provisions, the Bicameral Conference
Committee may then (a) adopt the specific provisions of
either th e House bill or Senate bill, (b) decide that neither
provisions in the House bill or the provisions in the Senate
bill would be carried into the final form of the bill, and/or
(c) try to arrive at a compromise between the disagreeing
provisions.
In the present case, the changes introduced by the
Bicam-eral Conference Committee on disagreeing
provisions were meant only to reconcile and harmonize the
disagreeing provisions for it did not inject any idea or
intent that is wholly foreign to the subject embraced by the
original provisions.
The so-called stand-by authority in favor of the
President, whereby the rate of 10% VAT wanted by the
Senate is retained until such time that certain conditions
arise when the 12% VAT wanted by the House shall be
imposed, appears to be a compromise to try to bridge the
difference in the rate of VAT proposed by the two houses of
Congress. Nevertheless, such compromise is still totally
within the subject of what rate of VAT should be imposed
on taxpayers.
The no pass-on provision was deleted altogether. In the
transcripts of the proceedings of the Bicameral Conference
Committee held on May 10, 2005, Sen. Ralph Recto,
Chairman of the Senate Panel, explained the reason for
deleting the no pass-on provision in this wise:
. . . the thinking was just to keep the VAT law or the VAT bill
simple. And we were thinking that no sector should be a beneficiary
of legislative grace, neither should any sector be discriminated on.
The VAT is an indirect tax. It is a pass on-tax. And letÊs keep it
_______________
25 WebsterÊs Third New International Dictionary, p. 1897.
103

VOL. 469, SEPTEMBER 1, 2005 103

plain and simple. LetÊs not confuse the bill and put a no pass-on
provision. Two-thirds of the world have a VAT system and in this
two-thirds of the globe, I have yet to see a VAT with a no pass-
though provision. So, the thinking of the Senate is basically simple,
26
letÊs keep the VAT simple. (Emphasis supplied)
Rep. Teodoro Locsin further made the manifestation that

the no pass-on provision
27
„never really enjoyed the support
of either House.‰
With regard to the amount of input tax to be credited
against output tax, the Bicameral Conference Committee
came to a compromise on the percentage rate of the
limitation or cap on such input tax credit, but again, the
change introduced by the Bicameral Conference Committee
was totally within the intent of both houses to put a cap on
input tax that may be credited against the output tax.
From the inception of the subject revenue bill in the House
of Representatives, one of the major objectives was to „plug
a glaring loophole in the tax policy and administration by
creating vital restrictions on the claiming of input VAT tax
credits . . .‰ and „[b]y introducing limitations on the
claiming of tax credit, we are capping a major leakage that
has placed 28 our collection efforts at an apparent
disadvantage.‰
As to the amendments to NIRC provisions on taxes
other than the value-added tax proposed in Senate Bill No.
1950, since said provisions were among those referred to it,
the conference committee had to act on the same and it
basically adopted the version of the Senate.
Thus, all the changes or modifications made by the
Bicameral Conference Committee were germane to subjects
of the
_______________
26 TSN, Bicameral Conference Committee on the Disagreeing

Provisions of Senate Bill No. 1950 and House Bill Nos. 3705 and 3555,
May 10, 2005, p. 4.
27 Id., p. 3.

28 Sponsorship Speech of Representative Teves, in behalf of

Representative Jesli Lapus, TSN, January 7, 2005, pp. 34-35.
104

provisions referred to it for reconciliation. Such being the

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

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

Section 26(2) of the Constitution on the
„No-Amendment Rule‰
Article VI, Sec. 26 (2) of the Constitution, states:
No bill passed by either House shall become a law unless it has

passed three readings on separate days, and printed copies thereof
in its final form have been distributed to its Members three days
before its passage, except when the President certifies to the
necessity of its immediate enactment to meet a public calamity or

emergency. Upon the last reading of a bill, no amendment thereto

shall be
_______________
29 G.R. No. 105371, November 11, 1993, 227 SCRA 703.

30 Supra, Note 23.
31 Id., p. 668.
105
VOL. 469, SEPTEMBER 1, 2005 105

allowed, and the vote thereon shall be taken immediately

thereafter, and the yeas and nays entered in the Journal.
PetitionersÊ argument that the practice where a bicameral

conference committee is allowed to add or delete provisions
in the House bill and the Senate bill after these had passed
three readings is in effect a circumvention of the „no
amendment rule‰ (Sec. 26 (2), Art. VI of the 1987
Constitution), fails to convince the Court to deviate from its
ruling in the Tolentino case that:
Nor is there any reason for requiring that the CommitteeÊs Report
in these cases must have undergone three readings in each of the
two houses. If that be the case, there would be no end to negotiation
since each house may seek modification of the compromise bill . . . .
Art. VI. § 26 (2) must, therefore, be construed as referring
only to bills introduced for the first time in either house of
32
Congress, not to the conference committee report.
(Emphasis supplied)
The Court reiterates here that the „no-amendment rule‰

refers only to the procedure to be followed by each house of
Congress with regard to bills initiated in each of said
respective houses, before said bill is transmitted to the other
house for its concurrence or amendment. Verily, to construe
said provision in a way as to proscribe any further changes
to a bill after one house has voted on it would lead to
absurdity as this would mean that the other house of
Congress would be deprived of its constitutional power to

amend or introduce changes to said bill. Thus, Art. VI, Sec.

26 (2) of the Constitution cannot be taken to mean that the
introduction by the Bicameral Conference Committee of
amendments and modifications to disagreeing provisions in
bills that have been acted upon by both houses of Congress
is prohibited.
_______________
32 Id., p. 671.
106

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

Section 24 of the Constitution on Exclusive
Origination of Revenue Bills
Coming to the issue of the validity of the amendments

made regarding the NIRC provisions on corporate income
taxes and percentage, excise taxes. Petitioners refer to the
following provisions, to wit:
Section
27 Rates of Income Tax on Domestic Corporation
28(A) 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
Petitioners claim that the amendments to these provisions

of the NIRC did not at all originate from the House. They
aver that House Bill No. 3555 proposed amendments only
regarding Sections 106, 107, 108, 110 and 114 of the NIRC,
while House Bill No. 3705 proposed amendments only to
Sections 106, 107, 108, 109, 110 and 111 of the NIRC; thus,
the other sections of the NIRC which the Senate amended
but which amendments were not found in the House bills
are not intended to be amended by the House of
Representatives. Hence, they argue that since the proposed
amendments did
107
VOL. 469, SEPTEMBER 1, 2005 107

not originate from the House, such amendments are a

violation of Article VI, Section 24 of the Constitution.
The argument does not hold water.
Article VI, Section 24 of the Constitution reads:
Sec. 24. All appropriation, revenue or tariff bills, bills authorizing

increase of the public debt, bills of local application, and private
bills shall originate exclusively in the House of Representatives but
the Senate may propose or concur with amendments.
In the present cases, petitioners admit that it was indeed

House Bill Nos. 3555 and 3705 that initiated the move for
amending provisions of the NIRC dealing mainly with the
value-added tax. Upon transmittal of said House bills to
the Senate, the Senate came out with Senate Bill No. 1950
proposing amendments not only to NIRC provisions on the
value-added tax but also amendments to NIRC provisions

on other kinds of taxes. Is the introduction by the Senate of

provisions not dealing directly with the value- added tax,
which is the only kind of tax being amended in the House
bills, still within the purview of the constitutional provision
authorizing the Senate to propose or concur with
amendments to a revenue bill that originated from the
House?
The foregoing question had been squarely answered in
the Tolentino case, wherein the Court held, thus:
. . . To begin with, it is not the law·but the revenue bill·which is

required by the Constitution to „originate exclusively‰ in the House
of Representatives. It is important to emphasize this, because a bill
originating in the House may undergo such extensive changes in
the Senate that the result may be a rewriting of the whole. . . . At
this point, what is important to note is that, as a result of the
Senate action, a distinct bill may be produced. To insist that a
revenue statute·and not only the bill which initiated the
legislative process culminating in the enactment of the law
·must substantially be the same as the House bill would be
to deny the SenateÊs power not only to „concur with
amendments‰ but also to „propose amendments.‰ It would be
to violate
108

the coequality of legislative power of the two houses of Congress

and in fact make the House superior to the Senate.
...
. . . Given, then, the power of the Senate to propose
amendments, the Senate can propose its own version even
with respect to bills which are required by the Constitution
to originate in the House.
...
Indeed, what the Constitution simply means is that the initiative
for filing revenue, tariff or tax bills, bills authorizing an increase of
the public debt, private bills and bills of local application must come
from the House of Representatives on the theory that, elected as
they are from the districts, the members of the House can be

expected to be more sensitive to the local needs and

problems. On the other hand, the senators, who are elected
at large, are expected to approach the same problems from
the national perspective. Both views are thereby made to
33
bear on the enactment of such laws. (Emphasis supplied)
Since there is no question that the revenue bill exclusively

originated in the House of Representatives, the Senate was
acting within its constitutional power to introduce
amendments to the House bill when it included provisions
in Senate Bill No. 1950 amending corporate income taxes,
percentage, excise and franchise taxes. Verily, Article VI,
Section 24 of the Constitution does not contain any
prohibition or limitation on the extent of the amendments
that may be introduced by the Senate to the House revenue
bill.
Furthermore, the amendments introduced by the Senate
to the NIRC provisions that had not been touched in the
House bills are still in furtherance of the intent of the
House in initiating the subject revenue bills. The
Explanatory Note of House Bill No. 1468, the very first
House bill introduced on the floor, which was later
substituted by House Bill No. 3555, stated:
_______________
33 Id., pp. 661-663.
109
VOL. 469, SEPTEMBER 1, 2005 109

One of the challenges faced by the present administration is the

urgent and daunting task of solving the countryÊs serious financial
problems. To do this, government expenditures must be strictly
monitored and controlled and revenues must be significantly
increased. This may be easier said than done, but our fiscal
authorities are still optimistic the government will be operating on
a balanced budget by the year 2009. In fact, several measures that
will result to significant expenditure savings have been identified
by the administration. It is supported with a credible package

of revenue measures that include measures to improve tax

administration and control the leakages in revenues from
income taxes and the value-added tax (VAT). (Emphasis
supplied)
Rep. Eric D. Singson, in his sponsorship speech for House

Bill No. 3555, declared that:
In the budget message of our President in the year 2005, she

reiterated that we all acknowledged that on top of our agenda must
be the restoration of the health of our fiscal system.
In order to considerably lower the consolidated public sector
deficit and eventually achieve a balanced budget by the year 2009,
we need to seize windows of opportunities which might
seem poignant in the beginning, but in the long run prove
effective and beneficial to the overall status of our economy.
One such opportunity is a review of existing tax rates,
34
evaluating the relevance given our present conditions.
(Emphasis supplied)
Notably therefore, the main purpose of the bills emanating

from the House of Representatives is to bring in sizeable
revenues for the government to supplement our countryÊs
serious financial problems, and improve tax administration
and control of the leakages in revenues from income taxes
and value-added taxes. As these house bills were
transmitted to the Senate, the latter, approaching the
measures from the point of national perspective, can
introduce amendments within the purposes of those bills. It
can provide for ways that
_______________
34 Transcript of Session Proceedings, January 7, 2005, pp. 19-20.
110

would soften the impact of the VAT measure on the

consumer, i.e., by distributing the burden across all sectors
instead of putting it entirely on the shoulders of the
consumers. The sponsorship speech of Sen. Ralph Recto on

why the provisions on income tax on corporation were
included is worth quoting:
All in all, the proposal of the Senate Committee on Ways and Means
will raise P64.3 billion in additional revenues annually even while
by mitigating prices of power, services and petroleum products.
However, not all of this will be wrung out of VAT. In fact, only
P48.7 billion amount is from the VAT on twelve goods and services.
The rest of the tab·P10.5 billion- will be picked by corporations.
What we therefore prescribe is a burden sharing between corporate
Philippines and the consumer. Why should the latter bear all the
pain? Why should the fiscal salvation be only on the burden of the
consumer?
The corporate worldÊs equity is in form of the increase in the
corporate income tax from 32 to 35 percent, but up to 2008 only.
This will raise P10.5 billion a year. After that, the rate will slide
back, not to its old rate of 32 percent, but two notches lower, to 30
percent.
Clearly, we are telling those with the capacity to pay,
corporations, to bear with this emergency provision that will be in
effect for 1,200 days, while we put our fiscal house in order. This
fiscal medicine will have an expiry date.
For their assistance, a reward of tax reduction awaits them. We
intend to keep the length of their sacrifice brief. We would like to
assure them that not because there is a light at the end of the
tunnel, this government will keep on making the tunnel long.
The responsibility will not rest solely on the weary shoulders of
35
the small man. Big business will be there to share the burden.
As the Court has said, the Senate can propose amendments

and in fact, the amendments made on provisions in the tax
on
_______________
35 Journal of the Senate, Session No. 67, March 7, 2005, pp. 727-728.
111
VOL. 469, SEPTEMBER 1, 2005 111


income of corporations are germane to the purpose of the

house bills which is to raise revenues for the government.
Likewise, the Court finds the sections referring to other
percentage and excise taxes germane to the reforms to the
VAT system, as these sections would cushion the effects of
VAT on consumers. Considering that certain goods and
services which were subject to percentage tax and excise
tax would no longer be VAT-exempt, the consumer would be
burdened more as they would be paying the VAT in
addition to these taxes. Thus, there is a need to amend
these sections to soften the impact of VAT. Again, in his
sponsorship speech, Sen. Recto said:
However, for power plants that run on oil, we will reduce to zero the
present excise tax on bunker fuel, to lessen the effect of a VAT on
this product.
For electric utilities like Meralco, we will wipe out the franchise
tax in exchange for a VAT.
And in the case of petroleum, while we will levy the VAT on oil
products, so as not to destroy the VAT chain, we will however bring
down the excise tax on socially sensitive products such as diesel,
bunker, fuel and kerosene.
...
What do all these exercises point to? These are not contortions of
giving to the left hand what was taken from the right. Rather, these
sprang from our concern of softening the impact of VAT, so that the
people can cushion the blow of higher prices they will have to pay as
36
a result of VAT.
The other sections amended by the Senate pertained to

matters of tax administration which are necessary for the
implementation of the changes in the VAT system.
To reiterate, the sections introduced by the Senate are
germane to the subject matter and purposes of the house
bills, which is to supplement our countryÊs fiscal deficit,
among
_______________
36 Id., p. 726.
112


others. Thus, the Senate acted within its power to propose

those amendments.
SUBSTANTIVE ISSUES
I.
Whether Sections 4, 5 and 6 of R.A. No. 9337, amending Sections

106, 107 and 108 of the NIRC, violate the following provisions of the
Constitution:

A. No Undue Delegation of Legislative

Power
Petitioners ABAKADA GURO Party List, et al., Pimentel,

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

amended to read as follows:
SEC. 106. Value-Added Tax on Sale of Goods or Properties.·
(A) Rate and Base of Tax.·There shall be levied, assessed and collected
on every sale, barter or exchange of goods or properties, a value-added
tax equivalent to ten percent (10%) of the gross selling price or gross
value in money of the goods or properties sold, bartered or exchanged,
such tax to be paid by the seller or transferor: provided, that the
President, upon the recommendation of the Secretary of
Finance, shall, effective January 1, 2006, raise the rate of value-
conditions has been satisfied.

113
VOL. 469, SEPTEMBER 1, 2005 113

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

Domestic Product (GDP) of the previous year exceeds
two and four-fifth percent (2 4/5%) or
(ii) national government deficit as a percentage of GDP
of the previous year exceeds one and one-half percent
(1 ½%).
SEC. 5. Section 107 of the same Code, as amended, is hereby

further amended to read as follows:
SEC. 107. Value-Added Tax on Importation of Goods.·

(A) In General.·There shall be levied, assessed and collected on every
importation of goods a value-added tax equivalent to ten percent (10%)
based on the total value used by the Bureau of Customs in determining
tariff and customs duties, plus customs duties, excise taxes, if any, and
other charges, such tax to be paid by the importer prior to the release of
such goods from customs custody: Provided, That where the customs
duties are determined on the basis of the quantity or volume of the
goods, the value-added tax shall be based on the landed cost plus excise
taxes, if any: provided, further, that the President, upon the
recommendation of the Secretary of Finance, shall, effective
January 1, 2006, raise the rate of value-added tax to twelve
percent (12%) after any of the following conditions has been
satisfied.

Domestic Product (GDP) of the previous year exceeds two
and four-fifth percent (2 4/5%) or
(ii) national government deficit as a percentage of GDP of the
previous year exceeds one and one-half percent (1 ½%).

SEC. 108. Value-added Tax on Sale of Services and Use or Lease of

Properties·
(A) Rate and Base of Tax.·There shall be levied, assessed and

collected, a value-added tax equivalent to ten percent (10%) of gross

receipts derived from the sale or exchange
114

of services: provided, that the President, upon the

percent (12%), after any of the following conditions has been
satisfied.

and four-fifth percent (2 4/5%) or
previous year exceeds one and one-half percent (1 1/2%).
(Emphasis supplied)
Petitioners allege that the grant of the stand-by authority

to the President to increase the VAT rate is a virtual
abdication by Congress of its exclusive power to tax
because such delegation is not within the purview of
Section 28 (2), Article VI of the Constitution, which
provides:
The Congress may, by law, authorize the President to fix within

specified limits, and may impose, tariff rates, import and export
quotas, tonnage and wharfage dues, and other duties or imposts
within the framework of the national development program of the
government.
They argue that the VAT is a tax levied on the sale, barter
or exchange of goods and properties as well as on the sale
or exchange of services, which cannot be included within
the purview of tariffs under the exempted delegation as the
latter refers to customs duties, tolls or tribute payable upon
merchandise to the government and usually imposed on
goods or merchandise imported or exported.
Petitioners ABAKADA GURO Party List, et al., further
contend that delegating to the President the legislative

power to tax is contrary to republicanism. They insist that

accountability, responsibility and transparency should
dictate the actions of Congress and they should not pass to
the President the decision to impose taxes. They also argue
that the law
115
VOL. 469, SEPTEMBER 1, 2005 115

also effectively nullified the PresidentÊs power of control,

which includes the authority to set aside and nullify the
acts of her subordinates like the Secretary of Finance, by
mandating the fixing of the tax rate by the President upon
the recommendation of the Secretary of Finance.
Petitioners Pimentel, et al. aver that the President has
ample powers to cause, influence or create the conditions
provided by the law to bring about either or both the
conditions precedent.
On the other hand, petitioners Escudero, et al. find
bizarre and revolting the situation that the imposition of
the 12% rate would be subject to the whim of the Secretary
of Finance, an unelected bureaucrat, contrary to the
principle of no taxation without representation. They
submit that the Secretary of Finance is not mandated to
give a favorable recommendation and he may not even give
his recommendation. Moreover, they allege that no guiding
standards are provided in the law on what basis and as to
how he will make his recommendation. They claim,
nonetheless, that any recommendation of the Secretary of
Finance can easily be brushed aside by the President since
the former is a mere alter ego of the latter, such that,
ultimately, it is the President who decides whether to
impose the increased tax rate or not.
A brief discourse on the principle of non-delegation of
powers is instructive.
The principle of separation of powers ordains that each
of the three great branches of government has exclusive
cognizance of and is supreme in matters37
falling within its
own constitutionally allocated sphere. A logical corollary
to the doctrine of separation of powers is the principle of

non-delegation of powers, as expressed in the Latin maxim:

potestas delegata non delegari potest which means „what
has been
_______________
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
_______________
38 Defensor-Santiago vs. Commission on Elections, G.R. No. 127325,

March 19, 1997, 270 SCRA 106, 153; People vs. Rosenthal, Nos. 46076 &
46077, June 12, 1939, 68 Phil. 328; ISAGANI A. CRUZ, Philippine
Political Law 86 (1996). Judge Cooley enunciates the doctrine in the
following oft-quoted language: „One of the settled maxims in
constitutional law is, that the power conferred upon the legislature to

make laws cannot be delegated by that department to any other body or

authority. Where the sovereign power of the state has located the
authority, there it must remain; and by the constitutional agency alone
the laws must be made until the Constitution itself is changed. The
power to whose judgment, wisdom, and patriotism this high prerogative
has been intrusted cannot relieve itself of the responsibility by choosing
other agencies upon which the power shall be devolved, nor can it
substitute the judgment, wisdom, and patriotism of any other body for
those to which alone the people have seen fit to confide this sovereign
trust.‰ (Cooley on Constitutional Limitations, 8th ed., Vol. I, p. 224)
39 United States vs. Barrias, No. 4349, September 24, 1908, 11 Phil.
327, 330.
40 16 Am Jur 2d, Constitutional Law, § 337.
117
VOL. 469, SEPTEMBER 1, 2005 117

of legislative power, it must appear that the power involved

is purely legislative in nature·that is, one appertaining
exclusively to the legislative department. It is the nature of
the power, and not the liability of its use or the manner of
its exercise, which determines the validity of its delegation.
Nonetheless, the general rule barring delegation of
legislative powers is subject to the following recognized
limitations or exceptions:
(1) Delegation of tariff powers to the President under

Section 28 (2) of Article VI of the Constitution;
(2) Delegation of emergency powers to the President
under Section 23 (2) of Article VI of the
Constitution;
(3) Delegation to the people at large;
(4) Delegation to local governments; and
(5) Delegation to administrative bodies.
In every case of permissible delegation, there must be a

showing that the delegation itself is valid. It is valid only if
the law (a) is complete in itself, setting forth therein the
policy to be executed, carried out, or implemented by the

41
delegate; and (b) fixes a standard·the limits of which are
sufficiently determinate and determinable·to which the
delegate 42must conform in the performance of his
functions. A suffi-
_______________
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.
118

cient standard is one which defines legislative policy,

marks its limits, maps out its boundaries and specifies the
public agency to apply it. It indicates the circumstances 43
under which the legislative command is to be effected.
Both tests are intended to prevent a total transference of
legislative authority to the delegate, who is not allowed to
step into the shoes of 44the legislature and exercise a power
essentially legislative.45
In People vs. Vera, the Court, through eminent Justice
Jose P. Laurel, expounded on the concept and extent of
delegation of power in this wise:
In testing whether a statute constitutes an undue delegation of

legislative power or not, it is usual to inquire whether the statute
was complete in all its terms and provisions when it left the hands
of the legislature so that nothing was left to the judgment of any
other appointee or delegate of the legislature.
...

ÂThe true distinction,Ê says Judge Ranney, Âis between the

delegation of power to make the law, which necessarily
involves a discretion as to what it shall be, and conferring
an authority or discretion as to its execution, to be exercised
under and in pursuance of the law. The first cannot be done;
to the latter no valid objection can be made.Ê
...
It is contended, however, that a legislative act may be made to
the effect as law after it leaves the hands of the legislature. It is
true that laws may be made effective on certain contingencies, as by
proclamation of the executive or the adoption by the people of a
particular community. In Wayman vs. Southard, the Supreme Court
_______________
Board of Public Utility, No. 11216, March 6, 1916, 34 Phil. 136 et seq.
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.
119
VOL. 469, SEPTEMBER 1, 2005 119

of the United States ruled that the legislature may delegate a power
not legislative which it may itself rightfully exercise. The power to
ascertain facts is such a power which may be delegated.
There is nothing essentially legislative in ascertaining the
existence of facts or conditions as the basis of the taking
into effect of a law. That is a mental process common to all
branches of the government. Notwithstanding the apparent
tendency, however, to relax the rule prohibiting delegation of
legislative authority on account of the complexity arising from
social and economic forces at work in this modern industrial age,
the orthodox pronouncement of Judge Cooley in his work on
Constitutional Limitations finds restatement in Prof. Willoughby's
treatise on the Constitution of the United States in the following
language·speaking of declaration of legislative power to
administrative agencies: The principle which permits the
legislature to provide that the administrative agent may

determine when the circumstances are such as require the

application of a law is defended upon the ground that at the
time this authority is granted, the rule of public policy,
which is the essence of the legislative act, is determined by
the legislature. In other words, the legislature, as it is its
duty to do, determines that, under given circumstances,
certain executive or administrative action is to be taken,
and that, under other circumstances, different or no action
at all is to be taken. What is thus left to the administrative
official is not the legislative determination of what public
policy demands, but simply the ascertainment of what the
facts of the case require to be done according to the terms of
the law by which he is governed. The efficiency of an Act as
a declaration of legislative will must, of course, come from
Congress, but the ascertainment of the contingency upon
which the Act shall take effect may be left to such agencies
as it may designate. The legislature, then, may provide that
a law shall take effect upon the happening of future
specified contingencies leaving to some other person or
body the power to determine when the specified
46
contingency has arisen. (Emphasis supplied).
_______________
46 Id., pp. 115-120.
120

47
In Edu vs. Ericta, the Court reiterated:
What cannot be delegated is the authority under the Constitution to

make laws and to alter and repeal them; the test is the
completeness of the statute in all its terms and provisions when it
leaves the hands of the legislature. To determine whether or not
there is an undue delegation of legislative power, the inquiry must
be directed to the scope and definiteness of the measure enacted.
The legislative does not abdicate its functions when it
describes what job must be done, who is to do it, and what is
the scope of his authority. For a complex economy, that may be

the only way in which the legislative process can go forward. A

distinction has rightfully been made between delegation of
power to make the laws which necessarily involves a
discretion as to what it shall be, which constitutionally may
not be done, and delegation of authority or discretion as to
its execution to be exercised under and in pursuance of the
law, to which no valid objection can be made. The
Constitution is thus not to be regarded as denying the legislature
the necessary resources of flexibility and practicability. (Emphasis
48
supplied).
Clearly, the legislature may delegate to executive officers or

bodies the power to determine certain facts or conditions,
or the happening of contingencies, on which the operation
of a statute is, by its terms, made to depend, but the
legislature must prescribe sufficient
49
standards, policies or
limitations on their authority. While the power to tax
cannot be delegated to executive agencies, details as to the
enforcement and administration of an exercise of such
power may be left to them, including the power to
determine 50
the existence of facts on which its operation
depends.
The rationale for this is that the preliminary
ascertainment of facts as basis for the enactment of
legislation is not of itself a legislative function, but is
simply ancillary to legisla-
_______________
47 Supra, note 43.

48 Id., pp. 496-497.
49 16 C.J.S., Constitutional Law, § 138.
50 Ibid.
121
VOL. 469, SEPTEMBER 1, 2005 121

tion. Thus, the duty of correlating information and making

recommendations is the kind of subsidiary activity which
the legislature may perform through its members, or which

it may delegate to others to perform. Intelligent legislation

on the complicated problems of modern society is
impossible in the absence of accurate information on the
part of the legislators, and any 51reasonable method of
securing such information is proper. The Constitution as a
continuously operative charter of government does not
require that Congress find for itself every fact upon which
it desires to base legislative action or that it make for itself
detailed determinations which it has declared to be
prerequisite to application of legislative policy to particular
facts and circumstances 52
impossible for Congress itself
properly to investigate.
In the present case, the challenged section of R.A. No.
9337 is the common proviso in Sections 4, 5 and 6 which
reads as follows:
That the President, upon the recommendation of the Secretary of


and four-fifth percent (2 4/5%); or
(ii) National government deficit as a percentage of GDP of the
The case before the Court is not a delegation of legislative

power. It is simply a delegation of ascertainment of facts
upon which enforcement and administration of the increase
rate under the law is contingent. The legislature has made
the
_______________
51 16 Am. Jur. 2d, Constitutional Law § 340.

52 Yajus vs. United States, 321 US 414, 88 L.Ed. 834, 64 S Ct. 660, 28
Ohio Ops 220.
122

operation of the 12% rate effective January 1, 2006,

contingent upon a specified fact or condition. It leaves the
entire operation or non-operation of the 12% rate upon
factual matters outside of the control of the executive.
No discretion would be exercised by the President.
Highlighting the absence of discretion is the fact that the
word shall is used in the common proviso. The use of the
word shall connotes a mandatory order. Its use in a statute
denotes an imperative obligation
53
and is inconsistent with
the idea of discretion. Where the law is clear and
unambiguous, it must be taken to mean exactly what it
says, and courts have54
no choice but to see to it that the
mandate is obeyed.
Thus, it is the ministerial duty of the President to
immediately impose the 12% rate upon the existence of any
of the conditions specified by Congress. This is a duty
which cannot be evaded by the President. Inasmuch as the
law specifically uses the word shall, the exercise of
discretion by the President does not come into play. It is a
clear directive to impose the 12% VAT rate when the
specified conditions are present. The time of taking into
effect of the 12% VAT rate is based on the happening of a
certain specified contingency, or upon the ascertainment of
certain facts or conditions by a person or body other than
the legislature itself.
The Court finds no merit to the contention of petitioners
ABAKADA GURO Party List, et al. that the law effectively
nullified the PresidentÊs power of control over the Secretary
of Finance by mandating the fixing of the tax rate by the
President upon the recommendation of the Secretary of
Finance. The Court cannot also subscribe to the position of
petitioners
_______________
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
VOL. 469, SEPTEMBER 1, 2005 123

Pimentel, et al. that the word shall should be interpreted to

mean may in view of the phrase „upon the recommendation
of the Secretary of Finance.‰ Neither does the Court find
persuasive the submission of petitioners Escudero, et al.
that any recommendation by the Secretary of Finance can
easily be brushed aside by the President since the former is
a mere alter ego of the latter.
When one speaks of the Secretary of Finance as the alter
ego of the President, it simply means that as head of the
Department of Finance he is the assistant and agent of the
Chief Executive. The multifarious executive and
administrative functions of the Chief Executive are
performed by and through the executive departments, and
the acts of the secre-taries of such departments, such as the
Department of Finance, performed and promulgated in the
regular course of business, are, unless disapproved or
reprobated by the Chief Executive, presumptively the acts
of the Chief Executive. The Secretary of Finance, as such,
occupies a political position and holds office in an advisory
capacity, and, in the language of Thomas Jefferson, „should
be of the PresidentÊs bosom confidence‰ and, in the
language of Attorney-General 55
Cushing, is „subject to the
direction of the President.‰
In the present case, in making his recommendation to
the President on the existence of either of the two
conditions, the Secretary of Finance is not acting as the
alter ego of the President or even her subordinate. In such
instance, he is not subject to the power of control and
direction of the President. He is acting as the agent of the
legislative department, to determine and declare the56event
upon which its expressed will is to take effect. The
Secretary of Finance becomes the means or tool by which
legislative policy is determined and

_______________
55 Villena vs. Secretary of Interior, No. 46570, April 21, 1939, 67 Phil
451, 463-464.
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

implemented, considering that he possesses all the

facilities to gather data and information and has a much
broader perspective to properly evaluate them. His function
is to gather and collate statistical data and other pertinent
information and verify if any of the two conditions laid out
by Congress is present. His personality in such instance is
in reality but a projection of that of Congress. Thus, being
the agent of Congress and not of the President, the
President cannot alter or modify or nullify, or set aside the
findings of the Secretary of Finance and to substitute the
judgment of the former for that of the latter.
Congress simply granted the Secretary of Finance the
authority to ascertain the existence of a fact, namely,
whether by December 31, 2005, the value-added tax
collection as a percentage of Gross Domestic Product (GDP)
of the previous year exceeds two and four-fifth percent (2
4/5%) or the national government deficit as a percentage of
GDP of the previous year exceeds one and one-half percent
(1 1/2%). If either of these two instances has occurred, the
Secretary of Finance, by legislative mandate, must submit
such information to the President. Then the 12% VAT rate
must be imposed by the President effective January 1,
2006. There is no undue delegation of legislative
power but only of the discretion as to the execution
57
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;

_______________
57 Compañia General de Tabacos de Filipinas vs. The Board of Public

Utility Commissioners, No. 11216, 34 Phil. 136; Cruz vs. Youngberg, No.
34674, October 26, 1931, 56 Phil. 234; People vs. Vera, No. 45685,
November 16, 1937, 65 Phil. 56, 113; Edu vs. Ericta, No. L-32096,
October 24, 1970, 35 SCRA 481; Tatad vs. Secretary of the Department of
Energy, G.R. No. 124360, November 5, 1997, 281 SCRA 330; Alunan vs.
Mirasol, supra.
125
VOL. 469, SEPTEMBER 1, 2005 125

in our complex economy that is frequently the 58

only way in
which the legislative process can go forward.
As to the argument of petitioners ABAKADA GURO
Party List, et al. that delegating to the President the
legislative power to tax is contrary to the principle of
republicanism, the same deserves scant consideration.
Congress did not delegate the power to tax but the mere
implementation of the law. The intent and will to increase
the VAT rate to 12% came from Congress and the task of
the President is to simply execute the legislative policy.
That Congress chose to do so in such a manner is not
within the province of the 59
Court to inquire into, its task
being to interpret the law.
The insinuation by petitioners Pimentel, et al. that the
President has ample powers to cause, influence or create
the conditions to bring about either or both the conditions
precedent does not deserve any merit as this argument is
highly speculative. The Court does not rule on allegations
which are manifestly conjectural, as these may not exist at
all. The Court deals with facts, not fancies; on realities, not
appearances. When the Court acts on appearances instead
of realities, justice and law will be short-lived.
B. The 12% Increase VAT Rate Does Not

Impose an Unfair and Unnecessary
Additional Tax Burden

Petitioners Pimentel, et al. argue that the 12% increase in

the VAT rate imposes an unfair and additional tax burden
on the people. Petitioners also argue that the 12% increase,
dependent on any of the 2 conditions set forth in the
contested provisions, is ambiguous because it does not state
if the VAT
_______________
58 Bowles vs. Willinghan, 321 US 503, 88 l Ed 892, 64 S Ct 641, 28

Ohio Ops 180.
59 United Residents of Dominican Hill, Inc. vs. Commission on the
Settlement of Land Problems, G.R. No. 135945, March 7, 2001, 353 SCRA
782; Commissioner of Internal Revenue vs. Santos, G.R. No. 119252,
August 18, 1997, 277 SCRA 617, 630.
126

rate would be returned to the original 10% if the rates are

no longer satisfied. Petitioners also argue that such rate is
unfair and unreasonable, as the people are unsure of the
applicable VAT rate from year to year.
Under the common provisos of Sections 4, 5 and 6 of R.A.
No. 9337, if any of the two conditions set forth therein are
satisfied, the President shall increase the VAT rate to 12%.
The provisions of the law are clear. It does not provide for a
return to the 10% rate nor does it empower the President to
so revert if, after the rate is increased to 12%, the VAT
collection goes below the 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 60
is a forbidden
ground that only Congress may tread upon.
Thus, in the absence of any provision providing for a
return to the 10% rate, which in this case the Court finds
none, petitionersÊ argument is, at best, purely speculative.

There is no basis for petitionersÊ fear of a fluctuating VAT

rate because the law itself does not provide that the rate
should go back to 10% if the conditions provided in Sections
4, 5 and 6 are no longer present. The rule is that where the
provision of the law is clear and unambiguous, so that
there is no occasion for the courtÊs seeking the legislative
intent, the law must be 61
taken as it is, devoid of judicial
addition or subtraction.
Petitioners also contend that the increase in the VAT
rate, which was allegedly an incentive to the President to
raise the
_______________
60 Commissioner of Internal Revenue vs. American Express

International, Inc. (Philippine Branch), G.R. No. 152609, June 29, 2005,
462 SCRA 197.
61 Acting Commissioner of Customs vs. MERALCO, No. L-23623, June
30, 1977, 77 SCRA 469, 473.
127
VOL. 469, SEPTEMBER 1, 2005 127

VAT collection to at least 2 4/5 of the GDP of the previous

year, should be based on fiscal adequacy.
Petitioners obviously overlooked that increase in VAT
collection is not the only condition. There is another
condition, i.e., the national government deficit as a
percentage of GDP of the previous year exceeds one and
one-half percent (1 1/2%).
Respondents explained the philosophy behind these
alternative conditions:
1. VAT/GDP Ratio > 2.8%
The condition set for increasing VAT rate to 12% have economic or
fiscal meaning. If VAT/GDP is less than 2.8%, it means that
government has weak or no capability of implementing the VAT or
that VAT is not effective in the function of the tax collection.
Therefore, there is no value to increase it to 12% because such

action will also be ineffectual.
2. NatÊl GovÊt Deficit/GDP >1.5%
The condition set for increasing VAT when deficit/GDP is 1.5% or

less means the fiscal condition of government has reached a
relatively sound position or is towards the direction of a balanced
budget position. Therefore, there is no need to increase the VAT rate
since the fiscal house is in a relatively healthy position. Otherwise
stated, if the ratio is more than 1.5%, there is indeed a need to
62
increase the VAT rate.
That the first condition amounts to an incentive to the

President to increase the VAT collection does not render it
unconstitutional so long as there is a public purpose for
which the law was passed, which in this case, is mainly to
raise revenue. In fact, fiscal adequacy dictated the need for
a raise in revenue.
The principle of fiscal adequacy as a characteristic of a
sound tax system was originally stated by Adam Smith in
his Canons of Taxation (1776), as:
_______________
62 RespondentsÊ Memorandum, pp. 168-169.
128

IV. Every tax ought to be so contrived as both to take out and to

keep out of the pockets of the people as little as possible over and
63
above what it brings into the public treasury of the state.
It simply means that sources of revenues must be adequate

64
to meet government expenditures and their variations.
The dire need for revenue cannot be ignored. Our
country is in a quagmire of financial woe. During the
Bicameral Conference Committee hearing, then Finance
Secretary Purisima bluntly depicted the countryÊs gloomy
state of economic affairs, thus:

First, let me explain the position that the Philippines finds itself in
right now. We are in a position where 90 percent of our revenue is
used for debt service. So, for every peso of revenue that we currently
raise, 90 goes to debt service. ThatÊs interest plus amortization of
our debt. So clearly, this is not a sustainable situation. ThatÊs 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 IÊd 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, weÊve been lucky because we were
operating in a period of basically global growth and low interest
rates. The past few months, we have seen an inching up, in fact, a
rapid increase in the interest rates in the leading economies of the
world. And, therefore, our ability to borrow at reasonable prices is
going to be challenged. In fact, ultimately, the question is our ability
to access the financial markets.
_______________
63 The Wealth of Nations, Book V, Chapter II.

64 Chavez vs. Ongpin, G.R. No. 76778, June 6, 1990, 186 SCRA 331,
338.
129
VOL. 469, SEPTEMBER 1, 2005 129

When the President made her speech in July last year, the
environment was not as bad as it is now, at least based on the
forecast of most financial institutions. So, we were assuming that
raising 80 billion would put us in a position where we can then
convince them to improve our ability to borrow at lower rates. But
conditions have changed on us because the interest rates have gone
up. In fact, just within this room, we tried to access the market for a
billion dollars because for this year alone, the Philippines will have

to borrow 4 billion dollars. Of that amount, we have borrowed 1.5

billion. We issued last January a 25-year bond at 9.7 percent cost.
We were trying to access last week and the market was not as
favorable and up to now we have not accessed and we might pull
back because the conditions are not very good.
So given this situation, we at the Department of Finance believe
that we really need to front-end our deficit reduction. Because it is
deficit that is causing the increase of the debt and we are in what
we call a debt spiral. The more debt you have, the more deficit you
have because interest and debt service eats and eats more of your
revenue. We need to get out of this debt spiral. And the only way, I
think, we can get out of this debt spiral is really have a front-end
65
adjustment in our revenue base.
The image portrayed is chilling. Congress passed the law

hoping for rescue from an inevitable catastrophe. Whether
the law is indeed sufficient to answer the stateÊs economic
dilemma is not for the Court to judge. In the Fariñas case,
the Court refused to consider the various arguments raised
therein that dwelt on the wisdom of Section 14 of R.A. No.
9006 (The Fair Election Act), pronouncing that:
. . . policy matters are not the concern of the Court. Government

policy is within the exclusive dominion of the political branches of
the government. It is not for this Court to look into the wisdom or
propriety of legislative determination. Indeed, whether an
enactment is wise or unwise, whether it is based on sound economic
theory, whether it is the best means to achieve the desired results,
_______________
65 TSN, Bicameral Conference Committee on the Disagreeing Provisions of

Senate Bill No. 1950 and House Bill Nos. 3705 and 3555, April 25, 2005, pp. 5-
6.
130

whether, in short, the legislative discretion within its prescribed

limits should be exercised in a particular manner are matters for
the judgment of the legislature, and the serious conflict of opinions

does not suffice to bring them within the range of judicial

66
cognizance.
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.
Whether Section 8 of R.A. No. 9337, amending Sections 110(A)(2)

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

b. Article III, Section 1
A. Due Process and Equal Protection Clauses
Petitioners Association of Pilipinas Shell Dealers, Inc., et

al. argue that Section 8 of R.A. No. 9337, amending
Sections 110 (A)(2), 110 (B), and Section 12 of R.A. No.
9337, amending Section 114 (C) of the NIRC are arbitrary,
oppressive, excessive and confiscatory. Their argument is
premised on the constitutional right against deprivation of
life, liberty of property without due process of law, as
embodied in Article III, Section 1 of the Constitution.
Petitioners also contend that these provisions violate the
constitutional guarantee of equal protection of the law.
The doctrine is that where the due process and equal
protection clauses are invoked, considering that they are
not
_______________
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
VOL. 469, SEPTEMBER 1, 2005 131

fixed rules but rather broad standards, there is a need for

proof of such persuasive character as would lead to such a
conclusion. Absent such68
a showing, the presumption of
validity must prevail.
Section 8 of R.A. No. 9337, amending Section 110(B) of
the NIRC imposes a limitation on the amount of input tax
that may be credited against the output tax. It states, in
part: „[P]rovided, that the input tax inclusive of the input
VAT carried over from the previous quarter that may be
credited in every quarter shall not exceed seventy percent
(70%) of the output VAT: . . .‰
Input Tax is defined under Section 110(A) of the NIRC,
as amended, as the value-added tax due from or paid by a
VAT-registered person on the importation of goods or local
purchase of good and services, including lease or use of
property, in the course of trade or business, from a VAT-
registered person, and Output Tax is the value-added tax
due on the sale or lease of taxable goods or properties or
services by any person registered or required to register
under the law.
Petitioners claim that the contested sections impose
limitations on the amount of input tax that may be
claimed. In effect, a portion of the input tax that has
already been paid cannot now be credited against the
output tax.
PetitionersÊ argument is not absolute. It assumes that
the input tax exceeds 70% of the output tax, and therefore,
the input tax in excess of 70% remains uncredited.
However, to the extent that the input tax is less than 70%
of the output tax, then 100% of such input tax is still
creditable.
More importantly, the excess input tax, if any, is
retained in a businessÊs books of accounts and remains
creditable in the succeeding quarter/s. This is explicitly
allowed by Section 110(B), which provides that „if the input
tax exceeds the output tax, the excess shall be carried over
to the succeeding
_______________

68 Sison vs. Ancheta, G.R. No. L-59431, July 25, 1984, 130 SCRA 654,
661.
132

quarter or quarters.‰ In addition, Section 112(B) allows a

VAT-registered person to apply for the issuance of a tax
credit certificate or refund for any unused input taxes, to
the extent that such input taxes have not been applied
against the output taxes. Such unused input tax may be
used in payment of his other internal revenue taxes.
The non-application of the unutilized input tax in a
given quarter is not ad infinitum, as petitioners
exaggeratedly contend. Their analysis of the effect of the
70% limitation is incomplete and one-sided. It ends at the
net effect that there will be unapplied/unutilized inputs
VAT for a given quarter. It does not proceed further to the
fact that such unapplied/unutilized input tax may be
credited in the subsequent periods as allowed by the carry-
over provision of Section 110(B) or that it may later on be
refunded through a tax credit certificate under Section
112(B).
Therefore, petitionersÊ argument must be rejected.
On the other hand, it appears that petitioner Garcia
failed to comprehend the operation of the 70% limitation on
the input tax. According to petitioner, the limitation on the
creditable input tax in effect allows VAT-registered
establishments to retain a portion of the taxes they collect,
which violates the principle that tax collection and revenue
should be for public purposes and expenditures
As earlier stated, the input tax is the tax paid by a
person, passed on to him by the seller, when he buys goods.
Output tax meanwhile is the tax due to the person when he
sells goods. In computing the VAT payable, three possible
scenarios may arise:
First, if at the end of a taxable quarter the output taxes
charged by the seller are equal to the input taxes that he
paid and passed on by the suppliers, then no payment is
required;

133
VOL. 469, SEPTEMBER 1, 2005 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
taxpayerÊs 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
laymanÊs 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 personÊs entitlement to the creditable
input tax is a mere statutory privilege.
_______________
69 Section 8, R.A. No. 9337, amending Section 110(A)(B),NIRC.

70 Ibid.
71 Commissioner of Internal Revenue vs. Benguet Corp., G.R. Nos.
134587 & 134588, July 8, 2005, 463 SCRA 28.
134

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 72
away property, which was vested
by virtue of such rights.
Under the previous system of single-stage taxation,
taxes paid at every level of distribution are not recoverable
from the taxes payable, although it becomes part of the
cost, which is deductible from the gross revenue. When
Pres. Aquino issued E.O. No. 273 imposing a 10% multi-
stage tax on all sales, it was then that the crediting of the
input tax paid on purchase or importation of goods and
services by VAT-registered
73
persons against the output tax
was introduced. This74 was adopted by the Expanded VAT
Law (R.A. No. 7716),
75
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.
Petitioners also contest as arbitrary, oppressive,
excessive and confiscatory, Section 8 of R.A. No. 9337,
amending Section 110(A) of the NIRC, which provides:
SEC. 110. Tax Credits.·

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

_______________
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).
135
VOL. 469, SEPTEMBER 1, 2005 135

Provided, however, That if the estimated useful life of the capital

goods is less than five (5) years, as used for depreciation purposes,
then the input VAT shall be spread over such a shorter period:
Provided, finally, That in the case of purchase of services, lease or
use of properties, the input tax shall be creditable to the purchaser,
lessee or license upon payment of the compensation, rental, royalty
or fee.
The foregoing section imposes a 60-month period within

which to amortize the creditable input tax on purchase or
importation of capital goods with acquisition cost of P1
Million pesos, exclusive of the VAT component. Such spread
out only poses a delay in the crediting of the input tax.
PetitionersÊ argument is without basis because the
taxpayer is not permanently deprived of his privilege to
credit the input tax.
It is worth mentioning that Congress admitted that the
spread-out of the creditable input tax in this case 76
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
77
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- 78
creditable VAT, foreign investments were not deterred.
Again, for whatever is the purpose of the 60-month
amortization, this involves executive economic policy and
legislative wisdom in which the Court cannot intervene.
With regard to the 5% creditable withholding tax

imposed on payments made by the government for taxable

transactions, Section 12 of R.A. No. 9337, which amended
Section 114 of the NIRC, reads:
_______________
76 Journal of the Senate, Session No. 71, March 15, 2005, p. 803.
77 Id., Session No. 67, March 7, 2005, p. 726.
78 Id., Session No. 71, March 15, 2005, p. 803.
136

SEC. 114. Return and Payment of Value-added Tax.·

(C) Withholding of Value-added Tax.·The Government or any of
its political subdivisions, instrumentalities or agencies, including
government-owned or controlled corporations (GOCCs) shall, before
making payment on account of each purchase of goods and services
which are subject to the value-added tax imposed in Sections 106
and 108 of this Code, deduct and withhold a final value-added tax
at the rate of five percent (5%) of the gross payment thereof:
Provided, That the payment for lease or use of properties or
property rights to nonresident owners shall be subject to ten
percent (10%) withholding tax at the time of payment. For purposes
of this Section, the payor or person in control of the payment shall
be considered as the withholding agent.
The value-added tax withheld under this Section shall be
remitted within ten (10) days following the end of the month the
withholding was made.
Section 114(C) merely provides a method of collection, or as

stated by respondents, a more simplified VAT withholding
system. The government in this case is constituted as a
withholding agent with respect to their payments for goods
and services.
Prior to its amendment, Section 114(C) provided for
different rates of value-added taxes to be withheld·3% on
gross payments for purchases of goods; 6% on gross
payments for services supplied by contractors other than by
public works contractors; 8.5% on gross payments for

services supplied by public work contractors; or 10% on

payment for the lease or use of properties or property
rights to nonresident owners. Under the present Section
114(C), these different rates, except for the 10% on lease or
property rights payment to non-residents, were deleted,
and a uniform rate of 5% is applied.
The Court observes, however, that the law the used the
word final. In tax usage, final, as opposed to creditable,
means full. Thus, it is provided in Section 114(C): „final
value-added tax at the rate of five percent (5%).‰
137
VOL. 469, SEPTEMBER 1, 2005 137

In Revenue Regulations No. 02-98, implementing R.A. No.

8424 (The Tax Reform Act of 1997), the concept of final
withholding tax on income was explained, to wit:
SECTION 2.57. Withholding of Tax at Source

(A) Final Withholding Tax.·Under the final withholding tax
system the amount of income tax withheld by the withholding agent
is constituted as full and final payment of the income tax due
from the payee on the said income. The liability for payment of the
tax rests primarily on the payor as a withholding agent. Thus, in
case of his failure to withhold the tax or in case of
underwithholding, the deficiency tax shall be collected from the
payor/withholding agent. . . .
(B) Creditable Withholding Tax.·Under the creditable
withholding tax system, taxes withheld on certain income payments
are intended to equal or at least approximate the tax due of the
payee on said income. . . . Taxes withheld on income payments
covered by the expanded withholding tax (referred to in Sec. 2.57.2
of these regulations) and compensation income (referred to in Sec.
2.78 also of these regulations) are creditable in nature.
As applied to value-added tax, this means that taxable

transactions with the government are subject to a 5% rate,
which constitutes as full payment of the tax payable on the
transaction. This represents the net VAT payable of the
seller. The other 5% effectively accounts for the standard

input VAT (deemed input VAT), in lieu of the actual input

79
VAT directly or attributable to the taxable transaction.
The Court need not explore the rationale behind the
provision. It is clear that Congress intended to treat 80
differently taxable transactions with the government.
This is supported by the fact that under the old provision,
the 5% tax withheld
_______________
79 Revenue Regulations No. 14-2005, 4.114-2(a).

80 Commissioner of Internal Revenue vs. Philipine American Accident
Insurance Company, Inc., G.R. No. 141658, March 18, 2005, 453 SCRA
668.
138

by the government remains creditable against the tax

liability of the seller or contractor, to wit:
SEC. 114. Return and Payment of Value-added Tax.·

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

The valued-added tax withheld under this Section shall be

remitted within ten (10) days following the end of the month the
withholding was made. (Emphasis supplied)
As amended, the use of the word final and the deletion of

the word creditable exhibits CongressÊs intention to treat
transactions with the government differently. Since it has
not been shown that the class subject to the 5% final
withholding tax has been unreasonably narrowed, there is
no reason to invalidate the provision. Petitioners, as
petroleum dealers, are not the only ones subjected to the
5% final withholding tax. It applies to all those who deal
with the government.
Moreover, the actual input tax is not totally lost or
uncreditable, as petitioners believe. Revenue Regulations
No. 14-2005 or the Consolidated Value-Added Tax
Regulations 2005 issued by the BIR, provides that should
the actual input tax exceed 5% of gross payments, the
excess may form part of
139
VOL. 469, SEPTEMBER 1, 2005 139

the cost. Equally, should the actual input

81
tax be less than
5%, the difference is treated as income.
Petitioners also argue that by imposing a limitation on
the creditable input tax, the government gets to tax a profit
or value-added even if there is no profit or value-added.
PetitionersÊ stance is purely hypothetical,
argumentative, and again, one-sided. The Court will not
engage in a legal joust where premises are what ifs,
arguments, theoretical and facts, uncertain. Any
disquisition by the Court on this point 82
will only be, as
Shakespeare describes life in Macbeth, „full of sound and
fury, signifying nothing.‰
WhatÊs more, petitionersÊ contention assumes the
proposition that there is no profit or value-added. It need
not take an astute businessman to know that it is a matter
of exception that a business will sell goods or services
without profit or value-added. It cannot be overstressed

that a business is created precisely for profit.

The equal protection clause under the Constitution
means that „no person or class of persons shall be deprived
of the same protection of laws which is enjoyed by other
persons or other 83
classes in the same place and in like
circumstances.‰
The power of the State to make reasonable and natural
classifications for the purposes of taxation has long been
established. Whether it relates to the subject of taxation,
the kind of property, the rates to be levied, or the amounts
to be raised, the methods of assessment, valuation and
collection, the StateÊs power is entitled to presumption of
validity. As a rule, the judiciary will not interfere with such
power absent a
_______________
81 Revenue Regulations No. 14-2005, Sec. 4. 114-2.

82 Act V, Scene V.
83 Philippine Rural Electric Cooperatives Association, Inc. vs.
Department of Interior and Local Government, G.R. No. 143076, June 10,
2003, 403 SCRA 558, 565.
140

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.
The argument is pedantic, if not outright baseless. The
law does not make any classification in the subject of
taxation, the kind of property, the rates to be levied or the
amounts to be raised, the methods of assessment, valuation
and collection. PetitionersÊ alleged distinctions are based on
variables that bear different consequences. While the
implementation of the law may yield varying end results

depending on oneÊs profit margin and value-added, the

Court cannot go beyond what the legislature has laid down
and interfere with the affairs of business.
The equal protection clause does not require the
universal application of the laws on all persons or things
without distinction. This might in fact sometimes result in
unequal protection. What the clause requires is equality
among equals as determined according to a valid
classification. By classification is meant the grouping of
persons or things similar to each other in certain
particulars 85and different from all others in these same
particulars.
Petitioners brought to the CourtÊs attention the
introduction of Senate Bill No. 2038 by Sens. S.R. Osmeña
III and Ma. Ana Consuelo A.S. Madrigal on June 6, 2005,
and House Bill No. 4493 by Rep. Eric D. Singson. The
proposed legislation seeks to amend the 70% limitation by
increasing the same to 90%. This, according to petitioners,
supports their stance that the 70% limitation is arbitrary
and confiscatory. On this
_______________
84 Aban, Benjamin, Law of Basic Taxation in the Philippines (First

Edition 1994).
85 Philippine Judges Association case, supra., note 29.
141
VOL. 469, SEPTEMBER 1, 2005 141

score, suffice it to say that these are still proposed

legislations. Until Congress amends the law, and absent
any unequivocal basis for its unconstitutionality, the 70%
limitation stays.
B. Uniformity and Equitability of Taxation
Article VI, Section 28(1) of the Constitution reads:
The rule of taxation shall be uniform and equitable. The Congress

shall evolve a progressive system of taxation.
Uniformity in taxation means that all taxable articles or

kinds of property of the same class shall be taxed at the
same rate. Different articles may be taxed at different
amounts provided that the rate is uniform86 on the same
class everywhere with all people at all times.
In this case, the tax law is uniform as it provides a
standard rate of 0% or 10% (or 12%) on all goods and
services. Sections 4, 5 and 6 of R.A. No. 9337, amending
Sections 106, 107 and 108, respectively, of the NIRC,
provide for a rate of 10% (or 12%) on sale of goods and
properties, importation of goods, and sale of services and
use or lease of properties. These same sections also provide
for a 0% rate on certain sales and transaction.
Neither does the law make any distinction as to the type
of industry or trade that will bear the 70% limitation on the
creditable input tax, 5-year amortization of input tax paid
on purchase of capital goods or the 5% final withholding
tax by the government. It must be stressed that the rule of
uniform taxation does not deprive Congress of the power to
classify subjects of taxation,
87
and only demands uniformity
within the particular class.
_______________
86 Commissioner of Internal Revenue vs. Court of Appeals, G.R. No.

119761, August 29, 1996, 261 SCRA 236, 249.
87 Kee vs. Court of Tax Appeals, No. L-18080, April 22, 1963, 117 Phil.
682, 688; 7 SCRA 670, 676.
142

R.A. No. 9337 is also equitable. The law is equipped with a

threshold margin. The VAT rate of 0% or 10% (or 12%) does
not apply to sales of goods or services with gross
88
annual
sales or receipts not exceeding P1,500,000.00. Also, basic
marine and agricultural food products 89
in their original
state are still not subject to the tax, thus ensuring that

prices at the grassroots level will remain accessible. As was

stated in Kapatiran ng mga 90
Naglilingkod sa Pamahalaan
ng Pilipinas, Inc. vs. Tan:
„The disputed sales tax is also equitable. It is imposed only on sales

of goods or services by persons engaged in business with an
aggregate gross annual sales exceeding P200,000.00. Small corner
sari-sari stores are consequently exempt from its application.
Likewise exempt from the tax are sales of farm and marine
products, so that the costs of basic food and other necessities,
spared as they are from the incidence of the VAT, are expected to be
relatively lower and within the reach of the general public.‰
It is admitted that R.A. No. 9337 puts a premium on

businesses with low profit margins, and unduly favors
those with high profit margins. Congress was not oblivious
to this. Thus, to equalize the weighty burden the law
entails, the law, under Section 116, imposed a 3%
percentage tax on VAT-exempt persons under Section
109(v), i.e., transactions with gross annual sales and/or
receipts not exceeding P1.5 Million. This acts as a equalizer
because in effect, bigger businesses that qualify for VAT
coverage and VAT-exempt taxpayers stand on equal-footing.
Moreover, Congress provided mitigating measures to
cushion the impact of the imposition of the tax on those 91
previously exempt. Excise taxes on petroleum products
and natural
_______________
88 Section 7, R.A. No. 9337.

89 Ibid.
90 No. L-81311, June 30, 1988, 163 SCRA 371, 383.
91 Section 17, R.A. No. 9337, amending Section 148, NIRC.
143
VOL. 469, SEPTEMBER 1, 2005 143

92
gas were reduced.
93
Percentage tax on domestic carriers
was removed. Power producers are now exempt from

94
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
corporationÊs domicile was increased to 20%. The
Philippine Amusement and Gaming Corporation
97
(PAGCOR) is not exempt from income taxes anymore.
Even the sale by an artist of his works or services
performed for the production of such works was not spared.
All these were designed to ease, as well as spread out,
the burden of taxation, which would otherwise rest largely
on the consumers. It cannot therefore be gainsaid that R.A.
No. 9337 is equitable.
C. Progressivity of Taxation
Lastly, petitioners contend that the limitation on the

creditable input tax is anything but regressive. It is the
smaller business with higher input tax-output tax ratio
that will suffer the consequences.
Progressive taxation is built on the principle of the tax-
payerÊs ability to pay. This principle was also lifted from
Adam SmithÊs Canons of Taxation, and it states:
_______________
92 Section 18, amending Section 151, NIRC.

95 Sections 1 and 2, amending Sections 27 and 28, NIRC.
97 Section 1, amending Section 27(C), NIRC.
144


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 98

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.
Nevertheless, the Constitution does not really prohibit
the imposition of indirect taxes, like the VAT. What it
simply provides is that Congress shall „evolve a progressive
system of taxation.‰ The Court stated in the Tolentino case,
thus:
„The Constitution does not really prohibit the imposition of indirect

taxes which, like the VAT, are regressive. What it simply provides is
that Congress shall Âevolve a progressive system of taxa-tion.Ê The
constitutional provision has been interpreted to mean simply that
Âdirect taxes are . . . to be preferred [and] as much as possible,
indirect taxes should be minimized.Ê (E. FERNANDO, THE
CONSTITUTION OF THE PHILIPPINES 221 [Second ed. 1977])
Indeed, the mandate to Congress is not to prescribe, but to evolve, a
progressive tax system. Otherwise, sales taxes, which perhaps are
_______________
98 Reyes vs. Almanzor, G.R. Nos. 49839-46, April 26, 1991, 196 SCRA 322,
327.
145

VOL. 469, SEPTEMBER 1, 2005 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 taxpayersÊ 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
99
of the NIRC)‰
CONCLUSION
It has been said that taxes are the lifeblood of the

government. In this case, it is just an enema, a first-aid
measure to resuscitate an economy in distress. The Court is
neither blind nor is it turning a deaf ear on the plight of the
masses. But it does not have the panacea for the malady
that the law seeks to remedy. As in other cases, the Court
cannot strike down a law as unconstitutional simply
because of its yokes.
Let us not be overly influenced by the plea that for every wrong
there is a remedy, and that the judiciary should stand ready to
afford relief. There are undoubtedly many wrongs the judicature
may not correct, for instance, those involving political questions. . . .
Let us likewise disabuse our minds from the notion that the
judiciary is the repository of remedies for all political or social ills;
We should not forget that the Constitution has judiciously allocated
the powers of government to three distinct and separate
compartments; and that judicial interpretation has tended to the
preservation of the independence of the three, and a zealous regard
of the prerogatives of each, knowing full well that one is not the
guardian
_______________

99 Tolentino vs. Secretary of Finance, G.R. No. 115455, October 30, 1995, 249
SCRA 628, 659.
146

of the others and that, for official wrong-doing, each may be brought
100
to account, either by impeachment, trial or by the ballot box.
101
The words of the Court in Vera vs. Avelino holds true
then, as it still holds true now. All things considered, there
is no raison d'être for the unconstitutionality of R.A. No.
9337.
WHEREFORE, Republic Act No. 9337 not being
unconstitutional, the petitions in G.R. Nos. 168056,
168207, 168461, 168463, and 168730, are hereby
DISMISSED. There being no constitutional impediment to
the full enforcement and implementation of R.A. No. 9337,
the temporary restraining order issued by the Court on
July 1, 2005 is LIFTED upon finality of herein decision.
SO ORDERED.
Carpio, J., concur.

Davide, Jr. (C.J.), Please see Separate Concurring
and Dissenting Opinion.
Puno, J., Please see Concurring and Dissenting
Opinion.
Panganiban, J., Please see Separate Opinion.
Quisumbing, J., In the result.
Ynares-Santiago, J., I certify that she participated
in the oral arguments and initial deliberations and allows
to vote and submit for separate opinion. Davide, Jr. (C.J.)
Sandoval-Gutierrez, J., Please see my Concurring
and Dissenting Opinion.
Corona, J., I join Mme. Justice Sandoval-Gutierrez
in her concurring and dissenting opinion.
_______________
100 Vera vs. Avelino, G.R. No. L-543, August 31, 1946, 77 Phil. 365.

101 Ibid.
147
VOL. 469, SEPTEMBER 1, 2005 147

Carpio-Morales, J., I concur. I also concur with the

dissent of J. Tinga on Section 8 of the law.
Callejo, Sr., J., Please See My Concurring and
Dissenting Opinion.
Azcuna, J., Please see Separate Concurring and
Dissenting opinion.
Tinga, J., See Dissenting and Concurring Opinion.
Chico-Nazario, J., Please see Separate Concurring
Opinion.
Garcia, J., I also concur with J. Puno insofar as the
deletion of no pass on provision is concerned, including Sec.
21.
SEPARATE CONCURRING
AND DISSENTING OPINION
DAVIDE, JR., C.J.:
While I still hold on to my position expressed

1
in my
dissenting opinion in the first VAT cases, I partly yield to
the application to the cases at bar of the rule on
„germaneness‰ therein enunciated. Thus, I concur with the
ponencia of my highly-esteemed colleague Mme. Justice
Ma. Alicia Austria-Martinez except as regards its ruling on
the issue of whether Republic Act No. 9337 violates Section
24, Article VI of the Constitution.
R.A. No. 9337 primarily aims to restructure the value-
added tax (VAT) system by broadening its base and raising
the rate so as to generate more revenues for the
government that can assuage the economic predicament
that our country is now facing. This recently enacted law
stemmed from three legislative bills: House Bill (HB) No.
3555, HB No. 3705, and Senate Bill (SB) 1950. The first

(HB No. 3555) called for the
_______________
1 Tolentino v. Secretary of Finance, G.R. No. 115455, 25 August 1994,

235 SCRA 630, and companion cases.
148

amendment of Sections 106, 107, 108, 109, 110, and 111 of

the National Internal Revenue Code (NIRC) as amended;
while the second (HB No. 3705) proposed amendments to
Sections 106, 107, 108, 110, and 114 of the NIRC, as
amended. It is significant to note that all these Sections
specifically deal with VAT. And indubitably, these bills are
revenue bills in that they are 2intended to levy taxes and
raise funds for the government.
On the other hand, SB No. 1950 introduced amendments
to „Sections 27, 28, 34, 106, 108, 109, 110, 111, 112, 113,
114, 116, 117, 118, 119, 125, 148, 236, 237, and 288‰ of the
NIRC, as amended. Among the provisions sought to be
amended, only Sections 106, 108, 109, 110, 111, 112, 113,
114, and 116 pertain to VAT. And while Sections 236, 237,
and 288 are administrative provisions pertaining to
registration requirements and issuance of receipts
commercial invoices, the proposed amendments thereto are
related to VAT. Hence, the proposed amendments to these
Sections were validly taken cognizance of and properly
considered by the Bicameral Conference Committee (BCC).
However, I am of the opinion that the inclusion into the
law of the amendments proposed in SB No. 1950 to the
following provisions (with modifications on the rates of
taxes) is invalid.
Provision Subject matter

Section 27 Rate of income tax on domestic corporations
Section Rate of income tax on resident foreign
28(A)(1) corporation

Section Rate of income tax on non-resident foreign

28(B)(1) corporation
_______________
2 ISAGANI A. CRUZ, POLITICAL LAW 154 (2002 ed.) citing U.S. v.

Nortorn, 91 U.S. 566.
149
VOL. 469, SEPTEMBER 1, 2005 149

Section Rate of income tax on intracorporate dividends

28(B)(5- received by non-resident foreign corporation
b)
Section Deductions from gross income
34(B)(1)
Section Percentage tax on domestic carriers and keepers
117 of garages
Section Tax on franchises
119
Section Excise tax on manufactured oils and other fuels
148
Obviously, these provisions do not deal with VAT. It must

be noted that the House Bills initiated amendments to
provisions pertaining to VAT only. Doubtless, the Senate
has the constitutional power to concur with the
amendments to the VAT provisions introduced in the House
Bills or even to propose its own version of VAT measure.
But that power does not extend to initiation of other tax
measures, such as introducing amendments to provisions
on corporate income taxes, percentage taxes, franchise
taxes, and excise taxes like what the Senate did in these
cases. It was beyond the ambit of the authority of the
Senate to propose amendments to provisions not covered by
the House Bills or not related to the subject matter of the
House Bills, which is VAT. To allow the Senate to do so
would be tantamount to vesting in it the power to initiate

revenue bills·a power that exclusively pertains to the

House of Representatives under Section 24, Article VI of
the Constitution, which provides:
Sec. 24. All appropriation, revenue or tariff bills, bills authorizing

increase of the public debt, bills of local application, and private
bills shall originate exclusively in the House of Representatives but
the Senate may propose or concur with amendments.
Moreover, Sections 121 (Percentage Tax on Banks and Non-

Bank Financial Intermediaries) and 151 (Excise Tax on
Mineral Products) of the NIRC, as amended, have been
included by the BCC in R.A. No. 9337 even though they
were not found in the Senate and House Bills.
150

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
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
VOL. 469, SEPTEMBER 1, 2005 151

either the House or Senate bills, they were germane to the

general subject of the bills.
In the present cases, the provisions inserted by the BCC,
namely, Sections 121 (Percentage Tax on Banks and Non-
Bank Financial Intermediaries) and 151 (Excise Tax on
Mineral Products) of the NIRC, as amended, are
undoubtedly germane to SB No. 1950, which introduced
amendments to the provisions on percentage and excise
taxes·but foreign to HB Nos. 3555 and 3705, which dealt
with VAT only. Since the proposed amendments in the
Senate bill relating to percentage and excise taxes cannot
themselves be sustained because they did not take their
root from, or are not related to the subject of, HB Nos. 3705
and 3555, in violation of Section 24, Article VI of the
Constitution, the new provisions inserted by the BCC on
percentage and excise taxes would have no leg to stand on.

I understand very well that the amendments of the

Senate and the BCC relating to corporate income,
percentage, franchise, and excise taxes were designed to
„soften the impact of VAT measure on the consumer, i.e., by
distributing the burden across all sectors instead of putting
it entirely on the shoulders of the consumers‰ and to
alleviate the countryÊs financial problems by bringing more
revenues for the government. However, these commendable
intentions do not justify a deviation from the Constitution,
which mandates that the initiative for filing revenue bills
should come from the House of Representatives, not from
the Senate. After all, these aims may still be realized by
means of another bill that may later be initiated by the
House of Representatives.
Therefore, I vote to declare R.A. No. 9337 as
constitutional insofar as it amends provisions pertaining to
VAT. However, I vote to declare as unconstitutional
Sections 1, 2, 3, 14, 15, 16, 17, and 18 thereof which,
respectively, amend Sections 27, 28, 34, 117, 119, 121, 148,
and 151 of the NIRC, as amended because these
amendments deal with subject matters which were not
touched or covered by the bills emanating from the
152

House of Representatives, thereby violating Section 24 of

Article VI of the Constitution.
CONCURRING AND DISSENTING OPINION
PUNO, J.:
The main opinion of Madam Justice Martinez exhaustively

discusses the numerous constitutional and legal issues
raised by the petitioners. Be that as it may, I wish to raise
the following points, viz.:
First. Petitioners assail sections 4 to 6 of Republic Act
No. 9337 as violative of the principle of non-delegation of

legislative power. These sections authorize the President,

upon recommendation of the Secretary of Finance, to raise
the value-added tax (VAT) rate to 12% effective January 1,
2006, upon satisfaction of the following conditions: viz.:

of the previous year exceeds one and one-half
percent (1 1/2%).
The power of judicial review under Article VIII, section 5(2)

of the 1987 Constitution is1
limited to the review of „actual
cases and controversies.‰ As rightly stressed by retired
Justice Vicente V. Mendoza, this requirement gives the
judiciary „the opportunity, denied to the legislature, of
seeing the actual operation of the statute as it is applied to
actual facts and thus enables it to reach sounder judgment‰
and „enhances 2
public acceptance of its role in our system of
government.‰ It also assures that the judiciary does not
intrude on areas
_______________
1 Angara v. Electoral Commission, 63 Phil. 139 (1936); See also Tribe,

American Constitutional Law, pp. 311-314 (3rd ed.).
2 Mendoza, Judicial Review of Constitutional Questions: Cases and
Materials, p. 86 (2004).
153
VOL. 469, SEPTEMBER 1, 2005 153

committed to the other branches of government and is3

confined to its role as defined by the Constitution.
Apposite thereto is the doctrine of ripeness whose basic
rationale is „to prevent the courts, through premature
adjudication, from
4
entangling themselves in abstract
disagreements.‰ Central to the doctrine is the
determination of „whether the case involves uncertain or

contingent future events that may5

not occur as anticipated,
or indeed may not occur at all.‰ The ripeness requirement
must be satisfied for each challenged legal provision and
parts of a statute so that those which are „not immediately
involved are not thereby thrown 6
open for a judicial
determination of constitutionality.‰
It is manifest that the constitutional challenge to
sections 4 to 6 of R.A. No. 9337 cannot hurdle the
requirement of ripeness. These sections give the President
the power to raise the VAT rate to 12% on January 1, 2006
upon satisfaction of certain fact-based conditions. We are
not endowed with the infallible gift of prophesy to know
whether these conditions are certain to happen. The power
to adjust the tax rate given to the President is futuristic
and may or may not be exercised. The Court is therefore
beseeched to render a conjectural judgment based on
hypothetical facts. Such a supplication has to be rejected.
Second. With due respect, I submit that the most
important constitutional issue posed by the petitions at bar
relates to the parameters of power of a Bicameral
Conference Com-
_______________
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

mittee. Most of the issues in the petitions at bar arose

because the Bicameral Conference Committee concerned

exercised powers that went beyond reconciling the

differences between Senate Bill No. 1950 and House Bill 7
Nos. 3705 and 3555. In Tolentino v. Secretary of Finance, I
ventured the view that a Bicameral Conference Committee
has limited powers and cannot be allowed to act as if it
were a „third house‰ of Congress. I further warned that
unless its roving powers are reigned in, a Bicameral
Conference Committee can wreck the lawmaking process
which is a cornerstone of the democratic, republican regime
established in our Constitution. The passage of time
fortifies my faith that there ought to be no legal u-turn on
this preeminent principle. I wish, therefore,
8
to reiterate my
reasons for this unbending view, viz.:
Section 209, Rule XII of the Rules of the Senate provides:
In the event that the Senate does not agree with the House of
Representatives on the provision of any bill or joint resolution, the
differences shall be settled by a conference committee of both Houses
which shall meet within ten days after their composition.
sufficiently explicit statement of the changes in or amendments to the
subject measure, and shall be signed by the conferees. (Emphasis
supplied)
The counterpart rule of the House of Representatives is cast in near

identical language. Section 85 of the Rules of the House of
Representatives pertinently provides:
In the event that the House does not agree with the Senate on the
amendments to any bill or joint resolution, the differences may be settled
by a conference committee of both chambers.
_______________
7 235 SCRA 630 (1994).

8 See Opinion in 235 SCRA 630, 805-825.
155
VOL. 469, SEPTEMBER 1, 2005 155


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

of the changes in or amendments to the subject measure. (Emphasis
supplied)
The JeffersonÊs Manual has been adopted as a supplement to our

parliamentary rules and practice. Section 456 of JeffersonÊs Manual
similarly confines the powers of a conference committee, viz.:
The managers of a conference must confine themselves to the differences

committed to them ⁄a and may not include subjects not within the
disagreements, even though germane to a question in issue.
This rule of antiquity has been honed and honored in practice by

the Congress of the United States. Thus, it is chronicled by Floyd
Biddick, Parliamentarian Emeritus of the United States Senate,
viz.:
Committees of conference are appointed for the sole purpose of

compromising and adjusting the differing and conflicting
opinions of the two Houses and the committees of conference alone
can grant compromises and modify propositions of either Houses within
the limits of the disagreement. Conferees are limited to the consideration
of differences between the two Houses.
Congress shall not insert in their report matters not
committed to them by either House, nor shall they strike from
the bill matters agreed to by both Houses. No matter on which there
is nothing in either the Senate or House passed versions of a bill may be
included in the conference report and actions to the contrary would
subject the report to a point of order. (Emphasis ours)
In fine, there is neither a sound nor a syllable in the Rules of the

Senate and the House of Representatives to support the thesis of
the respondents that a bicameral conference committee is clothed
with an ex post veto power.
But the thesis that a Bicameral Conference Committee can wield
ex post veto power does not only contravene the rules of both the
Senate and the House. It wages war against our settled ideals of
representative democracy. For the inevitable, catastrophic effect of
the thesis is to install a Bicameral Conference Committee as the
Third Chamber of our Congress, similarly vested with the power to
make laws but with the dissimilarity that its laws are not the sub-
156


ject of a free and full discussion of both Houses of Congress. With

such a vagrant power, a Bicameral Conference Committee acting as
a Third Chamber will be a constitutional monstrosity.
It needs no omniscience to perceive that our Constitution did not
provide for a Congress composed of three chambers. On the
contrary, section 1, Article VI of the Constitution provides in clear
and certain language: „The legislative power shall be vested in the
Congress of the Philippines which shall consist of a Senate and a
House of Representatives . . .‰ Note that in vesting legislative power
exclusively to the Senate and the House, the Constitution used the
word „shall.‰ Its command for a Congress of two houses is
mandatory. It is not mandatory sometimes.
In vesting legislative power to the Senate, the Constitution
means the Senate „. . . composed of twenty-four Senators x x x
elected at large by the qualified voters of the Philippines . . .‰
Similarly, when the Constitution vested the legislative power to the
House, it means the House „. . . composed of not more than two
hundred and fifty members x x x who shall be elected from
legislative districts x x x and those who x x x shall be elected
through a party-list system of registered national, regional, and
sectoral parties or organizations.‰ The Constitution thus, did not
vest on a Bicameral Conference Committee with an ad hoc
membership the power to legislate for it exclusively vested
legislative power to the Senate and the House as co-equal bodies. To
be sure, the Constitution does not mention the Bicameral
Conference Committees of Congress. No constitutional status is
accorded to them. They are not even statutory creations. They owe
their existence from the internal rules of the two Houses of
Congress. Yet, respondents peddle the disconcerting idea that they
should be recognized as a Third Chamber of Congress and with ex
post veto power at that.
The thesis that a Bicameral Conference Committee can exercise
law making power with ex post veto power is freighted with
mischief. Law making is a power that can be used for good or for ill,
hence, our Constitution carefully laid out a plan and a procedure for
its exercise. Firstly, it vouchsafed that the power to make laws
should be exercised by no other body except the Senate and the
House. It ought to be indubitable that what is contemplated is the
Senate acting as a full Senate and the House acting as a full House.

It is only when the Senate and the House act as whole bodies that
they truly represent the people. And it is only when they represent
157
VOL. 469, SEPTEMBER 1, 2005 157

the people that they can legitimately pass laws. Laws that are not
enacted by the peopleÊs rightful representatives subvert the peopleÊs
sovereignty. Bicameral Conference Committees, with their ad hoc
character and limited membership, cannot pass laws for they do not
represent the people. The Constitution does not allow the tyranny of
the majority. Yet, the respondents will impose the worst kind of
tyranny·the tyranny of the minority over the majority. Secondly,
the Constitution delineated in deft strokes the steps to be followed
in making laws. The overriding purpose of these procedural rules is
to assure that only bills that successfully survive the searching
scrutiny of the proper committees of Congress and the full and
unfettered deliberations of both Houses can become laws. For this
reason, a bill has to undergo three (3) mandatory separate readings
in each House. In the case at bench, the additions and deletions
made by the Bicameral Conference Committee did not enjoy the
enlightened studies of appropriate committees. It is meet to note
that the complexities of modern day legislations have made our
committee system a significant part of the legislative process.
Thomas Reed called the committee system as „the eye, the ear, the
hand, and very often the brain of the house.‰ President Woodrow
Wilson of the United States once referred to the government of the
United States as „a government by the Chairmen of the Standing
Committees of Congress ⁄‰‰ Neither did these additions and
deletions of the Bicameral Conference Committee pass through the
coils of collective deliberation of the members of the two Houses
acting separately. Due to this short-circuiting of the constitutional
procedure of making laws, confusion shrouds the enactment of R.A.
No. 7716. Who inserted the additions and deletions remains a
mystery. Why they were inserted is a riddle. To use a Churchillian
phrase, lawmaking should not be a riddle wrapped in an enigma. It
cannot be, for Article II, section 28 of the Constitution mandates the
State to adopt and implement a „policy of full public disclosure of all
its transactions involving public interest.‰ The Constitution could
not have contemplated a Congress of invisible and unaccountable

John and Mary Does. A law whose rationale is a riddle and whose
authorship is obscure cannot bind the people.
All these notwithstanding, respondents resort to the legal
cosmetology that these additions and deletions should govern the
people as laws because the Bicameral Conference Committee
Report was anyway submitted to and approved by the Senate and
the House of Representatives. The submission may have some merit
with respect
158

to provisions agreed upon by the Committee in the process of

reconciling conflicts between S.B. No. 1630 and H.B. No. 11197. In
these instances, the conflicting provisions had been previously
screened by the proper committees, deliberated upon by both
Houses and approved by them. It is, however, a different matter
with respect to additions and deletions which were entirely new and
which were made not to reconcile inconsistencies between S.B. No.
1630 and H.B. No. 11197. The members of the Bicameral
Conference Committee did not have any authority to add new
provisions or delete provisions already approved by both Houses as
it was not necessary to discharge their limited task of reconciling
differences in bills. At that late stage of law making, the Conference
Committee cannot add/delete provisions which can become laws
without undergoing the study and deliberation of both chambers
given to bills on 1st, 2nd, and 3rd readings. Even the Senate and
the House cannot enact a law which will not undergo these
mandatory three (3) readings required by the Constitution. If the
Senate and the House cannot enact such a law, neither can the
lesser Bicameral Conference Committee.
Moreover, the so-called choice given to the members of both
Houses to either approve or disapprove the said additions and
deletions is more of an optical illusion. These additions and
deletions are not submitted separately for approval. They are
tucked to the entire bill. The vote is on the bill as a package, i.e.,
together with the insertions and deletions. And the vote is either
„aye‰ or „nay,‰ without any further debate and deliberation. Quite
often, legislators vote „yes‰ because they approve of the bill as a
whole although they may object to its amendments by the

Conference Committee. This lack of real choice is well observed by

Robert Luce:
Their power lies chiefly in the fact that reports of conference committees
must be accepted without amendment or else rejected in toto. The
impulse is to get done with the matter and so the motion to accept has
undue advantage, for some members are sure to prefer swallowing
unpalatable provisions rather than prolong controversy. This is the more
likely if the report comes in the rush of business toward the end of a
session, when to seek further conference might result in the loss of the
measure altogether. At any time in the session there is some risk of such
a result following the rejection of a conference report, for it may not be
possible to secure a second con-
159
VOL. 469, SEPTEMBER 1, 2005 159

ference, or delay may give opposition to the main proposal chance to

develop more strength.
In a similar vein, Prof. Jack Davies commented that „conference

reports are returned to assembly and Senate on a take-it or leave-it-
basis, and the bodies are generally placed in the position that to
leave-it is a practical impossibility.‰ Thus, he concludes that
„conference committee action is the most undemocratic procedure in
the legislative process.‰
The respondents also contend that the additions and deletions
made by the Bicameral Conference Committee were in accord with
legislative customs and usages. The argument does not persuade for
it misappreciates the value of customs and usages in the hierarchy
of sources of legislative rules of procedure. To be sure, every
legislative assembly has the inherent right to promulgate its own
internal rules. In our jurisdiction, Article VI, section 16(3) of the
Constitution provides that „Each House may determine the rules of
its proceedings x x x.‰ But it is hornbook law that the sources of
Rules of Procedure are many and hierarchical in character. Mason
laid them down as follows:
xxx
1. Rules of Procedure are derived from several sources. The

principal sources are as follows:
a. Constitutional rules.
b. Statutory rules or charter provisions.
c. Adopted rules.
d. Judicial decisions.
e. Adopted parliamentary authority.
f. Parliamentary law.
g. Customs and usages.
2. The rules from the different sources take precedence in the

order listed above except that judicial decisions, since they are
interpretations of rules from one of the other sources, take the same
precedence as the source interpreted. Thus, for example, an
interpretation of a constitutional provision takes precedence over a
statute.
3. Whenever there is conflict between rules from these sources
the rule from the source listed earlier
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)
As discussed above, the unauthorized additions and deletions

made by the Bicameral Conference Committee violated the
procedure fixed by the Constitution in the making of laws. It is
reasonless for respondents therefore to justify these insertions as
sanctioned by customs and usages.
Finally, respondents seek sanctuary in the conclusiveness of an
enrolled bill to bar any judicial inquiry on whether Congress
observed our constitutional procedure in the passage of R.A. No.
7716. The enrolled bill theory is a historical relic that should not
continuously rule us from the fossilized past. It should be
immediately emphasized that the enrolled bill theory originated in

England where there is no written constitution and where

Parliament is supreme. In this jurisdiction, we have a written
constitution and the legislature is a body of limited powers.
Likewise, it must be pointed out that starting from the decade of
the 40s, even American courts have veered away from the rigidity
and unrealism of the conclusiveness of an enrolled bill. Prof.
Sutherland observed:
xxx
Where the failure of constitutional compliance in the enactment of
statutes is not discoverable from the face of the act itself but may be
demonstrated by recourse to the legislative journals, debates, committee
reports or papers of the governor, courts have used several conflicting
theories with which to dispose of the issue. They have held: (1) that the
enrolled bill is conclusive and like the sheriff Ês return cannot be attacked;
(2) that the enrolled bill is prima facie correct and only in case the
legislative journal shows affirmative contradiction of the constitutional
requirement will the bill be held invalid; (3) that although the enrolled
bill is prima facie correct, evidence from the journals, or other extrinsic
sources is admissible to strike the bill down; (4) that the legislative
journal is conclusive and the enrolled bills is valid only if it accords with
the recital in the journal and the constitutional procedure.
161
VOL. 469, SEPTEMBER 1, 2005 161

Various jurisdictions have adopted these alternative approaches in

view of strong dissent and dissatisfaction against the philosophical
underpinnings of the conclusiveness of an enrolled bill. Prof.
Sutherland further observed:
x x x. Numerous reasons have been given for this rule. Traditionally, an

enrolled bill was „a record‰ and as such was not subject to attack at
common law. Likewise, the rule of conclusiveness was similar to the
common law rule of the inviolability of the sheriff Ês return. Indeed, they
had the same origin, that is, the sheriff was an officer of the king and
likewise the parliamentary act was a regal act and no official might
dispute the kingÊs word. Transposed to our democratic system of
government, courts held that as the legislature was an official branch of
government the court must indulge every presumption that the

legislative act was valid. The doctrine of separation of powers was

advanced as a strong reason why the court should treat the acts of a co-
ordinate branch of government with the same respect as it treats the
action of its own officers; indeed, it was thought that it was entitled to
even greater respect, else the court might be in the position of reviewing
the work of a supposedly equal branch of government. When these
arguments failed, as they frequently did, the doctrine of convenience was
advanced, that is, that it was not only an undue burden upon the
legislature to preserve its records to meet the attack of persons not
affected by the procedure of enactment, but also that it unnecessarily
complicated litigation and confused the trial of substantive issues.
Although many of these arguments are persuasive and are indeed the
basis for the rule in many states today, they are not invulnerable to
attack. The rule most relied on·the sheriff Ês return or sworn official rule
·did not in civil litigation deprive the injured party of an action, for
always he could sue the sheriff upon his official bond. Likewise, although
collateral attack was not permitted, direct attack permitted raising the
issue of fraud, and at a later date attack in equity was also available; and
that the evidence of the sheriff was not of unusual weight was
demonstrated by the fact that in an action against the sheriff no
presumption of its authenticity prevailed.
162

The argument that the enrolled bill is a „record‰ and therefore

unimpeachable is likewise misleading, for the correction of records is a
matter of established judicial procedure. Apparently, the justification is
either the historical one that the kingÊs word could not be questioned or
the separation of powers principle that one branch of the government
must treat as valid the acts of another.
Persuasive as these arguments are, the tendency today is to
avoid reaching results by artificial presumptions and thus it
would seem desirable to insist that the enrolled bill stand or fall
on the basis of the relevant evidence which may be submitted for
or against it. (Emphasis ours)
Thus, as far back as the 1940s, Prof. Sutherland confirmed that

„x x x the tendency seems to be toward the abandonment of the
conclusive presumption rule and the adoption of the third rule

leaving only a prima facie presumption of validity which may be

attacked by any authoritative source of information.
Third. I respectfully submit that it is only by strictly

following the contours of powers of a Bicameral Conference
Committee, as delineated by the rules of the House and the
Senate, that we can prevent said Committee from acting as
a „third‰ chamber of Congress. Under the clear rules of
both the Senate and House, its power can go no further
than settling differences in their bills or joint resolutions.
Sections 88 and 89, Rule XIV of the Rules of the House of
Representatives provide as follows:
not agree with the Senate on the amendment to any bill or joint
163
VOL. 469, SEPTEMBER 1, 2005 163


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


Senate.
The House rule brightlines the following: (1) the power of

the Conference Committee is limited . . . it is only to settle
differences with the Senate; (2) if the differences are
substantial, the Committee must report to the House for
the latterÊs appropriate action; and (3) the Committee
report has to be voted upon in the same manner and
procedure as a bill on third and final reading. Similarly, the
Senate rule underscores in crimson that (1) the power of
the Committee is limited - - - to settle differences with the
House; (2) it can make changes or amendments only in the
discharge of this limited power to settle differences with
the House; and (3) the changes or amendments are merely
recommendatory for they still have to be approved by the
Senate.
Under both rules, it is obvious that a Bicameral
Conference Committee is a mere agent of the House or the
Senate with limited powers. The House contingent in the
Committee can-
164

not, 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
latterÊs appropriate action.‰ In other words, it must take
the proper instructions from the chambers that created it.
It cannot exercise its unbridled discretion. Where there is
no difference between the bills, it cannot make any change.
Where the difference is substantial, it has to return to the
chamber of its origin and ask for appropriate instructions.
It ought to be indubitable that it cannot create a new law,

i.e., that which has never been discussed in either chamber

of Congress. Its parameters of power are not porous, for
they are hedged by the clear limitation that its only power
is to settle differences in bills and joint resolutions of the
two chambers of Congress.
Fourth. Prescinding from these premises, I respectfully
submit that the following acts of the Bicameral Conference
Committee constitute grave abuse of discretion amounting
to lack or excess of jurisdiction and should be struck down
as unconstitutional nullities, viz.:
a. Its deletion of the pro poor „no pass on provision‰
which is common in both Senate Bill No. 1950 and House
Bill No. 3705. 9
Sec. 1 of House Bill No. 3705 provides:
Section 106 of the National Internal Revenue Code of 1997, as

amended, is hereby further amended to read as follows:
SEC. 106. Value-added Tax on Sale of Goods or Properties.·

xxx
Provided, further, that notwithstanding the provision of the second
paragraph of Section 105 of this Code, the Value-added Tax herein levied
on the sale of petroleum products under Subparagraph (1) hereof shall be
paid and absorbed by the
_______________
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
VOL. 469, SEPTEMBER 1, 2005 165

sellers of petroleum products who shall be prohibited from

passing on the cost of such tax payments, either directly or
indirectly[,] to any consumer in whatever form or manner, it
being the express intent of this act that the Value-added Tax shall be
borne and absorbed exclusively by the sellers of petroleum products x x x.
Sec. 3 of the same House bill provides:

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

amended, is hereby further amended to read as follows:
Sec. 108. Value-added Tax on Sale of Goods or Properties.·

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

provides:
Value-added Tax on sale of Services and Use or Lease of Properties.

·
x x x Provided, that the VAT on sales of electricity by generation
companies, and services of transmission companies and distribution
companies, as well as those of franchise grantees of electrical
utilities shall not apply to residential end-users: Provided, that the
Value-added Tax herein levied shall be absorbed and paid by the
generation, transmission and distribution companies concerned.
The said companies shall not pass on such tax payments to
NAPOCOR or ultimately to the consumers, including but not
limited to residential end users, either as costs or in any other form
whatsoever, directly or indirectly. x x x.
166

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

Conference Committee deleted the „no pass on provision‰ on

both the sales of electricity and petroleum products. This
action by the Committee is not warranted by the rules of
either the Senate or the House. As aforediscussed, the only
power of a Bicameral Conference Committee is to reconcile
disagreeing provisions in the bills or joint resolutions of the
two houses of Congress. The House and the Senate bills
both prohibited the passing on to consumers of the VAT on
sales of electricity. The Bicameral Conference Committee
cannot override this unequivocal decision of the Senate and
the House. Nor is it clear that there is a conflict between
the House and Senate versions on the „no pass on
provisions‰ of the VAT on sales of petroleum products. The
House version contained a „no pass on provision‰ but the
Senate had none. Elementary logic will tell us that while
there may be a difference in the two versions, it does not
necessarily mean that there is a disagreement or conflict
between the Senate and the House. The silence of the
Senate on the issue cannot be interpreted as an outright
opposition to the House decision prohibiting the passing on
of the VAT to the consumers on sales of petroleum products.
Silence can even be conformity, albeit implicit in nature.
But granting for the nonce that there is conflict between
the two versions, the conflict cannot escape the
characterization as a substantial difference. The seismic
consequence of the deletion of the „no pass on provision‰ of
the VAT on sales of petroleum products on the ability of our
consumers, especially on the roofless and the shirtless of
our society, to survive the onslaught of spiraling prices
ought to be beyond quibble. The rules require that the
Bicameral Conference Committee should
167
VOL. 469, SEPTEMBER 1, 2005 167

not, on its own, act on this substantial conflict. It has to

seek guidance from the chamber that created it. It must
receive proper instructions from its principal, for it is the
law of nature that no spring can rise higher than its source.
The records of both the Senate and the House do not reveal

that this step was taken by the members of the Bicameral

Conference Committee. They bypassed their principal and
ran riot with the exercise of powers that the rules never
bestowed on them.
b. Even more constitutionally obnoxious are the added
restrictions on local governmentÊs use of incremental
revenue from the VAT in Section 21 of R.A. No. 9337 which
were not present in the Senate or House Bills. Section 21 of
R.A. No. 9337 provides:
Fifty percent of the local government unitÊs share from VAT shall be
allocated and used exclusively for the following purposes:
1. Fifteen percent (15%) for public elementary and secondary

education to finance the construction of buildings,
purchases of school furniture and in-service teacher
trainings;
2. Ten percent (10%) for health insurance premiums of
enrolled indigents as a counterpart contribution of the local
government to sustain the universal coverage of the
national health insurance program;
3. Fifteen percent (15%) for environmental conservation to
fully implement a comprehensive national reforestation
program; and
4. Ten percent (10%) for agricultural modernization to finance
the construction of farm-to-market roads and irrigation
facilities.
Such allocations shall be segregated as separate trust funds by

the national treasury and shall be over and above the annual
appropriation for similar purposes.
These amendments did not harmonize conflicting

provisions between the constituent bills of R.A. No. 9337
but are entirely new and extraneous concepts which fall
beyond the median thereof. They transgress the limits of
the Bicameral Conference CommitteeÊs authority and must
be struck down.
168

I cannot therefore subscribe to the thesis of the majority

that „the changes introduced by the Bicameral Conference
Committee on disagreeing provisions were meant only to
reconcile and harmonize the disagreeing provisions for it
did not inject any idea or intent that is wholly foreign to the
subject embraced by the original provisions.‰
Fifth. The majority further defends the constitutionality
of the above provisions by holding that „all the changes or
modifications were germane to subjects of the provisions
referred to it for reconciliation.‰
With due respect, it is high time to re-examine the test
of germaneness proffered in Tolentino.
The test of germaneness is overly broad and is the
fountainhead of mischief for it allows the Bicameral
Conference Committee to change provisions in the bills of
the House and the Senate when they are not even in
disagreement. Worse still, it enables the Committee to
introduce amendments which are entirely new and have
not previously passed through the coils of scrutiny of the
members of both houses. The Constitution did not establish
a Bicameral Conference Committee that can act as a „third
house‰of Congress with super veto power over bills passed
by the Senate and the House. We cannot concede that
super veto power without wrecking the delicate
architecture of legislative power so carefully laid down in
our Constitution. The clear intent of our fundamental law
is to install a lawmaking structure composed only of two
houses whose members would thoroughly debate proposed
legislations in representation of the will of their respective
constituents. The institution of this law making structure
is unmistakable from the following provisions: (1) requiring
that legislative
10
power shall be vested in a bicameral
legislature; (2) providing for quorum require-
_______________
10 1 Sutherland Statutory Construction § 6:2 (6th ed.): The provision

requiring that legislative power shall be vested in a bicameral legislature
seeks to „assure sound judgment that comes from sepa-
169

VOL. 469, SEPTEMBER 1, 2005 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.‰
12 Const., Article VI, Section 24 (1987); 1 Sutherland Statutory
Construction § 9:6 (6th ed.): The provision helps guarantee that the
exercise of the taxing power is well studied as the lower house is
„presumably more representative in character.‰
13 Const., Article VI, Section 26(1) (1987); I Cooley, A Treatise on
Constitutional Limitations, p. 143; Central Capiz v. Ramirez, 40 Phil. 883
(1920): „In the construction and application of this constitutional
restriction the courts have kept steadily in view the correction of the
mischief against which it was aimed. The object is to prevent the
practice, which was common in all legislative bodies where no such
restrictions existed of embracing in the same bill incongruous matters
having no relation to each other or to the subject specified in the title, by
which measures were often adopted without attracting attention. Such
distinct subjects represented diverse interests, and were combined in
order to unite the members of the legislature who favor either in support
of all. These combinations were corruptive of the legislature and
dangerous to the State. Such omnibus bills sometimes included more
than a hundred sections on as many different subjects, with a title
appropriate to the first section, and for other purposes.‰
„The failure to indicate in the title of the bill the object intended to be
accomplished by the legislation often resulted in members voting

ignorantly for measures which they would not knowingly have approved;
and not only were legislators thus misled, but the public also; so that
legislative provisions were steadily pushed through in the closing hours
of a session, which, having no merit to commend them, would have been
made odious by popular discussion
170

that bills undergo three readings on separate days in each

House prior to passage into law and 14
prohibiting
amendments on the last reading thereof. A Bicameral
Conference Committee with untrammeled powers will
destroy this lawmaking structure. At the very least, it will
diminish the free and open debate of proposed legislations
and facilitate the smuggling of what purports to be laws.
On this point, Mr. Robert LuceÊs disconcerting
observations are apropos:
„Their power lies chiefly in the fact that reports of conference

committees must be accepted without amendment or else rejected
in toto. The impulse is to get done with the matters and so
the motion to accept has undue advantage, for some
members are sure to prefer swallowing unpalatable
provisions rather than prolong controversy. This is more
likely if the report comes in the rush of business toward the end of
the session, when to seek further conference might result in the loss
of the measure altogether. At any time in the session there is some
risk of such a result follow-
_______________
and remonstrance if their pendency had been seasonably announced. The

constitutional clause under discussion is intended to correct these evils; to
prevent such corrupting aggregations of incongruous measures, by confining
each act to one subject or object; to prevent surprise and inadvertence by
requiring that subject or object to be expressed in the title.‰
14 Const., Article VI, Section 26(2) (1987); 1 Sutherland Statutory
Construction § 10:4 (6th ed.); See also IV Laurel, Journal of the (1935)
Constitutional Convention, pp. 436-437, 440-441 where the 1934 Constitutional

Convention noted the anomalous legislative practice of railroading bills on the

last day of the legislative year when members of Congress were eager to go
home. By this irregular procedure, legislators were able to successfully insert
matters into bills which would not otherwise stand scrutiny in leisurely debate;
I Cooley, A Treatise on the Constitutional Limitations, pp. 286-287 (8th ed.);
Smith v. Mitchell, 69 W.Va 481, 72 S.E. 755 (1911): „The purpose of this
provision of the Constitution is to inform legislators and people of legislation
proposed by a bill, and to prevent hasty legislation.‰
171
VOL. 469, SEPTEMBER 1, 2005 171

ing the rejection of a conference report, for it may not be possible to

secure a second conference, or delay may give opposition to the
main proposal chance to develop more strength.
xxx xxx xxx
Entangled in a network of rule and custom, the Representative
who resents and would resist this theft of his rights, finds himself
helpless. Rarely can be vote, rarely can he voice his mind, in the
matter of any fraction of the bill. Usually he cannot even record
himself as protesting against some one feature while accepting the
measure as whole. Worst of all, he cannot by argument or suggested
change, try to improve what the other branch has done.
This means more than the subversion of individual rights. It
means to a degree the abandonment of whatever advantage
the bicameral system may have. By so much it in effect
transfers the lawmaking power to small group of members
who work out in private a decision that almost always
prevails. What is worse, these men are not chosen in a way to
ensure the wisest choice. It has become the practice to name as
conferees the ranking members of the committee, so that the
accident of seniority determines. Exceptions are made, but in
general it is not a question of who are most competent to serve.
Chance governs, sometimes giving way to favor, rarely to merit.
xxx xxx xxx
Speaking broadly, the system of legislating by conference
committee is unscientific and therefore defective. Usually it
forfeits the benefit of scrutiny and judgment by all the
wisdom available. Uncontrolled, it is inferior to that process
by which every amendment is secured independent

15
discussion and vote. . . .‰
_______________
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

It cannot be overemphasized that in a republican form of

government, laws can only be enacted by all the duly
elected representatives of the people. It cuts against
conventional wisdom in democracy to lodge this power in
the hands of a few or in the claws of a committee. It is for
these reasons that the argument that we should overlook
the excesses of the Bicameral Conference Committee
because its report is anyway approved by both houses is a
futile attempt to square the circle for an unconstitutional
act is void and cannot be redeemed by any subsequent
ratification.
Neither can we shut our eyes to the unconstitutional
acts of the Bicameral Conference Committee by holding
that the Court cannot interpose its checking powers over
mere violations of the internal16rules of Congress. In Arroyo,
et al. v. de Venecia, et al., we ruled that when the
violations affect private rights or impair the Constitution,
the Court has all the power, nay, the duty to strike them
down.
In conclusion, I wish to stress that this is not the first
time nor will it be last that arguments will be foisted for
the Court to merely wink at assaults on the Constitution on
the ground of some national interest, sometimes clear and
at other times inchoate. To be sure, it cannot be gainsaid

that the country is in the vortex of a financial crisis. The

broadsheets scream the disconcerting news that our debt
payments for the year 2006 will exceed Pph1 billion daily
for interest alone. Experts underscore some factors that
will further drive up the debt service expenses such as the
devaluation of17the peso, credit downgrades and a spike in
interest rates. But no doomsday scenario will ever justify
the thrashing of the Constitution. The Constitution is
meant to be our rule both in good times as in bad times. It
is the CourtÊs uncompromising obligation to defend the
Constitution at all times lest it be condemned as an
irrelevant relic.
_______________
16 268 SCRA 269, 289 (1997).

17 The Manila Standard Today, August 26, 2005, p. 1.
173
VOL. 469, SEPTEMBER 1, 2005 173

WHEREFORE, I concur with the majority but dissent on

the following points:
a) I vote to withhold judgment on the constitutionality

of the „standby authority‰ in Sections 4 to 6 of
Republic Act No. 9337 as this issue is not ripe for
adjudication.;
b) I vote to declare unconstitutional the deletion by
the Bicameral Conference Committee of the pro
poor „no pass on provision‰ on electricity to
residential consumers as it contravened the
unequivocal intent of both Houses of Congress; and
c) I vote to declare Section 21 of Republic Act No. 9337
as unconstitutional as it contains extraneous
provisions not found in its constituent bills.
SEPARATE OPINION

PANGANIBAN, J.:
The ponencia written by the esteemed Madame Justice Ma.

Alicia Austria-Martinez declares that the enrolled bill
doctrine has been historically and uniformly upheld in our
country. Cited as recent reiterations of this doctrine are
1
the
two Tolentino v. Secretary of 2
Finance judgments and
Fariñas v. Executive Secretary.
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,
_______________
gress and approved by the President.‰ Resins Inc. v. Auditor General,

134 Phil. 697, 700; 25 SCRA 754, 756, October 29, 1968, per Fernando,
J., later C.J.; (citing Casco Philippine Chemical Co., Inc. v. Gimenez, 117

Phil. 363, 366; 7 SCRA 347, 350, February 28, 1963, per Concepciónn, J.,
later C.J.). It is a doctrine that flows as a corollary to the separation of
powers, and by which due respect is given by one branch of government
to the actions of the others. See Morales v. Subido, 136 Phil. 405, 412; 27
SCRA 131, February 27, 1969.
Following Field v. Clark (143 US 649, 12 S.Ct. 495, February 29,
1892), such conclusiveness refers not only to the provisions of the law,
but also to its due enactment. Mabanag v. Lopez Vito, 78 Phil. 1, 13-18,
March 5, 1947.
„[T]he signing of a bill by the Speaker of the House and the Senate
President and the certification of the Secretaries of both [h]ouses of
Congress that it was passed are conclusive of its due enactment.‰
Fariñas v. Executive Secretary, supra, p. 529, per Callejo, Sr., J.
4 Mabanag v. Lopez Vito, supra, p. 12.
5 §1 of Rule 129 of the Rules of Court.
6 The United Kingdom has an uncodified Constitution, consisting of
both written and unwritten sources, capable of evolving to be responsive
to political and social change, and found partly in conventions and
customs and partly in statute. Its Parliament has the power to change or
abolish any written or unwritten element of the Constitution. There is
neither separation of powers nor formal checks and balances. Every bill
drafted has to be approved by both the House of Commons and the House
of Lords, before it receives the Royal Assent and becomes an Act of
Parliament. The House of Lords is the second chamber that complements
the work of the Commons, whose members are elected to represent their
constituents. The first is the House of Commons that alone may start
bills to raise taxes or authorize expenditures. Each bill goes through
several stages in each House. The first stage, called the first reading, is a
mere for-
175
VOL. 469, SEPTEMBER 1, 2005 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,
_______________
mality. The second·the second reading·is when general principles

of the bill are debated upon. At the second reading, the House may
vote to reject the bill. Once the House considers the bill, the third
reading follows. In the House of Commons, no further amendments
may be made, and the passage of the motion amounts to passage of
the whole bill. The House of Lords, however, may not amend a bill
so as to insert a provision relating to taxation.
http://en.wikipedia.org/ wiki/Constitution_of_the_United_Kingdom;
http://www.oefre.unibe. ch/law/icl/uk00000_.html;
www.parliament.uk; and
http://encyclopedia.thefreedictionary.com/British+Parliament (Last
visited August 4, 2005, 11:30am PST).
7See Dissenting Opinion of Puno, J. in Tolentino v. Secretary of
Finance, supra, p. 818.
8Cf. Francisco Jr. v. House of Representatives, 415 SCRA 44,
November 10, 2003.
9 Tolentino v. Secretary of Finance, supra.
10 2nd paragraph, §1 of Article VIII of the 1987 Constitution.
11 Tolentino v. Secretary of Finance, supra.
176


the learned Mr. Justice Vicente V. Mendoza, concedes in

another decision that each house „may not by its rules
ignore constitutional restraints or violate fundamental
rights, and there should be a reasonable relation between
the mode or method of proceeding established 12
by the rule
and the result which is sought to be attained.‰
The Bicameral Conference Committee (BCC) created by
Congress to iron out differences between the Senate and 13
the House of Representatives versions of the E-VAT bills
is one such „branch or instrumentality of the government,‰
over which this Court may exercise certiorari review to
determine whether or not grave abuse of discretion has
been committed; and, specifically, to find out whether the
constitutional conditions, restrictions and limitations on
law-making have been violated.
In general, the BCC has at least five options in
performing its functions: (1) adopt the House version in
part or in toto, (2) adopt the Senate version in part or in
toto, (3) consolidate the two versions, (4) reject non-
conflicting provisions, and (5) adopt completely new
provisions not found in either version. This, therefore, is
the simple question: In the performance of its function of
reconciling conflicting provisions, has the Committee
blatantly violated the Constitution?
My short answer is: No, except those relating to income
taxes referred to in Sections 1, 2 and 3 of Republic Act (RA)
No. 9337. Let me explain.
Adopting the House

Version in Part or In Toto
First, the BCC had the option of adopting the House bills
either in part or in toto, endorsing them without changes.
_______________
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

VOL. 469, SEPTEMBER 1, 2005 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.
Adopting the Senate

Version in Part or In Toto
Second, the BCC may choose to adopt the Senate version

either in part or in toto, endorsing it also without changes.
In so doing, the question of origination arises. Under the
1987 Constitution, all „revenue x x x bills x x x shall
originate exclusively in the House of Representatives, 17
but
the Senate may propose or concur with amendments.‰
If the revenue bill originates exclusively from 18
the
Senate, then obviously the origination provision of the
Constitution
_______________
14 §26(2) of Article VI of the 1987 Constitution.

15 „The purpose for which three readings on separate days is required
is said to be two-fold: (1) to inform the members of Congress of what they
must vote on and (2) to give them notice that a measure is progressing
through the enacting process, thus enabling them and others interested
in the measure to prepare their positions with reference to it.‰ Tolentino
v. Secretary of Finance, supra, p. 647, October 30, 1995, per Mendoza, J.
16 §24 of Article VI of the 1987 Constitution.
17 §24 of Article VI of the 1987 Constitution. The power of the Senate
to propose or concur with amendments is, apparently, without restriction.
By virtue of this power, the Senate can practically rewrite a bill that is
required to come from the House and leave only a trace of the original
bill. See Flint v. Stone Tracy Co., 220 US 107, 31 S.Ct. 342, March 13,
1911.

18 §24 of Article VI of the 1987 Constitution.
178

would be violated. If, however, it originates exclusively

from the House and presumably passes the three-reading
requirement there, then the question to contend with is
whether the Senate amendments complied with the
„germane‰ principle.
While in the Senate, the House version may, per
Tolentino, undergo extensive changes, such that the Senate19
may rewrite not only portions of it but even all of it. I
believe that such rewriting 20 is limited by21the „germane‰
principle: although „relevant‰ or „related‰ to the general
subject of taxation, the Senate version is not necessarily
„germane‰ all the time. The „germane‰ principle
22
requires a
legal·not necessarily an economic or political·
interpretation.
23
There must be an „inherent logical
connection.‰ What may be germane in an economic or
political sense is not necessarily germane in the legal sense.
Otherwise, any provision in the Senate version that is
entirely new and extraneous, or that is remotely or even
slightly connected, to the vast and perplexing subject of
taxation, would always be germane. Under this
interpretation, the origination principle would surely be
rendered inutile.
To repeat, in Tolentino, the Court said that the Senate
may even write its own version, which in effect would be an
_______________
19 Tolentino v. Secretary of Finance, supra, p. 661, August 25, 1994.

20 Garner (ed. in chief), BlackÊs Law Dictionary (8th ed., 2004), p.
708.
21 Statsky, WestÊs Legal Thesaurus/Dictionary (1986), p. 348.
22 To argue that the raising of revenues makes the non-VAT provisions
of a VAT bill automatically germane is to bring legal analysis within the
penumbra of economic scrutiny. The burden or impact of any tax depends
on the relative elasticities of supply and demand and is chiefly a matter

of policy confined within the august halls of Congress. See Pindyck and
Rubinfeld, Microeconomics (5th ed., 2003), pp. 314-317.
23 Exxon Mobil Corp. v. Allapattah Services, Inc., 125 S. Ct. 2611,
2622, June 23, 2005, per Kennedy, J.
179
VOL. 469, SEPTEMBER 1, 2005 179

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
As a third option, the BCC may reach a compromise by

consolidating both the Senate and the House versions. It
can adopt some parts and reject other parts of both bills,
and craft new provisions or even a substitute bill. I believe
this option is viable, provided that there is no violation of
the origination and germane principles, as well as the
three-reading rule. After all, the report generated by the
BCC will not become a

_______________

See Cruz, Philippine Political Law (2002), p. 154.
25 Tolentino v. Secretary of Finance, supra, August 25, 1994, per
Mendoza, J.
26 Cruz, Philippine Political Law (2002), p. 155.
27 Tolentino v. Secretary of Finance, supra, August 25, 1994.
28 Cruz, Philippine Political Law (2002), p. 111.
180

final valid act of the Legislative Department until

29
the BCC
obtains the approval of both houses of Congress.
Standby Authority. I believe that the BCC did not
exceed its authority when it crafted the so-called „standby
authority‰ of the President. The originating
30
bills from the
House imposed a 12 percent VAT rate, while the 31
bill from
the Senate retained the original 10 percent. The BCC
opted to initially use the 10 percent Senate provision and to
increase this rate
_______________

There is no allegation in any of the memoranda submitted to this
Court that the consolidated bill was not approved. In fact, both houses of
Congress voted separately and majority of each house approved it.
30 On the one hand, §§1-3 of House Bill (HB) No. 3555 seek to amend
§§106, 107 & 108 the Tax Code by increasing the VAT rate to 12% on
every sale, barter or exchange of goods or properties; importation of
goods; and sale or exchange of services, including the use or lease of
properties.
§§1-3 of HB 3705, on the other, seek to amend §§106, 107 & 108 the
Tax Code by also increasing the VAT rate to 12% on every sale, barter or
exchange of goods or properties; importation of goods; and sale or
exchange of services, including the use or lease of properties, but
decreasing such rate to 8% on every importation of certain goods; 6% on
the sale, barter or exchange of certain locally manufactured goods; and

4% on the sale, barter or exchange, as well as importation, of petroleum

products subject to excise tax and raw materials to be used in their
manufacture (subject to subsequent increases of such reduced rates), and
on the gross receipts derived from services rendered on the sale of
generated power. The Tax Code referred to in this case is RA 8424,
otherwise known as the „Tax Reform Act of 1997.‰
31 §§4-5 of Senate Bill (SB) No. 1950 seek to amend §§106 & 108 of the
Tax Code by retaining the VAT rate of 10% on every sale, barter or
exchange of goods or properties; and on the sale or exchange of services,
including the use or lease of properties, and the sale of electricity by
generation, transmission, and distribution companies.
181
VOL. 469, SEPTEMBER 1, 2005 181

to the 12 percent House provision, effective January 1,

2006, upon the occurrence of a predetermined factual
scenario as follows:
„(i) [VAT] collection as a percentage of Gross Domestic Product

(GDP) of the previous year exceeds two and four-fifth percent (2
4/5%) or
(ii) National Government Deficit as a percentage of GDP of the
32
previous year exceeds one and one-half percent (1 1/2%).‰
In the computation of the percentage requirements in the

alternative conditions under the33law, the amounts
34
of the
VAT collection, National Deficit, and GDP ·as well as
the interrelationship among them·can easily be derived
by the finance secretary from the proper government bodies
charged with their determination. The law is complete and
standards have
_______________
32 §§4-6 of the consolidated bill amending §§106-108 of the Tax Code,

respectively. Conference Committee Report on HBs 3555 & 3705, and SB
1950, pp. 4-7.
The predetermined factual scenario in the above-cited sections of the
consolidated bill also appears in §§4-6 of Republic Act (RA) No. 9337,

amending the same provisions of the Tax Code. Mathematically, it is

expressed as follows:
VAT Collection > 2.8%

GDP
or
National Government Deficit > 1.5%
GDP
33 A negative budget surplus, or an excess of expenditure over

revenues, is a budget deficit. Dornbusch, Fischer, and Startz,
Macroeconomics (9th ed., 2005), p. 231.
34 GDP refers to the value of all goods and services produced
domestically; the sum of gross value added of all resident institutional
units engaged in production (plus any taxes, and minus any subsidies, on
products not included in the values of their outputs). www.nscb.
gov.ph/sna/default.asp (Last visited July 14, 2005 10am PST).
182

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:
[ItÊs] 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 [letÊs 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, isnÊt it?
„Atty. Gorospe:
Yes, Your Honor.
x x x if itÊs only determined on March 1[,] then how can the law
become effective January 1[.] In other words, how will the [people
be] able to pay the tax if ever that formula is exceeded x x x?‰ (pp.
59-60);
xxx
„Atty. Gana:
Well, x x x it would take a grace period of 6 to 8 months[,]
because obviously, determination could not be made on
January 1, 2006. Yes, they were under the impression that at the
earliest it would take 30 days.
Historically, when [will] these figures [be] available[:] the GDP,
[VAT] collection?‰ (p. 192);
xxx
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:
ThatÊs true, Your Honor, even if there is no discretion.
It will take weeks, or months to be able to determine that?
It will take weeks, or months to be able to determine that?
183
VOL. 469, SEPTEMBER 1, 2005 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
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:
It will be based on actual figures?
„Usec. Bonoan:
It will be based on actual figures.
That creates a problem[,] because where do you get the actual
figures[?]
„Usec. Bonoan:
I understand that[,] traditionally[,] we can come in March, but
there is no impediment to speeding up the gathering.
Speed it up. February 15?
„Usec. Bonoan:
Even within January, Your Honor, I think this can be⁄.
Alright at the end of January, itÊs just estimate to get the figures
in January.
„Usec. Bonoan:
Yes, Your Honor (pp. 661-662); and
xxx
My only point is, I raised this earlier and I promised counsel for the
petitioner whom I was questionin[g] that I will raise it with you,
whether the date January 1, 2006 would present an
impossibility of a condition happening.
„Usec. Bonoan:
It will not, Your Honor.
So, your position [is] it will not present an impossibility. Elaborate

on it in your memorandum.
„Usec. Bonoan:
Yes, Your Honor.
Because it is important. The administrative regulations are
important[,] because they clarify the law and it will guide
taxpayers. So[,] by January 1[,] [taxpayers] would not be
wondering. Do we charge the end consumers 10 [percent] or 12
[percent]? The regulations should be able to spell that out [i]n the
same manner that even now the various consumers of various
products and services must be able to get from your regulations how
much they [would] be charged, how much should gasoline stations
charge in addition to their correct prices, how much carriers should
charge[,] so there [would] be no confusion.
„Usec. Bonoan:
Yes, Your Honor.‰ (boldface supplied; pp. 665-666).
37 Using available statistics, it is approximated that the 2 4/5 percent

has been reached. VAT collection (in million pesos) for the first quarter
alone of 2004 is 83,542.83, or 83 percent of revenue collections amounting
to 100,654.01. Divided into GDP of 13,053, the
184

The taxing power has not been delegated by Congress to

either or both the President and the finance secretary.
What was delegated was only the power to ascertain the
facts in order to bring the law into operation. In fact, there
was really no „delegationÊ to speak of; there was merely a
declaration
38
of an administrative, not a legislative,
function.
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
secretaryÊs personality „is in reality but a projection of that
of Congress.‰

The secretary of finance is not an alter ego of Congress,

but of the President. The mandate given by RA 9337 to the
secretary is not equipollent to an authority to make laws.
In passing this law, Congress did not restrict or curtail the
constitutional power of the President to retain control and
supervision over the entire Executive Department. The law
should be construed to be merely asking the President,
with a recommendation from the PresidentÊs alter ego in
finance matters, to determine the factual
39
bases for making
the increase in VAT rate operative. Indeed, as I have
mentioned earlier, the fact-
_______________
quotient is already 6.4 percent. http://www.nscb.gov.ph/sna/2005/

1stQ2005/2005per1.asp; and the 2003 Bureau of Internal Revenue (BIR)
Annual Report found on www.bir.gov.ph (Last visited July 14, 2005,
10:45am PST).
38 Besides, the use of the word „shall‰ in §§106(A), 107(A) & 108(A) of
the Tax Code, as amended respectively by §§4, 5 & 6 of RA 9337, is
mandatory, imperative and compulsory. See Agpalo, Statutory
Construction (4th ed., 1998), p. 333.
39 See Separate Opinion (Concurring and Dissenting) of Panganiban,
J., in Southern Cross Cement Corp. v. Philippine Cement
185
VOL. 469, SEPTEMBER 1, 2005 185

finding condition is a mere administrative, not legislative,

function.
The ponencia states that Congress merely delegates the
implementation of the law to the secretary of finance. How
then can the latter be its agent? Making a law is different
from implementing it. While the first (the making of laws)
may be delegated under certain conditions and only in
specific instances provided under the Constitution, the
second (the implementation of laws) may not be done by
Congress. After all, the legislature does not have the power
to implement laws. Therefore, congressional agency arises
only in the first, not in the second. The first is a legislative

function; the second, an executive one.

PetitionersÊ argument is that because the GDP does not
account for the economic effects of so-called underground
businesses, it is an inaccurate indicator of either40economic
growth or slowdown in transitional economies. Clearly,
this matter is within the confines of lawmaking. This Court
is neither41 a substitute for the wisdom, or lack of it, in
Congress, nor 42
an arbiter of flaws within the latterÊs
internal rules. Policy matters lie within the domain of the
political
_______________
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.‰
186

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
not ripe for determination because there is no violation yet

of the Constitution regarding the exercise of the PresidentÊs

standby authority has no basis. The question raised is
whether the BCC, in passing the law, committed grave
abuse of discretion, not whether the provision in question
had been violated. Hence, this case is not premature and is,
in fact, subject to judicial determination.
Amendments on Income Taxes. I respectfully submit
that the amendments made by the BCC (that were culled
_______________
Tolentino v. Secretary of Finance, supra, p. 650, October 30, 1995, per

Mendoza, J.
43 The necessity, desirability or expediency of a law must be addressed
to Congress as the body that is responsible to the electorate, for
„legislators are the ultimate guardians of the liberties and welfare of the
people in quite as great a degree [as the] courts.‰ Tolentino v. Secretary of
Finance, supra, p. 650, October 30, 1995, per Mendoza, J.; (citing
Missouri, K. & T. Ry. Co. v. May, 194 US 267, 270, 24 S. Ct. 638, 639,
May 2, 1904, per Holmes, J.)
44 Fariñas v. Executive Secretary, 417 SCRA, 503, 524, December 10,
2003.
45 Flint v. Stone Tracy Co., 220 US 107, 167, 31 S. Ct. 342, 355, March
13, 1911, per Day, J.
„Parliamentary rules are merely procedural, and with their
observance, the courts have no concern. They may be waived or
disregarded by the legislative body.‰ Arroyo v. De Venecia, supra, p. 61,
August 14, 1997, per Mendoza, J.; (citing Osmeña, Jr. v. Pendatun, 109
Phil. 863, 870-871, October 28, 1960, per Bengzon, J.).
187
VOL. 469, SEPTEMBER 1, 2005 187

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:
One, an income tax is a direct tax imposed on actual or
presumed income·gross or49 net·realized by a taxpayer
during a given taxable year, while a VAT is an indirect tax
not in the context of who is directly and legally liable for its
payment, but50 in terms of its nature as „a tax on
consumption.‰ The former 51cannot be passed on to the
consumer, but the latter can. It is too wide a stretch of the
imagination to even relate one concept with the other. In
like manner, it is inconceivable
_______________
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.
188

how the provisions that increase corporate income taxes

can be considered as mitigating measures for increasing the

VAT and, as I will explain later, for effectively imposing a
maximum of 3 percent tax on gross sales or revenues
because of the 70 percent cap. Even the argument that the
corporate income tax rates will be reduced to 30 percent
does not hold water. This reduction will take effect only in
2009, not 2006 when the 12 percent VAT rate will have
been implemented.
Two, taxes on intercorporate dividends are final, but the
input VAT is generally creditable. Under a final
withholding tax system, the amount of income tax that is
withheld by a withholding agent is constituted as a full and
final payment
52
of the income tax due from the payee on said
income. The liability for the tax primarily
53
rests upon the
payor as a withholding agent. Under a creditable
withholding tax system, taxes withheld on certain
payments are meant to approximate
54
the tax that is due of
the payee on said payments. The liability for the tax rests
upon the payee who is mandated by law to still file a tax
return, report the tax base, and pay
55
the difference between
the tax withheld and the tax due.
From this observation alone, it can already be seen that
not only are dividends alien to the tax base upon which the
VAT is imposed, but their respective methods of
withholding are totally different. VAT-registered persons
may not always be nonresident foreign corporations that
declare and pay dividends, while intercorporate dividends
are certainly not goods or properties for sale, barter,
exchange, lease or importation. Certainly, input VAT
credits are different from tax credits on dividends received
by nonresident foreign corporations.
_______________

53 Vitug, Tax Law and Jurisprudence (2nd ed., 2000), p. 188.
55 De Leon, The Law on Transfer and Business Taxation with
Illustrations, Problems, and Solutions (1998), pp. 195-196 & 222-224.
189

VOL. 469, SEPTEMBER 1, 2005 189

Three, itemized deductions from 56

gross income partake of
the nature of a tax exemption. Interest·which is among
such deductions·refers to the amount paid by a 57debtor to a
creditor for the use or forbearance of money. It is an
expense item that is paid or incurred within a given
taxable year on indebtedness in connection with 58
a
taxpayerÊs trade, business or ex ercise of profession. In 59
order to reduce revenue losses, Congress enacted RA 8424
which reduces the amount of interest expense deductible by
a taxpayer from gross income, equal to the applicable 60
percentage of interest income subject to final tax. To
assert that reducing the allowable deduction in interest
expense is a matter that is legally related to the proposed
VAT amendments is too far-fetched. Interest expenses are
not allowed as credits against output VAT. Neither are VAT-
registered persons always liable for interest.
Having argued on the unconstitutionality (non-
germaneness) of the BCC insertions on income taxes, let
me now proceed to the other provisions that were attacked
by petitioners.
No Pass-on Provisions. I agree with the ponencia that
the BCC did not exceed its authority when it deleted the no
pass-on provisions found in the congressional bills. Its
author-
_______________

57 See §78 of Revenue Regulations No. 2-1940, recommended by
Bibiano L. Meer, then Collector of Internal Revenue, and promulgated by
Manuel Roxas, then Secretary of Finance, later President of the Republic
of the Philippines, on February 11, 1941, XXXIX OG 18, 325.
59 RA 8424 refers to the Tax Reform Act of 1997.
60 The 42 percent reduction rate under §3 of RA 9337, amending
§34(B)(1) of the Tax Code, is derived by first subtracting the 20 percent
tax on interest income from the increased tax rate of 35 percent imposed
on domestic, resident foreign, and nonresident foreign corporations, and
then dividing the difference obtained by the increased rate. Hence, it is

computed as follows:
35% - 20% = 15%
15% : 35% = 42%, the amount of reduction.
190

ity to make amendments not only implies the power to

make insertions, but also deletions, in order to resolve
conflicting provisions.
The no pass-on provision in House Bill (HB) No. 3705
referred to the petroleum products subject to excise tax
(and the raw materials used in the manufacture of such
products), the sellers61 of petroleum products, and the
generation companies. The analogous provision in Senate
Bill (SB) No. 1950 dealt with electricity, businesses other
than generation companies, 62 and services of franchise
grantees of electric utilities. In contrast, there was a
marked absence of the no pass-on provision in HB 3555.
Faced with such variances, the BCC had the option of
retaining or modifying the no pass-on provisions and
determining their extent, or of deleting them altogether. In
opting for deletion to resolve the variances, it was merely
acting within its discretion. No grave abuse may be
imputed to the BCC.
The 70 Percent Cap on Input Tax and the 5 Percent
Final Withholding VAT. Deciding on the 70 percent cap
and the 5 percent final withholding VAT in the consolidated
bill is also within the power of the BCC. While HB 3555 in-
_______________
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 SenateÊs
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 RespondentsÊ
Memorandum, pp. 109-110). Notably, the qualified dissent of Senator
Joker Arroyo to the Bicameral Conference Report states that the Senate
version prohibits the power companies from passing on the VAT that they
will pay.
191
VOL. 469, SEPTEMBER 1, 2005 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-
_______________
63 §4 of HB 3555 seeks to amend §110(A) of the Tax Code by limiting to

5% and 11% of their respective total amounts the claim for input tax
credit of capital goods, through equal distribution of the amount of such
claim over their depreciable lives; and of goods and services other than
capital goods, and goods purchased by persons engaged in retail trade.
64 §7 of SB 1950 seeks to amend §110 of the Tax Code by also limiting
the claim for input tax credit of goods purchased or imported for use in
trade or business, through an even depreciation or amortization over the
month of acquisition and the 59 succeeding months, if the aggregate
acquisition cost of such goods exceeds P 660,000.
The depreciation or amortization in the amendments is referred to as
a „spread-out‰ in an unnumbered Revenue Memorandum Circular dated
July 12, 2005, submitted to this Court by public respondents in their
Compliance dated August 16, 2005. Such spread-out recognizes
industries where capital assets are constructed or assembled.
65 No cap is found in HB 3705.
66 §5 of HB 3555 seeks to amend §114 of the Tax Code by requiring

that the VAT be deducted and withheld by the government or by any of

its political subdivisions, instrumentalities or agencies·including
government-owned-and-controlled corporations (GOCCs)·before making
any payment on account of each purchase of goods from sellers and
services rendered by contractors. The VAT deducted and withheld shall
be at the rates of 5% of the gross payment for the purchase of goods and
8% of the gross receipts for services rendered by contractors on every sale
or installment payment. The VAT that is deducted and withheld shall be
creditable against their respective VAT liabilities·10.5%, in case of
government public works contrac-
192

lent amendment, and SB671950 pegged the rates at only 5

percent and 10 percent. I believe that the decision to
impose a final (not creditable) VAT and to fix the rates at 5
percent and 10 percent, so as to harmonize the apparent
differences in all three versions, was also within the sound
discretion of the BCC.
Indeed, the tax credit method under our VAT system is
not only practical, but also principally used in almost all
taxing jurisdictions. This does not mean, however, that in
the eyes of Congress through the BCC, our country can
neither deviate from this method nor modify its application
to suit our fiscal requirements. The VAT is usually collected
through the tax credit method (and in the past, even
through the cost68
deduction method or a mixture of these
two methods), but there is no hard and fast rule that 100
percent of the input taxes will always be allowed as a tax
credit. 69
In fact, it was Maurice Lauré, a French engineer, who
invented the VAT. In 1954, he had the idea of imposing an
indi-
_______________
tors; and 12% of the payments for the lease or use of properties
orproperty rights to nonresident owners.
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-Laur‹©.html (Last
visited August 23, 2005, 3:25pm PST).
193
VOL. 469, SEPTEMBER 1, 2005 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, is
73
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
_______________
70 This refers to a „tax on value added‰·TVA in French and VAT in

English.
71 http://en.wikipedia.org/wiki/ Maurice-Laur‹© (Last visited August
23, 2005, 3:20pm PST).
72 The Transcript of the Oral Arguments in G.R. Nos. 168461, 168463,
168056, and 168207, held on July 14, 2005 at the Supreme Court Session
Hall, show that the act of passing on to consumers is a mere cash flow
problem, as agreed to by counsel for petitioners in G.R. No. 168461:
So, the final consumer pays the tax?
„Atty. Baniqued:
Yes, Your Honor.
The trade people in between the middlemen just take it as an input
and then [collect] it as output, isnÊt it?
Atty. Baniqued:
Yes, Your Honor.
ItÊs just a cash flow problem for them, essentially?
„Atty. Baniqued:
Yes x x x.‰ (p. 375).
73 The 5 percent final withholding tax may also be charged as part of a

supplierÊs Cost of Sales.
194

records of a business. It is not at all confiscated by the 74

government. By deleting Section 112(B) of the Tax Code,
Congress no longer made available tax credit certificates for
such asset account until retirement from or cessation of
business,
75
or changes in or cessation of VAT-registered
status. This is a matter of policy, not legality. The Court
cannot step beyond the confines of its constitutional power,
if there is absolutely no clear showing of grave abuse of
discretion in the enactment of the law.
That the unutilized input 76
VAT would be rendered
useless is merely speculative. Although it is recorded as a
deferred asset in the books of a company, it remains to be a

mere privilege. It may be written off or expensed outright;

it may also be denied as a tax credit.
There is no vested right in a 77deferred input tax account;
it is a mere statutory privilege. The State may modify or
withdraw such privilege,
78
which is merely an asset granted
by operation of law. Moreover, there is no vested right in
gener-
_______________
74 This refers to RA 8424, as amended.

75 In fact, §112(B) of the Tax Code, prior to and after its amendment by
§10 of RA 9337, does not at all prohibit the application of unused input
taxes against other internal revenue taxes. The manner of application is
determined though by the BIR through §4.112-1(b) of Revenue
Regulations No. 14-2005, otherwise known as the „Consolidated VAT
Regulations of 2005,‰ dated June 22, 2005.
76 That the unutilized input VAT can be considered an ordinary and
necessary expense for which a corresponding deduction will be allowed
against gross income under §34(A)(1) of the Tax Code·instead of a
deferred asset·is another matter to be adjudicated upon in proper cases.
77 See United Paracale Mining Co. v. De la Rosa, 221 SCRA 108, 115,
April 7, 1993.
78 The law referred to is not only the Tax Code, but also RA 9298,
otherwise known as the „Philippine Accountancy Act of 2004.‰
195
VOL. 469, SEPTEMBER 1, 2005 195

79
ally accepted accounting principles. These refer to
accounting concepts, measurement techniques, and
standards of presentation in a companyÊs 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
_______________
79 These are based on pronouncements of recognized bodies involved in

setting accounting principles. Greatest weight shall be given to their

pronouncements in the order listed below:
1. Securities and Exchange Commission (SEC);

2. Accounting Standards Council;
3. Standards issued by the International Accounting Standards Board
(now Committee); and
4. Accounting principles and practices for which there has been a long
history of acceptance and usage.
If there appears to be a conflict between any of the bodies listed above,

the pronouncements of the first listed body shall be applied. SEC
Securities Regulation Code Rule 68(1)(b)(iv) as amended, cited in
Appendix „C‰ of Morales, The Philippine Securities Regulation Code
(Annotated), [2005], p. 578.
Recommended by the World Bank and the Asian Development Bank,
and increasingly recognized worldwide, international accounting
standards (IAS) have been merely adopted by Philippine regulatory
bodies and accredited professional organizations. The SEC, for instance,
complies with the agreement among co-members of the International
Organization of Securities Commissions to adopt IAS in order to ensure
high-quality and transparent financial reporting, with full disclosure as a
means to promote credibility and efficiency in the capital markets. In
implementing the General Agreement on Trade in Services, the
Professional Regulatory Board of Accountancy (PRBOA) of the
Professional Regulatory Commission supports the adoption of IAS. The
Philippine Institute of Certified Public Accountants, a member of the
International Accounting Standards Committee (IASC), also has the
commitment to support the work of the IASC and uses best endeavors to
foster compliance with IAS. http://www.picpa.com.ph/adb/index.htm
(Last visited August 23, 2005, 3:15pm PST).
196

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.
The matter of business establishments shouldering 30
percent of output tax and remitting the amount, as
computed, to the government is in effect imposing a tax
that is equivalent
81
to a maximum of 3 percent of gross sales
or revenues. This
_______________
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
197
VOL. 469, SEPTEMBER 1, 2005 197

imposition is arguably another tax on gross·not net·

income and thus a deviation from the concept of VAT as a

tax on consumption; it also assumes that sales or revenues
are on cash basis or, if on credit, given credit terms shorter
than a quarter of a year. However, such additional
imposition and assumption are also arguably within the
power of Congress to make. The State may in fact choose to
impose an additional 3 percent tax on gross income, in lieu
of the 70 percent cap, and thus subject the income of
businesses to two types of taxes·one on gross, the other on 82
net. These impositions may constitute83 double taxation,
which is not constitutionally proscribed.
_______________
stages in the distribution process, and culminating with the sale to the
final consumer. This is the essence of a VAT; it is a tax on the value
added, that is, on the excess of sales over purchases. See Deoferio Jr. &
Mamalateo, The Value Added Tax in the Philippines (2000), pp. 33-34.
With the 70 percent cap on output tax that is allowable as an input tax
credit, the remaining 30 percent becomes an outright expense that is,
however, immediately payable and remitted by the business
establishment to the government. This amount can never be recovered or
passed on to the consumer, but it can be an allowable deduction from
gross income under §34(A)(1) of the Tax Code. In effect, it is a tax
computed by multiplying 30 percent to the 10 percent VAT that is
imposed on gross sales, receipts or revenues. It is not a tax on tax and,
mathematically, it is derived as follows:
30% x 10% = 3% of gross sales, receipts or revenues.
82 „Double taxation means taxing the same property [or subject

matter] twice when it should be taxed only once; that is, Âtaxing the same
person twice by the same jurisdiction for the same thing.Ê‰ 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
198


Besides, prior to the amendments introduced by the BCC,

already extant in the Tax Code was a 3 percent percentage
tax on the gross quarterly sales or receipts of persons who
were not VAT-registered,
84
and whose sales or receipts were
exempt from VAT. This is another type of tax imposed by
the Tax Code, in addition to the tax on their respective
incomes. No question as to its validity was raised before;
none is being brought now. More important, 85
there is a
presumption in favor of constitutionality, „rooted in the
doctrine of separation of powers which enjoins upon the
three coordinate departments of the 86
Government a
becoming courtesy for each otherÊs acts.‰
As to the argument that Section 8 of RA 9337
contravenes Section 1 of Article III and Section 20 of
Article II of the 1987 Constitution, I respectfully disagree.
One, petitioners have not been denied due process or, as
I have illustrated earlier, equal protection. In the exercise
of its inherent power to tax, the State validly interferes
with the right to property of persons, natural or artificial.
Those similarly situated are affected in the same way and
treated alike,
87
„both as to privileges conferred and liabilities
enforced.‰
_______________
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.
199
VOL. 469, SEPTEMBER 1, 2005 199

RA 9337 was enacted precisely to achieve the objective of

raising revenues
88
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 89
congressional procedure for its enactment was followed;
neither public notice nor public hearings were denied.
Two, private enterprises are not discouraged. Tax
burdens are never delightful, but with the imposition of the
70 percent cap, there will be an assurance of a steady cash
flow to the government, which can be translated to the
production of improved goods, rendition of better services,
and construction of better facilities for the people, including
all private enterprises. Perhaps, Congress deems it best to
make our economy depend more on businesses that are
easier to monitor, so there will be a more efficient collection
of taxes. Whatever is expected of the outcome of the law, or
its wisdom, should be the sole responsibility of the
representatives chosen by the electorate.
The profit margin rates of various industries generally
do not change. However, the profit margin figures do,
because these are obviously monetary variables that affect
business, along with the level of competition, the quality of
goods and services offered, and the cost of their production.
And there will inevitably be a conscious desire on the part
of those who engage in business and those who consume
their output to
_______________

88 De Leon, The Fundamentals of Taxation (12th ed., 1998), p. 1.

89 Except, as earlier discussed, for Sections 1, 2 and 3 of the law.
200

adapt or adjust accordingly to any congressional

modification of the VAT system.
In addition, it is contended that the VAT should be
proportional in nature. I submit that this proportionality
pertains to the rate imposable, not the credit allowable.
Private enterprises are subjected to a proportional VAT
rate, but VAT credits need not be. The VAT is, after all, a
human concept that is neither immutable nor invariable.
In fact, it has changed after it was adopted as a system of
indirect taxation by other countries. Again unlike the laws
of physical science, the VAT system can always be modified
to suit modern fiscal demands. The State, through the
Legislative Department, may even choose to do away with
it and revert to our previous system of turnover taxes, sales
taxes and compensating taxes, in which credits may be
disallowed altogether.
Not expensed, but amortized over its useful life, is
capital equipment, which is purchased or treated as capital
leases by private enterprises. Aimed at achieving the twin
objectives of profitability and solvency, such purchase or
lease is a matter of prudence in business decision-making.
Hence, business judgments, sales volume, and their
effect on competition are for businesses to determine and
for Congress to regulate·not for this Court to interfere
with, absent a clear showing that constitutional provisions
have been violated. Tax collection and administrative
feasibility are for the executive branch to focus on, again
not for this Court to dwell upon.
The Transcript of the Oral Arguments on July 14, 2005
clearly point out in a long line of relevant questioning that,
absent a violation of constitutional provisions, the Court
cannot interfere with the 70 percent cap, the 5 percent final
withholding tax, and the 60-month amortization, there
being other extra-judicial remedies available to petitioners,

thus:
„Atty. Baniqued:
But if your profit margin is low as i[n] the case of the
petroleum dealers, x x x then we would have a serious
problem, Your Honor.
201
VOL. 469, SEPTEMBER 1, 2005 201

IsnÊt 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.
That may be true[,] but itÊs 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]tÊs unjust and itÊs unreasonable, Your
Honor.
But it can be passed as a part of sales, sales costs
rather.
„Atty. Baniqued:
But the petroleum dealers here themselves⁄⁄
interrupted
In your [b]alance [s]heet, it could be reflected as Cost
of Sales and therefore the price will go up?

„Atty. Baniqued:
Even if it were to be reflected as part of the Cost of
Sales, Your Honor, the [input VAT] that you cannot
claim, the benefit to you is only to the extent of the
corporate tax rate which is 32 now 35 [percent].
Yes.
„Atty. Baniqued:
ItÊs 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.
That might be true, but we are talking about whether
that particular provision would be unconstitutional.
You say itÊs oppressive, but you have a remedy, you
just pass it on to the customer. I am not sayin[g]
itÊs good[.] [N]either am I saying itÊs wise[.] [A]ll IÊm
talking about is, whether itÊs 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]
202

in the level of the petroleum dealers. Were not even

talking yet of the limitation on the [input VAT]
available to the manufacturers, so, what if they pass
that on as well?
Yes.
„Atty. Baniqued:
Then, it would complicate⁄ interrupted
What I am saying is, there is a remedy, which is
business in character. The mere fact that the
government is imposing that [seventy percent] cap
doesnot make the law unconstitutional, isnÊt it?
„Atty. Baniqued:
It does, Your Honor, if it can be shown. And as we
have shown, it is oppressive and unreasonable, it is
excessive, Your Honor⁄ interrupted
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 itÊs good. All I am
saying is, is it constitutional or not[?] WeÊre not here
to determine the wisdom of the law, thatÊs 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 itÊs [VAT]. If Congress will just
say all petroleum will pay 3 [percent] of their Gross
Sales, but you donÊt bear that, you pass that on, isnÊt
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.
Yes, but the issue here in this Court, is whether that

act of Congress is unconstitutional.
203
VOL. 469, SEPTEMBER 1, 2005 203

„Atty. Baniqued:
Yes, we believe it is unconstitutional, Your Honor.
You have a right to complain that it is oppressive, it is
excessive, it burdens the people too much, but is it
unconstitutional?
„Atty. Baniqued:
Besides, passing it on, Your Honor, may not be as
simple as it may seem. As a matter of fact, at the
strike of midnight on June 30, when petroleum prices
were being changed upward, the [s]ecretary of [the]
Department of Energy was going around[.] [H]e was
seen on TV going around just to check that prices
donÊt go up. And as a matter of fact, he had
pronouncements that, the increase in petroleum price
should only be limited to the effect of 10 [percent] E-
VAT.
ItÊs becaus[e] the implementing rules were not clear
and were not extensive enough to cover how much
really should be the increase for various oil products,
refined oil products. ItÊs up for the dealers to guess,
and the dealers were guessing to their advantage by
saying plus 10 [percent] anyway, right?
„Atty. Baniqued:
In fact, the petroleum dealers, Your Honors, are not
only faced with constitutional issues before this Court.
They are also faced with a possibility of the
Department of Energy not allowing them to pass it
on[,] because this would be an unreasonable price
increase. And so, they are being hit from both sides⁄
interrupted

ThatÊs why I say, that there is need to refine the
implementing rules so that everyone will know, the
customers will know how much to pay for gasoline,
not only gasoline, gasoline, and so on, diesel and all
kinds of products, so thereÊll be no confusion and
thereÊll be no undue taking advantage. There will be a
smooth implementation[,] if the law were to be upheld
by the Court. In your case, as I said, it may be unwise
to pass that on to the customers, but definitely, the
dealers will not bear that [·] to suffer the loss that
you mentioned in your consolidated balance sheets.
Certainly, the dealers will not bear that [cost], isnÊt it?
„Atty. Baniqued:
It will be a very hard decision to make, Your Honor.
204

Why, you will not pass it on?
„Atty. Baniqued:
I cannot speak for the dealers⁄. interrupted.
As a consumer, I will thank you if you donÊt 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
You can find redress here, only if you can show that

the law is unconstitutional.

„Atty. Baniqued:
We realized that, Your Honor.
Alright. LetÊs 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.
And that doesnÊt apply at all times, isnÊt it?
„Atty. Baniqued:
Well⁄⁄
That doesnÊt at all times?
„Atty. Baniqued:
For capital goods costing less than 1 million,
Your Honor, then⁄.
That will not apply?
„Atty. Baniqued:
That will not apply, but you will have the 70
[percent] cap on input [VAT], Your Honor.
Yes, but we talked already about the 70 [percent].
„Atty. Baniqued:
Yes, Your Honor.
When you made your presentation on the balance
sheet, it is as if every capital expenditure you made is
subject to the 5 [percent,] rather the [five year]
depreciation schedule[.] [T]hatÊs not so. So, the
presentation you made is a little inaccurate and
misleading.

„Atty. Baniqued:
At the start of our presentation, Your Honor[,] we
stated clearly that this applies only to capital goods
costing more than one [million].
205
VOL. 469, SEPTEMBER 1, 2005 205

Yes, but you combined it later on with the 70 [percent]
cap to show that the dealers are so disadvantaged.
But you didnÊt 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.
But thatÊs a different profit center, thatÊs not from the
sale of⁄
„Atty. Baniqued:
No, they would form part of their [VATable] sale, Your
Honor.
Justice Panganiban:
ItÊs a different profit center[;] itÊs 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⁄.
Again the solution could b[e] to pass that on,
because thatÊs an added cost, isnÊt it?
„Atty. Baniqued:
Well, yes, you can pass it on⁄.
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
wouldnÊt 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
206

imposition is unreasonable and oppressive, it will

remain so, even after it is passed on, Your Honor.
Alright. LetÊs go to the third. The 5 [percent]
withholding tax, [f]inal [w]ithholding [t]ax, but this
applies to sales to government?
„Atty. Baniqued:
Yes, Your Honor.
So, you can pass on this 5 [percent] to the

[g]overnment. After all, that 5 [percent] will still go

back to the government.
„Atty. Baniqued:
Then it will come back to haunt us, Your Honor⁄..
Why?
„Atty. Baniqued:
By way of, for example sales to NAPOCOR or NTC⁄.
interrupted
Sales of petroleum products⁄.
„Atty. Baniqued:
⁄⁄⁄⁄ in the case of NTC, Your Honor, it would
come back to us by way of increase[d] cost, Your
Honor.
Okay, letÊs see. You sell, letÊs say[,] your petroleum
products to the Supreme Court, as a gas station that
sells gasoline to us here. Under this law, the 5
[percent] withholding tax will have to be charged,
right?
„Atty. Baniqued:
Yes, Your Honor.
You will charge that[.] [T]herefore[,] the sales to the
Supreme Court by that gas station will effectively be
higher?
„Atty. Baniqued:
Yes, Your Honor.
So, the Supreme Court will pay more, you will not [be]
going to [absorb] that 5 [percent], will you?
„Atty. Baniqued:
If it is passed on, Your Honor, thatÊs of course we
agree⁄. Interrupted.

Not if, you can pass it on⁄.
„Atty. Baniqued:
Yes, we can⁄. interrupted
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
VOL. 469, SEPTEMBER 1, 2005 207

final VAT on you so[,] therefore, for every tank full you
buy[,] weÊll 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, isnÊt it[?]
So, how [will] you be affected?
„Atty. Baniqued:
I hope the passing on of the burden, Your Honor,
doesnÊt come back to party litigants by way of increase
in docket fees, Your Honor.
But thatÊs 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 itÊs 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⁄⁄.
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.
Yes, you can pass them on to customers[,] in other
words. ItÊs the customers who should [complain].
„Atty. Baniqued:
Yes, Your Honor⁄ interrupted
And perhaps will not elect their representatives
anymore[.]
„Atty. Baniqued:
Yes, Your Honor⁄..
For agreeing to it, because the wisdom of a law is not
for the Supreme Court to pass upon.
„Atty. Baniqued:
It just so happens, Your Honor, that what is [involved]
here is a commodity that when it goes up, it affects
everybody⁄.
Yes, inflationary and inflammatory⁄.
„Atty. Baniqued:
⁄just like what Justice Puno says it shakes the entire
economic foundation, Your Honor.
208

Yes, itÊs 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[Ês] why we patronize,
Your Honor.
There might be wisdom in what youÊre 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[Â]re not even sure whether⁄.interrupted
Are these constraints [--] legal constraints?
„Atty. Baniqued:
Well, it would be a different story, Your Honor[.]
[T]hatÊs something we probably have to take up
with the Department of Energy, lest [we may] be
accused of ⁄..
In other words, thatÊs your remedy [--] to take it up
with the Department of Energy
„Atty. Baniqued:
⁄..unreasonable price increases, Your Honor.
Not for us to declare those provisions
unconstitutional.
„Atty. Baniqued:
We, again, wish to stress that the petroleum dealers
went to this Court[,] both as businessmen and as
consumers. And as consumers, [weÊre] also going to
bear the burden of whatever they themselves pass on.
You know[,] as a consumer, I wish you can really show
that the laws are unconstitutional, so I donÊt have to
pay it. But as a magistrate of this Court, I will have to
pass upon judgment on the basis of [--] whether the

law is unconstitutional or not. And I hope you can in

your memorandum show that.
„Atty. Baniqued:
We recognized that, Your Honor.‰ (boldface supplied,
pp. 386-410).
Amendments on Other Taxes and Administrative

Matters. Finally, the BCCÊs amendments regarding other
209
VOL. 469, SEPTEMBER 1, 2005 209

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 91
revenues, in the Tax Code.
Either mitigating meas-ures have to be put in place or
increased rates imposed, in
_______________
90 §§13-20 of SB 1950 seek to amend Tax Code provisions on

percentage taxes on domestic carriers and keepers of garages in §117,
and on international carriers in §118; franchise taxes in §119;
amusement taxes in §125; excise taxes on manufactured oils and other
fuels in §148; registration requirements in §236; issuance of receipts or
sales or commercial invoices in §237; and disposition of incremental
revenues in §288.
91 „[T]he removal of the excise tax on diesel x x x and other socially
sensitive products such as kerosene and fuel oil substantially lessened
the impact of VAT. The reduction in import duty x x x also eased the
impact of VAT.‰ Manila Bulletin, „Impact of VAT on prices of oil products
should be less than 10%, says DoE,‰ by James A. Loyola, Business
Bulletin B-3, Friday, July 1, 2005, attached as Annex A to the
Memorandum filed by the Association of Pilipinas Shell Dealers, Inc.
The Transcript of the Oral Arguments in G.R. Nos. 168461, 168463,
168056, and 168207 on July 14, 2005 also reveals the effect of mitigating

measures upon petitioners in G.R. No. 168461:
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.
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
210

order to achieve the purpose of the law, cushion the impact

of increased taxation, and still maintain
92
the equitability
desired of any other revenue law. Directly related to the
proposed VAT changes, these amendments are expected
also to have a salutary effect93on the national economy.
The no-amendment rule in the Constitution was not
violated by the BCC, because no completely new provision
was inserted in the approved bill. The amendments may be
unpopular or even work hardship upon everyone (this
writer included). If so, the remedy cannot be prescribed by
this Court, but by Congress.
Rejecting Non-Conflicting
Provisions
Fourth, the BCC may choose neither to adopt nor to

consolidate the versions presented to it by both houses of
Congress, but instead to reject non-conflicting provisions in
those versions. In other words, despite the lack of conflict
in them, such provisions are still eliminated entirely from
the consolidated bill. There may be a constitutional
problem here.

_______________
products, different services are hit differently. So itÊs not correct to

say that all prices must go up by 10 [percent].
„Atty. Baniqued:
YouÊre right, Your Honor.
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).

211
VOL. 469, SEPTEMBER 1, 2005 211

The no pass-on provisions in the congressional bills are

94
the
only item raised by petitioners concerning deletion. As I
have already mentioned earlier, these provisions were in
conflict. Thus, the BCC exercised its prerogative to remove
them. In fact, congressional rules give the BCC the power
to reconcile disagreeing provisions, and in the process of
reconciliation, to delete them. No other non-conflicting
provision was deleted.
At this point, and after the extensive discussion above, it
can readily be seen no non-conflicting provisions of the E-
VAT bills were rejected indiscriminately by the BCC.
Approving and Inserting

Completely New Provisions
Fifth, the BCC had the option of inserting completely new

provisions not found in any of the provisions of the bills of
either house of Congress, or make and endorse an entirely
new bill as a substitute. Taking this option may be a
blatant violation of the Constitution, for not only will the
surreptitious insertion or unwarranted creation contravene
the „origination‰ principle; it may likewise desecrate 95the

three-reading requirement and the no-amendment rule.
Fortunately, however, the BCC did not approve or insert
completely new provisions. Thus, no violation of the
Constitution was committed in this regard.
Summary
The enrolled bill doctrine is said to be conclusive not only

as to the provisions of a law, but also to its due enactment.
It is not absolute, however, and must yield to mandatory
provisions of the 1987 Constitution. Specifically, this Court
has the
_______________
94 These bills refer to HB 3705 and SB 1950.

95 §26(2), supra.
212

duty of striking down provisions of a law that in their

enactment violate conditions,96 restrictions or limitations
imposed by the Constitution. The Bicameral Conference
Committee (BCC) is a mere creation of Congress. Hence,
the BCC may resolve differences only in conflicting
provisions of congressional bills that are referred to it; and
it may do so only on the condition that such resolution does
not violate the origination, the three-reading, and the no-
amendment rules of the Constitution.
In crafting RA 9337, the BCC opted to reconcile the
conflicting provisions of the Senate and House bills,
particularly those on the 70 percent cap on input tax; the 5
percent final withholding tax; percentage taxes on domestic
carriers, keepers of garages and international carriers;
franchise taxes; amusement taxes; excise taxes on
manufactured oils and other fuels; registration
requirements; issuance of receipts or sales or commercial

invoices; and disposition of incremental revenues. To my

mind, these changes do not violate the origination or the
germaneness principles.
Neither is there undue delegation of legislative power in
the standby authority given by Congress to the President.
The law is complete, and the standards are fixed. While I
concur with the ponenciaÊs view that the President was
given merely the power to ascertain the facts to bring the
law into operation·clearly an administrative, not a
legislative, function·I stress that the finance secretary
remains the Chief ExecutiveÊs alter ego, not an agent of
Congress.
The BCC exercised its prerogative to delete the no pass-
on provisions, because these were in conflict. I believe,
however,
_______________
96 „Each house may not by its rules ignore constitutional restraints or

violate fundamental rights, and there should be a reasonable relation
between the mode or method of proceeding established by the rule and
the result which is sought to be attained.‰ US v. Ballin, 144 US 1, 5, 12
S.Ct. 507, 509, February 29, 1892, per Brewer, J.
213
VOL. 469, SEPTEMBER 1, 2005 213

that it blatantly violated the origination and the

germaneness principles when it inserted provisions not
found in the House versions of the E-VAT Law: (1)
increasing the tax rates on domestic, resident foreign and
nonresident foreign corporations; (2) increasing the tax
credit against taxes due from nonresident foreign
corporations on intercorporate dividends; and (3) reducing
the allowable deduction for interest expense. Hence, I find
these insertions unconstitutional.
Some have criticized the E-VAT Law as oppressive to our
already suffering people. On the other hand, respondents
have justified it by comparing it to bitter medicine that
patients must endure to be healed eventually of their

maladies. The advantages and disadvantages of the E-VAT

Law, as well as its long-term effects on the economy, are
beyond the reach of judicial review. The economic
repercussions of the statute are policy in nature and are
beyond the power of the courts to pass upon.
I have combed through the specific points raised in the
Petitions. Other than the three items on income taxes that
I respectfully submit are unconstitutional, I cannot
otherwise attribute grave abuse of discretion to the BCC, or
Congress for that matter, for passing the law.
„[T]he Court·as a rule·is deferential to the actions
taken by the other branches of government that have
primary responsibility
97
for the economic development of our
country.‰ Thus, in upholding the Philippine ratification of
the treaty establishing the World Trade Organization
(WTO), Tañada v. Angara held that „this Court never
forgets that the Senate, whose act is under review, is one of
two sovereign houses of Congress and is thus entitled to
great respect in its actions. It is itself a constitutional body,
independent and coordinate, and thus its actions are
presumed regular and done in good faith. Unless
convincing proof and persuasive arguments are
_______________
97 Panganiban, Leveling the Playing Field (2004), PRINT-TOWN

Group of Companies, pp. 46-47.
214

presented to overthrow such presumption,

98
this Court will
resolve every doubt in its favor.‰ As pointed our in
Cawaling Jr. v. Comelec, the grounds for nullity of the law
„must be99 beyond reasonable doubt, for to doubt is to
sustain.‰ Indeed, „there must be clear and unequivocal
showing that
100
what the Constitutions prohibits, the statute
permits.‰
WHEREFORE, I vote to GRANT the Petitions in part
and to declare Sections 1, 2, and 3 of Republic Act No. 9337

unconstitutional, insofar as these sections (a) amend the

rates of income tax on domestic, resident foreign, and
nonresident foreign corporations; (b) amend the tax credit
against taxes due from nonresident foreign corporations on
intercorporate dividends; and (c) reduce the allowable
deduction for interest expense. The other provisions are
constitutional, and as to these I vote to DISMISS the
Petitions.
YNARES-SANTIAGO, J.:
The ponencia states that under the provisions of the Rules

of the House of Representatives and the Senate Rules, the
Bicameral Conference Committee is mandated to settle
differences between the disagreeing provisions in the
House bill and Senate bill. However, the ponencia
construed the term „settle‰ as synonymous to „reconcile‰
and „harmonize,‰ and as such, the Bicameral Conference
Committee may either (a) adopt the specific provisions of
either the House bill or Senate
_______________
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
VOL. 469, SEPTEMBER 1, 2005 215

bill, (b) decide that neither provisions in the House bill or

the provisions in the Senate bill would be carried into the

final form of the bill, and/or (c) try to arrive at a
compromise between the disagreeing provisions.
I beg to differ on the third proposition.
Indeed, Section 16(3), Article VI of the 1987 Constitution
explicitly allows each House to determine the rules of its
proceedings. However, the rules must not contravene
constitutional provisions. The rule-making power of
Congress should take its bearings from the Constitution. If
in the exercise of this rule-making power, Congress failed
to set parameters in the functions of the committee and
allowed the latter unbridled authority to perform acts
which Congress itself is prohibited, like the passage of a
law without undergoing the requisite three-reading and the
so-called no-amendment rule, then the same amount to
grave abuse of discretion which this Court is empowered to
correct under its expanded certiorari jurisdiction.
Notwithstanding the doctrine of separation of powers,
therefore, it is the duty of the Court to declare as void a
legislative enactment, either from want of constitutional
power to enact or because the constitutional
1
forms or
conditions have not been observed. When the Court
declares as unconstitutional a law or a specific provision
thereof because procedural requirements for its passage
were not complied, the Court is by no means asserting its
ascendancy over the Legislature, but simply affirming the
supremacy of 2 the Constitution as repository of the
sovereign will. The judicial branch must ensure that
constitutional norms for the exercise of powers vested upon
the two other branches are properly observed. This is the
very essence of judicial authority conferred upon the Court
under Section 1, Article VII of the 1987 Constitution.
_______________
1 Cooley on Constitutional Limitations, 8th Ed., Vol. I, p. 332.

2 Angara v. Electoral Commission, 63 Phil. 139, 158 (1936).
216


The Rules of the House of Representatives and the Rules of

the Senate provide that in the event there is disagreement
between the provisions of the House and Senate bills, the
differences shall be settled by a bicameral conference
committee.
By this, I fully subscribe to the theory advanced in the
Dissenting Opinion of Chief Justice 3 Hilario G. Davide, Jr.
in Tolentino v. Secretary of Finance that the authority of
the bicameral conference committee was limited to the
reconciliation of disagreeing provisions or the resolution of
differences or inconsistencies. Thus, it could only either (a)
restore, wholly or partly, the specific provisions of the House
bill amended by the Senate bill, (b) sustain, wholly or
partly, the SenateÊs amendments, or (c) by way of a
compromise, to agree that neither provisions in the House
bill amended by the Senate nor the latterÊs amendments
thereto be carried into the final form of the former.
Otherwise stated, the Bicameral Conference Committee
is authorized only to adopt either the version of the House
bill or the Senate bill, or adopt neither. It cannot, as the
ponencia proposed, „try to arrive at a compromise,‰ such as
introducing provisions not included in either the House or
Senate bill, as it would allow a mere ad hoc committee to
substitute the will of the entire Congress and without
undergoing the requisite three-reading, which are both
constitutionally proscribed. To allow the committee
unbridled discretion to overturn the collective will of the
whole Congress defies logic considering that the bills are
passed presumably after study, deliberation and debate in
both houses. A lesser body like the Bicameral Conference
Committee should not be allowed to substitute its
judgment for that of the entire Congress, whose will is
expressed collectively through the passed bills.
_______________
3 G.R. Nos. 115455, 115525, 115543, 115544, 115754, 115781, 115852,

115873, 115931, 25 August 1994, 235 SCRA 630, 750.
217
VOL. 469, SEPTEMBER 1, 2005 217

When the Bicameral Conference Committee goes beyond its

limited function by substituting its own judgment for that
of either of the two houses, it violates the internal rules of
Congress and contravenes material restrictions imposed by
the Constitution, particularly on the passage of law. While
concededly, the internal rules of both Houses do not
explicitly limit the Bicameral Conference Committee to a
consideration only of conflicting provisions, it is understood
that the provisions of the Constitution should be read into
these rules as imposing limits on what the committee can
or cannot do. As such, it cannot perform its delegated
function in violation of the three-reading requirement and
the no-amendment rule.
Section 26(2) of Article VI of the 1987 Constitution
provides that:
(2) No bill shall be passed by either House shall become a law

unless it has passed three readings on separate days, and printed
copies thereof in its final form have been distributed to its Members
three days before its passage, except when the President certifies to
the necessity of its immediate enactment to meet a public calamity
or emergency. Upon the last reading of a bill, no amendment hereto
shall be allowed, and the vote thereon shall be taken immediately
Thus, before a bill becomes a law, it must pass three

readings. Hence, the ponenciaÊs 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 committeeÊs version
would no longer undergo the same since it would be
immediately put into vote by the respective houses. In
effect, it is not a bill that was passed by the entire Congress
but by the members of the ad hoc committee only, which of
course is constitutionally infirm.
I disagree that the no-amendment rule referred only to
„the procedure to be followed by each house of Congress
with regard to bills initiated in each of said respective
houses‰ be-

218

cause 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 his4
Dissenting Opinion in Tolentino v. Secretary of Finance,
there is absolutely no legal warrant for the bold submission
that a Bicameral Conference Committee possesses the
power to add/delete provisions in bills already approved on
third reading by both Houses or an ex post veto power.
In view thereof, it is my submission that the
amendments introduced by the Bicameral Conference
Committee which are not found either in the House or
Senate versions of the VAT reform bills, but are inserted
merely by the Bicameral Conference Committee and
thereafter included in Republic Act No. 9337, should be
declared unconstitutional. The insertions and deletions
made do not merely settle conflicting provisions but
materially altered the bill, thus giving rise to the instant
petitions.
I, therefore, join the concurring and dissenting opinion
of Mr. Justice Reynato S. Puno.
SANDOVAL-GUTIERREZ, J.:
Adam Smith, the great 18th-century political economist,

enunciated the dictum that „the subjects of every state
ought to contribute to the support of government, as nearly
as possible, in proportion to their respective abilities; that is,
in proportion to the revenue which they respectively enjoy

under
_______________
4 Supra, p. 811.
219
VOL. 469, SEPTEMBER 1, 2005 219

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:
1. It is „high time to re-examine the test of

germaneness proffered in Tolentino‰;
2. The Bicameral Conference Committee „cannot
exercise its unbridled discretion,‰ „it cannot create
a new law,‰ and its deletion of the „no pass on
provision‰ common in both Senate Bill No. 1950 and
House Bill No. 3705 is „unconstitutional.‰
In addition to the above points raised by Mr. Senior Justice

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

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


two and four-fifth percent (2 4/5%); or
(1 1/2%).
_______________
1 Book V of The Wealth of Nations.
220

This proviso on the authority of the President is uniformly

appended to Sections 4, 5 and 6 of R.A. No. 9337, provisions
amending Sections 106, 107 and 108 of the NIRC,
respectively. Section 4 imposes a 10% VAT on sales of goods
and properties, Section 5 imposes a 10% VAT on
importation of goods, and Section 6 imposes a 10% VAT on
sale of services and use or lease of properties.
2 3 4
Petitioners in G.R. Nos. 168056, 168207 and 168463
assail the constitutionality of the above provisions on the
ground that such stand-by authority granted to the
President constitutes: (1) undue delegation of legislative
power; (2) violation of due process; and (3) violation of the
principle of „ex-clusive origination.‰ They cited as their
basis Article VI, Section 28 (2); Article III, Section 1; and
Article VI, Section 24 of the Constitution.
I Undue Delegation of Legislative Power

5
Taxation is an inherent attribute of sovereignty. It is a
power that is purely legislative and which the central
legislative body cannot delegate either to the executive or
judicial
_______________

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

Alcantara and Ed Vincent S. Albano.
3 Aquilino Q. Pimentel, Jr., Luisa P. Ejercito-Estrada, Jinggoy E.
Estrada, Panfilo M. Lacson, Alfredo S. Lim, Jamby A.S. Madrigal and
Sergio R. Osmenña III.
4 Francis Joseph G. Escudero, Vincent Crisologo, Emmanuel Joel J.
Villanueva, Rodolfo G. Plaza, Darlene Antonino-Custodio, Oscar G.
Malapitan, Benjamin C. Agarao, Jr., Juan Edgardo M. Angara, Justin
Marc SB. Chipeco, Florencio G. Noel, Mujiv S. Hataman, Renato B.
Magtubo, Joseph A. Santiago, Teofisto DL. Guingona III, Ruy Elias C.
Lopez, Rodolfo Q. Agbayani and Teodoro A. Casiño.
5 Luzon Stevedoring Co. vs. Court of Tax Appeals, L-302332, July 29,
1998, 163 SCRA 647 cited in Vitug, Acosta, Tax Law and Jurisprudence,
Second Edition, at p. 7.
221
VOL. 469, SEPTEMBER 1, 2005 221

department of government without 6

infringing upon the
theory of separation of powers. The rationale of this
doctrine may be traced from the democratic principle of „no
taxation without representation.‰ The power of taxation
being so pervasive, it is in the best interest of the people
that such power be lodged only in the Legislature.
Composed of the peopleÊs representatives, it is „closer to the
pulse of the people and⁄ are therefore in a better position
to determine both the extent of the legal burden the 7people
are capable of 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.
R.A. No. 9337, in granting to the President the stand-by
authority to increase the VAT rate from 10% to 12%, the
Legislature abdicated its power by delegating it to the
President. This is constitutionally impermissible. The
Legislature may not escape its duties and responsibilities
by delegating its power to any other body or authority. Any
attempt to abdicate the power is unconstitutional and void,
on the principle that
_______________
6 Pepsi Cola Bottling Company of the Philippines vs. Municipality of

Tanauan, Leyte, G.R. No. L-31156, February 27, 1976, 69 SCRA 460. See
also National Power Corporation vs. Albay, G.R. No. 87479, June 4, 1990,
186 SCRA 198.
7 Bernas, S.J., The 1987 Constitution of the Republic of the
Philippines, A Commentary, 1996 Edition, at p. 687.
222

8
potestas delegata non delegare potest. As Judge Cooley
enunciated:
„One of the settled maxims in constitutional law is, that the power
conferred upon the legislature to make laws cannot be delegated by
that department to any other body or authority. Where the
sovereign power of the state has located the authority, there
it must remain; and by the constitutional agency alone the
laws must be made until the Constitution itself is changed.
The power to whose judgment, wisdom, and patriotism this high
prerogative has been entrusted cannot relieve itself of the
responsibility by choosing other agencies upon which the power
shall be devolved, nor can it substitute the judgment, wisdom, and
patriotism of any other body for those to which alone the people
9
have seen fit to confide this sovereign trust.‰
Of course, the rule which forbids the delegation of the

power of taxation is not absolute and inflexible. It admits of

exceptions. Retired Justice Jose C. Vitug enumerated such

exceptions, to wit: (1) delegations to local governments (to
be exercised by the local legislative bodies thereof) or
political subdivisions; (2) delegations allowed by the
Constitution; and (3) delegations relating merely to
administrative implementation that may call for some
degree of discretionary powers10
under a set of sufficient
standards expressed by law.
Patently, the act of the Legislature in delegating its
power to tax does not fall under any of the exceptions.
First, it does not involve a delegation of taxing power to
the local government. It is a delegation to the President.
Second, it is not allowed by the Constitution. Section 28
(2), Article VI of the Constitution enumerates the charges
or duties, the rates of which may be fixed by the President
pursuant to a law passed by Congress, thus:
_______________
8 People vs. Vera, 65 Phil. 56 (1937).

9 Cooley on Constitutional Limitations, 8th ed., Vol. I, p. 224.
10 Vitug, Acosta, Tax Law and Jurisprudence, Second Edition, at pp. 8-
9.
223
VOL. 469, SEPTEMBER 1, 2005 223

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

specified limits, and subject to such limitations and restrictions as
it may impose, tariff rates, import and export quotas, tonnage
and wharfage dues, and other duties or imposts within the
framework of the national development program of the
Government.
Noteworthy is the absence of tax rates or VAT rates in the

enumeration. If the intention of the Framers of the
Constitution is to permit the delegation of the power to fix
tax rates or VAT rates to the President, such could have
been easily achieved by the mere inclusion of the term „tax
rates‰ or „VAT rates‰ in the enumeration. It is a dictum in

statutory construction that what is expressed puts an 11

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 Section12
28 (2), Article
13
VI expressly speaks14
only of15 „tariff rates, import and export quotas,
tonnage and wharfage
_______________
11 Espiritu vs. Cipriano, G.R. No. 32743, February 15, 1974, 55 SCRA
533, 538, citing Sutherlands Statutory Construction, Vol. 2, Section 4945,
p. 412.
12 A tariff is a list or schedule of articles on which a duty is imposed
upon their importation, with the rates at which they are severally taxed,
it is also the custom or duty payable on such articles. (BlackÊs Law
Dictionary [6th Edition], 1990, at p. 1456).
13 An import quota is a quantitative restriction on the importation of
an article into a country, and is a remedy available to the executive
department upon its determination that an imported article threatens
serious injury to a domestic industry. (Id., at p. 755).
14 An export quota is an amount of specific goods which may be
exported and are set by the government for purposes of national defense,
economic stability and price support. (Id., at p. 579).
15 Tonnage dues are duties laid upon vessels according to their
tonnage or cubical capacity. (Id., at p. 1488).
224

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 of any other appointee or

18
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.
_______________
16 Wharfage dues are generally understood to be the fees paid for

landing goods upon or loading them from a wharf. It is a charge for the
use of the wharf and may be treated either as rent or compensation.
(Marine Lighterage Corp. vs. Luckenbach S.S. Co., 119 Misc. 612, 248
NYS 71).
17 A duty is generally understood to be a tax on the importation or
exportation of goods, merchandise and other commodities, while imposts
are duties or impositions levied for various reasons. (Crew Levick Co. vs.
Commonwealth of Pennsylvania, 245 US 292, 62 L. Ed. 295, 38 S. Ct.
126).
18 People vs. Vera, supra.
225
VOL. 469, SEPTEMBER 1, 2005 225

The two conditions set forth by law would have been

sufficient had it not been for the fact that the President,
being at the helm of the entire officialdom, has more than
enough power of control to bring about the existence of
such conditions. Obviously, R.A. No. 9337 allows the
President to determine for herself whether the VAT rate

shall be increased or not at all. The fulfillment of the

conditions is entirely placed in her hands. If she wishes to
increase the VAT rate, all she has to do is to strictly enforce
the VAT collection so as to exceed the 2 4/5% ceiling. The
same holds true with the national government deficit. She
will just limit government expenses so as not to exceed the
1 1/2% ceiling. On the other hand, if she does not wish to
increase the VAT rate, she may discourage the Secretary of
Finance from making the recommendation.
That the PresidentÊs 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 19
been
done but by what may be done under its provisions.
II Violation of Due Process
The constitutional safeguard of due process is briefly

worded in Section 1, Article III of the Constitution which
states that, „no person shall be deprived
20
of life, liberty or
property without due process of law.‰
Substantive due process requires the intrinsic validity of
the law in interfering with the rights of the person to his
property. The inquiry in this regard is not whether or not
the law is being enforced in accordance with the prescribed
man-
_______________
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

ner but whether or not, to begin with, it is a proper exercise

of legislative power.

To be so, the law must have a valid governmental

objective, i.e., the interest of the public as distinguished
from those of a particular class, requires the intervention of
the State. This objective must be pursued in a lawful
manner, or in other words, the means employed must be
reasonably related to the accomplishment of the purpose
and not unduly oppressive.
There is no doubt that R.A. No. 9337 was enacted
pursuant to a valid governmental objective, i.e. to raise
revenues for the government. However, with respect to the
means employed to accomplish such objective, I am
convinced that R.A. No. 9337, particularly Sections 4, 5 and
6 thereof, are arbitrary and unduly oppressive.
A reading of the Senate deliberation reveals that the
first condition constitutes a reward to the President for her
effective collection of VAT. Thus, the President may
increase the VAT rate from 10% to 12% if her VAT
collection during the previous year exceeds 2 4/5% of the
Gross Domestic Product. I quote the deliberation:
Senator Lacson.
Thank you, Mr. President. Now, I will go back to my
original question, my first question. Who are we
threatening to punish on the imposed condition No. 1
·the public or the President?
Senator Recto.
That is not a punishment, that is supposed to be
a reward system.
Senator Lacson.
Yes, an incentive. So we are offering an
incentive to the Chief Executive.
Senator Recto.
That is right.
Senator Lacson.
·In order for her to be able to raise the VAT to
12 %.
Senator Recto.
That is right. That is the intention, yes.
xxx xxx

227
VOL. 469, SEPTEMBER 1, 2005 227

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
Why authorize the President to increase the VAT rate on

the premise alone that she deserves an „incentive‰ or
„reward‰? Indeed, why should she be rewarded for
performing a duty reposed upon her by law?

The rationale stated by Senator Recto is flawed. One of

the principles of sound taxation is fiscal adequacy. The
proceeds of tax revenue should coincide with, and
approximate the needs of, government expenditures.
Neither an excess nor a
_______________
21 TSN, May 10, 2005, Annex ÂE‰ of the Petition in G.R. No. 168056.
228

deficiency of revenue vis-à-vis the needs

22
of government
would be in keeping with the principle.
Equating the grant of authority to the President to
increase the VAT rate with the grant of additional
allowance to a studious son is highly inappropriate. Our
Senators must have forgotten that for every increase of
taxes, the burden always redounds to the people. Unlike
the additional allowance given to a studious son that comes
from the pocket of the granting parent alone, the increase
in the VAT rate would be shouldered by the masses. Indeed,
mandating them to pay the increased rate as an award to
the President is arbitrary and unduly oppressive. Taxation
is not a power to be exercised at oneÊs whim.
III Exclusive Origination from the

House of Representatives
Section 24, Article VI of the Constitution provides:
SEC. 24. All appropriations, revenue or tariff bills, bills

private bills shall originate exclusively in the House of
amendments.
23
In Tolentino vs. Secretary of Finance, this Court
expounded on the foregoing provision by holding that:

„x x x To begin with, it is not the law·but the revenue bill·which

is required by the Constitution to Âoriginate exclusively in the
House of Representatives. It is important to emphasize this,
because a bill originating the in the House may undergo such
extensive changes in the Senate that the result may be a rewriting
of the whole x x x. At this point, what is important to note is that,
as a result of the Senate action, a distinct bill may be produced. To
insist
_______________
22 Vitug, Acosta, Tax Law and Jurisprudence, Second Edition, at p. 3.

23 G.R. No. 115455, August 25, 1994, 235 SCRA 630.
229
VOL. 469, SEPTEMBER 1, 2005 229

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
SenateÊs power not only to Âconcur with amendments: but also to
Âpropose amendments.Ê It would be to violate the co-equality of the
legislative power of the two houses of Congress and in fact, make
the House superior to the Senate.‰
The case at bar gives us an opportunity to take a second

hard look at the efficacy of the foregoing jurisprudence.
Section 25, Article VI is a verbatim re-enactment of
Section 18, Article VI of the 1935 Constitution. The latter
provision was modeled from Section 7 (1), Article I of the
United States Constitution, which states:
„All bills for raising revenue shall originate in the House of

amendments, as on other bills.‰
The American people, in entrusting what James Madison

termed „the power of the purse‰ to their elected
representatives, drew inspiration from the British practice
and experience with the House of Commons. As one
commentator puts it:

„They knew the inestimable value of the House of Commons, as a

component branch of the British parliament; and they believed that
it had at all times furnished the best security against the
oppression of the crown and the aristocracy. While the power of
taxation, of revenue, and of supplies remained in the hands
of a popular branch, it was difficult for usurpation to exist
for any length of time without check, and prerogative must
yield of that necessity which controlled at once the sword
and the purse.‰
But while the fundamental principle underlying the

vesting of the power to propose revenue bills solely in the
House of Representatives is present in both the Philippines
and US Constitutions, stress must be laid on the
differences between
230

the two quoted provisions. For one, the word „exclusively‰

appearing in Section 24, Article VI of our Constitution is
nowhere to be found in Section 7 (1), Article I of the US
Constitution. For another, the phrase „as on other bills,‰
present in the same provision of the US Constitution, is not
written in our Constitution.
The adverb
24
„exclusively‰ means „in an exclusive
manner.‰ The term „exclusive‰ is defined as „excluding or
having power to exclude; 25
limiting to or limited to; single,
sole, undivided, whole.‰ In one case, this Court define the
term „exclusive‰ as „possessed to the exclusion of others;
appertaining to the subject alone, not26
including, admitting,
or pertaining to another or others.‰
As for the term „originate,‰ its meaning are „to cause the
beginning of; to give rise to; to initiate; to start on a course
or journey; to 27take or have origin; to be deprived; arise;
begin or start.‰
With the foregoing definitions in mind, it can be
reasonably concluded that when Section 24, Article VI
provides that revenue bills shall originate exclusively from
the House of Representatives, what the Constitution

mandates is that any revenue statute must 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.‰28It is no consequence what amendments the Senate
adds.
_______________
24 Merriam-WebsterÊs Third New International Dictionary (1993 Ed.),

at p. 793.
25 Id.
26 City Mayor vs. The Chief of Philippine Constabulary, G.R. No.
20346, October 31, 1967, 21 SCRA 665, 673.
at p. 1592.
28 Davies, Legislative Law and Process, (2d. Ed. 1986), at p. 89.
231
VOL. 469, SEPTEMBER 1, 2005 231

A perusal of the legislative history of R.A. No. 9337 shows

that it did not „exclusively originate‰ from the House of
Representatives.
The
29
House of 30
Representatives approved House Bill Nos.
3555 and 3705. These Bills intended to amend Sections
106, 107, 108, 109, 110, 111 and 114 of the NIRC. 31
For its
part, the Senate approved Senate Bill No. 1950, taking
into consideration House Bill Nos. 3555 and 3705. It
intended to amend Sections 27, 28, 34, 106, 108, 109, 110,
112, 113, 114, 116, 117, 119, 121, 125, 148, 151, 236, 237
and 288 of the NIRC.
Thereafter, on April 13, 2005, a Committee Conference
was created to thresh out the disagreeing provisions of the
three proposed bills.
In less than a month, the Conference Committee „after
having met and discussed in full free and conference,‰ came
up with a report and recommended the approval of the
consolidated version of the bills. The Senate and the House
of Representatives approved it.

On May 23, 2005, the enrolled copy of the consolidated

version of the bills was transmitted to President Arroyo,
who signed it into law. Thus, the enactment of R.A. No.
9337, entitled „An Act Amending Sections 27, 28, 34, 106,
107, 108, 109, 110, 111, 112, 113, 114, 116, 117, 119, 121,
148, 151, 236,
_______________
29 Entitled „An Act Restructuring the Value-Added Tax, Amending for

the Purpose Sections 106, 107, 108, 110 and 114 of the National Internal
Revenue Code of 1997, As amended, and For Other Purposes.‰ Approved
on January 27, 2005.
30 Entitled „An Act Amending Sections 106, 107, 108, 109, 110 and 111
of the National Internal Revenue Code of 1997, As Amended, and For
Other Purposes.‰ Approved on February 28, 2005.
31 Entitled „An Act Amending Sections 27, 28, 34, 106, 108, 109, 110,
112, 113, 114, 116, 117, 119, 121, 125, 148, 151, 236, 237 and 288 of the
National Internal Revenue Code of 1997, As Amended, and For Other
Purposes.‰ Approved on April 13, 2005.
232

237 and 288 of the National Internal Revenue Code of 1997,

As Amended and For Other Purposes.‰
Clearly, Senate Bill No. 1950 is not based on any bill
passed by the House of Representatives. It has a legislative
identity and existence separate and apart from House Bills
No. 3555 and 3705. Instead of concurring or proposing
amendments, Senate Bill No. 1950 merely „takes into
consideration‰ the two House Bills. To take into
consideration means „to take into account.‰ Consideration,
in this sense, means
32
„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
33
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.
The facts obtaining here is very much different from
Tolentino. It is very apparent that House Bills No. 3555
and 3705 merely intended to amend Sections 106, 107, 108,
109, 110, 111 and 114 of the NIRC of 1997, pertaining to
the VAT provisions. On the other hand, Senate Bill No.
1950 intended to amend Sections 27, 28, 34, 106, 108, 109,
110, 112, 113, 114, 116, 117, 119, 121, 125, 148, 151, 236,
237 and 288 of the NIRC, pertaining to matters outside of
VAT, such as income
_______________

at p. 484.
33 Supra.
233
VOL. 469, SEPTEMBER 1, 2005 233

tax, percentage tax, franchise tax, taxes on banks and

other financial intermediaries, excise taxes, etc.
Thus, I am of the position that the Senate could not,
without violating the germaneness rule and the principle of
„exclusive origination,‰ propose tax matters not included in
the House Bills.
WHEREFORE, I vote to CONCUR with the majority
opinion except with respect to the points above-mentioned.
CALLEJO, SR., J.:

I join the concurring and dissenting opinion of Mr. Justice

Reynato S. Puno as I concur with the majority opinion but
vote to declare as unconstitutional the deletion of the „no-
pass on provision‰ contained in Senate Bill No. 1950 and
House Bill No. 3705 (the constituent bills of Republic Act
No. 9337).
The present petitions provide an opportune

occasion for the Court to re-examine
Tolentino v. Secretary of Finance
In ruling that Congress, in enacting R.A. No. 9337,

complied with the formal requirements of the Constitution,
the ponencia relies mainly on the 1
CourtÊs rulings in
Tolentino v. Secretary of Finance. To recall, Tolentino
involved Republic Act No. 7716, which similarly amended
the NIRC by widening the tax base of the VAT system. The
procedural attacks against R.A. No. 9337 are substantially
the same as those leveled against R.A. No. 7716, e.g.,
violation of the „Origination Clause‰ (Article VI, Section 24)
and the „Three-Reading Rule‰ and the „No-Amendment
Rule‰ (Article VI, Section 26[2]) of the Constitution.
_______________
1 G.R. No. 115455, 25 August 1994, 235 SCRA 630.
234

The present petitions provide an opportune occasion for the

Court to re-examine its rulings in Tolentino particularly
with respect to the scope of the powers of the Bicameral
Conference Committee vis-à-vis Article VI, Section 26(2) of
the Constitution.
The crucial issue posed by the present petitions is
whether the Bicameral Conference Committee may validly
introduce amendments that were not contained in the
respective bills of the Senate and the House of
Representatives. As a corollary, whether it may validly

delete provisions uniformly contained in the respective bills

of the Senate and the House of Representatives.
In Tolentino, the Court declared as valid amendments
introduced by the Bicameral Conference Committee even if
these were not contained in the Senate and House bills.
The majority opinion therein held:
„As to the possibility of an entirely new bill emerging out of a

Conference Committee, it has been explained:
Under congressional rules of procedures, conference committees are not

expected to make any material change in the measure at issue, either by
deleting provisions to which both houses have already agreed or by
inserting new provisions. But this is a difficult provision to enforce. Note
the problem when one house amends a proposal originating in either
house by striking out everything following the enacting clause and
substituting provisions which make it an entirely new bill. The versions
are now altogether different, permitting a conference committee to draft
essentially a new bill ⁄
The result is a third version, which is considered an „amendment

in the nature of a substitute,‰ the only requirement for which being
that the third version be germane to the subject of the House and
Senate bills.
Indeed, this Court recently held that it is within the power of a
conference committee to include in its report an entirely new
provision that is not found either in the House bill or in the Senate
Bill. If the committee can propose an amendment consisting of one
or two provisions, collectively considered as an „amendment in the
nature
235
VOL. 469, SEPTEMBER 1, 2005 235

of a substitute,‰ so long as such an amendment is germane to the

subject of the bills before the committee. After all, its report was not
final but needed the approval of both houses of Congress to become
valid as an act of the legislative department. The charge that in this
case the Conference Committee acted a third legislative chamber is
2
thus without any basis.‰

The majority opinion in Tolentino relied mainly on the

practice of the United States legislature in making the
foregoing disquisition. It was held, in effect, that following
the US CongressÊ practice where a conference committee is
permitted to draft a bill that is entirely different from the
bills of either the House of Representatives or Senate, the
Bicameral Conference Committee is similarly empowered
to make amendments not found in either the House or
Senate bills.
The ponencia upholds the acts of the Bicameral
Conference Committee with respect to R.A. No. 9337,
following the said ruling in Tolentino.
To my mind, this unqualified adherence by the majority
opinion in Tolentino, and now by the ponencia, to the
practice of the US Congress and its conference committee
system ought to be re-examined. There are significant
textual differences between the US Federal ConstitutionÊs
and our ConstitutionÊs prescribed congressional procedure
for enacting laws. Accordingly, the degree of freedom
accorded by the US Federal Constitution to the US
Congress markedly differ from that accorded by our
Constitution to the Philippine Congress.
Section 7, Article I of the US Federal Constitution reads:
[1] All Bills for raising Revenue shall originate in the House of
Representatives; but the Senate may propose or concur with
Amendments as on other Bills.
[2] Every Bill which shall have passed the House of
Representatives and the Senate, shall, before it become a Law, be
presented to the President of the United States; If he approve he
shall
_______________
2 Tolentino v. Secretary of Finance, supra, at pp. 667-668.
236

it, but if not he shall return it, with his Objections to the House in

which it shall have originated, who shall enter the Objections at

large on their Journal, and proceed to reconsider it. If after such
Reconsideration two thirds of that House shall agree to pass the
Bill, it shall be sent together with the Objections, to the other
House, by which it shall, likewise, be reconsidered, and if approved
by two thirds of that House, it shall become a Law. But in all such
Cases the Votes of both Houses shall be determined by yeas and
nays, and the Names of the Persons voting for and against the Bill
shall be entered on the Journal of each House respectively. If any
Bill shall not be returned by the President within ten Days
(Sundays excepted) after it shall have been presented to him, the
Same shall be a Law, in like Manner as if he had signed it, unless
the Congress by their Adjournment prevent its return in which
Case it shall not be a Law.
[3] Every Order, Resolution, or Vote to Which the Concurrence of
the Senate and House of Representatives may be necessary (except
on a question of Adjournment) shall be presented to the President of
the United States; and before the Same shall take Effect, shall be
approved by him, or being disapproved by him, shall be repassed by
two thirds of the Senate and House of Representatives, according to
the Rules and Limitations prescribed in the Case of a Bill.
On the other hand, Article VI of our Constitution

prescribes for the following procedure for enacting a law:
Sec. 26. (1) Every bill passed by Congress shall embrace only one
subject which shall be expressed in the title thereof.
(2) No bill passed by either House shall become a law unless it
has passed three readings on separate days, and printed copies
thereof in its final form have been distributed to its Members three
days before its passage, except when the President certifies to the
necessity of its immediate enactment to meet a public calamity or
emergency. Upon the last reading of a bill, no amendment thereto
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
237
VOL. 469, SEPTEMBER 1, 2005 237

shall enter the objections at large in its Journal and proceed to

reconsider it. If, after such reconsideration, two-thirds of all the
Members of such House shall agree to pass the bill, it shall be sent,
together with the objections, to the other House by which it shall
likewise be reconsidered, and if approved by two-thirds of all the
Members of that House, it shall become a law. In all such cases, the
votes of each House shall be determined by yeas and nays, and the
names of the Members voting for or against shall be entered in its
Journal. The President shall communicate his veto of any bill to the
House where it originated within thirty days after the date of
receipt thereof; otherwise, it shall become a law as if he had signed
it.
(2) The President shall have the power to veto any particular
item or items in an appropriation, revenue, or tariff bill, but the
veto shall not affect the item or items to which he does not object.
Two distinctions are readily apparent between the two

procedures:
1. Unlike the US Federal Constitution, our

Constitution prescribes the „three-reading‰ rule or
that no bill shall become a law unless it shall have
been read on three separate days in each house
except when its urgency is certified by the
President; and
2. Unlike the US Federal Constitution, our
Constitution prescribes the „no-amendment‰ rule or
that no amendments shall be allowed upon the last
reading of the bill.
American constitutional experts have lamented that

certain congressional procedures have not been entrenched
in the US Federal Constitution. According to a noted
constitutional law professor, the absence of the „three-
reading‰ requirement as well as similar legislative-
procedure rules from
3
the US Federal Constitution is a
„cause for regret.‰
_______________
3 See, for example, Vermuele, A., The Constitutional Law of

Congressional Procedure, 71 U. Chi. L. Rev. 361 (Spring 2004).
238

In this connection, it is interesting to note that the

conference committee system in the US Congress has been
described in this wise:
Conference Committees
Another main mechanism of joint House and Senate action is the

conference committee. Inherited from the English Constitution, the
conference committee system is an evolutionary product whose
principal threads were woven on the loom of congressional practice
into a unified pattern by the middle of the nineteenth century. „By
1852,‰ writes Ada McCown, historian of the origin and development
of the conference committee, „the customs of presenting identical
reports from the committees of conference in both houses, of
granting high privilege to these conference reports, of voting upon
the conference report as a whole and permitting no amendment of
it, of keeping secret the discussions carried on in the meetings of
the conference committee, had become established in American
parliamentary practice.‰
Conference committees are composed of Senators and
Representatives, usually three each, appointed by the presiding
officers of both houses, for the purpose of adjusting differences
between bills they have passed. This device has been extensively
used by every Congress since 1789. Of the 1157 laws enacted by the
78th Congress, for example, 107 went through conference and, of
these, 36 were appropriation bills on which the House had
disagreed to Senate amendments. In practice, most important
legislation goes through the conference closet and is there revised,
sometimes beyond recognition, by the all-powerful conferees or
managers, as they are styled. A large body of law and practice has
been built up over the years governing conference procedure and
reports.
Suffice it to say here that serious evils have marked the
development of the conference committee system. In the first place, it
is highly prodigal of membersÊ time. McConachie calculated that the

average time consumed in conference was 33 days per bill. Bills are
sent to conference without reading the amendments of the other
chamber. Despite rules to the contrary, conferees do not confine
themselves to matters in dispute, but often initiate entirely new
legislation and even strike out identical provisions previously
approved by both houses. This happened during the 78th Congress,
for instance, when
239
VOL. 469, SEPTEMBER 1, 2005 239

an important amendment to the surplus property bill, which had

been approved by both houses, was deleted in conference.
Conference committees, moreover, suffer like other committees
from the seniority rule. The senior members of the committees
concerned, who are customarily appointed as managers on the part
of the House and Senate, are not always the best informed on the
questions at issue, nor do they always reflect the majority
sentiment of their houses. Furthermore, conference reports must be
accepted or rejected in toto without amendment and they are often so
complex and obscure that they are voted upon without knowledge of
their contents. What happens in practice is that Congress surrenders
its legislative function to irresponsible committees of conference. The
standing rules against including new and extraneous matter in
conference reports have been gradually whittled away in recent years
by the decisions of presiding officers. Senate riders attached to
appropriation bills enable conference committees to legislate and the
House usually accepts them rather than withhold supply, thus
putting it, as Senator Hoar once declared, under a degrading duress.
It is also alleged that under this secret system lobbyist are able to
kill legislation they dislike and that „jokers‰ designed to defeat the
will of Congress can be inserted without detection. Senator George
W. Norris once characterized the conference committee as a third
house of Congress. „The members of this Âhouse,Ê he said, „are not
elected by the people. The people have no voice as to who these
members shall be . . . This conference committee is many times, in
very important matters of legislation, the most important branch of
our legislature. There is no record kept of the workings of the
conference committee. Its work is performed, in the main, in secret.
No constituent has any definite knowledge as to how members of this

conference committee vote, and there is no record to prove the

attitude of any member of the conference committee . . . As a
practical proposition we have legislation, then, not by the voice of the
members of the Senate, not by the members of the House of
Representatives, but we have legislation by the voice of five or six
men. And for practical purposes, in most cases, it is impossible to
defeat the legislation proposed by this conference committee. Every
experienced legislator knows that it is the hardest thing in the world
to defeat a conference report.‰
Despite these admitted evils, impartial students of the
conference committee system defend it on net balance as an
essential part of the legislative process. Some mechanism for
reconciling differ-
240

ences under bicameral system is obviously indispensable. The

remedy for the defects of the device is not to abolish it, but to keep
it under congressional control. This can be done by enforcing the
rules which prohibit the inclusion in conference reports of matter
not committed to them by either house and forbid the deletion of
items approved by both bodies; by permitting conference managers
to report necessary new matter separately and the houses to
consider it apart from the conference report; by fixing a deadline
toward the close of a session after which no bills could be sent to
conference, so as to eliminate congestion at the end of the session·
a suggestion made by the elder Senator La Follete in 1919; by
holding conferences in sessions open to the public, letting
conference reports lie over longer, and printing them in bill form
(with conference changes in italics) so as to allow members more
4
time to examine them and discover „jokers.‰
The „three-reading‰ and „no-amendment‰ rules, absent in

the US Federal Constitution, but expressly mandated by
Article VI, Section 26(2) of our Constitution are
mechanisms instituted to remedy the „evils‰ inherent in a
bicameral system of legislature, including the conference
committee system.
Sadly, the ponenciaÊs refusal to apply Article VI, Section

26(2) of the Constitution on the Bicameral Conference

Committee and the amendments it introduced to R.A. No.
9337 has „effectively dismantled‰ the „three-reading rule‰
and „noamendment rule.‰ As posited by Fr. Joaquin
Bernas, a member of the Constitutional Commission:
In a bicameral system, bills are independently processed by both

House of Congress. It is not unusual that the final version approved
by one House differs from what has been approved by the other. The
„conference committee,‰ consisting of members nominated from
both Houses, is an extra-constitutional creation of Congress whose
function is to propose to Congress ways of reconciling conflicting
provisions found in the Senate version and in the House version of a
bill. It performs a necessary function in a bicameral system.
_______________
4 Galloway, G., Congress at the Crossroads, pp. 98-100.
241
VOL. 469, SEPTEMBER 1, 2005 241

However, since conference committees have merely delegated

authority from Congress, they should not perform functions that
Congress itself may not do. Moreover, their proposals need
confirmation by both Houses of Congress.
In Tolentino v. Secretary of Finance, the Court had the
opportunity to delve into the limits of what conference committees
may do. The petitioners contended that the consolidation of the
House and Senate bills made by the conference committee
contained provisions which neither the Senate bill nor the House
bill had. In her dissenting opinion, Justice Romero laid out in great
detail the provisions that had been inserted by the conference
committee. These provisions, according to the petitioners had been
introduced „surreptitiously‰ during a closed door meeting of the
committee.
The CourtÊs answer to this was that in United States practice
conference committees could be held in executive sessions and
amendments germane to the purpose of the bill could be introduced
even if these were not in either original bill. But the Court did not

bother to check whether perhaps the American practice was based

on a constitutional text different from that of the Philippine
Constitution.
There are as a matter of fact significant differences in the degree
of freedom American and Philippine legislators have. The only rule
that binds the Federal Congress is that it may formulate its own
rules of procedure. For this reason, the Federal Congress is master
of its own procedures. It is different with the Philippine Congress.
Our Congress indeed is also authorized to formulate its own rules of
procedure·but within limits not found in American law. For
instance, there is the „three readings on separate days‰ rule.
Another important rule is that no amendments may be introduced
by either house during third reading. These limitations were
introduced by the 1935 and 1973 Constitutions and confirmed by
the 1987 Constitution as a defense against the inventiveness of the
stealthy and surreptitious. These, however, were disregarded by the
Court in Tolentino in favor of contrary American practice.
This is not to say that conference committees should not be
allowed. But an effort should be made to lay out the scope of what
conference committees may do according to the requirements and
the reasons of the Philippine Constitution and not according to the
practice of the American Congress. For instance, if the two Houses
are not allowed to introduce and debate amendments on third
reading,
242

can they circumvent this rule by coursing new provisions through

the instrumentality of a conference committee created by Congress
and meeting in secret? The effect of the CourtÊs uncritical embrace
of the practice of the American Congress and its conference
5
committees is to dismantle the no-amendment rule.
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.

The Bicameral Conference Committee, in

deleting the „no pass on provision‰ contained in
Senate Bill No. 1950 and House Bill No. 3705,
violated Article VI , Section 26(2) of the Constitution
Pertinently, in his dissenting opinion in Tolentino, Justice

Davide (now Chief Justice) opined that the duty of the
Bicameral Conference Committee was limited to the
reconciliation of disagreeing provisions or the resolution of
differences or inconsistencies. This proposition still applies
as can be gleaned from the following text of Sections 88 and
89, Rule XIV of the Rules of the House of Representatives:
not agree with the Senate on the amendments to any bill or joint
_______________
5 Bernas SJ, J., The 1987 Constitution of the Republic of the Philippines, A
Commentary, pp. 702-703 (1996 Ed.).
243
VOL. 469, SEPTEMBER 1, 2005 243


...
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.

and Rule XII, Section 35 of the Rules of the Senate:
Senate.
Justice Davide further explained that under its limited

authority, the Bicameral Conference Committee could only
(a) restore, wholly or partly, the specific provisions of the
House Bill amended by the Senate Bill; (b) sustain, wholly
or partly, the SenateÊs amendments, or (c) by way of
compromise, to agree that neither provisions in the House
Bill amended by the Senate nor the latterÊs amendments
thereto be carried into the final form of the former. Justice
Romero, who also dissented in Tolentino, added that the
conference committee is not authorized to initiate or
propose completely new matters although under certain
legislative rules like the JeffersonÊs Manual, a conference
committee may introduce germane matters in a particular
bill. However, such matters should be circumscribed by the
committeeÊs sole authority and function to reconcile
differences.
244

In the case of R.A. No. 9337, the Bicameral Conference

Committee made an „amendment by deletion‰ with respect
to the „no pass on provision‰ contained in both House Bill
(HB) No. 3705 and Senate Bill (SB) No. 1950. HB 3705
proposed to amend Sections 106 and 108 of the NIRC by
expressly stating therein that sellers of petroleum products

and power generation companies selling electricity are

prohibited from passing on the VAT to the consumers. SB
1950 proposed to amend Section 108 by likewise
prohibiting power generation companies from passing on
the VAT to the consumers. However, these „no pass on
provisions‰ were altogether deleted by the Bicameral
Conference Committee. At the least, since there was no
disagreement between HB 3705 and SB 1950 with respect
to the „no pass on provision‰ on the sale of electricity, the
Bicameral Conference Committee acted beyond the scope of
its authority in deleting the pertinent proviso.
At this point, it is well to recall the rationale for the
„noamendment 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
6
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
7
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
_______________
6 Dissenting Opinion of Justice Romero in Tolentino, supra.

7 Vermuele, supra.
245
VOL. 469, SEPTEMBER 1, 2005 245

to place themselves under the protection of forms which 8

impose the necessity of reflection, and prevent surprises.‰
Reports of the Bicameral Conference Committee,

especially in cases where substantial amendments, or in

this case deletions, have been made to the respective bills
of either house of Congress, ought to undergo the „three-
reading‰ requirement in order to give effect to the letter
and spirit of Article VI, Section 26(2) of the Constitution.
The Bicameral Conference Committee Report that
eventually became R.A. No. 9337, in fact, bolsters the
argument for the strict compliance by Congress of the
legislative procedure prescribed by the Constitution. As can
be gleaned 9
from the said 10Report, of the 9 Senators-
Conferees, only 5 Senators unqualifiedly approved it.
Senator Joker P. Arroyo expressed his qualified dissent
while Senators Sergio R. Osmeña III and Juan Ponce
Enrile approved it with reservations. On the other hand, of
the twenty-eight (28) Members11
of the
12
House of
Representatives-Conferees, fourteen13(14) approved the
same with reservations while three voted no. All the
reservations
_______________
8 Id. citing Bentham, J., Political Tactics.

9 Senators Ralph G. Recto, Joker P. Arroyo, Manuel B. Villar, Richard
J. Gordon, Rodolfo G. Biazon, Edgardo G. Angara, M.A. Madrigal, Sergio
R. Osmena III, Juan Ponce Enrile.
10 Senators Recto, Villar, Gordon, Biazon.
11 Representatives Jesli A. Lapus, Danilo E. Suarez, Arnulfo P.
Fuentebella, Eric D. Singson, Junie E. Cua, Teodoro L. Locsin, Jr.,
Salacnib Baterina, Edcel C. Lagman, Luis R. Villafuerte, Herminio G.
Teves, Eduardo G. Gullas, Joey Sarte Salceda, Prospero C. Nograles,
Exequiel B. Javier, Rolando G. Andaya, Jr., Guillermo P. Cua, Arthur D.
Defensor, Raul V. Del Mar, Ronaldo B. Zamora, Rolex P. Suplico, Jacinto
V. Paras, Vincent P. Crisologo, Alan Peter S. Cayetano, Joseph Santiago,
Oscar G. Malapitan, Catalino Figueroa, Antonino P. Roman and Imee R.
Marcos.
12 Representatives Suarez, Fuentebella, Cua, Locsin, Jr., Teves,
Gullas, Javier, Cua, Defensor, Crisologo, Cayetano, Santiago, Malapitan
and Marcos.
13 Representatives Del Mar, Suplico and Paras.
246


expressed by the conferees relate to the deletion of the „no

pass on provision.‰ Only eleven (11) unqualifiedly approved
it. In other words, even among themselves, the conferees
were not unanimous on their Report. Nonetheless,
Congress approved it without even thoroughly discussing
the reserva ti ons or qualifications expressed by the
conferees therein.
This „take it or leave it‰ stance vis-à-vis conference
committee reports opens the possibility of amendments,
which are substantial and not even germane to the original
bills of either house, being introduced by the conference
committees and voted upon by the legislators without
knowledge of their contents. This practice cannot be
countenanced as it patently runs afoul of the essence of
Article VI, Section 26(2) of the Constitution. Worse, it is
tantamount to Congress surrendering its legislative
functions to the conference committees.
Ratification by Congress did not cure the

unconstitutional act of the Bicameral Conference
Committee of deleting the „no pass on provision‰
That both the Senate and the House of Representatives

approved the Bicameral Conference Committee Report
which deleted the „no pass on provision‰ did not cure the
unconstitutional act of the said committee. As succinctly
put by Chief Justice Davide in his dissent in Tolentino,
„[t]his doctrine of ratification may apply to minor
procedural flaws or tolerable breaches of the parameters of
the bicameral conference committeeÊs limited powers but
never to violations of the
14
Constitution. Congress is not
above the Constitution.‰
Enrolled Bill Doctrine is not applicable where, as in

this case, there is grave violation of the Constitution
As expected, the ponencia invokes the enrolled bill doctrine

to buttress its refusal to pass upon the validity of the
assailed

_______________
14 Dissenting Opinion in Tolentino, supra.
247
VOL. 469, SEPTEMBER 1, 2005 247

acts of the Bicameral Conference Committee. Under the

„enrolled bill doctrine,‰ the signing of a bill by the Speaker
of the House and the Senate President and the certification
of the Secretaries of both houses of Congress that it was
passed are conclusive of its due enactment. In addition to
Tolentino,15 the ponencia cites Fariñas v. Executive
Secretary where the Court declined to go behind the
enrolled bill vis-à-vis the allegations of the petitioners
therein that irregularities attended the passage of Republic
Act No. 9006, otherwise known as the Fair Election Act.
Reliance by the ponencia on Fariñas is quite misplaced.
The CourtÊs adherence to the enrolled bill doctrine in the
said case was justified for the following reasons:
The Court finds no reason to deviate from the salutary in this case
where the irregularities alleged by the petitioners mostly involved the
internal rules of Congress, whether House or Senate. Parliamentary
rules are merely procedural and with their observance the courts
have no concern. Whatever doubts there may be as to the formal
validity of Rep. Act No. 9006 must be resolved in its favor. The
Court reiterates its ruling in Arroyo v. De Venecia, viz.:
But the cases, both here and abroad, in varying forms of expression, all
deny to the courts the power to inquire into the allegations that, in
enacting a law, a House of Congress failed to comply with its own rules, in
the absence of showing that there was a violation of a constitutional
provision or the rights of private individuals. In Osmeña v. Pendatun, it
was held: „At any rate, courts have declared that Âthe rules adopted by
deliberative bodies are subject to revocation, modification or waiver at
the pleasure of the body adopting them.Ê And it has been said that
ÂParliamentary rules are merely procedural, and with their observance,
the courts have no concern. They may be waived or disregarded by the
legislative body.Ê Consequently, Âmere failure to conform to parliamentary
usage will not invalidate the action (taken by a deliberative body) when

the
_______________
15 G.R. No. 147387, 10 December 2003, 417 SCRA 503.
248

requisite number of members have agreed to a particular

16
measure.
Thus, in Fariñas, the CourtÊs refusal to go behind the

enrolled bill was based on the fact that the alleged
irregularities that attended the passage of R.A. No. 9006
merely involved the internal rules of both houses of
Congress. The procedural irregularities allegedly
committed by the conference committee therein did 17not
amount to a violation of a provision of the Constitution.
In contrast, the act of the Bicameral Conference
Committee of deleting the „no pass on provision‰ of SB
1950 and HB 3705 infringe Article VI, Section 26(2) of the
Constitution. The violation of this constitutional provision
warrants the exercise by the Court of its constitutionally-
ordained power to strike down any act of a branch or
instrumentality of government or any of its officials done
with grave abuse18
of discretion amounting to lack or excess
of jurisdiction.
ACCORDINGLY, I join the concurring and dissenting
opinion of Mr. Justice Reynato S. Puno and vote to dismiss
the petitions with respect to Sections 4, 5 and 6 of Republic
Act No. 9337 for being premature. Further, I vote to declare
as unconstitutional Section 21 thereof and the deletion of
the „no
_______________
16 Id., pp. 529-530. (Emphases mine.).

17 By way of explanation, the constitutional issues raised in Fariñas
were (1) whether Section 14 of R.A. No. 9006 was a rider or that it
violated Article VI, Section 26(1) of the Constitution requiring that

„[e]very bill passed by Congress shall embrace only one subject which
shall be expressed in the title thereof‰; and (2) whether Section 14 of R.A.
No. 9006 violated the equal protection clause of the Constitution. On
both issues the Court ruled in the negative. To reiterate, unlike in the
present cases, the acts of the conference committee with respect to R.A.
No. 9006 in Fariñas allegedly violated the internal rules of either house
of Congress, but it was not alleged therein that they amounted to a
violation of any constitutional provision on legislative procedure.
18 Article VIII, Section 1, CONSTITUTION.
249
VOL. 469, SEPTEMBER 1, 2005 249

pass on provision‰ contained in the constituent bills of

Republic Act No. 9337.
AZCUNA, J.:
Republic Act No. 9337, the E-VAT law, is assailed as an

unconstitutional abdication of Congress of its power to tax
through its delegation to the President of the decision to
increase the rate of the tax from 10% to 12%, effective
January 11, 2006, after any of two conditions has been
satisfied.
The two conditions are:

of the previous2 year exceeds one and one-half
percent (1 1/2%).
_______________
1 The Constitution states that „Congress may, by law, allow the

President to fix within specified limits, and subject to such limitations

and restrictions as it may impose, tariff rates, import and export quotas,
tonnage and wharfage dues, and other duties as imposts within the
framework of the national development program of the Government.‰
(Art. VI, Sec. 28 [2], emphasis supplied.)
Petitioners claim that the power does not extend to fixing the rates of
taxes, since taxes are not tariffs, import and export quotas, tonnage and
wharfage dues, or other duties or imposts.
2 Section 4, Republic Act No. 9337. The pertinent portion of the
provision states:
SEC. 4. Section 106 of the same Code, as amended, is hereby further amended
to read as follows:
„SEC. 106. Value-added Tax on Sale of Goods or Properties.·
„(A) Rate and Base of Tax.·There shall be levied, assessed and collected on
every sale, barter or exchange of goods or properties, a value-added tax
equivalent to ten percent
250

A scrutiny of these „conditions‰ shows that one of them is

certain to happen on January 1, 2006.
The first condition is that the collection from the E-VAT
exceeds 2 4/5% of the Gross Domestic Product (GDP) of the
previous year, a ratio that is known as the tax effort.
The second condition is that the national government
deficit exceeds 1 1/2% of the GDP of the previous year.
Note that the law says that the rate shall be increased if
any of the two conditions happens, i.e., if condition (i) or
condition (ii) occurs.
Now, in realistic terms, considering the short time-frame
given, the only practicable way that the present deficit of
the national government can be reduced to 1 1/2% or lower,
thus preventing condition (ii) from happening, is to
increase the tax effort, which mainly has to come from the
E-VAT. But increasing the tax effort through the E-VAT, to
the extent needed to reduce the national deficit to 1 1/2% or
less, will trigger the happening of condition (i) under the
law. Thus, the happening of condition (i) or condition (ii) is
in reality certain and unavoidable, as of January 1, 2006.

_______________
(10%) of the gross selling price or gross value in money of the goods or
properties sold, bartered or exchanged, such tax to be paid by the seller
or transferor: Provided, That the President, upon the recommendation of
the Secretary of Finance, shall, effective January 1, 2006, raise the rate
of value-added tax to twelve percent (12%), after any of the following
„(i) Value-added tax collection as a percentage of Gross Domestic

Product (GDP) of the previous year exceeds two and four-fifth
percent (2 4/5%); or
„(ii) National government deficit as a percentage of GDP of the
previous year exceeds one and one-half percent (1 ½%).‰
251
VOL. 469, SEPTEMBER 1, 2005 251

This becomes all the more clear when we consider the

figures provided during the oral arguments.
The Gross Domestic Product for 2005 is estimated at
P5.3 Trillion pesos.
The tax effort of the present VAT is now at 1.5%.
The national budgetary deficit against the GDP is now
at 3%.
So to reduce the deficit to 1.5% from 3%, one has to
increase the tax effort from VAT, now at 1.5%, to at least
3%, thereby exceeding the 2 4/5 percent ceiling in condition
(i), making condition (i) happen. If, on the other hand, this
is not done, then condition (ii) happens·the budget deficit
remains over 1.5%.
What is the result of this? The result is that in reality,
the law does not impose any condition, or the rate increase
there-under, from 10% to 12%, effective January 1, 2006, is
unconditional. For a condition is an event that may or 3
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 and
certain
_______________
3 Condition has been defined by Escriche as „every future and

uncertain event upon which an obligation or provision is made to
depend.‰ It is a future and uncertain event upon which the acquisition or
resolution of rights is made to depend by those who execute the juridical
act. Futurity and uncertainty must concur as characteristics of the event.
...
An event which is not uncertain but must necessarily happen cannot
be a condition; the obligation will be considered as one with a term. (IV
TOLENTINO, COMMENTARIES AND JURISPRUDENCE ON THE
CIVIL CODE OF THE PHILIPPINES, 144).
252

to occur, effective January 1, 2006. All that the President

will do is state which of the two conditions occurred and
there-upon implement the rate increase.
At first glance, therefore, it would appear that the
decision to increase the rate is to be made by the President,
or that the increase is still uncertain, as it is subject to the
happening of any of two conditions.
Nevertheless, the contrary is true and thus it would be
best in these difficult and critical times to let our people
know precisely what burdens they are being asked to bear
as the necessary means to recover from a crisis that calls
for a heroic sacrifice by all.
It is for this reason that the Court required respondents
to submit a copy of the rules to implement the E-VAT,
particularly as to the impact of the tax on prices of affected
commodities, specially oil and electricity. For the onset of
the law last July 1, 2005 was confusing, resulting in across-
the-board increases of 10% in the prices of commodities.
This is not supposed to be the effect of the law, as was
made clear during the oral arguments, because the law also

contains provisions that mitigate the impact of the E-VAT

through reduction of other kinds of taxes and duties, and
other similar measures, specially as to goods that go into
the supply chain of the affected products. A proper
implementation of the E-VAT, therefore, should cause only
the appropriate incremental increase in prices, reflecting
the net incremental effect of the tax, which is not
necessarily 10%, but possibly less, depending on the
products involved.
The introduction of the mitigating or cushioning
measures through the Senate or through the Bicameral
Conference Committee, is also being questioned by
petitioners as unconstitutional for violating the rule
against amendments after third reading and the rule that
tax measures must originate exclusively in the House of
Representatives (Art. VI, Secs. 24 and 26 [2], Constitution).
For my part, I would rather give the necessary leeway to
Congress, as long as the changes are
253
VOL. 469, SEPTEMBER 1, 2005 253

germane to the bill being changed, the bill which originated

from the House of Representatives, and these are so, since
these were precisely the mitigating measures that go
handon-hand with the E-VAT, and are, therefore, essential
·and hopefully sufficient·means to enable our people to
bear the sacrifices they are being asked to make. Such an
approach is in accordance with the Enrolled Bill Doctrine
that is the prevailing rule in this jurisdiction. (Tolentino v.
Secretary of Finance, 249 SCRA 628 [1994]). The exceptions
I find are the provisions on corporate income taxes, which
are not germane to the E-VAT law, and are not found in the
Senate and House bills.
I thus agree with Chief Justice Hilario G. Davide, Jr. in
his separate opinion that the following are not germane to
the E-VAT legislation:
Amended Subject Matter

TAX CODE

Provision
Section 27 Rate of income tax on domestic
corporations
Section 28(A) Rate of income tax on resident foreign
(1) corporations
Section 28(B) Rate of income tax on non-resident foreign
(1) corporations
Section 28(B) Rate of income tax on intercorporate
(5-b) dividends received by non-resident foreign
corporations
Section 34(B) Deduction from gross income
(1)
Similarly, I agree with Justice Artemio V. Panganiban in

his separate opinion that the following are not germane to
the E-VAT law:
„Sections 1, 2, and 3 of the Republic Act No. 9337 . . ., in
so far as these sections (a) amend the rates of income tax on
domestic, resident foreign, and nonresident foreign
corpora-
254

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.
DISSENTING AND CONCURRING OPINION

TINGA, J.:
1
The E-VAT Law, as it stands, will exterminate our countryÊs
small to medium enterprises. This will be the net effect of
affirming Section 8 of the law, which amends Sections 110
of the National Internal Revenue Code (NIRC) by imposing
a seventy percent (70%) cap on the creditable input tax a
VAT-registered person may apply every quarter and a
mandatory sixty (60)-month amortization period on the
input tax on goods purchased or imported in a calendar
month if the acquisition cost of such goods exceeds One
Million Pesos (P1,000,000.00).
Taxes may be inherently punitive, but when the fine line
between damage and destruction is crossed, the courts must
step forth and cut the hangmanÊs noose. Justice Holmes
once confidently asserted that „the power to tax is not the
power to
_______________
4 I voted for the issuance of the temporary restraining order to prevent

the disorderly implementation of the law that would have defeated its
very purpose and disrupted the entire VAT system, resulting in less
revenues. The rationale, therefore, of the rule against enjoining the
collection of taxes, that taxes are the lifeblood of Government, leaned in
favor of the temporary restraining order.
1 Republic Act No. 9337. Referred to intext as „E-VAT Law.‰
255
VOL. 469, SEPTEMBER 1, 2005 255

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
Section 12 of the same law, with respect to its amendment
of Section 114(C) of the NIRC.
The first part of my discussion pertains to the petitions
in G.R. Nos. 168056, 168207, 168463, and 168730, while
the second part is devoted to what I deem the most crucial
issue before the Court, the petition in G.R. No. 168461.
I. Undue Delegation and the Increase of the VAT Rate
My first point pertains to whether or not Sections 4, 5 and

6 of the E-VAT Law constitutes an undue delegation of
legis-
_______________
2 Except insofar as it prays that Section 21 of the E-VAT Law be

declared unconstitutional. Infra.
256

lative power. In appreciating the aspect of undue

delegation as regards taxation statutes, the fundamental
point remains
3
that the power of taxation is inherently
legislative, and may be imposed or revoked only by the

4
legislature. In tandem with Section 1, Article VI of the
Constitution which institutionalizes the law-making power
of Congress, Section 24 under the same Article crystallizes
this principle, as it provides that „[a]ll appropriation,
revenue or tariff bills ⁄ shall
5
originate exclusively in the
House of Representatives.‰
Consequently, neither the executive nor judicial
branches of government may originate tax measures. Even
if the President desires to levy new taxes, the imposition
cannot be done by mere executive fiat. In such an instance,
the President would have to rely on Congress to enact tax
laws.
Moreover, this plenary power of taxation cannot be
delegated by Congress to any other branch of government
or private persons, unless
6
its delegation is authorized by
the Constitution itself. In this regard, the situation stands
different from that
7
in the recent case Southern Cross v.
PHILCEMCOR, wherein I noted in my ponencia that the
Tariff Commission and the DTI Secretary may be regarded
as agents of Congress for the purpose of imposing
safeguard measures. That pronouncement was made in
light of Section 28(2) Article VI, which allows Congress to
delegate to the President through law the power to impose
tariffs and imposts, subject to limitations and restrictions
as may be ordained by Con-
_______________
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.
257
VOL. 469, SEPTEMBER 1, 2005 257

gress. In the case of taxes, no such constitutional

authorization exists, and the discretion to ascertain the
rates, subjects, and conditions of taxation may not be
delegated away by Congress.
However, as the majority correctly points out, the power
to ascertain the facts or conditions as the basis of the8
taking into effect of a law may be delegated by Congress,
and that the details as to the enforcement and
administration of an exercise of taxing power may be
delegated to executive agencies, including the power to
determine9
the existence of facts on which its operation
depends.
Proceeding from these principles, Sections 4, 5, and 6 of
the E-VAT Law warrant examination. The provisions read:
SEC. 4. Sec. 106 of the same Code, as amended, is hereby further

SEC. 106. Value-Added Tax on Sale of Goods or Properties.·

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
conditions has been satisfied.

two and four-fifth percent (2 4/5%) or
(ii) national government deficit as a percentage of GDP
1 1/2%).
_______________
8 See People v. Vera, 65 Phil. 56, 117 (1937).

9 Decision, infra.

258

Sec. 5. Section 107 of the same Code, as amended, is hereby further

SEC. 107. Value-Added Tax on Importation of Goods.·

(a) In General.·There shall be levied, assessed and collected on every
importation of goods a value-added tax equivalent to ten percent (10%)
based on the total value used by the Bureau of Customs in determining
tariff and customs duties, plus customs duties, excise taxes, if any, and
other charges, such tax to be paid by the importer prior to the release of
such goods from customs custody: Provided, That where the customs
duties are determined on the basis of the quantity or volume of the
goods, the value-added tax shall be based on the landed cost plus excise
taxes, if any: provided, further, that the President, upon the
percent (12%) after any of the following conditions has been
satisfied.
(i) national value-added tax collection as a percentage of

Gross Domestic Product (GDP) of the previous year
exceeds two and four-fifth percent (2 4/5%) or
(ii) government deficit as a percentage of GDP of the previous
year exceeds one and one-half percent (1 1/2%).

SEC. 108. Value-added Tax on Sale of Services and Use of Lease
of Properties·
collected, a value-added tax equivalent to ten percent (10%) of
gross receipts derived from the sale or exchange of services;
provided, that the President, upon the recommendation of the Secretary
of Finance, shall, effective January 1, 2006, raise the rate of value-added
tax to twelve percent (12%), after any of the following conditions has
been satisfied.
(i) value-added tax collection as a percentage of Gross Domestic

Product (GDP) of the previous year exceeds two and four-fifth

percent (2 4/5%) or
259
VOL. 469, SEPTEMBER 1, 2005 259


previous year exceed same and on-half percent (1 1/2%).
The petitioners deem as noxious the proviso common to

these provisions that „the President, upon the
recommendation of the Secretary of Finance, shall,
effective January 1, 2006, raise the rate of value-added tax
to twelve percent (12%),‰ after the satisfaction of the twin
conditions that value-added tax collection as a percentage
of Gross Domestic Product (GDP) of the previous year
exceeds two and four-fifth percent (2 4/5%); or that the
national government deficit as a percentage of GDP of the
At first blush, it does seem that the assailed provisions
are constitutionally deficient. It is Congress, and not the
President, which is authorized to raise the rate of VAT from
10% to 12%, no matter the circumstance. Yet a closer
analysis of the proviso reveals that this is not exactly the
operative effect of the law. The qualifier „shall‰ denotes a
mandatory, rather than discretionary function on the part
of the President to raise the rate of VAT to 12% upon the
existence of any of the two listed conditions.
Since the President is not given any discretion in
refusing to raise the VAT rate to 12%, there is clearly no
delegation of the legislative power to tax by Congress to the
executive branch. The use of the word „shall‰ obviates any
logical construction that would allow the President leeway
in not raising the tax rate. More so, it is accepted that the
principle of constitutional construction that every
presumption should be indulged in favor of
constitutionality and the court in considering the validity of
the statute in question should give it such reasonable
construction as 10can be reached to bring it within the
fundamental law. While all reasonable doubts should be

_______________
10 Carpio v. Executive Secretary, G.R. No. 96409 February 14, 1992,

206 SCRA 290, 298; citing In re Guarina, 24 Phil. 37.
260

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

ascertain the facts or conditions as the basis of the taking
into effect of
_______________
11 People v. Vera, supra note 8.

12 See Section 2, National Internal Revenue Code.
261
VOL. 469, SEPTEMBER 1, 2005 261

a law. It follows that ascertainment of the existence of the

two conditions precedent for the increase as stated in the
law could very well 13be delegated to the President or the
Secretary of Finance.
Nonetheless, the apprehensions arise that the process of
ascertainment of the listed conditions delegated to the
Secretary of Finance and the President effectively vest
discretionary authority to raise the VAT rate on the
President, through the subterfuges that may be employed
to delay the determination, or even to manipulate the
factual premises. Assuming arguendo that these feared
abuses may arise, I think it possible to seek judicial
enforcement of the increased VAT rate, even without the
participation or consent of the President or Secretary of
Finance, upon indubitable showing that any of the two
listed conditions do exist. After all, the Court is ruling that
the increase in the VAT rate is mandatory and beyond the
discretion of the President to impose or delay.
The majority states that in making the recommendation
to the President on the existence of either of the two
conditions, the Secretary of Finance is acting as the agent
of the legislative branch, to determine and declare 14
the
event upon which its expressed will is to take effect. This
recognition of agency must be qualified. I do not doubt the
ability of Congress to delegate to the Secretary of Finance
administrative functions

_______________
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 delegateÊs authority by defining legislative policy and indicating
the circumstances under which it is to be pursued and effected; intended
to prevent a total transference of legislative power from the legislature to
the delegate.
14 Decision, infra, citing Alunan v. Mirasol, G.R. No. 108399, 31 July
1997, 276 SCRA 501, 513-514.
262

in the implementation of tax laws, as it does under Section

2 of the NIRC. Yet it would be impermissible for Congress
to delegate to the Secretary of Finance the plenary function
of enacting a tax law. As stated earlier, the situation stands
different from that in Southern Cross wherein the
Constitution itself authorizes the delegation by Congress
through a law to the President of the discretion to impose
tariff measures, subject
15
to restrictions and limitations
provided in the law. Herein, Congress cannot delegate to
either the President or the Secretary of Finance the
discretion to raise the tax, as such power belongs
exclusively to the legislative branch of government.
Perhaps the term „agency‰ is not most suitable in
describing the delegation exercised by Congress in this
case, for agency implies that the agent takes on attributes
of the principal by reason of representative capacity. In this
case, whatever „agency‰ that can be appreciated would be
of severely limited capacity, encompassing as it only could
the administration, not enactment, of the tax measure.
I do not doubt the impression left by the provisions that
it is the President, and not Congress, which is authorized
to raise the VAT rate. On paper at least, these imperfect

provisions could be multiple sources of mischief. On the

political front, whatever blame or scorn that may be
attended with the increase of the VAT rate would fall on
the President, and not on Congress which actually
increased the tax rate. On the legal front, a President
averse to increasing the VAT rate despite the existence of
the two listed conditions may take refuge in the infelicities
of the provision, and refuse to do so on the ground that the
law, as written, implies some form of
_______________
15 Notwithstanding, the Court in Southern Cross did rule that Section

5 of the Safeguard Measures Act, which required a positive final
determination by the Tariff Commission before the DTI or Agriculture
Secretaries could impose general safeguard measures, operated as a
valid restriction and limitation on the exercise by the executive branch of
government of its tariff powers.
263
VOL. 469, SEPTEMBER 1, 2005 263

discretion on the part of the President who was, after all,

„authorized‰ to increase the tax rate. It is critical for the
Court to disabuse this notion right now.
The Continued Viability of

Tolentino v. Secretary of Finance
One of the more crucial issues now before us, one that has
seriously divided the Court, pertains to the ability of the
Bicameral Conference Committee to introduce
amendments to the final bill which were not contained in
the House bill from which the E-VAT Law originated. Most
of the points addressed by the petitioners have 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:
Section 24: All appropriation, revenue or tariff bills, bills

private bills shall originate exclusively in the House of
amendments.
Section 26(2): No bill passed by either House shall become a law
unless it has passed three readings on separate days, and printed
copies thereof in its final form have been distributed to its Members
three days before its passage, except when the President certifies to
the necessity of its immediate enactment to meet a public calamity
or emergency. Upon the last reading of a bill, no amendment thereto
Section 24 is also known as the origination clause, which

derives origin from British practice. From the assertion
that the power to tax the public at large must reside in the
repre-
_______________
16 G.R. No. 115455, 25 August 1994, 235 SCRA 630.
264

sentatives of the people, the principle evolved that money

bills must originate in the House of Commons
17
and may not
be amended by the House of Lords. The principle was
adopted across the shores in the United States, and was
famously described by James Madison in The Federalist
Papers as follows:
This power over the purse, may in fact be regarded as the most
complete and effectual weapon with which any constitution can arm
the immediate representatives of the people, for obtaining a redress
of every grievance, and for carrying into effect every just and
18
salutary measure.

There is an eminent difference from the British system

from which the principle emerged, and from our own polity.
To this day, only members of the British House of Commons
are directly elected by the people, with the members of the
House of Lords deriving their seats from hereditary
peerage. Even in the United States, members of the Senate
were not directly elected by the people, but chosen by state
legislatures, until the adoption of the Seventeenth
Amendment in 1913. Hence, the rule assured the British
and American people that tax legislation arises with the
consent of the sovereign people, through their directly
elected representatives. In our country though, both
members of the House and Senate are directly elected by
the people, hence the vitality of the original conception of
the rule has somewhat lost luster.
Still, the origination clause deserves obeisance in this
jurisdiction, simply because it is provided in the
Constitution.
_______________
17 M. Evans, ÂA SOURCE OF FREQUENT AND OBSTINATE

ALTERCATIONSÊ: THE HISTORY AND APPLICATION OF THE
ORIGINATION CLAUSE.
18 The Federalist No. 58, at p. 394 (J. Madison) (J. Cooke ed. 1961),
cited in J. M. Medina, The Origination Clause in the American
Constitution: A Comparative Survey, 23 Tulsa Law Journal 2, at p. 165.
265
VOL. 469, SEPTEMBER 1, 2005 265

At the same time, its proper interpretation is settled

precedent, as enunciated in Tolentino:
„To begin with, it is not the law·but the revenue bill·which is

required by the Constitution to „originate exclusively‰ in the House
of Representatives. It is important to emphasize this, because a bill
originating in the House may undergo such extensive changes in
the Senate that the result may be a rewriting of the whole. The
possibility of a third version by the conference committee will be

discussed later. At this point, what is important to note is that, as a

result of the Senate action, a distinct bill may be produced. To insist
that a revenue statute·and not only the bill which initiated the
legislative process culminating in the enactment of the law·must
substantially be the same as the House bill would be to deny the
SenateÊs power not only to „concur with amendments‰ but also to
„propose amendments.‰ It would be to violate the coequality of
legislative power of the two houses of Congress and in fact make the
19
House superior to the Senate.‰
The vested power of the Senate to „propose or concur with

amendments‰ necessarily implies the ability to adduce
transformations from the original House bill into the final
law. Since the House and Senate sit separately in sessions,
the only opportunity for the Senate to introduce its
amendments would be in the Bicameral Conference
Committee, which emerges only after both the House and
the Senate have approved their respective bills.
In the present petitions, Tolentino comes under fire on
two fronts. The first controversy arises from the adoption
in Tolentino of American legislative practices relating to
bicameral committees despite the difference in
constitutional frameworks, particularly the limitation
under Section 26(2), Article VI which does not exist in the
American Constitution.
The majority points out that „the Âno amendment ruleÊ
refers only to the procedure to be followed by each house of
Congress with regard to bills initiated in the house
concerned,
_______________
19 Tolentino v. Secretary of Finance, supra note 16 at p. 661.
266

before said bills are transmitted to the other house for its
concurrence or amendment.‰ I agree with this statement.
Clearly, the procedure under Section 26(2), Article VI only

relates to the passage of a bill before the House and Senate,

and not the process undertaken afterwards in the
Bicameral Conference Committee.
Indeed, Sections 26 and 27 of Article VI, which detail the
procedure how a bill becomes a law, are silent as to what
occurs between the passage by both houses of their
respective bills, and the presentation 20
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.
_______________
20 See Section 27(1), Article VI, CONSTITUTION.
267
VOL. 469, SEPTEMBER 1, 2005 267


The second front concerns the scope and limitations of the

Bicameral Conference Committee to amend, delete, or
otherwise modify the bills as approved by the House and
the Senate.
Tolentino adduced the principle, adopted from American
practice, that the version as approved by the Bicameral
Conference Committee need only be germane to the subject
21
of the House and Senate bills in order to be valid. The
majority, in applying the test of germaneness, upholds the
contested provisions of the E-VAT Law. Even the members
of the Court who prepared to strike down provisions of the
law applying germaneness nonetheless accept the basic
premise that such test is controlling.
I agree that any amendment made by the Bicameral
Conference Committee that is not germane to the subject
matter of the House or Senate Bills is not valid. It is the
only valid ground by which an amendment introduced by
the Bicameral Conference Committee may be judicially
stricken.
The germaneness standard which should guide Congress
or the Bicameral Conference Committee should be
appreciated in its normal but total sense. In that regard,
my views contrast with that of Justice Panganiban, who
asserts that provisions that are not „legally germane‰
should be stricken down. The legal notion of germaneness is
just but one component, along with other factors such as
economics and politics, which guides the Bicameral
Conference Committee, or the legislature for that matter, in
the enactment of laws. After all, factors such as economics
or politics are expected to cast a pervasive influence on the
legislative process in the first place, and it is essential as
well to allow such „non-legal‰ elements to be considered in
ascertaining whether Congress has complied with the
criteria of germaneness.
_______________
21 Tolentino v. Secretary of Finance, supra note 16 at p. 668.
268

Congress is a political body, and its rationale for legislating

may be guided by factors other than established legal
standards. I deem it unduly restrictive on the plenary
powers of Congress to legislate, to coerce the body to adhere
to judge-made standards, such as a standard of „legal
germaneness.‰ The Constitution is the only legal standard
that Congress is required to abide by in its enactment of
laws.
Following these views, I cannot agree with the position
maintained by the Chief Justice, Justices Panganiban and
Azcuna that the provisions of the law that do not pertain to
VAT should be stricken as unconstitutional. These would
include, for example, the provisions raising corporate
income taxes. The Bicameral Conference Committee, in
evaluating the proposed amendments, necessarily takes
into account not just the provisions relating to the VAT, but
the entire revenue generating mechanism in place. If, for
example, amendments to non-VAT related provisions of the
NIRC were intended to offset the expanded coverage for the
VAT, then such amendments are germane to the purpose of
the House and Senate Bills.
Moreover, it would be myopic to consider that the subject
matter of the House Bill is solely the VAT system, rather
than the generation of revenue. The majority has
sufficiently demonstrated that the legislative intent behind
the bills that led to the E-VAT Law was the generation of
revenue to counter the countryÊs dire fiscal situation.
The mere fact that the law is popularly known as the E-
VAT Law, or that most of its provisions pertain to the VAT,
or indirect taxes, does not mean that any and all
amendments which are introduced by the Bicameral
Conference Committee must pertain to the VAT22system. As
the Court noted in Tatad v. Secretary of Energy:
_______________
22 G.R. No. 124360, 5 November 1997, 281 SCRA 330.
269

VOL. 469, SEPTEMBER 1, 2005 269

[I]t is contended that section 5(b) of R.A. No. 8180 on tariff

differential violates the provision 17 of the Constitution requiring
every law to have only one subject which should be expressed in its
title. We do not concur with this contention. As a policy, this
Court has adopted a liberal construction of the one title·
one subject rule. We have consistently ruled that the title
need not mirror, fully index or catalogue all contents and
minute details of a law. A law having a single general subject
indicated in the title may contain any number of provisions,
no matter how diverse they may be, so long as they are not
inconsistent with or foreign to the general subject, and may
be considered in furtherance of such subject by providing
for the method and means of carrying out the general
subject. We hold that section 5(b) providing for tariff differential is
germane to the subject of R.A. No. 8180 which is the deregulation of
the downstream oil industry. The section is supposed to sway
prospective investors to put up refineries in our country and make
23
them rely less on imported petroleum.
I submit that if the amendments are attuned to the goal of

revenue generation, the stated purpose of the original
House Bills, then the test of germaneness is satisfied. It
might seem that the goal of revenue generation, which is
stated in virtually all tax or tariff bills, is so encompassing
in scope so as to justify the inclusion by the Bicameral
Conference Committee of just about any revenue
generation measure. This may be so, but it does not mean
that the test of germaneness would be rendered inutile
when it comes to revenue laws.
I do believe that the test of germaneness was violated by
the E-VAT Law in one regard. Section 21 of the law, which
was not contained in either the House or Senate Bills,
imposes restrictions on the use by local government units
of their incremental revenue from the VAT. These
restrictions are alien to the principal purposes of revenue
generation, or the purposes of restructuring the VAT
system. I could not see how the provision, which relates to
budgetary allocations, is

_______________
23 Id., at pp. 349-350.
270

germane to the E-VAT Law. Since it was introduced only in

the Bicameral Conference Committee, the test of
germaneness is essential, and the provision does not pass
muster. I join Justice Puno and the Chief Justice in voting
to declare Section 21 as unconstitutional.
I also offer this brief comment regarding the deletion of
the so-called „no pass on‰ provisions, which several of my
colleagues deem unconstitutional. Both the House and
Senate Bills contained these provisions that would prohibit
the seller/producer from passing on the cost of the VAT
payments to the consumers. However, an examination of
the said bills reveal that the „no pass on‰ provisions in the
House Bill affects a different subject of taxation from that
of the Senate Bill. In the House Bill No. 3705, the
taxpayers who are prohibited from passing on the VAT
payments are the sellers of petroleum products and
electricity/power generation companies. In Senate Bill No.
1950, no prohibition was adopted as to sellers of petroleum
products, but enjoined therein are electricity/power
generation companies but also transmission and
distribution companies.
I consider such deletions as valid, for the same reason
that I deem the amendments valid. The deletion of the two
disparate „no pass on‰ provisions which were approved by
the House in one instance, and only by the Senate in the
other, remains in the sphere of compromise that ultimately
guides the approval of the final version. Again, I point out
that even while the two provisions may have been
originally approved by the House and Senate respectively,
their subsequent deletion by the Bicameral Conference
Committee is still subject to approval by both chambers of
Congress when the final version is submitted for
deliberation and voting.

Moreover, the fact that the nature of the „no pass on‰
provisions adopted by the House essentially differs from
that of the Senate necessarily required the corrective relief
from the Bicameral Conference Committee. The Committee
could have either insisted on the House version, the Senate
version, or
271
VOL. 469, SEPTEMBER 1, 2005 271

both versions, and it is not difficult to divine that any of

these steps would have obtained easy approval. Hence, the
deletion altogether of the „no pass on‰ provisions existed as
a tangible solution to the possible impasse, and the
Committee should be accorded leeway to implement such a
compromise, especially considering that the deletion would
have remained germane to the law, and would not be
constitutionally prohibited since the prohibition on
amendments under Section 26(2), Article VI does not apply
to the Committee.
An outright declaration that the deletion of the two
elementally different „no-pass on‰ provisions is
unconstitutional, is of dubious efficacy in this case. Had
such pronouncement gained endorsement of a majority of
the Court, it could not result in the ipso facto restoration of
the provision, the omission of which was ultimately
approved in both the House and Senate. Moreover, since
the House version of the „no pass on‰ is quite different from
that of the Senate, there would be a question as to whether
the House version, the Senate version, or both versions
would be reinstated. And of course, if it were the Court
which would be called upon to choose, such would be way
beyond the bounds of judicial power.
Indeed, to intimate that the Court may require Congress
to reinstate a provision that failed to meet legislative
approval would result in a blatant violation of the principle
of separation of powers, with the Court effectively dictating
to Congress the content of its legislation. The Court cannot
simply decree to Congress what laws or provisions to enact,
but is limited to reviewing those enactments which are

actually ratified by the legislature.
II.
My earlier views, as are the submissions I am about to

offer, are rooted in nothing more than constitutional
interpretation. Perhaps my preceding discussion may lead
to an impression that I whole-heartedly welcome the
passage of the E-VAT Law. Yet whatever relief I may have
over the enactment of a
272

law designed to relieve our countryÊs financial woes are

sadly obviated with the realization that a key amendment
introduced in the law is not only unconstitutional, but of
fatal consequences. The clarion call of judicial review is
most critical when it stands as the sole barrier against the
deprivation of life, liberty and property without due process
of law. It becomes even more impelling now as we are faced
with provisions of the E-VAT Law which, though in bland
disguise, would operate as the most destructive of tax
measures enacted in generations.
Tax Statutes and the Due Process Clause
It is the duty of the courts to nullify laws that contravene

the due process clause of the Bill of Rights. This task is at
the heart not only of judicial review, but of the democratic
system, for the fundamental guarantees in the Bill of
Rights become merely hortatory if their judicial
enforcement is unavailing. Even if the void law in question
is a tax statute, or one that encompasses national economic
policy, the courts should not shirk from striking it down
notwithstanding any notion of deference to the executive or
legislative branch on questions of policy. Neither Congress
nor the President has the right to enact or enforce
unconstitutional laws.
The Bill of Rights is by no means the only constitutional

yardstick by which the validity of a tax law can be

measured. Nonetheless, it stands as the most unyielding of
constitutional standards, given its position of primacy in
the fundamental law 24
way above the articles on
governmental power. If the question lodged, for example,
hinges on the proper exercise of legislative powers in the
enactment of the tax law, leeway can be appreciated in
favor of affirming the legislatureÊs inherent power to levy
taxes. On the other hand, no quarter can be ceded, no
concession yielded, on the peopleÊs
_______________
24 People v. Tudtud, G.R. No. 144037, 26 September 2003, 412 SCRA

142, 168.
273
VOL. 469, SEPTEMBER 1, 2005 273

fundamental rights as enshrined in the Bill of Rights, even

if the sacrifice is ostensibly made „in the national interest.‰
It is my understanding that „the national interests,‰
however comported, always subsumes in the first place
recognition and enforcement of the Bill of Rights, which
manifests where we stand as a democratic society.
The constitutional safeguard of due process is embodied
in the fiat „No person shall be deprived 25
of life, liberty or
property without due process of law.‰ The purpose of the
guaranty is to prevent governmental encroachment against
the life, liberty and property of individuals; to secure the
individual from the arbitrary exercise of the powers of the
government, unrestrained by the established principles of
private rights and distributive justice; to protect property
from confiscation by legislative enactments, from seizure,
forfeiture, and destruction without a trial and conviction by
the ordinary mode of judicial procedure; and to secure to all
persons equal 26
and impartial justice and the benefit of the
general law. 27
In Magnano Co. v. Hamilton, the U.S. Supreme Court
recognized that the due process clause may be utilized to

strike down a taxation statute, „if the act be so arbitrary as

to compel the conclusion that it does not involve an
exertion of the taxing power, but constitutes, in substance
and effect, the direct exertion of a different and forbidden 28
power, as, for example,29 the confiscation of property.‰
Locally, Sison v. Ancheta has long provided sanctuary for
persons assailing the constitutionality of taxing statutes.
The oft-quoted pronouncement of Justice Fernando follows:
_______________
25 See Section 1, Article III, CONSTITUTION. Private corporations

and partnerships are persons within the scope of the guaranty insofar as
their property is concerned. Smith Bell & Co. v. Natividad, 40 Phil. 136,
145 (1919).
26 16 C.J.S., at pp. 1150-1151.
27 292 U.S. 40 (1934).
28 Id., at p. 44.
29 G.R. No. L-59431, 25 July 1984, 130 SCRA 654.
274

2. The power to tax moreover, to borrow from Justice Malcolm, „is

an attribute of sovereignty. It is the strongest of all the powers of
government.‰ It is, of course, to be admitted that for all its
plenitude, the power to tax is not unconfined. There are
restrictions. The Constitution sets forth such limits.
Adversely affecting as it does property rights, both the due
process and equal protection clauses may properly be
invoked, as petitioner does, to invalidate in appropriate
cases a revenue measure. If it were otherwise, there would be
truth to the 1803 dictum of Chief Justice Marshall that „the power
to tax involves the power to destroy.‰ In a separate opinion in
Graves v. New York, Justice Frankfurter, after referring to it as an
„unfortunate remark,‰ characterized it as „a flourish of rhetoric
[attributable to] the intellectual fashion of the times [allowing] a
free use of absolutes.‰ This is merely to emphasize that it is not and
there cannot be such a constitutional mandate. Justice Frankfurter
could rightfully conclude: „The web of unreality spun from

MarshallÊs famous dictum was brushed away by one stroke of Mr.

Justice HolmeÊs pen: ÂThe power to tax is not the power to destroy
while this Court sits.Ê ‰ So it is in the Philippines.
3. This Court then is left with no choice. The Constitution as
the fundamental law overrides any legislative or executive
act that runs counter to it. In any case therefore where it
can be demonstrated that the challenged statutory provision
·as petitioner here alleges·fails to abide by its command,
then this Court must so declared and adjudge it null. The
inquiry thus is centered on the question of whether the imposition
of a higher tax rate on taxable net income derived from business or
profession than on compensation is constitutionally infirm.
4. The difficulty confronting petitioner is thus apparent. He
alleges arbitrariness. A mere allegation, as here, does not suffice.
There must be a factual foundation of such unconstitutional taint.
Considering that petitioner here would condemn such a provision as
void on its face, he has not made out a case. This is merely to
adhere to the authoritative doctrine that where the due process and
equal protection clauses are invoked, considering that they are not
fixed rules but rather broad standards, there is a need for proof of
such persuasive character as would lead to such a conclusion.
Absent such a showing, the presumption of validity must prevail.
275
VOL. 469, SEPTEMBER 1, 2005 275

5. It is undoubted that the due process clause may be

invoked where a taxing statute is so arbitrary that it finds
no support in the Constitution. An obvious example is where
it can be shown to amount to the confiscation of property.
That would be a clear abuse of power. It then becomes the
duty of this Court to say that such an arbitrary act
amounted to the exercise of an authority not conferred.
That properly calls for the application of the Holmes dictum.
It has also been held that where the assailed tax measure is
beyond the jurisdiction of the state, or is not for a public
purpose, or, in case of a retroactive statute is so harsh and
unreasonable, it is subject to attack on due process
30
grounds.

Sison pronounces more concretely how a tax statute may

contravene the due process clause. Arbitrariness,
confiscation, overstepping the stateÊs jurisdiction, and lack
of a public purpose are all grounds for nullity encompassed
under the due process invocation.
Yet even these more particular standards as enunciated
in Sison are quite exacting, and difficult to reach. Even the
constitutional challenge posed in Sison failed to pass
muster. The majority cites Sison in asserting that due
process and equal protection are broad standards which
need proof of such persuasive character to lead to such a
conclusion.
It is difficult though to put into quantifiable terms how
onerous a taxation statute
31
must be before it contravenes
the due process clause. After all, the inherent nature of
taxation is to
_______________
30 Id., at pp. 660-662.

31 Justice Isagani Cruz offers the following examples of taxes that
contravene the due process clause: „A tax, for example, that would claim
80 percent of a personÊs net income would clearly be oppressive and could
unquestionably struck down as a deprivation of his property without due
process of law. A property tax retroacting to as long as fifty years back
would by tyrannical and unrealistic, as the property might not yet have
been then in the possession of the taxpayer nor, presumably, would he
have acquired it had he known
276

cause pain and injury to the taxpayer, albeit for the greater
good of society. Perhaps whatever collective notion there
may be of what constitutes an arbitrary, confiscatory, and
unreasonable tax might draw more from the fairy
tale/legend traditions of absolute monarchs and the
oppressed peasants they tax. Indeed, it is easier to jump to
the conclusion that a tax is oppressive and unfair if it is
imposed by a tyrant or an authoritarian state.

But could an arbitrary, confiscatory or unreasonable tax

actually be enacted by a democratic state such as ours? Of
course it could, but these would exist in more palatable
guises. In a democratic society wherein statutes are
enacted by a representative legislature only after debate
and deliberation, tax statutes will most likely, on their face,
seem fair and even-handed. After all, if Congress passes a
tax law that on facial examination is obviously harsh and
unfair, it faces the wrath of the voting public, to say
nothing of the media.
In testing the validity of a tax statute as against the due
process clause, I think that the Court should go beyond a
facial examination of the statute, and seek to understand
how exactly it would operate. The express terms of a
statute, especially tax laws, are usually inadequate in
spelling out the practical effects of its implementation. The
devil is usually in the details.
Admittedly, the degree of difficulty involved of judicial
review of tax laws has increased with the growing
complexities of business, economic and accounting
practices. These are sciences which laymen are not
normally equipped by their general education to fully
grasp, hence the possible insecurity on their part when
confronted with such questions on these fields.
However, we should not cede ground to those
transgressions of the peopleÊs fundamental rights simply
because the
_______________
of the tax to be imposed on it.‰ I. CRUZ, CONSTITUTIONAL LAW, p.

85.
277
VOL. 469, SEPTEMBER 1, 2005 277

mechanism employed to violate constitutional guarantees

is steeped in disciplines not normally associated with the
legal profession. Venality cannot be allowed to triumph
simply due to its sophistication. This petition imputes in

the E-VAT Law unconstitutional oppression of the fatal

variety, but in order to comprehend exactly how and why
that is so, one has to delve into the complex milieu of the
VAT system. The party alleging the lawÊs
unconstitutionality of course has the burden to
demonstrate the violations in understandable terms, but if
such proof is presented, the CourtÊs duty is to engage
accordingly.
The Viability of the Clear and Present

Danger Doctrine as Counterweight
To the Shibboleths of Speculation
and Wisdom
I do not see as an impediment to the annulment of a tax

law the fact that it has yet to be implemented, or the fear
that doing so constitutes an undue attack on the wisdom,
rather than the legality of a statute. However, my position
in this petition has been challenged on those grounds, and I
see it fit to refute these preemptive allegations before
delving into the operative aspect of the E-VAT Law.
If there is cause to characterize my arguments as
speculative, it is only because the E-VAT Law has yet to be
implemented. No person as of yet can claim to have
sustained actual injury by reason of the implementation of
the assailed provisions in G.R. No. 168461. Yet this should
not mean that the Court is impotent from declaring a
provision of law as violative of the due process clause if it is
clear that its implementation will cause the illegal
deprivation of life, liberty or property without due process
of law. This is especially so if, as in this case, the injury is
of mathematical certainty, and the extent of the loss
quantifiable through easy reference to the most basic of
business practices.
278
SUPREME COURT REPORTS ANNOTATED 278

These arguments are conjectural for the same reason that

the bare statement „firing a gunshot into the head will cause

a fatal wound‰ would be conjectural. Some people are lucky

enough to survive gunshot wounds to the head, while many
others are not. Yet just because the fear of mortality would
be merely speculative, it does not mean that there should
be less compulsion to avoid a situation of getting shot in
the head.
Indeed, the Court has long responded to strike down
prospective actions, even if the injury has not yet even
occurred. One of the most significant legal principles of the
last century, the „clear and present danger‰ doctrine in free
speech cases, in fact emanates from the prospectivity, and
not the actuality of danger. The Court has not been hesitant
to nullify acts which might cause injury, owing to the
presence of a clear and present danger of a substantive evil
which the State has the right to prevent. It has even
extended the „clear and present danger rule‰ beyond the
confines of freedom of expression to the realm of freedom of
religion, as noted 32by Justice Puno in his ponencia in
Estrada v. Escritor.
Justice Teodoro Padilla goes further in his concurring
opinion in Basco v. PAGCOR, and asserts that the clear and
present danger test squarely applies to the due process
clause:
_______________
32 „After defining religion, the Court, citing Tañada and Fernando,

made this statement, viz.:
The constitutional guaranty of the free exercise and enjoyment of religious

profession and worship carries with it the right to disseminate religious
information. Any restraint of such right can only be justified like other
restraints of freedom of expression on the grounds that there is a clear and
present danger of any substantive evil which the State has the right to prevent.
(Tanada and Fernando on the Constitution of the Philippines, vol. 1, 4th ed., p.
297) (emphasis supplied)
This was the CourtÊs 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

VOL. 469, SEPTEMBER 1, 2005 279

„The courts, as the decision states, cannot inquire into the

wisdom, morality or expediency of policies adopted by the
political departments of government in areas which fall
within their authority, except only when such policies pose a
clear and present danger to the life, liberty or property of the
individual.‰
I see no reason why the clear and present danger test
cannot apply in this case, or any case wherein a taxing
statute poses a clear and present danger to the life, liberty or
property of the individual. The application of this standard
frees the Court from inutility in the face of patently
unconstitutional tax laws that have been enacted but are yet
to be fully operational.
If for example, Congress deems it wise to impose the
most draconian of tax measures·such as trebling the
income taxes of all persons over 40, raising the gross sales
tax rate to 50%, or penalizing delinquent taxpayers with 50
lashes of the whip·there certainly would be a massive
public outcry, and an expectation that the Court would
immediately nullify the offensive measures even before
they are actually imposed. Applying the clear and present
danger test, the Court is empowered to strike down the
noxious measures even before they are implemented. Yet
with this „bar on speculativeness‰ as argued by the
majority, the Court could easily refuse to pay heed to the
prayers for injunctive relief, and instead demand that the
taxing subjects must first suffer before the Court can act.
In the same vein, the claim that my arguments strike at
the wisdom, rather than the constitutionality of the law are
misplaced. Concededly, the assailed provisions of the E-VAT
law are basically unwise. But any provision of law that
directly contradicts the Constitution, especially the Bill of
Rights, are similarly unwise, as they run inconsistent with
the fundamental law of the land, the enunciated state
policies and the elemental guarantees assured by the State
to its people. Not every unwise law is unconstitutional, but
every unconstitutional law is unwise, for an
unconstitutional law

280

contravenes a primordial principle or guarantee on which

our polity is founded.
If it can be shown that the E-VAT Law violates these
provisions of the Constitution, especially the due process
clause, then the Court should accordingly act and nullify.
Such is the essence of judicial review, which stands as the
sole barrier to the implementation of an unconstitutional
law.
The Separate Opinion of Justice Panganiban notes that
„[t]he Court cannot step beyond the confines of its
constitutional power, if there is absolutely no clear showing
33
of grave abuse of discretion in the enactment of the law.‰
This, I feel, is an unduly narrow view of judicial review,
implying that such merely encompasses the procedural
aspect by which a law is enacted. If the policy of the law,
and/or the means by which such policy is implemented run
counter to the Constitution, then the Court is empowered
to strike down the law, even if the legislative and executive
branches act within their discretion in legislating and
signing the law.
It is also asserted that if the implementation of the 70%
cap imposes an unequal effect on different types of
businesses with varying profit margins and capital
requirements,
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.

_______________
33 Separate Opinion, infra.

34 Ibid.
281
VOL. 469, SEPTEMBER 1, 2005 281

I do recognize that the Separate Opinion of Justice

Panganiban ultimately proceeds from the premise that the
assailed provisions of the E-VAT Law may be merely
unwise, but not unconstitutional. Hence, its preference to
rely on Congress to amend the offending provisions rather
than judicial nullification. But I maintain that the assailed
provisions of the E-VAT Law violate the due process clause
of the Constitution and must be stricken down.
The Nature of VAT
To understand why Sections 8 and 12 of the E-VAT law

contravenes the due process clause, it is essential to
understand the nature of the value-added tax itself.
Filipino consumers may comprehend VAT at its elemental
form, having been accustomed for several years now in
paying an extra 10% of the listed selling price for a wide
class of consumer goods. From the perspective of the end
consumer, such as the patron who purchases a meal from a
fastfood restaurant, VAT is simply a tax on transactions
involving the sale of goods. The tax is shouldered by the
buyer, and is based on a percentage of the purchase price.
Since an excise or percentage tax shares the same
characteristics, there could be some confusion as between
such taxes and the VAT.
However, VAT is distinguishable from the standard
excise or percentage taxes in that it is imposable not only
on the final transaction involving the end user, but on
previous stages as well so long as there was a sale involved.
Thus, VAT does not simply pertain to the extra percentage
paid by the buyer of a fast-food meal, but also that paid by
restaurant itself to its suppliers of raw food products. This

multi-stage system is more acclimated to the vagaries of

the modern industrial climate, which has long surpassed
the stage when there was only one level of transfer between
the farmer who harvests the crop and the person who eats
the crop. Indeed, from the extraction or production of the
raw material to its final consumption by a user, several
transactions or sales
282

materialize. The VAT system assures that the government

shall reap income for every transaction that is had, and not
just on the final sale or transfer.
The European Union, which has long required its
member states to apply the VAT system, provided the
following definition of the tax which I deem clear and
comprehensive:
The principle of the common system of value added tax involves the
application to goods and services of a general tax on consumption
exactly proportional to the price of the goods and services,
whatever the number of transactions that take place in the
production and distribution process before the stage at which
tax is charged.
On each transaction, value added tax, calculated on the price of
the goods or services at the rate applicable to such goods or services,
shall be chargeable after deduction of the amount of value
35
added tax borne directly by the various cost components.
The above definition alludes to a key characteristic of the

VAT system, that the imposable tax remains proportional
to the price of goods and services no matter the number of
transactions that takes place.
There is another key characteristic of the VAT·that no
matter how many the taxable transactions that precede the
final purchase or sale, it is the end-user, or the consumer,
that ultimately shoulders the tax. Despite its name, VAT is
generally not intended to be a tax on value added, but
rather as a tax on consumption. Hence, there is a

mechanism in the VAT system that enables firms to offset

the tax they have paid on their own purchases of goods and
services against
36
the tax they charge on their sales of goods
and services. Section 105 of the NIRC assures that „the
amount of tax may be
_______________
35 Art. 2, European Commission First Council Directive 67/227 of 11

April 1967 on the Harmonization of Legislation of Member States
Concerning Turnover Taxes, 1971 O.J. (L 71) 1301.
36 Liam & Ebrill, THE MODERN VAT.
283
VOL. 469, SEPTEMBER 1, 2005 283

shifted or passed on to the buyer, transferee or lessee of the

goods, properties or services.‰ The assailed provisions of
the E-VAT law strike at the heart of this accepted principle.
And there is one final basic element of the VAT system
integral to this disquisition: the mode by which the tax is
remitted to the government. In simple theory, the VAT
payable can be remitted to the government immediately
upon the occurrence of the transaction, but such a demand
proves excessively unwieldy. The number of VAT covered
transactions a modern enterprise may contract in a single
day, plus the recognized principle that it is the final end
user who ultimately shoulders the tax; render the
remittance of the tax on a per transaction basis impossible.
Thus, the VAT is delivered by the purchaser not directly
to the government but to the seller, who then collates the
VAT received and remits it to the government every
quarter. The process may seem simple if cast in this
manner, but there is a wrinkle, due to the offsetting
mechanism designed to ultimately make the end consumer
bear the cost of the VAT.
The Concepts of Input and

Output VAT

This mechanism is employed through the introduction of

two concepts, the input tax and the output tax. Section
110(A) of the National Internal Revenue Code defines the
input tax as the VAT due from or paid by a VAT-registered
person on the importation of goods or local purchase of
goods and services in the course of trade or business, from
a VAT registered person.
Let us put this in operational terms. A VAT registered
person, engaged in an enterprise, necessarily purchases
goods such as raw materials and machinery in order to
produce consumer goods. The purchase of such raw
materials and machineries is subject to VAT, hence the
enterprise pays an additional 10% of the purchase price to
the supplier as VAT. This extra amount paid by the
enterprise constitutes its input
284

VAT. The enterprise likewise pays input VAT when it

purchases services covered by the tax, or rentals of
property.
Since VAT is a final tax that is supposed to be ultimately
shouldered by the end consumer, the VAT system allows for
a mechanism by which the business is able to recover the
input VAT that it paid. This comes into play when the
business, having transformed the raw materials into
consumer goods, sells these goods to the public. As widely
known, the consumer pays to the business an additional
amount of 10% of the purchase price as VAT. As to the
business, this VAT payments it collects from the consumer
represents output VAT, which is formally described under
Section 110(A) of the NIRC as „the value-added tax due on
the sale or lease of taxable goods or properties or services
by‰ by any VAT-registered person.
The output VAT collected by the business from the
consumers accumulates, until the end of every quarter,
when the enterprise is obliged to remit the collected output
VAT to the government. This is where the crediting
mechanism comes into play. Since the business is entitled

to recover the prepaid input VAT, it does so in every

quarter by applying the amount of prepaid input VAT
against the collected output VAT which is to be remitted. If
the output VAT collected exceeds the prepaid input VAT,
then the amount of input VAT is deducted from the output
VAT, and it is entitled to remit only the remainder as
output VAT to the government. To illustrate, if Business X
collects P1,000,000.00 as output VAT and incurs
P500,000.00 as input VAT, the P500,000.00 is deducted
from the P1,000,000.00 output VAT, and X is required to
remit only P500,000.00 of the output VAT it collected from
customers.
On the other hand, if the input VAT prepaid exceeds the
output VAT collected, then the business need not remit any
amount as output VAT for the quarter. Moreover, the
difference between the input VAT and the output VAT may
be credited as input VAT by the business in the succeeding
quar-
285
VOL. 469, SEPTEMBER 1, 2005 285

ter. Thus, if in the First Quarter of a year, Business X

prepays P1,000,000.00 as input VAT, and collects only
P500,000.00 as output VAT, it need not remit any amount
of output VAT to the government. Moreover, in the Second
Quarter, Business X can credit the remaining P500,000.00
as part of its input VAT for that quarter. Hence, if in the
Second Quarter, X actually prepays P400,000.00 as input
VAT, and collects P500,000.00 as output VAT, it may add
the P500,000.00 input VAT from the previous quarter to the
P400,000.00 prepaid in the current quarter, bringing the
total input VAT it could claim to P900,000.00. Since the
input VAT of P900,000.00 now exceeds the output VAT
collected of P500,000, then X need not remit any output
VAT as well to the government for the Second Quarter.
However, reality is far bleaker than that befaced by
Business X. The VAT collected and remitted is not the most
relevant statistic evaluated by the business. The figure of
primary concern of the enterprise would be the profit

margin, which is simply the excess of revenue less

expenditures. Revenue is derived from the gross sales of
the business. Expenditures encompass all expenses
incurred by the business including overhead expenses,
wages and purchases of capital goods. Crucially,
expenditures would include the input VAT prepaid by the
business on its capital expenditures.
Since a significant amount of the capital outlay incurred
by a business is subjected to the prepayment of input taxes,
the necessity of recovering these losses through the output
VAT collected becomes more impelling. These output taxes
are obviously proportional to the volume of gross sales·the
higher the gross sales, the higher the output VAT collected.
The output taxes collected on sales answer for not only those
input taxes paid on the purchase of the raw materials, but
also for the input taxes paid on the multifarious overhead
expenses covered by VAT. The burden carried by the sales
volume on the stability, if not survival of the business thus
just became more crucial. The maintenance of the proper
equilibrium is not an easy matter. Increasing the selling
price of the goods
286

sold does not necessarily increase the gross sales, as it

could have the counter-effect of repelling the consumer and
diminishing the number of goods sold. At the same time,
keeping the selling price low may increase the volume of
goods sold, but not necessarily the amount of gross sales.
Profit is a chancy matter, and in cases of small to
medium enterprises, usually small if any. It is quite
common for retail and distribution enterprises to incur
profits of less than 1% of their gross revenues. Low
profitability is not an automatic badge of poor business
skills, but a reality dictated by the laws of the marketplace.
The probability of profit is lower than that of capital
expenditures, and ultimately, many business
establishments end up with a higher input tax than output
tax in a given quarter. This would be especially true for

small to medium enterprises who do not reap sufficient

profits from its business in the first place, and for those
firms that opt to also invest in capital expenses in addition
to the overhead. Whatever miniscule profit margins that
can be obtained usually spell the difference between life
and death of the business.
The possibility of profit is further diminished by the fact
that businesses have to shoulder the input VAT in the
purchase of their capital expenses. Yet the erstwhile VAT
system was not tainted by the label of oppressiveness and
neither did it bear the confiscatory mode. This was because
of the immediate relief afforded from the input taxes paid by
the crediting system. In theory, VAT is not supposed to affect
the profit margin. If such margin is affected, it is only
because of the prepayment of the input taxes, and this
should be remedied by the immediate recovery through the
crediting system of the settled input taxes.
The new E-VAT law changes all that, and puts in
jeopardy the survival of small to medium enterprises.
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VOL. 469, SEPTEMBER 1, 2005 287

The Effects of the 70% Cap on Creditable Input VAT
The first radical shift introduced by the E-VAT law to the

creditable input system·the 70% cap on the creditable
input tax that may be carried over into the next quarter·
is provided in Section 8 of the law, which amends Section
110(A) of the NIRC, among others. Section 110(A) as
amended would now read:
Sec. 110. Tax Credits.·
(B) Excess Output or Input Tax.·If at the end of any taxable

quarter the output tax exceeds the input tax, the excess shall be
paid by the VAT-registered person. If the input tax exceeds the
output tax, the excess shall be carried over to the succeeding
quarter or quarters. Provided, That the input tax inclusive of
input VAT carried over from the previous quarter that may

be credited in every quarter shall not exceed seventy

percent (70%) of the output VAT: Provided, however, That any
input tax attributable to zero rated sales by a VAT-registered person
may at his option be refunded or credited against other internal
revenue taxes, subject to the provisions of Section 112. (emphasis
supplied)
All hope for entrepreneurial stability is dashed with the

imposition of the 70% cap. Under the E-VAT Law, the
business, regardless of stability or financial capability, is
obliged to remit to the government every quarter at least
30% of the output VAT collected from customers, or roughly
3% of the amount of gross sales. Thus, if a quarterly gross
sales of Y Business totaled P1,000,000, and Y is prudent
enough to keep its capital expenses down to P980,000, it
would then appear on paper that Y incurred a profit of
P20,000. However, with the 70% cap, Y would be obliged to
remit to the government P30,000, thus wiping out the
profit margin for the quarter. Y would be entitled to credit
the excess input VAT it prepaid for the next quarter, but
the continuous operation of the 70% cap obviates whatever
benefits this may give, and cause the accumulation of the
unutilized creditable input VAT which should be returned
to the business.
288

The difference is even more dramatic if seen how the

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

Particulars 1st 2ndQuarter 3rdQuarter 4thQuarter

Quarter
Output 60,000 60,000 100,000 50,000
VAT
Input VAT 100,000 34,000 50,000
(Actual) + [input] [input] [input]
Carry +58,000 +116,000 +80,000
Over [excess [excess [excess
creditable] creditable] creditable]
100,000 158,000 150,000 130,000
Declarable (60,000 (60,000 (100,000 (50,000
Input VAT x70%) x70%) x70%) x70%)
(70% of 42,000 42,000 70,000 35,000
output
VAT)
Lower of (60,000 - (60,000 - (100,000- (50,000-
actual and 42,000) 42,000) 70,000) 35,000)
70% cap – 18,000 18,000 30,000 15,000
allowable
VAT
Payable
Creditable (100,000– (158,000– (150,000- (130,000-
Input VAT 42,000) 42,000) 70,000) 35,000)
58,000 116,000 80,000 95,000
This stands in contrast to same business VAT

accountability under the present system, using the same
variables of output VAT and input VAT. The need to
distinguish a de-
289
VOL. 469, SEPTEMBER 1, 2005 289

clarable input VAT is obviated with the elimination of the

70% cap.
Particulars 1st 2nd 3rd 4th

Quarter Quarter Quarter Quarter

Output 60,000 60,000 100,000 50,000

VAT
Input VAT 100,000 34,000 50,000
(Actual) + [input] [input] [input] +
Carry +40,000 +80,000 14,000
Over [excess [excess (excess
creditable] creditable] creditable)
100,000 140,000 114,000 50,000
VAT 0 0 0 0
Payable
Creditable
Input VAT 40,000 80,000 14,000 14,000
The difference is dramatic, as is the impact on the

businessÊs profit margin and available cash on hand. Under
normal conditions, small to medium enterprises are
already encumbered with the likelihood of obtaining only a
minimal profit margin. Without the 70% cap, those
businesses would nonetheless be able to expect an
immediate return on its input taxes earlier advanced, taxes
which under the VAT system it is not supposed to shoulder
in the first place. However, with the 70% cap in place, the
unutilized input taxes would continue to accumulate, and
the enterprise precluded from immediate recovery thereof.
The inability to utilize these input taxes, which could spell
the difference between profit and loss, solvency and
insolvency, will eventually impair, if not kill off the
enterprise.
The majority fails to consider one of the37
most important
concepts in finance, time value for money. Simply put, the
_______________
37 „The most basic law in finance!‰ Understand the Time Value of

Money. http://www.free-financial-advice.net/time-value-of-money. html.
Last visited, 30 August 2005.
290

value of one peso is worth more today than in 2006. Money

that you hold today38
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.
It would be sad, but fair, if a business ceases because of
its inability to compete with other businesses. It would be
utter malevolence to condemn an enterprise to death solely
through the employment of a deceptive accounting wizardry.
For the raison dÊetre of this 70% cap is to make it appear on
paper that the government is more solvent than it actually
is. Conceding for the nonce, there is a temporary advantage
gained by the government by this 70% cap, as the steady
remittance by businesses of the 30% output VAT would
assure a cash flow. Such collection may only momentarily
resolve an endemic problem in our local tax system, the
problem of collection itself.
If the 70% cap was designed in order to enhance revenue
collection, then I submit that the means employed stand
beyond reason. If sheer will proves insufficient in assuring
that the State all taxes due it, there should be allowable
discretion for the government to formulate creative means
to enhance collection. But to do so by depriving low profit
enterprises of whatever meager income earned and
consequently assuring the death of these industries goes
beyond any valid State purpose.
Only stable businesses with substantial cash flows, or
extraordinarily successful enterprises will be able to
remain in
_______________
38 Time Value of Money.

http://www.jetobjects.com/components/finance/TVM/concepts.html. Last
visited, 30 August 2005.

291
VOL. 469, SEPTEMBER 1, 2005 291

operation should the 70% cap be retained. The effect of the

70% cap is to effectively impose a tax amounting to 3% of
gross revenue. The amount may seem insignificant to those
without working knowledge of the ways of business, but
anybody who is actually familiar with business would be
well aware the profit margins of the retailing and
distribution sectors typically amount to less than 1% of the
gross revenues. A taxpayer has to earn a margin of at least
3% on gross revenue in order to recoup the losses sustained
due to the 70% cap. But as stated earlier, profits are
chancy, and the entrepreneur does not have full control of
the conditions that lead to profit.
Even more galling is the fact that the 70% cap,
oppressive as it already is to the business establishment,
even limits the options of the business to recover the
unutilized input VAT credit. During the deliberations, the
argument was raised that the problem presented by the
70% cap was a business problem, which can only be solved
by business. Yet there is only one viable option for the
enterprise to resolve the 39problem, and that is to increase
the selling price of goods. It would be incorrect to assume
that increase the volume of the goods sold could solve the
problem, since for items with the same purchasing cost, the
effect of the 70% cap remains constant regardless of an
increase in volume.
But the additional burden is not limited to the increase
of prices by the retailer to the end consumer. Since VAT is a
transaction tax, every level of distribution becomes subject
not only to the VAT, but also to the 70% cap. The problem
increases due to a cascading effect as the number of
distribution levels increases since it will result in the
collection of an effective 3% percentage tax at every
distribution level.
_______________

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.‰
292

In analyzing the effects of the 70% cap, and appreciating

how it violates the due process clause, we should not focus
solely on the end consumers. Undoubtedly, consumers will
face hardships due to the increased prices, but their
threshold of physical survival, as individual people, is
significantly less than that of enterprises. Somehow, I do
not think the new E-VAT would generally deprive
consumers of the bare necessities such as food, water,
shelter and clothing. There may be significant deprivation
of comfort as a result, but not of life.
The same does not hold true for businesses. The
standard of „deprivation of life‰ of juridical persons
employs different variables than that of natural persons.
What food and water may be for persons, profit is for an
enterprise·the bare necessity for survival. For businesses,
the implementation of the same law, with the 70% cap and
60-month amortization period, would mean the deprivation
of profit, which is the determinative necessity for the
survival of a business.
It is easy to admonish both the consumer and the
enterprise to cut back on expenditures to survive the new
E-VAT Law. However, this can be realistically expected only
of the consumer. The small/medium enterprise cannot just
cut back easily on expenditures in order to survive the
implementation of the E-VAT Law. For such businesses,
expenditures do not normally contemplate unnecessary
expenses such as executive perks which can be dispensed
with without injury to the enterprises. These expenditures
pertain to expenses necessary for the survival of the
enterprise, such as wages, overhead and purchase of raw
materials. Those three basic items of expenditure cannot
simply be reduced, as to do so with impair the ability of the

business to operate on a daily basis.

And reduction of expenditures is not the exclusive
antidote to these impositions under the E-VAT Law, as
there must also be a corresponding increase in the amount
of gross sales. To do so though, would require an increase in
the selling price, dampening consumer enthusiasm, and
further impairing the ability of the enterprise to recover
from the E-VAT Law. This
293
VOL. 469, SEPTEMBER 1, 2005 293

40
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:
QUARTERLY PROFIT AND LOSS STATEMENT
DEALER „A‰
Price VAT (without VAT (with

70% cap) 70% cap)
Sales/Output 32,748,534 3,274,853.40 3,274,853.40

Cost of Sales 31,834,717 3,183,471.70

Gross 913,817
Margin
_______________
40 In Joseph HellerÊs Catch-22, Yossarian, a World War II pilot

reasoned that if he feigned insanity, he would be necessarily exempt from
assignment to dangerous bombing runs in enemy territory. However, his
superiors reasoned that if he were truly insane, he then would be
heedless enough to be sent on those dangerous bomb ing runs he had
sought to avoid in the first place.
294

Operating Expenses 536,249

Non-vatable items 317,584 31,758.40
Vatable Items
Total Cost 853,833
Net Profit 59,984
Total Input Tax 3,215,230.10 2,292,397.38
VAT Payable 59,623.30 982,456.02
Unutilized Input VAT 922,832.72
*computed by multiplying output VAT by 70%
[3,274,853.40 x 70% = 2,292.397.38]
The presentation of the Pilipinas Shell Dealers more or less

jibes with my own observations on the impact of the 70%
cap. The dealer whose income is illustrated above has to
outlay a cash amount of P922,832.72 more than what
would have been shelled out if the 70% cap were not in
place. Considering that the net profit of the dealer is only
P59,984.00, the consequences could very well be fatal,
especially if these state of events persist in succeeding
quarters.
The burden of proof was on the Pilipinas Shell DealersÊ

to prove their allegations, and accordingly, these figures

have been duly presented to the Court for appreciation and
evaluation. Instead, the majority has shunted aside these
presentations as being merely theoretical, despite the fact
that they present a clear and present danger to the very
life of our nationÊs enterprises. The majorityÊs position
would have been more credible had it faced the issue
squarely, and endeavored to demonstrate in like numerical
fashion why the 70% cap is not oppressive, confiscatory, or
otherwise violative of the due process clause.
Sadly, the majority refuses to confront the figures or
engage in a meaningful demonstration of how these
assailed provisions truly operate. Instead, it counters with
platitudes and bromides that do not intellectually satisfy.
Considering
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VOL. 469, SEPTEMBER 1, 2005 295

that the very vitality, if not life of our domestic economy is

at stake, I think it derelict to our duty to block out these
urgent concerns presented to the41 Court with blind faith
tinged with irrational Panglossian optimism.
The obligation of the majority to refute on the merits the
arguments of the Petroleum Dealers becomes even more
grave considering that the respondents have abjectly failed
in to convincingly dispute the claims. During oral
arguments, respondents attempted to counter the
arguments that the 70% cap was oppressive and
confiscatory by presenting the following illustration, which
I fear is severely misleading:
Slide 1
Item Cost VAT
Sales 1,000,000.00 100,000.00
Purchases 800,000.00 80,000.00
Due BIR 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
_______________
41 Pangloss was a famed character ridiculed in VoltaireÊs Candide,

renowned for his absolute blind faith in optimism, no matter how dire
the circumstances.
296

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

This presentation of the respondents is grossly deceptive,

as it fails to account for the excess creditable input VAT
that remains unutilized due to the 70% cap. This excess or
creditable input VAT is supposed to be carried over for the
computation of the input VAT of the next quarter. Instead,
this excess or creditable input VAT magically disappears
from the table of the respondents. In their memorandum,
the Pilipinas Shell Dealers counter with their own
presentation using the same variables as respondentsÊ, but
taking into account the excess creditable input VAT and
extending the situation over a one-year
42
period. I cite with
approval the following chart of the Pilipinas Shell
Dealers:
Slide 1
Quarter 1
Item No. Cost VAT
Sales 1,000,000.00 100,000.00
Purchases 800,000.00 80,000.00
Due BIR with 70% cap
Output VAT 100,000.00
Allowable Input VAT 70,000.00
Net VAT Payable 30,000.00
Excess Input Vat 10,000.00
Carry-over to next quarter
_______________
42 Id., at pp. 29-30.
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VOL. 469, SEPTEMBER 1, 2005 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
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%)
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
Less: Input VAT
Excess Input VAT fr. 2nd Qtr. 20,000.00
70%)
298


Excess Input VAT to be carried over to 30,000.00
next quarter
Quarter 4
Cost VAT
Sales 1,000,000.00 100,000.00
Purchases 800,000.00 80,000.00
Less: Input VAT
Excess Input VAT fr. 3rd Qtr. 30,000.00
70%)
Excess Input VAT to be 40,000.00
carried over to next quarter
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 governmentÊs revenue since the unutilized
creditable

299
VOL. 469, SEPTEMBER 1, 2005 299

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 governmentÊs debts. I do
see that the 70% cap temporarily allows the
government to brag to the world of an increased
cash flow. But this situation would be akin to the
provincial man who borrows from everybody in the
barrio in order to show off money and maintain the
pretense of prosperity to visiting city relatives. The
illusion of wealth is hardly a legitimate state
purpose, especially if projected at the expense of the
very business life of the country.
The majority, in an effort to belittle these concerns,
points out that that the excess input tax remains creditable
in succeeding quarters. However, as seen in the above
illustration, the actual application of the excess input tax
will always be limited by the amount of output taxes
collected in a quarter, as a result of the 70% cap. Thus, it is
entirely possible that a VAT-registered person, through the
accumulation of unutilized input taxes, would have in a
quarter an express creditable input tax of P50,000,000, but
would be allowed to actually credit only P70,000 if the
output tax collected for that quarter were only P100,000.
The burden of the VAT may fall at first to the immediate
buyers, but it is supposed to be eventually shifted to the
endconsumer. The 70% cap effectively prevents this from
happening, as it limits the ability of the business to recover
the prepaid input taxes. This is unconscionable, since in
the first place, these intervening Players·the
manufacturers, producers, traders, retailers·are not even
supposed to sustain the losses incurred by reason of the
prepayment of the input taxes. Worse, they would be
obliged every quarter to pay to the government from out of
their own pockets the equivalent of 30% of the output
taxes, no matter their own particular financial condition.

Worst, this twin yoke on the taxpayer of having to sustain a

debit equivalent to 30% of output taxes,
300

and having to await forever in order to recover the prepaid

taxes would impair the cash flow and prove fatal for a
shocking number of businesses which, as they now stand,
have to make do with a minimum profit that stands to be
wiped out with the introduction of the 70% cap.
Nonetheless, the majority notes that the excess
creditable input tax may be the subject of a tax credit
certificate, which then could be used in payment of internal
revenue taxes, or a refund to the extent that such 43
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:

SEC. 112. Refunds or Tax Credits of Input Tax.·

xxx
„(B) Cancellation of VAT Registration.·A person whose
registration has been cancelled due to retirement from or
cessation of business or due to changes or cessation of status
under Section 106(C) of this Code may, within two (2) years from
the date of cancellation, apply for the issuance of a tax credit
certificate for any unused input tax which may be used in
payment of his other internal revenue taxes.
xxx
This stands in marked contrast to Section 112(B) of the

NIRC as it read prior to this amendment. Under the
previous rule, a VAT-registered person was entitled to
apply for the tax credit certificate or refund paid on capital
goods even while it remained in operation:

_______________
43 Decision, infra.
301
VOL. 469, SEPTEMBER 1, 2005 301

SEC. 112. Refunds or Tax Credits of Input Tax.·
xxx
„(B) Capital Goods.·A VAT-registered person may apply for the
issuance of a tax credit certificate or refund of input taxes paid on
capital goods imported or locally purchased, to the extent that such
input taxes have not been applied against output taxes. The
application may be made only within two (2) years after the close of
the taxable quarter when the importation or purchase was made.
This provision, which could have provided foreseeable and

useful relief to the VAT-registered person, was deleted
under the new E-VAT Law. At present, the refund or tax
credit certificate may only be issued upon two instances: on
zero-rated or effectively zero-rated sales, and upon
cancellation of VAT registration
44
due to retirement from or
cessation of business. This is the cruelest cut of all.
Only after the
_______________
44 This is confirmed by the BIR in its draft Revenue Memorandum

Circular dated 12 July 2005, submitted by respondents in its Compliance
dated 16 August 2005:
„[Q]: Is there a way by which such unapplied excess input tax credits can be
claimed for refund or issuance of TCC?
[A]: The only time application for refund/issuance of TCC is allowed
for input taxes incurred on the purchase of domestic goods/services is
when the same are directly attributable to zero-rated or effectively
zero-rated sales (of goods/services). x x x
For those engaged purely in domestic transactions, the only time
that unapplied input taxes may be applied for the issuance of TCC is
when the VAT registration of the taxpayer is cancelled due to

retirement or cessation of business or change in the status of the

taxpayer as a VAT registered taxpayer. As provided for in Section 112(B0,
in case of cancellation of VAT registration due to cessation of business or
change in status of taxpayer, the only recourse given to such taxpayer is to
apply for the issuance of TCC on his excess input tax credits which may be
used in payment of
302

business ceases to be may the State be compelled to

repay the entire amount of the unutilized input tax.
It is like a macabre form of sweepstakes wherein the
winner is to be paid his fortune only when he is
already dead. Aanhin pa ang damo kung patay na
ang kabayo.
Moreover, the inability to immediately credit or
otherwise recover the unutilized input VAT could cause
such prepaid amount to actually be recognized in the
accounting books as a loss. Under international accounting
practices, the unutilized input VAT due to the 70% cap
would not even be recognized as a deferred asset. The same
would not hold true if the 70% cap were eliminated.
45
Under
the International Accounting Standards, the unutilized
input VAT credit is recognized as an asset „to the extent
that it is probable that future taxable profit will be
available against which the unused
46
tax losses and unused
tax credits can be utili[z]ed‰ Thus, if the immediate
accreditation of the input VAT credit can be obtained, as it
would without the 70% cap, the asset could be recognized.
However, the same Standards hold that „[t]o the extent
that it is not probable that taxable profit will be available
against which the unused tax losses or unused tax credits 47
can be utilised, the deferred tax asset is not recognised.‰
As demonstrated, the continuous operation of the 70% cap
precludes the recovery of input VAT prepaid months or
years prior. Moreover, the inability to claim a refund or tax
credit

_______________
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
VOL. 469, SEPTEMBER 1, 2005 303

certificate until after the business has already ceased

virtually renders it improbable for the input VAT to be
recovered. As such, under the International Accounting
Standards, it is with all likelihood that the prepaid input
VAT,48ostensibly creditable, would actually be reflected as a
loss. What heretofore was recognized as an asset would
now, with the imposition of the 70% cap, be now considered
as a loss, enhancing the view that the 70% cap is
ultimately confiscatory in nature.
This leads to my next point. The majority asserts that
the input tax is not a property or property
49
right within the
purview of the due process clause. I respectfully but
strongly disagree.
Tellingly, the BIR itself has recognized that unutilized
input VAT is one of those assets, corporate attributes or
property rights that, in the event of a merger, are
transferred to
_______________
48 In his Separate Opinion, Justice Panganiban asserts that the

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

asset in the accounting records of a business.‰

49 Justice Panganiban cites United Paracale Mining Co. v. De la Rosa
(cited as 221 SCRA 108, 115, April 7, 1993) to bolster his stated position
that „[t]here is no vested right in a deferred input tax account; it is a
mere statutory privilege.‰ Separate Opinion, infra. United Paracale does
not pertain to any deferred input taxes, but instead to „mining claims
which according to [petitioners] is private property would constitute
impairment of vested rights since by shifting the forum of the petitionerÊs
case from the courts to the Bureau of Mines⁄[the] substantive rights to
full protection of its property rights shall be greatly impaired.‰ United
Paracale Mining Co. v. Hon. Dela Rosa, G.R. Nos. 63786-87, 7 April 1993,
221 SCRA 108, `115. Clearly, United Paracale is not even a tax case,
involving as it does, questions of the jurisdiction of the Bureau of Mines.
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
merely a privilege is to correspondingly claim that the
business profit is similarly a mere privilege. The
Constitution itself recognizes the right to profit by private

enterprises. As I stated earlier, one of the enunciated State

policies under the Constitution is the recognition of the
indispensable role of the private sector, the encouragement
of private enterprise,53 and the provision of incentives to
needed investments. Moreover, the Constitution also
requires the State to recognize the right of enterprises to
reasonable
54
returns on investments, and to expansion and
growth. This, I believe, encompasses profit.
_______________
50 See Part III, Paragraph 3, Revenue Memorandum Ruling No. 1-

2002.
51 Section 32, International Accounting Standards 12.
52 Supra note 47.
53 Supra note 9.
54 Section 3, Article XIII, CONSTITUTION.
305
VOL. 469, SEPTEMBER 1, 2005 305

60-Month Amortization Period
Another portion of Section 8 of the E-VAT Law is

unconstitutional, essentially for the same reasons as above.
The relevant portion reads:

„SEC. 110. Tax Credits.·

(A) Creditable Input Tax.·
....
Provided, That the input tax on goods purchased or imported
in a calendar month for use in trade or business for which
deduction for depreciation is allowed under this Code, shall be
spread evenly over the month of acquisition and the fifty-nine
(59) succeeding months if the aggregate acquisition cost for such
goods, excluding the VAT component thereof, exceeds One
million pesos (P1,000,000): Provided, however, That if the estimated
useful life of the capital good is less than five (5) years, as used for

depreciation purposes, then the input VAT shall be spread over such a
shorter period: Provided, finally, That in the case of purchase of services,
lease or use of properties, the input tax shall be creditable to the
purchaser, lessee or licensee upon payment of the compensation, rental,
royalty or fee.
Again, this provision unreasonably severely limits the

ability of an enterprise to recover its prepaid input VAT. On
its face, it might appear injurious primarily to high margin
enterprises, whose purchase of capital goods in a given
quarter would routinely exceed P1,000,000.00. The
amortization over a five-year period of the input VAT on
these capital goods would definitely eat up into their profit
margin. But it is still possible for such big businesses to
survive despite this new restriction, and their financial
pain alone may not be sufficient to cause the invalidity of a
taxing statute.
However, this amortization plan will prove especially
fatal to start-ups and other new businesses, which need to
purchase
306

capital goods in order to start up their new businesses. It is

a known fact in the financial community that a majority of
businesses start earning profit only after the second or
third year, and many enterprises do not even get to survive
that long. The first few years of a business are the most
crucial to its survival, and any financial benefits it can
obtain in those years, no matter how miniscule, may spell
the difference between life and death. For such emerging
businesses, it is already difficult under the present system
to recover the prepaid input VAT from the output VAT
collected from customers because initial sales volumes are
usually low. With this further limitation, diminishing as it
does any opportunity to have a sustainable cash flow, the
ability of new businesses to survive the first three years
becomes even more endangered.
Even existing small to medium enterprises are imperiled

by this 60-month amortization restriction, especially

considering the application of the 70% cap. The additional
purchase of capital goods bears as a means of adding value
to the consumer good, as a means to justify the increased
selling price. However, the purchase of capital goods in
excess of P1,000,000.00 would impose another burden on
the small to medium enterprise by further restricting their
ability to immediately recover the entire prepaid input VAT
(which would exceed at least P100,000.00), as they would
be compelled to wait for at least five years before they can
do so. Another hurdle is imposed for such small to medium
enterprise to obtain the profit margin critical to survival.
For some lucky enterprises who may be able to survive the
injury brought about by the 70% cap, this 60 month
amortization period might instead provide the mortal head
wound.
Moreover, the increased administrative burden on the
taxpayer should not be discounted, considering this CourtÊs
previous recognition of the aims of the VAT system to
„rationalize the system of taxes on goods and services,
[and] simplify
307
VOL. 469, SEPTEMBER 1, 2005 307

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.
5% Withholding VAT on Sales
Pilipinas Shell Dealers argue that Section 12 of the E-VAT

law, which amends Section 114(C) of the NIRC, is also
unconstitutional. The provision is supremely unwise,
oppressive and confiscatory in nature, and ruinous to
private enterprise and even State development. The

provision reads:

„SEC. 114. Return and Payment of Value-Added Tax.·

xxx
„(C) Withholding of Value-added Tax.·The Government or any of its
political subdivisions, instrumentalities or agencies, including
government-owned or -controlled corporations (GOCCs) shall, before
making payment on account of each purchase of goods and services
which are subject to the value-added tax imposed in Sections 106 and
108 of this Code, deduct and withhold a final value-added tax at the rate
of five percent (5%) of the gross payment thereof: Provided, That the
payment for lease or use of properties or property rights to nonresident
owners shall be subject to ten percent (10%) withholding tax at the time
of payment. For purposes of this Section, the payor or person in control of
the payment shall be considered as the withholding payment. x x x
_______________
55 Kapatiran ng Mga Naglilingkod sa Pamahalaan ng Pilipinas, Inc.,

et al. v. Tan, G.R. No. L-81311, 30 June 1988, 163 SCRA 371.
308

The principle that the Government and its subsidiaries

may deduct and withhold a final value-added tax on its
purchase of goods and services is not new, as the NIRC had
allowed such deduction and withholding at the rate of 3%
of the gross payment for the purchase of goods, and 6% of
the gross receipts for services. However, the NIRC had also
provided that this tax withheld would also be creditable
against the VAT liability of the seller or contractor, a
mechanism that was deleted by the E-VAT law. The deletion
of this credit apparatus effectively compels the private
enterprise transacting with the government to shoulder the
output VAT that should have been paid by the government
in excess of 5% of the gross selling price, and at the same

time unduly burdens the private enterprise by precluding it

from applying any creditable input VAT on the same
transaction.
Notably, the removal of the credit mechanism runs
contrary to the essence of the VAT system, which
characteristically allows the crediting of input taxes
against output taxes. Without such crediting mechanism,
which allows the shifting of the VAT to only the final end
user, the tax becomes a straightforward tax on business or
income. The effect on the enterprise doing business with the
government would be that two taxes would be imposed on
the income by the business derived on such transaction: the
regular personal or corporate income tax on such income,
and this final withholding tax of 5%.
Granted that Congress is not bound to adopt with strict
conformity the VAT system, and that it has to power to
impose new taxes on business income, this amendment to
Section 114(C) of the NIRC still remains unconstitutional.
It unfairly discriminates against entities which contract
with the government by imposing an additional tax on the
income derived from such transactions. The end result of
such discrimination is double taxation on income that is
both oppressive and confiscatory.
309
VOL. 469, SEPTEMBER 1, 2005 309

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
businessÊs input VAT.
This imposition would be grossly unfair for private

entities that transact with the government, especially on a

regular basis. It might be argued that the provision, even if
concededly unwise, nonetheless fails to meet the standard
of unconstitutionality, as it affects only those persons or
establishments that choose to do business with the
government. However, it is an acknowledged fact that the
government and its subsidiaries rely on contracts with
private enterprises in order to be able to carry out
innumerable functions of the State. This provision
effectively discourages private enterprises to do business
with the State, as it would impose on the business a higher
rate of tax if it were to transact with the State, as compared
to transactions with other private entities.
Established industries with track records of quality
performance could very well be dissuaded from doing
further business with government entities as the higher
tax rate would make no economic sense. Only those
enterprises which really need the money, such as those
with substandard track records that have affected their
viability in the marketplace, would bother seeking out
government contracts. The corresponding sacrifice in
quality would eventually prove detrimental to the State.
Our society can ill afford shoddy infrastructures such as
roads, bridges and buildings that would unnecessarily pose
danger to the public at large simply because the
government wanted to skimp on expenses.
310

The provision squarely contradicts Section 20, Article II of

the Constitution as it vacuously discourages private
enterprise, and provides disincentives to needed investments
such as those expected by the State from private businesses.
Whatever advantages may be gained by the temporary
increase in the government coffers would be overturned by
the disadvantages of having a reduced pool of private
enterprises willing to do business with the government.
Moreover, since government contracts with private
enterprises will still remain a necessary fact of life, the

amendment to Section 114(C) of the NIRC introduced by

the E-VAT Law.
Double taxation means taxing for the same tax period
the same thing or activity twice, when it should be taxed
but once, for the same
56
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 governmental57 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. 58
The Court, in Re: Request of Atty. Bernardo Zialcita
had cause to make the following observation I submit
apropos to the case at bar, on double taxation in a case
involving the attempt of the BIR to tax the commuted
accumulated leave credits of a government lawyer upon his
retirement:
_______________
56 J. Vitug and E. Acosta, supra note 3 at p. 41.

57 Pepsi-Cola Bottling Co. of the Philippines, Inc. v. Municipality of
Tanauan, G.R. No. L-31156, 27 February 1976, 69 SCRA 460, 466-67;
citing Court of Industrial Relations v. Lednicky, L-18169, July 31, 1964,
11 SCRA 609 and Ssn Miguel Brewery, Inc. v. City of Cebu, L-20312,
February 26, 1972, 43 SCRA 280.
58 A.M. No. 90-6-015-SC, 18 October 1990, 190 SCRA 851.
311
VOL. 469, SEPTEMBER 1, 2005 311

Section 284 of the Revised Administrative Code grants to a

government employee 15 days vacation leave and 15 days sick leave
for every year of service. Hence, even if the government employee
absents himself and exhausts his leave credits, he is still deemed to
have worked and to have rendered services. His leave benefits
are already imputed in, and form part of, his salary which in

turn is subject to withholding tax on income. He is taxed on

the entirety of his salaries without any deductions for any
leaves not utilized. It follows then that the money values
corresponding to these leave benefits both the used and
unused have already been taxed during the year that they
were earned. To tax them again when the retiring employee
receives their money value as a form of government concern
and appreciation plainly constitutes an attempt to tax the
employee a second time. This is tantamount to double
59
taxation.
Conclusions
The VAT system, in itself, is intelligently designed, and

stands as a fair means to raise revenue. It has been
adopted worldwide by countries hoping to employ an
efficient means of taxation. The concerns I have raised do
not detract from my general approval of the VAT system.
I do lament though that our governmentÊs 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 provid-
_______________
59 Id., at p. 856.
312

ing genuine incentives to private enterprise to spur

economic growth; of promoting egalitarian social justice

that would allow everyone to their fair share of the nationÊs
wealth.
Instead, we are condemned by a national policy driven
by the monomania for State revenue. It may be beyond my
oath as a Justice to compel the government to adopt an
economic policy in consonance with my personal views, but
I offer these observations since they lie at the very heart of
the noxiousness of the assailed provisions of the E-VAT law.
The 70% cap, the 60-month amortization period and the 5%
withholding tax on government transactions were selfishly
designed to increase government revenue at the expense of
the survival of local industries.
I am not insensitive to the concerns raised by the
respondents as to the dire consequences to the economy
should the E-VAT law be struck down. I am aware that the
granting of the petition in G.R. No. 168461 will negatively
affect the cash flow of the government. If that were the only
relevant concern at stake, I would have no problems
denying the petition. Unfortunately, under the device
employed in the E-VAT law, the price to be paid for a more
sustainable liquidity of the governmentÊs finances will be
the death of local business, and correspondingly, the demise
of our society. It is a measure just as draconian as the
standard issue taxes of medieval tyrants.
I am not normally inclined towards the language of the
overwrought, yet if the sky were indeed truly falling, how
else could that fact be communicated. The E-VAT Law is of
multiple fatal consequences. How are we to survive as a
nation without the bulwark of private industries? Perhaps
the larger scale, established businesses may ultimately
remain standing, but they will be unable to sustain the
void left by the demise of small to medium enterprises. Or
worse, domestic industry would be left in the absolute
control of monopolies, combines or cartels, whether
dominated by foreigners or local oligarchs. The destruction
of subsisting industries would be bad enough, the
destruction of opportunity and the entrepre-
313
VOL. 469, SEPTEMBER 1, 2005 313

neurial spirit would be even more grievous and tragic, as it

would mark as well the end of hope. Taxes may be the
lifeblood of the state, but never at the expense of the life of
its subjects.
Accordingly, I VOTE to:
1) DENY the Petitions in G.R. Nos. 168056, 168207,

and 168730 for lack of merit;
2) PARTIALLY GRANT the Petition in G.R. Nos.
168463 and declare Section 21 of the E-VAT Law as
unconstitutional;
3) GRANT the Petition in G.R. No. 168461 and declare
as unconstitutional Section 8 of Republic Act No.
9337, insofar as it amends Section 110(A) and (B) of
the National Internal Revenue Code (NIRC) as well
as Section 12 of the same law, with respect to its
amendment of Section 114(C) of the NIRC.
CONCURRING OPINION
CHICO-NAZARIO, J.:
Five petitions were filed before this Court questioning the

constitutionality of Republic Act No. 9337. Rep. Act No.
9337, which amended certain provisions
1
of the National
Internal Revenue Code of 1997, by essentially increasing
the tax rates and expanding the coverage of the Value-
Added Tax (VAT). Undoubtedly, during these financially
difficult times, more taxes would be additionally
burdensome to the citizenry. However, like a bitter pill, all
Filipino citizens must bear the burden of these new taxes
so as to raise the much-needed revenue for the ailing
Philippine economy. Taxation is the indispensable and
inevitable price for a civilized society, and
_______________
1 Presidential Decree No. 1158, as amended up to Rep. Act No. 8424.

314

2
without taxes, the government would be paralyzed.
Without the tax reforms introduced by Rep. Act No. 9337,
the then Secretary of the Department of Finance, Cesar V.
Purisima, assessed that „all economic scenarios point to the
National GovernmentÊs inability to sustain its precarious
fiscal position, resulting in severe3 erosion of investor
confidence and economic stagnation.‰
Finding Rep. Act No. 9337 as not unconstitutional, both
in its procedural enactment and in its substance, I hereby
concur in full in the foregoing majority opinion, penned by
my esteemed colleague, Justice Ma. Alicia Austria-
Martinez.
According to petitioners, the enactment of Rep. Act No.
9337 by Congress was riddled with irregularities and
violations of the Constitution. In particular, they alleged
that: (1) The Bicameral Conference Committee exceeded its
authority to merely settle or reconcile the differences
among House Bills No. 3555 and 3705 and Senate Bill No.
1950, by including in Rep. Act No. 9337 provisions not
found in any of the said bills, or deleting from Rep. Act No.
9337 or amending provisions therein even though they
were not in conflict with the provisions of the other bills; (2)
The amendments introduced by the Bicameral Conference
Committee violated Article VI, Section 26(2), of the
Constitution which forbids the amendment of a bill after it
had passed third reading; and (3) Rep. Act No. 9337
contravened Article VI, Section 24, of the Constitution
which prescribes that revenue bills should originate
exclusively from the House of Representatives.
Invoking the expanded power of judicial review granted
to it by the Constitution of 1987, petitioners are calling
upon
_______________
2 Commissioner of Internal Revenue v. Algue, Inc., G.R. No. L-28896,

17 February 1988, 158 SCRA 9.

3 Paragraph 3.3 of the Verification and Affidavit of Merit, executed by
the then Secretary of the Department of Finance, Cesar V. Purisima,
dated 04 July 2005, attached as Annex „A‰ of the Very Urgent Motion to
Lift Temporary Restraining Order, filed by the Office of the Solicitor
General on 04 July 2005.
315
VOL. 469, SEPTEMBER 1, 2005 315

this Court to look into the enactment of Rep. Act No. 9337
by Congress and, consequently, to review the applicability
of the enrolled bill doctrine in this jurisdiction. Under the
said doctrine, the enrolled bill, as signed by the Speaker of
the House of Representatives and the Senate President,
and certified by the Secretaries of both Houses4 of Congress,
shall be conclusive proof of its due enactment.
PetitionersÊ arguments failed to convince me of the
wisdom of abandoning the enrolled bill doctrine. I believe
that it is more prudent for this Court to remain
conservative and to continue its adherence to the enrolled
bill doctrine, for to abandon the said doctrine would be to
open a PandoraÊs Box, giving rise to a situation more
fraught with evil and mischief. Statutes enacted by
Congress may not attain finality or conclusiveness unless
declared so by this Court. This would undermine the
authority of our statutes because despite having been
signed and certified by the designated officers of Congress,
their validity would still be in doubt and their
implementation would be greatly hampered by allegations
of irregularities in their passage by the Legislature. Such
an uncertainty in the statutes would indubitably result in
confusion and disorder. In all probability, it is the
contemplation of such a scenario that led an American
judge to proclaim, thus –
. . . Better, far better, that a provision should occasionally find its

way into the statute through mistake, or even fraud, than, that
every Act, state and national, should at any and all times be liable
to put in issue and impeached by the journals, loose papers of the

Legislature, and parol evidence. Such a state of uncertainty in the

statute laws of the land would lead to mischiefs absolutely
5
intolerable. . . .
_______________
4 Fariñas v. Executive Secretary, G.R. No. 147387, 10 December 2003,

417 SCRA 503, 529.
5 Justice Sawyer, in Sherman v. Story, 30 Cal. 253, 256, as quoted in
Marshall Field & Co. v. Clark, 143 U.S. 294, 304.
316

Moreover, this Court must attribute good faith and accord

utmost respect to the acts of a co-equal branch of
government. While it is true that its jurisdiction has been
expanded by the Constitution, the exercise thereof should
not violate the basic principle of separation of powers. The
expanded jurisdiction does not contemplate judicial
supremacy over the other branches of government. Thus, in
resolving the procedural issues raised by the petitioners,
this Court should limit itself to a determination of
compliance with, or conversely, the violation of a specified
procedure in the Constitution for the passage of laws by
Congress, and not of a mere internal rule of proceedings of
its Houses.
It bears emphasis that most of the irregularities in the
enactment of Rep. Act No. 9337 concern the amendments
introduced by the Bicameral Conference Committee. The
Constitution is silent on such a committee, it neither
prescribes the creation thereof nor does it prohibit it. The
creation of the Bicameral Conference Committee is
authorized by the Rules of both Houses of Congress. That
the Rules of both Houses of Congress provide for the
creation of a Bicameral Conference Committee is within
the prerogative of each House under the Constitution to
determine its own rules of proceedings.
The Bicameral Conference Committee is a creation of
necessity and practicality considering that our Congress is

composed of two Houses, and it is highly improbable that

their respective bills on the same subject matter shall
always be in accord and consistent with each other. Instead
of all their members, only the appointed representatives of
both Houses shall meet to reconcile or settle the differences
in their bills. The resulting bill from their meetings,
embodied in the Bicameral Conference Report, shall be
subject to approval and ratification by both Houses, voting
separately.
It does perplex me that members of both Houses would
again ask the Court to define and limit the powers of the
Bicameral Conference Committee when such committee is
of
317
VOL. 469, SEPTEMBER 1, 2005 317

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 HousesÊ
respective bills is not limited to the conflicting provisions of
the bills; but may include matters not found in the original
bills but germane to the purpose thereof. If both Houses
viewed the pronouncement made by this Court in such
cases as extreme or beyond what they intended, they had
the power to amend their respective Rules to clarify or
limit even further the scope of the authority which they
grant to the Bicameral Conference Committee. PetitionersÊ
grievance that, unfortunately, they cannot bring about such
an amendment of the Rules on the Bicameral Conference
Committee because they are members of the minority,
deserves scant consideration. That the majority of the
members of both Houses refuses to amend the Rules on the
Bicameral Conference Committee is an indication that it is
still satisfied therewith. At any rate, this is how democracy
works·the will of the majority shall be controlling.
Worth reiterating herein is the concluding paragraph in

7
Arroyo v. De Venecia, which reads·
It would be unwarranted invasion of the prerogative of a coequal

department for this Court either to set aside a legislative action as
void because the Court thinks the house has disregarded its own
rules of procedure, or to allow those defeated in the political arena
to seek a rematch in the judicial forum when petitioners can find
remedy in that department. The Court has not been invested with a
roving commission to inquire into complaints, real or imagined, of
legislative skullduggery. It would be acting in excess of its
_______________
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

power and would itself be guilty of grave abuse of its discretion

were it to do so. . . .
Present jurisprudence allows the Bicameral Conference

Committee to amend, add, and delete provisions of the Bill
under consideration, even in the absence of conflict thereon
between the Senate and House versions, but only so far as8
said provisions are germane to the purpose of the Bill.
Now, there is a question as to whether the Bicameral
Conference Committee, which produced Rep. Act No. 9337,
exceeded its authority when it included therein
amendments of provisions of the National Internal
Revenue Code of 1997 not related to VAT.
Although House Bills No. 3555 and 3705 were limited to
the amendments of the provisions on VAT of the National
Internal Revenue Code of 1997, Senate Bill No. 1950 had a
much wider scope and included amendments of other
provisions of the said Code, such as those on income,
percentage, and excise taxes. It should be borne in mind

that the very purpose of these three Bills and,

subsequently, of Rep. Act No. 9337, was to raise additional
revenues for the government to address the dire economic
situation of the country. The National Internal Revenue
Code of 1997, as its title suggests, is the single Code that
governs all our national internal revenue taxes. While it
does cover different taxes, all of them are imposed and
collected by the national government to raise revenues. If
we have one Code for all our national internal revenue
taxes, then there is no reason why we cannot have a single
statute amending provisions thereof even if they involve
different taxes under separate titles. I hereby submit that
the amendments introduced by the Bicameral Conference
Committee to non-VAT provisions of the National Internal
Revenue Code of 1997 are not unconstitutional for they are
germane to the purpose of House Bills No. 3555 and 3705
and Senate Bill No. 1950, which is to raise national
revenues.
_______________
8 Supra, note 6.
319
VOL. 469, SEPTEMBER 1, 2005 319

Furthermore, the procedural issues raised by the

petitioners were already addressed and9 resolved by this
Court in Tolentino v. Executive Secretary. Since petitioners
failed to proffer novel factual or legal argument in support
of their positions that were not previously considered by
this Court in the same case, then I am not compelled to
depart from the conclusions made therein.
The majority opinion has already thoroughly discussed
each of the substantial issues raised by the petitioners. I
would just wish to discuss additional matters pertaining to
the petition of the petroleum dealers in G.R. No. 168461.
They claim that the provision of Rep. Act No. 9337
limiting their input VAT credit to only 70% of their output
VAT deprives them of their property without due process of

law. They argue further that such 70% cap violates the
equal protection and uniformity of taxation clauses under
Article III, Section 1, and Article VI, Section 28(1),
respectively, of the Constitution, because it will unduly
prejudice taxpayers who have high input VAT and who,
because of the cap, cannot fully utilize their input VAT as
credit.
I cannot sustain the petroleum dealersÊ position for the
following reasons –
First, I adhere to the view that the input VAT is not a
property to which the taxpayer has vested rights. Input
VAT consists of the VAT a VAT-registered person had paid
on his purchases or importation of goods, properties, and
services from a VAT-registered supplier; more simply, it is
VAT paid. It is not, as averred by petitioner petroleum
dealers, a property
10
that the taxpayer acquired for valuable
consideration. A VAT-registered person incurs input VAT
because he complied
_______________
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

with the National Internal Revenue Code of 1997, which

imposed the VAT and made the payment thereof
mandatory; and not because he paid for it or purchased it
for a price.
Generally, when one pays taxes to the government, he
cannot expect any direct and concrete benefit to himself for
such payment. The benefit of payment of taxes shall
redound to the society as a whole. However, by virtue of
Section 110(A) of the National Internal Revenue Code of
1997, prior to its amendment by Rep. Act No. 9337, a VAT-

registered person is allowed, subject to certain

substantiation requirements, to credit his input VAT
against his output VAT.
Output VAT is the VAT imposed by the VAT-registered
person on his own sales of goods, properties, and services or
the VAT he passes on to his buyers. Hence, the VAT-
registered person selling the goods, properties, and services
does not pay for the output VAT; said output VAT is paid for
by his consumers and he only collects and remits the same
to the government.
The crediting of the input VAT against the output VAT is
a statutory privilege, granted by Section 110 of the
National Internal Revenue Code of 1997. It gives the VAT-
registered person the opportunity to recover the input VAT
he had paid, so that, in effect, the input VAT does not
constitute an additional cost for him. While it is true that
input VAT credits are reported as assets in a VAT-
registered personÊs financial statements and books of
account, this accounting treatment is still based on the
statutory provision recognizing the input VAT as a credit.
Without Section 110 of the National Internal Revenue Code
of 1997, then the accounting treatment of any input VAT
will also change and may no longer be booked outright as
an asset. Since the privilege of an input VAT credit is
granted by law, then an amendment of such law may limit
the exercise of or may totally withdraw the privilege.
The amendment of Section 110 of the National Internal
Revenue Code of 1997 by Rep. Act No. 9337, which imposed
the 70% cap on input VAT credits, is a legitimate exercise
by
321
VOL. 469, SEPTEMBER 1, 2005 321

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 basic11
precept of
constitutional law·that no law is irrepealable. There can
be no vested right to the continued 12existence of a statute,
which precludes its change or repeal.

It bears to emphasize that Rep. Act No. 9337 does not

totally remove the privilege of crediting the input VAT
against the output VAT. It merely limits the amount of
input VAT one may credit against his output VAT per
quarter to an amount equivalent to 70% of the output VAT.
What is more, any input VAT in excess13of the 70% cap may
be carried-over to the next quarter. It is certainly a
departure from the VAT crediting system under Section 110
of the National Internal Revenue Code of 1997, but it is an
innovation that Congress may very well introduce, because
·
VAT will continue to evolve from its pioneering original structure.

Dynamically, it will be subjected to reforms that will make it
conform to many factors, among which are: the changing
requirements of government revenue; the social, economic and
political vicissitudes of the times; and the conflicting interests in
our society. In the course of its evolution, it will be injected with
some oddities and inevitably transformed into a structure which its
14
revisionists believe will be an improvement overtime.
_______________
11 Asociacion de Agricultores de Talisay-Silay, Inc. v. Talisay-Silay

Milling Co., Inc., G.R. No. L-19937, 19 February 1979, 88 SCRA 294;
Duarte v. Dade, 32 Phil. 36 (1915).
12 Traux v. Corrigan, 257 U.S. 312, 66 L. Ed. 254, as quoted in
Asociacion de Agricultores de Talisay-Silay, Inc. v. Talisay-Silay Milling
Co., Inc., Id., p. 452.
13 Section 110(B) of the National Internal Revenue Code of 1997, as
amended by Section 8 of Rep. Act No. 9337.
14 VICTORIO A. DEOFERIO, JR. AND VICTORINO C.
MAMALATEO, THE VALUE ADDED TAX IN THE PHILIPPINES 48
(2000).
322

Second, assuming for the sake of argument, that the input

VAT credit is indeed a property, the petroleum dealersÊ

right thereto has not vested. A right is deemed vested and

subject to constitutional protection when·
„. . . [T]he right to enjoyment, present or prospective, has become

the property of some particular person or persons as a present
interest. The right must be absolute, complete, and unconditional,
independent of a contingency, and a mere expectancy of future
benefit, or a contingent interest in property founded on anticipated
continuance of existing laws, does not constitute a vested right. So,
inchoate rights which have not been acted on are not vested.‰ (16 C.
15
J. S. 214-215)
Under the National Internal Revenue Code of 1997, before

it was amended by Rep. Act No. 9337, the sale or
importation of petroleum products were 16
exempt from VAT,
and instead, were subject to excise tax. Petroleum dealers
did not impose any output VAT on their sales to consumers.
Since they had no output VAT against which they could
credit their input VAT, they shouldered the costs of the
input VAT that they paid on their purchases of goods,
properties, and services. Their sales not being subject to
VAT, the petroleum dealers had no input VAT credits to
speak of.
It is only under Rep. Act No. 9337 that the sales by the
petroleum dealers have become subject to VAT and only in
its implementation may they use their input VAT as credit
against their output VAT. While eager to use their input
VAT credit 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 dealersÊ input VAT credits were
inexistent·
_______________
15 Benguet Consolidated Mining Co. v. Pineda, 98 Phil. 711, 722

(1956).
16 Section 109(e) of the National Internal Revenue Code of 1997.
323
VOL. 469, SEPTEMBER 1, 2005 323

they were unrecognized and disallowed by law. The

petroleum dealers had no such property called input VAT
credits. It is only rational, therefore, that they cannot
acquire vested rights to the use of such input VAT credits
when they were never entitled to such credits in the first
place, at least, not until Rep. Act No. 9337.
My view, at this point, when Rep. Act No. 9337 has not
yet even been implemented, is that petroleum dealersÊ right
to use their input VAT as credit against their output VAT
unlimitedly has not vested, being a mere expectancy of a
future benefit and being contingent on the continuance of
Section 110 of the National Internal Revenue Code of 1997,
prior to its amendment by Rep. Act No. 9337.
Third, although the petroleum dealers presented figures
and computations to support their contention that the cap
shall lead to the demise of their businesses, I remain
unconvinced.
Rep. Act No. 9337, while imposing the 70% cap on input
VAT credits, allows the taxpayer to carry-over to the
succeeding quarters any excess input VAT. The petroleum
dealers presented a situation wherein their input VAT
would always exceed 70% of their output VAT, and thus,
their excess input VAT will be perennially carried-over and
would remain unutilized. Even though they consistently
questioned the 70% cap on their input VAT credits, the
petroleum dealers failed to establish what is the average
ratio of their input VAT vis-à-vis their output VAT per
quarter. Without such fact, I consider their objection to the
70% cap arbitrary because there is no basis therefor.
On the other, I find that the 70% cap on input VAT
credits was not imposed by Congress arbitrarily. Members
of the Bicameral Conference Committee settled on the said
percentage so as to ensure that the government can collect
a minimum of 30% output VAT per taxpayer. This is to put
a VAT-taxpayer, at least, on equal footing with a VAT-
exempt taxpayer under Section 109(V) of the National
Internal Revenue
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.
Fourth, I give no weight to the figures and computations
presented before this Court by the petroleum dealers,
particularly the supposed quarterly profit and loss
statement of a „typical dealer.‰ How these data represent
the financial status of a typical dealer, I would not know
when there was no effort to explain the manner by which
they were surveyed, collated, and averaged out. Without
establishing their source therefor, the figures and
computations presented by the petroleum dealers are
merely self-serving and unsubstantiated, deserving scant
consideration by this Court. Even assuming that these
figures truly represent the financial standing of petro-
_______________
17 TSN, 18 April 2005, IV-2, p. 5.

18 Section 116 of the National Internal Revenue Code, as amended by

Rep. Act No. 9337.
325
VOL. 469, SEPTEMBER 1, 2005 325

leum dealers, the introduction and application thereto of

the VAT factor, which forebode the collapse of said
petroleum dealersÊ businesses, would be nothing more than
an anticipated damage·an injury that may or may not
happen. To resolve their petition on this basis would be
premature and contrary to the established tenet of ripeness
of a cause of action before this Court could validly exercise
its power of judicial review.
Fifth, in response to the contention of the petroleum
dealers during oral arguments before this Court that they
cannot pass on to the consumers the VAT burden and
increase the prices of their goods, it is worthy to quote
19
below this CourtÊs ruling in Churchill v. Concepcion, to
wit·
„It will thus be seen that the contention that the rates charged for
advertising cannot be raised is purely hypothetical, based entirely
upon the opinion of the plaintiffs, unsupported by actual test, and
that the plaintiffs themselves admit that a number of other persons
have voluntarily and without protest paid the tax herein
complained of. Under these circumstances, can it be held as a
matter of fact that the tax is confiscatory or that, as a matter of law,
the tax is unconstitutional? Is the exercise of the taxing power of
the Legislature dependent upon and restricted by the opinion of two
interested witnesses? There can be but one answer to these
questions, especially in view of the fact that others are paying the
tax and presumably making reasonable profit from their business.‰
As a final observation, I perceive that what truly underlies

the opposition to Rep. Act No. 9337 is not the question of
its constitutionality, but rather the wisdom of its
enactment. Would it truly raise national revenue and
benefit the entire country, or would it only increase the
burden of the Filipino people? Would it contribute to a
revival of our economy or only contribute to the difficulties

and eventual closure of businesses? These are issues that

we cannot resolve as the
_______________
19 34 Phil. 969, 973 (1916).
326

Supreme
20
Court. As this Court explained in Agustin v.
Edu, to wit·
„It does appear clearly that petitionerÊs objection to this Letter of

Instruction is not premised on lack of power, the justification for a
finding of unconstitutionality, but on the pessimistic, not to say
negative, view he entertains as to its wisdom. That approach, it put
it at its mildest, is distinguished, if that is the appropriate word, by
its unorthodoxy. It bears repeating „that this Court, in the language
of Justice Laurel, Âdoes not pass upon questions of wisdom, justice
or expediency of legislation.Ê As expressed by Justice Tuason: ÂIt is
not the province of the courts to supervise legislation and keep it
within the bounds of propriety and common sense. That is primarily
and exclusively a legislative concern.Ê There can be no possible
objection then to the observation of Justice Montemayor: ÂAs long as
laws do not violate any Constitutional provision, the Courts merely
interpret and apply them regardless of whether or not they are wise
or salutary.Ê For they, according to Justice Labrador, Âare not
supposed to override legitimate policy and * * * never inquire into
the wisdom of the law.Ê It is thus settled, to paraphrase Chief
Justice Concepcion in Gonzales v. Commission on Elections, that
only congressional power or competence, not the wisdom of the
action taken, may be the basis for declaring a statute invalid. This
is as it ought to be. The principle of separation of powers has in the
main wisely allocated the respective authority of each department
and confined its jurisdiction to such sphere. There would then be
intrusion not allowable under the Constitution if on a matter left to
the discretion of a coordinate branch, the judiciary would substitute
21
its own . . .‰

To reiterate, we cannot substitute our discretion for

Congress, and even though there are provisions in Rep. Act
No. 9337 which we may believe as unwise or iniquitous, but
not unconstitutional, we cannot strike them off by invoking
our power of judicial review. In such a situation, the
recourse of the people is not judicial, but rather political. If
they severely doubt the wisdom of the present Congress for
passing a statute such as Rep. Act No. 9337, then they
have the power to
_______________
20 G.R. No. L-49112, 02 February 1979, 88 SCRA 195.

21 Id., pp. 210-211.
327
VOL. 469, SEPTEMBER 1, 2005 327

hold the members of said Congress accountable by using

their voting power in the next elections.
In view of the foregoing, I vote for the denial of the
present petitions and the upholding of the constitutionality
of Rep. Act No. 9337 in its entirety.
Petitions in G.R. Nos. 168056, 168207, 168461, 168463
and 168730 are dismissed.
Notes.·The VAT law would perhaps be open to the

charge of discriminatory treatment if the only privilege
withdrawn had been that granted to the press. (Tolentino
vs. Secretary of Finance, 235 SCRA 630 [1994])
The computation of the output VAT of the seller should
be based on the selling price appearing on its own VAT
invoice, not on the selling price appearing on that of the
customer. (Atlas Consolidated Mining & Development
Corporation vs. Commissioner of Internal Revenue, 318
SCRA 386 [1999])
Under the value-added tax system, a zero-rated sale by
a VAT-registered person, which is a taxable transaction for
VAT purposes, shall not result in any output tax, but the
input tax on his purchase of goods, properties or services

related to such zero-rated sale shall be available as tax

credit or refund. (Commissioner of Internal Revenue vs.
Cebu Toyo Corporation, 451 SCRA 447 [2005])
··o0o··
328
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SUPREME COURT REPORTS ANNOTATED VOLUME 469 27/04/2019, 6+10 AM

14 SUPREME COURT REPORTS ANNOTATED

ABAKADA GURO PARTY LIST (Formerly AASJAS)

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

ASSOCIATION OF PILIPINAS SHELL DEALERS, INC.

http://www.central.com.ph/sfsreader/session/0000016a5bb047bf44bc2e63003600fb002c009e/p/AQJ147/?username=Guest Page 1 of 351

„ANB NORTH SHELL SERVICE STATION‰; LOURDES

VOL. 469, SEPTEMBER 1, 2005 15

doing business under the name and style of „NEW

Operations, JOSELITO F. FLORDELIZA; MOTORISTSÊ

16 SUPREME COURT REPORTS ANNOTATED

Finance and GUILLERMO L. PARAYNO, JR., in his

G.R. No. 168463. September 1, 2005.*

FRANCIS JOSEPH G. ESCUDERO, VINCENT

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G.R. No. 168730. September 1, 2005.*

BATAAN GOVERNOR ENRIQUE T. GARCIA, JR.,

Taxation; Value-Added Tax (VAT); Words and Phrases; The VAT

VOL. 469, SEPTEMBER 1, 2005 17

Abakada Guro Party List vs. Ermita

concepts of value-added tax (VAT), as the confusion and inevitably,

http://www.central.com.ph/sfsreader/session/0000016a5bb047bf44bc2e63003600fb002c009e/p/AQJ147/?username=Guest Page 4 of 351

of sales taxation has long been in existence, albeit in a different mode

18 SUPREME COURT REPORTS ANNOTATED

Abakada Guro Party List vs. Ermita

Congress; Bicameral Conference Committee; Legislative Rules;

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the power did not exist, it would be utterly impracticable to transact

VOL. 469, SEPTEMBER 1, 2005 19

Abakada Guro Party List vs. Ermita

government. Moreover, as far back as 1994 or more than ten years

http://www.central.com.ph/sfsreader/session/0000016a5bb047bf44bc2e63003600fb002c009e/p/AQJ147/?username=Guest Page 6 of 351

already made the pronouncement that „[i]f a change is desired in

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20 SUPREME COURT REPORTS ANNOTATED

Abakada Guro Party List vs. Ermita

jurisdiction committed by the Bicameral Conference Committee. In

http://www.central.com.ph/sfsreader/session/0000016a5bb047bf44bc2e63003600fb002c009e/p/AQJ147/?username=Guest Page 8 of 351

that have been acted upon by both houses of Congress is prohibited.

VOL. 469, SEPTEMBER 1, 2005 21

Abakada Guro Party List vs. Ermita

Same; Origin of Bills; Revenue Bills; Since there is no question

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leakages in revenues from income taxes and value-added taxes, and

22 SUPREME COURT REPORTS ANNOTATED

Abakada Guro Party List vs. Ermita

http://www.central.com.ph/sfsreader/session/0000016a5bb047bf44bc2e63003600fb002c009e/p/AQJ147/?username=Guest Page 10 of 351

Separation of Powers; Delegation of Powers; A logical corollary

VOL. 469, SEPTEMBER 1, 2005 23

Abakada Guro Party List vs. Ermita

http://www.central.com.ph/sfsreader/session/0000016a5bb047bf44bc2e63003600fb002c009e/p/AQJ147/?username=Guest Page 11 of 351

exclusively, legislative. Purely legislative power, which can never be

24 SUPREME COURT REPORTS ANNOTATED

Abakada Guro Party List vs. Ermita

formance of his functions; A sufficient standard is one which defines

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standard is one which defines legislative policy, marks its limits,

VOL. 469, SEPTEMBER 1, 2005 25

Abakada Guro Party List vs. Ermita

http://www.central.com.ph/sfsreader/session/0000016a5bb047bf44bc2e63003600fb002c009e/p/AQJ147/?username=Guest Page 13 of 351

tion and making recommendations is the kind of subsidiary activity

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26 SUPREME COURT REPORTS ANNOTATED

Abakada Guro Party List vs. Ermita