Republic of the Philippines

SUPREME COURT
EN BANC
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., Respondent.
x-------------------------x
G.R. No. 168207
AQUILINO Q. PIMENTEL, JR., LUISA P. EJERCITO-ESTRADA, JINGGOY E. ESTRADA, PANFILO
M. LACSON, ALFREDO S. LIM, JAMBY A.S. MADRIGAL, AND SERGIO R. OSMEA 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, Respondent.
x-------------------------x
G.R. No. 168461
ASSOCIATION OF PILIPINAS SHELL DEALERS, INC. represented by its President, ROSARIO
ANTONIO; PETRON DEALERS ASSOCIATION represented by its President, RUTH E. BARBIBI;
ASSOCIATION OF CALTEX DEALERS OF THE PHILIPPINES represented by its President,
MERCEDITAS A. GARCIA; ROSARIO ANTONIO doing business under the name and style of "ANB
NORTH SHELL SERVICE STATION"; LOURDES MARTINEZ doing business under the name and
style of "SHELL GATE N. DOMINGO"; BETHZAIDA TAN doing business under the name and style
of "ADVANCE SHELL STATION"; REYNALDO P. MONTOYA doing business under the name and
style of "NEW LAMUAN SHELL SERVICE STATION"; EFREN SOTTO doing business under the
name and style of "RED FIELD SHELL SERVICE STATION"; DONICA CORPORATION represented
by its President, DESI TOMACRUZ; RUTH E. MARBIBI doing business under the name and style of
"R&R PETRON STATION"; PETER M. UNGSON doing business under the name and style of
"CLASSIC STAR GASOLINE SERVICE STATION"; MARIAN SHEILA A. LEE doing business under
the name and style of "NTE GASOLINE & SERVICE STATION"; JULIAN CESAR P. POSADAS
doing business under the name and style of "STARCARGA ENTERPRISES"; ADORACION
MAEBO doing business under the name and style of "CMA MOTORISTS CENTER"; SUSAN M.
ENTRATA doing business under the name and style of "LEONAS GASOLINE STATION and
SERVICE CENTER"; CARMELITA BALDONADO doing business under the name and style of
"FIRST CHOICE SERVICE CENTER"; MERCEDITAS A. GARCIA doing business under the name
and style of "LORPED SERVICE CENTER"; RHEAMAR A. RAMOS doing business under the name
and style of "RJRAM PTT GAS STATION"; MA. ISABEL VIOLAGO doing business under the name

and style of "VIOLAGO-PTT SERVICE CENTER"; MOTORISTS HEART CORPORATION

represented by its Vice-President for Operations, JOSELITO F. FLORDELIZA; MOTORISTS
HARVARD CORPORATION represented by its Vice-President for Operations, JOSELITO F.
FLORDELIZA; MOTORISTS HERITAGE CORPORATION represented by its Vice-President for
Operations, JOSELITO F. FLORDELIZA; PHILIPPINE STANDARD OIL CORPORATION
represented by its Vice-President for Operations, JOSELITO F. FLORDELIZA; ROMEO MANUEL
doing business under the name and style of "ROMMAN GASOLINE STATION"; ANTHONY ALBERT
CRUZ III doing business under the name and style of "TRUE SERVICE STATION", Petitioners,
vs.
CESAR V. PURISIMA, in his capacity as Secretary of the Department of Finance and
GUILLERMO L. PARAYNO, JR., in his capacity as Commissioner of Internal
Revenue, Respondent.
x-------------------------x
G.R. No. 168463
FRANCIS JOSEPH G. ESCUDERO, VINCENT CRISOLOGO, EMMANUEL JOEL J. VILLANUEVA,
RODOLFO G. PLAZA, DARLENE ANTONINO-CUSTODIO, OSCAR G. MALAPITAN, BENJAMIN C.
AGARAO, JR. JUAN EDGARDO M. ANGARA, JUSTIN MARC SB. CHIPECO, FLORENCIO G.
NOEL, MUJIV S. HATAMAN, RENATO B. MAGTUBO, JOSEPH A. SANTIAGO, TEOFISTO DL.
GUINGONA III, RUY ELIAS C. LOPEZ, RODOLFO Q. AGBAYANI and TEODORO A. CASIO,
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, Respondent.
x-------------------------x
G.R. No. 168730
BATAAN GOVERNOR ENRIQUE T. GARCIA, JR. Petitioner,
vs.
HON. EDUARDO R. ERMITA, in his capacity as the Executive Secretary; HON. MARGARITO
TEVES, in his capacity as Secretary of Finance; HON. JOSE MARIO BUNAG, in his capacity as the
OIC Commissioner of the Bureau of Internal Revenue; and HON. ALEXANDER AREVALO, in his
capacity as the OIC Commissioner of the Bureau of Customs, Respondent.
DECISION
AUSTRIA-MARTINEZ, J.:
The expenses of government, having for their object the interest of all, should be borne by everyone,
and the more man enjoys the advantages of society, the more he ought to hold himself honored in
contributing to those expenses.
-Anne Robert Jacques Turgot (1727-1781)
French statesman and economist

Mounting budget deficit, revenue generation, inadequate fiscal allocation for education, increased
emoluments for health workers, and wider coverage for full value-added tax benefits these are the
reasons why Republic Act No. 9337 (R.A. No. 9337) 1 was enacted. Reasons, the wisdom of which,
the Court even with its extensive constitutional power of review, cannot probe. The petitioners in
these cases, however, question not only the wisdom of the law, but also perceived constitutional
infirmities in its passage.
Every law enjoys in its favor the presumption of constitutionality. Their arguments notwithstanding,
petitioners failed to justify their call for the invalidity of the law. Hence, R.A. No. 9337 is not
unconstitutional.
LEGISLATIVE HISTORY
R.A. No. 9337 is a consolidation of three legislative bills namely, House Bill Nos. 3555 and 3705,
and Senate Bill No. 1950.
House Bill No. 35552 was introduced on first reading on January 7, 2005. The House Committee on
Ways and Means approved the bill, in substitution of House Bill No. 1468, which Representative
(Rep.) Eric D. Singson introduced on August 8, 2004. The President certified the bill on January 7,
2005 for immediate enactment. On January 27, 2005, the House of Representatives approved the
bill on second and third reading.
House Bill No. 37053 on the other hand, substituted House Bill No. 3105 introduced by Rep.
Salacnib F. Baterina, and House Bill No. 3381 introduced by Rep. Jacinto V. Paras. Its "mother bill"
is House Bill No. 3555. The House Committee on Ways and Means approved the bill on February 2,
2005. The President also certified it as urgent on February 8, 2005. The House of Representatives
approved the bill on second and third reading on February 28, 2005.
Meanwhile, the Senate Committee on Ways and Means approved Senate Bill No. 19504 on March
7, 2005, "in substitution of Senate Bill Nos. 1337, 1838 and 1873, taking into consideration House
Bill Nos. 3555 and 3705." Senator Ralph G. Recto sponsored Senate Bill No. 1337, while Senate Bill
Nos. 1838 and 1873 were both sponsored by Sens. Franklin M. Drilon, Juan M. Flavier and Francis
N. Pangilinan. The President certified the bill on March 11, 2005, and was approved by the Senate
on second and third reading on April 13, 2005.
On the same date, April 13, 2005, the Senate agreed to the request of the House of Representatives
for a committee conference on the disagreeing provisions of the proposed bills.
Before long, the Conference Committee on the Disagreeing Provisions of House Bill No. 3555,
House Bill No. 3705, and Senate Bill No. 1950, "after having met and discussed in full free and
conference," recommended the approval of its report, which the Senate did on May 10, 2005, and
with the House of Representatives agreeing thereto the next day, May 11, 2005.
On May 23, 2005, the enrolled copy of the consolidated House and Senate version was transmitted
to the President, who signed the same into law on May 24, 2005. Thus, came R.A. No. 9337.
July 1, 2005 is the effectivity date of R.A. No. 9337.5 When said date came, the Court issued a
temporary restraining order, effective immediately and continuing until further orders, enjoining
respondents from enforcing and implementing the law.

Oral arguments were held on July 14, 2005. Significantly, during the hearing, the Court speaking
through Mr. Justice Artemio V. Panganiban, voiced the rationale for its issuance of the temporary
restraining order on July 1, 2005, to wit:
J. PANGANIBAN : . . . But before I go into the details of your 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
oclock 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 theyll 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,
thats not true. Its not true that the e-vat law necessarily increased prices by 10% uniformly isnt it?
ATTY. BANIQUED : No, Your Honor.
J. PANGANIBAN : It is not?
ATTY. BANIQUED : Its not, because, Your Honor, there is an Executive Order that granted the
Petroleum companies some subsidy . . . interrupted
J. PANGANIBAN : Thats correct . . .
ATTY. BANIQUED : . . . and therefore that was meant to temper the impact . . . interrupted
J. PANGANIBAN : . . . mitigating measures . . .
ATTY. BANIQUED : Yes, Your Honor.
J. PANGANIBAN : As a matter of fact a part of the mitigating measures would be the elimination of
the Excise Tax and the import duties. That is why, it is not correct to say that the VAT as to petroleum
dealers increased prices by 10%.
ATTY. BANIQUED : Yes, Your Honor.
J. PANGANIBAN : And therefore, there is no justification for 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 its not correct to
say that all prices must go up by 10%.
ATTY. BANIQUED : Youre right, Your Honor.
J. PANGANIBAN : Now. For instance, Domestic Airline 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. BANIQUED : I guess so, Your Honor, yes.
J. PANGANIBAN : There are other products that the people were complaining on that first day, were
being increased arbitrarily by 10%. And thats one reason among many others this Court had to

issue TRO because of the confusion in the implementation. Thats why we added as an issue in this
case, even if its tangentially taken up by the pleadings of the parties, the confusion in the
implementation of the E-vat. Our people were subjected to the mercy of that confusion of an across
the board increase of 10%, which you yourself now admit and I think even the Government will admit
is incorrect. In some cases, it should be 3% only, in some cases it should be 6% depending on these
mitigating measures and the location and situation of each product, of each service, of each
company, isnt it?
ATTY. BANIQUED : Yes, Your Honor.
J. PANGANIBAN : Alright. So thats one reason why we had 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 the law is upheld by this Court. . . . 6
The Court also directed the parties to file their respective Memoranda.
G.R. No. 168056
Before R.A. No. 9337 took effect, petitioners ABAKADA GURO Party List, et al., filed a petition for
prohibition on May 27, 2005. They question the constitutionality of Sections 4, 5 and 6 of R.A. No.
9337, amending Sections 106, 107 and 108, respectively, of the National Internal Revenue Code
(NIRC). Section 4 imposes a 10% VAT on sale of goods and properties, Section 5 imposes a 10%
VAT on importation of goods, and Section 6 imposes a 10% VAT on sale of services and use or
lease of properties. These questioned provisions contain a uniformproviso authorizing the President,
upon recommendation of the Secretary of Finance, to raise the VAT rate to 12%, effective January 1,
2006, after any of the following conditions have been satisfied, to wit:
. . . That the President, upon the recommendation of the Secretary of Finance, shall, effective
January 1, 2006, raise the rate of value-added tax to twelve percent (12%), after any of the following
conditions has been satisfied:
(i) Value-added tax collection as a percentage of Gross Domestic Product (GDP) of the previous
year exceeds two and four-fifth percent (2 4/5%); or
(ii) National government deficit as a percentage of GDP of the previous year exceeds one and onehalf percent (1 %).
Petitioners argue that the law is unconstitutional, as it constitutes abandonment by Congress of its
exclusive authority to fix the rate of taxes under Article VI, Section 28(2) of the 1987 Philippine
Constitution.
G.R. No. 168207
On June 9, 2005, Sen. Aquilino Q. Pimentel, Jr., et al., filed a petition for certiorari likewise assailing
the constitutionality of Sections 4, 5 and 6 of R.A. No. 9337.
Aside from questioning the so-called stand-by authority of the President to increase the VAT rate to
12%, on the ground that it amounts to an undue delegation of legislative power, petitioners also
contend that the increase in the VAT rate to 12% contingent on any of the two conditions being
satisfied violates the due process clause embodied in Article III, Section 1 of the Constitution, as it
imposes an unfair and additional tax burden on the people, in that: (1) the 12% increase is

ambiguous because it does not state if the rate would be returned to the original 10% if the
conditions are no longer satisfied; (2) the rate is unfair and unreasonable, as the people are unsure
of the applicable VAT rate from year to year; and (3) the increase in the VAT rate, which is supposed
to be an incentive to the President to raise the VAT collection to at least 2 4/5 of the GDP of the
previous year, should only be based on fiscal adequacy.
Petitioners further claim that the inclusion of a stand-by authority granted to the President by the
Bicameral Conference Committee is a violation of the "no-amendment rule" upon last reading of a
bill laid down in Article VI, Section 26(2) of the Constitution.
G.R. No. 168461
Thereafter, a petition for prohibition was filed on June 29, 2005, by the Association of Pilipinas Shell
Dealers, Inc.,et al., assailing the following provisions of R.A. No. 9337:
1) Section 8, amending Section 110 (A)(2) of the NIRC, requiring that the input tax on depreciable
goods shall be amortized over a 60-month period, if the acquisition, excluding the VAT components,
exceeds One Million Pesos (P1, 000,000.00);
2) Section 8, amending Section 110 (B) of the NIRC, imposing a 70% limit on the amount of input tax
to be credited against the output tax; and
3) Section 12, amending Section 114 (c) of the NIRC, authorizing the Government or any of its
political subdivisions, instrumentalities or agencies, including GOCCs, to deduct a 5% final
withholding tax on gross payments of goods and services, which are subject to 10% VAT under
Sections 106 (sale of goods and properties) and 108 (sale of services and use or lease of
properties) of the NIRC.
Petitioners contend that these provisions are unconstitutional for being arbitrary, oppressive,
excessive, and confiscatory.
Petitioners argument is premised on the constitutional right of non-deprivation of life, liberty or
property without due process of law under Article III, Section 1 of the Constitution. According to
petitioners, the contested sections impose limitations on the amount of input tax that may be
claimed. Petitioners also argue that the input tax partakes the nature of a property that may not be
confiscated, appropriated, or limited without due process of law. Petitioners further contend that like
any other property or property right, the input tax credit may be transferred or disposed of, and that
by limiting the same, the government gets to tax a profit or value-added even if there is no profit or
value-added.
Petitioners also believe that these provisions violate the constitutional guarantee of equal protection
of the law under Article III, Section 1 of the Constitution, as the limitation on the creditable input tax
if: (1) the entity has a high ratio of input tax; or (2) invests in capital equipment; or (3) has several
transactions with the government, is not based on real and substantial differences to meet a valid
classification.
Lastly, petitioners contend that the 70% limit is anything but progressive, violative of Article VI,
Section 28(1) of the Constitution, and that it is the smaller businesses with higher input tax to output
tax ratio that will suffer the consequences thereof for it wipes out whatever meager margins the
petitioners make.

G.R. No. 168463

Several members of the House of Representatives led by Rep. Francis Joseph G. Escudero filed
this petition forcertiorari on June 30, 2005. They question the constitutionality of R.A. No. 9337 on
the following grounds:
1) Sections 4, 5, and 6 of R.A. No. 9337 constitute an undue delegation of legislative power, in
violation of Article VI, Section 28(2) of the Constitution;
2) The Bicameral Conference Committee acted without jurisdiction in deleting the no pass
on provisions present in Senate Bill No. 1950 and House Bill No. 3705; and
3) Insertion by the Bicameral Conference Committee of Sections 27, 28, 34, 116, 117, 119, 121,
125,7 148, 151, 236, 237 and 288, which were present in Senate Bill No. 1950, violates Article VI,
Section 24(1) of the Constitution, which provides that all appropriation, revenue or tariff bills shall
originate exclusively in the House of Representatives
G.R. No. 168730
On the eleventh hour, Governor Enrique T. Garcia filed a petition for certiorari and prohibition on July
20, 2005, alleging unconstitutionality of the law on the ground that the limitation on the creditable
input tax in effect allows VAT-registered establishments to retain a portion of the taxes they collect,
thus violating the principle that tax collection and revenue should be solely allocated for public
purposes and expenditures. Petitioner Garcia further claims that allowing these establishments to
pass on the tax to the consumers is inequitable, in violation of Article VI, Section 28(1) of the
Constitution.
RESPONDENTS COMMENT
The Office of the Solicitor General (OSG) filed a Comment in behalf of respondents. Preliminarily,
respondents contend that R.A. No. 9337 enjoys the presumption of constitutionality and petitioners
failed to cast doubt on its validity.
Relying on the case of Tolentino vs. Secretary of Finance, 235 SCRA
630 (1994), respondents argue that the procedural issues raised by petitioners, i.e., legality of the
bicameral proceedings, exclusive origination of revenue measures and the power of the Senate
concomitant thereto, have already been settled. With regard to the issue of undue delegation of
legislative power to the President, respondents contend that the law is complete and leaves no
discretion to the President but to increase the rate to 12% once any of the two conditions provided
therein arise.
Respondents also refute petitioners argument that the increase to 12%, as well as the 70%
limitation on the creditable input tax, the 60-month amortization on the purchase or importation of
capital goods exceedingP1,000,000.00, 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 governments fiscal reform
agenda. A reform in the value-added system of taxation is the core revenue measure that will tilt the
balance towards a sustainable macroeconomic environment necessary for economic growth.

ISSUES
The Court defined the issues, as follows:
PROCEDURAL ISSUE
Whether R.A. No. 9337 violates the following provisions of the Constitution:
a. Article VI, Section 24, and
b. Article VI, Section 26(2)
SUBSTANTIVE ISSUES
1. Whether Sections 4, 5 and 6 of R.A. No. 9337, amending Sections 106, 107 and 108 of the NIRC,
violate the following provisions of the Constitution:
a. Article VI, Section 28(1), and
b. Article VI, Section 28(2)
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:
a. Article VI, Section 28(1), and
b. Article III, Section 1
RULING OF THE COURT
As a prelude, the Court deems it apt to restate the general principles and concepts of value-added
tax (VAT), as the confusion and inevitably, litigation, breeds from a fallacious notion of its nature.
The VAT is a tax on spending or consumption. It is levied on the sale, barter, exchange or lease of
goods or properties and services.8 Being an indirect tax on expenditure, the seller of goods or
services may pass on the amount of tax paid to the buyer,9 with the seller acting merely as a tax
collector.10 The burden of VAT is intended to fall on the immediate buyers and ultimately, the endconsumers.
In contrast, a direct tax is a tax for which a taxpayer is directly liable on the transaction or business it
engages in, without transferring the burden to someone else.11 Examples are individual and
corporate income taxes, transfer taxes, and residence taxes. 12
In the Philippines, the value-added system of sales taxation has long been in existence, albeit in a
different mode. Prior to 1978, the system was a single-stage tax computed under the "cost deduction
method" and was payable only by the original sellers. The single-stage system was subsequently
modified, and a mixture of the "cost deduction method" and "tax credit method" was used to
determine the value-added tax payable.13 Under the "tax credit method," an entity can credit against

or subtract from the VAT charged on its sales or outputs the VAT paid on its purchases, inputs and
imports.14
It was only in 1987, when President Corazon C. Aquino issued Executive Order No. 273, that the
VAT system was rationalized by imposing a multi-stage tax rate of 0% or 10% on all sales using the
"tax credit method."15
E.O. No. 273 was followed by R.A. No. 7716 or the Expanded VAT Law,16 R.A. No. 8241 or the
Improved VAT Law,17 R.A. No. 8424 or the Tax Reform Act of 1997,18 and finally, the presently
beleaguered R.A. No. 9337, also referred to by respondents as the VAT Reform Act.
The Court will now discuss the issues in logical sequence.
PROCEDURAL ISSUE
I.
Whether R.A. No. 9337 violates the following provisions of the Constitution:
a. Article VI, Section 24, and
b. Article VI, Section 26(2)
A. The Bicameral Conference Committee
Petitioners Escudero, et al., and Pimentel, et al., allege that the Bicameral Conference Committee
exceeded its authority by:
1) Inserting the stand-by authority in favor of the President in Sections 4, 5, and 6 of R.A. No. 9337;
2) Deleting entirely the no pass-on provisions found in both the House and Senate bills;
3) Inserting the provision imposing a 70% limit on the amount of input tax to be credited against the
output tax; and
4) Including the amendments introduced only by Senate Bill No. 1950 regarding other kinds of taxes
in addition to the value-added tax.
Petitioners now beseech the Court to define the powers of the Bicameral Conference Committee.
It should be borne in mind that the power of internal regulation and discipline are intrinsic in any
legislative body for, as unerringly elucidated by Justice Story, "[i]f the power did not exist, it would
be utterly impracticable to transact the business of the nation, either at all, or at least with
decency, deliberation, and order."19Thus, 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 latters appropriate action.
Sec. 89. Conference Committee Reports. . . . Each report shall contain a detailed, sufficiently
explicit statement of the changes in or amendments to the subject measure.
...
The Chairman of the House panel may be interpellated on the Conference Committee Report prior
to the voting thereon. The House shall vote on the Conference Committee Report in the same
manner and procedure as it votes on a bill on third and final reading.
Rule XII, Section 35 of the Rules of the Senate states:
Sec. 35. In the event that the Senate does not agree with the House of Representatives on the
provision of any bill or joint resolution, the differences shall be settled by a conference committee of
both Houses which shall meet within ten (10) days after their composition. The President shall
designate the members of the Senate Panel in the conference committee with the approval of the
Senate.
Each Conference Committee Report shall contain a detailed and sufficiently explicit statement of the
changes in, or amendments to the subject measure, and shall be signed by a majority of the
members of each House panel, voting separately.
A comparative presentation of the conflicting House and Senate provisions and a reconciled version
thereof with the explanatory statement of the conference committee shall be attached to the report.
...
The creation of such conference committee was apparently in response to a problem, not addressed
by any constitutional provision, where the two houses of Congress find themselves in disagreement
over changes or amendments introduced by the other house in a legislative bill. Given that one of
the most basic powers of the legislative branch is to formulate and implement its own rules of
proceedings and to discipline its members, may the Court then delve into the details of how
Congress complies with its internal rules or how it conducts its business of passing legislation? Note
that in the present petitions, the issue is not whether provisions of the rules of both houses creating
the bicameral conference committee are unconstitutional, but whether the bicameral conference
committee has strictly complied with the rules of both houses, thereby remaining within the
jurisdiction conferred upon it by Congress.
In the recent case of Farias vs. The Executive Secretary,20 the Court En
Banc, unanimously reiterated and emphasized its adherence to the "enrolled bill doctrine," thus,
declining therein petitioners plea for the Court to go behind the enrolled copy of the bill. Assailed in
said case was Congresss creation of two sets of bicameral conference committees, the lack of
records of said committees proceedings, the alleged violation of said committees of the rules of both
houses, and the disappearance or deletion of one of the provisions in the compromise bill submitted

by the bicameral conference committee. It was argued that such irregularities in the passage of the
law nullified R.A. No. 9006, or the Fair Election Act.
Striking down such argument, the Court held thus:
Under the "enrolled bill doctrine," the signing of a bill by the Speaker of the House and the Senate
President and the certification of the Secretaries of both Houses of Congress that it was passed are
conclusive of its due enactment. A review of cases reveals the Courts consistent adherence to the
rule. The Court finds no reason to deviate from the salutary rule in this case where the
irregularities alleged by the petitioners mostly involved the internal rules of Congress, e.g.,
creation of the 2nd or 3rd Bicameral Conference Committee by the House. This Court is not the
proper forum for the enforcement of these internal rules of Congress, whether House or
Senate. Parliamentary rules are merely procedural and with their observance the courts have
no concern. Whatever doubts there may be as to the formal validity of Rep. Act No. 9006 must
be resolved in its favor. The Court reiterates its ruling in Arroyo vs. De Venecia, viz.:
But the cases, both here and abroad, in varying forms of expression, all deny to the courts the
power to inquire into allegations that, in enacting a law, a House of Congress failed to comply
with its own rules, in the absence of showing that there was a violation of a constitutional
provision or the rights of private individuals. In Osmea v. Pendatun, it was held: "At any rate,
courts have declared that the rules adopted by deliberative bodies are subject to revocation,
modification or waiver at the pleasure of the body adopting them.And it has been said that
"Parliamentary rules are merely procedural, and with their observance, the courts have no
concern. They may be waived or disregarded by the legislative body." Consequently, "mere
failure to conform to parliamentary usage will not invalidate the action (taken by a
deliberative body) when the requisite number of members have agreed to a particular
measure."21 (Emphasis supplied)
The foregoing declaration is exactly in point with the present cases, where petitioners allege
irregularities committed by the conference committee in introducing changes or deleting provisions in
the House and Senate bills. Akin to the Farias case,22 the present petitions also raise an issue
regarding the actions taken by the conference committee on matters regarding Congress
compliance with its own internal rules. As stated earlier, one of the most basic and inherent power of
the legislature is the power to formulate rules for its proceedings and the discipline of its members.
Congress is the best judge of how it should conduct its own business expeditiously and in the most
orderly manner. It is also the sole
concern of Congress to instill discipline among the members of its conference committee if it
believes that said members violated any of its rules of proceedings. Even the expanded jurisdiction
of this Court cannot apply to questions regarding only the internal operation of Congress, thus, the
Court is wont to deny a review of the internal proceedings of a co-equal branch of government.
Moreover, as far back as 1994 or more than ten years ago, in the case of Tolentino vs. Secretary of
Finance,23the Court already made the pronouncement that "[i]f a change is desired in the practice
[of the Bicameral Conference Committee] it must be sought in Congress since this question
is not covered by any constitutional provision but is only an internal rule of each house." 24 To
date, Congress has not seen it fit to make such changes adverted to by the Court. It seems,
therefore, that Congress finds the practices of the bicameral conference committee to be very useful
for purposes of prompt and efficient legislative action.
Nevertheless, just to put minds at ease that no blatant irregularities tainted the proceedings of the
bicameral conference committees, the Court deems it necessary to dwell on the issue. The Court

observes that there was a necessity for a conference committee because a comparison of the
provisions of House Bill Nos. 3555 and 3705 on one hand, and Senate Bill No. 1950 on the other,
reveals that there were indeed disagreements. As pointed out in the petitions, said disagreements
were as follows:

House Bill No. 3555

With regard to "Stand-By Authority" in favor of President

Provides for 12% VAT on every sale of goods or properties (amending Sec. 106 of NIRC); 12% VAT on importation of
lease of properties (amending Sec. 108 of NIRC)

With regard to the "no pass-on" provision

No similar provision

With regard to 70% limit on input tax credit

Provides that the input tax credit for capital goods on which a VAT has been paid shall be equally distributed over 5 y
services other than capital goods shall not exceed 5% of the total amount of such goods and services; and for person
of the total amount of goods purchased.

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

No similar provision

No similar provision

Provided for amendments to

several NIRC provisions
regarding corporate income,
percentage, franchise and
excise taxes

The disagreements between the provisions in the House bills and the Senate bill were with regard to
(1) what rate of VAT is to be imposed; (2) whether only the VAT imposed on electricity generation,
transmission and distribution companies should not be passed on to consumers, as proposed in the
Senate bill, or both the VAT imposed on electricity generation, transmission and distribution

companies and the VAT imposed on sale of petroleum products should not be passed on to
consumers, as proposed in the House bill; (3) in what manner input tax credits should be limited; (4)
and whether the NIRC provisions on corporate income taxes, percentage, franchise and excise
taxes should be amended.
There being differences and/or disagreements on the foregoing provisions of the House and Senate
bills, the Bicameral Conference Committee was mandated by the rules of both houses of Congress
to act on the same by settling said differences and/or disagreements. The Bicameral Conference
Committee acted on the disagreeing provisions by making the following changes:
1. With regard to the disagreement on the rate of VAT to be imposed, it would appear from the
Conference Committee Report that the Bicameral Conference Committee tried to bridge the gap in
the difference between the 10% VAT rate proposed by the Senate, and the various rates with 12%
as the highest VAT rate proposed by the House, by striking a compromise whereby the present 10%
VAT rate would be retained until certain conditions arise, i.e., the value-added tax collection as a
percentage of gross domestic product (GDP) of the previous year exceeds 2 4/5%, or National
Government deficit as a percentage of GDP of the previous year exceeds 1%, when the President,
upon recommendation of the Secretary of Finance shall raise the rate of VAT to 12% effective
January 1, 2006.
2. With regard to the disagreement on whether only the VAT imposed on electricity generation,
transmission and distribution companies should not be passed on to consumers or whether both the
VAT imposed on electricity generation, transmission and distribution companies and the VAT
imposed on sale of petroleum products may be passed on to consumers, the Bicameral Conference
Committee chose to settle such disagreement by altogether deleting from its Report any no passon provision.
3. With regard to the disagreement on whether input tax credits should be limited or not, the
Bicameral Conference Committee decided to adopt the position of the House by putting a limitation
on the amount of input tax that may be credited against the output tax, although it crafted its own
language as to the amount of the limitation on input tax credits and the manner of computing the
same by providing thus:
(A) Creditable Input Tax. . . .
...
Provided, The input tax on goods purchased or imported in a calendar month for use in trade or
business for which deduction for depreciation is allowed under this Code, shall be spread evenly
over the month of acquisition and the fifty-nine (59) succeeding months if the aggregate acquisition
cost for such goods, excluding the VAT component thereof, exceeds one million Pesos
(P1,000,000.00): PROVIDED, however, that if the estimated useful life of the capital good is less
than five (5) years, as used for depreciation purposes, then the input VAT shall be spread over such
shorter period: . . .
(B) Excess Output or Input Tax. If at the end of any taxable quarter the output tax exceeds the
input tax, the excess shall be paid by the VAT-registered person. If the input tax exceeds the output
tax, the excess shall be carried over to the succeeding quarter or quarters: PROVIDED that the input
tax inclusive of input VAT carried over from the previous quarter that may be credited in every
quarter shall not exceed seventy percent (70%) of the output VAT: PROVIDED, HOWEVER, THAT
any input tax attributable to zero-rated sales by a VAT-registered person may at his option be
refunded or credited against other internal revenue taxes, . . .

4. With regard to the amendments to other provisions of the NIRC on corporate income tax,
franchise, percentage and excise taxes, the conference committee decided to include such
amendments and basically adopted the provisions found in Senate Bill No. 1950, with some changes
as to the rate of the tax to be imposed.
Under the provisions of both the Rules of the House of Representatives and Senate Rules, the
Bicameral Conference Committee is mandated to settle the differences between the disagreeing
provisions in the House bill and the Senate bill. The term "settle" is synonymous to "reconcile" and
"harmonize."25 To reconcile or harmonize disagreeing provisions, the Bicameral Conference
Committee may then (a) adopt the specific provisions of either the House bill or Senate bill, (b)
decide that neither provisions in the House bill or the provisions in the Senate bill would
be carried into the final form of the bill, and/or (c) try to arrive at a compromise between the
disagreeing provisions.
In the present case, the changes introduced by the Bicameral Conference Committee on
disagreeing provisions were meant only to reconcile and harmonize the disagreeing provisions for it
did not inject any idea or intent that is wholly foreign to the subject embraced by the original
provisions.
The so-called stand-by authority in favor of the President, whereby the rate of 10% VAT wanted by
the Senate is retained until such time that certain conditions arise when the 12% VAT wanted by the
House shall be imposed, appears to be a compromise to try to bridge the difference in the rate of
VAT proposed by the two houses of Congress. Nevertheless, such compromise is still totally within
the subject of what rate of VAT should be imposed on taxpayers.
The no pass-on provision was deleted altogether. In the transcripts of the proceedings of the
Bicameral Conference Committee held on May 10, 2005, Sen. Ralph Recto, Chairman of the Senate
Panel, explained the reason for deleting the no pass-on provision in this wise:
. . . the thinking was just to keep the VAT law or the VAT bill simple. And we were thinking that no
sector should be a beneficiary of legislative grace, neither should any sector be discriminated on.
The VAT is an indirect tax. It is a pass on-tax. And lets keep it plain and simple. Lets not confuse
the bill and put a no pass-on provision. Two-thirds of the world have a VAT system and in this twothirds 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, lets keep the VAT simple.26 (Emphasis supplied)
Rep. Teodoro Locsin further made the manifestation that the no pass-on provision "never really
enjoyed the support of either House."27
With regard to the amount of input tax to be credited against output tax, the Bicameral Conference
Committee came to a compromise on the percentage rate of the limitation or cap on such input tax
credit, but again, the change introduced by the Bicameral Conference Committee was totally within
the intent of both houses to put a cap on input tax that may be
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
our collection efforts at an apparent disadvantage."28

As to the amendments to NIRC provisions on taxes other than the value-added tax proposed in
Senate Bill No. 1950, since said provisions were among those referred to it, the conference
committee had to act on the same and it basically adopted the version of the Senate.
Thus, all the changes or modifications made by the Bicameral Conference Committee were germane
to subjects of the provisions referred
to it for reconciliation. Such being the case, the Court does not see any grave abuse of discretion
amounting to lack or excess of jurisdiction committed by the Bicameral Conference Committee. In
the earlier cases of Philippine Judges Association vs. Prado29 and Tolentino vs. Secretary of
Finance,30 the Court recognized the long-standing legislative practice of giving said conference
committee ample latitude for compromising differences between the Senate and the House. Thus, in
the Tolentino case, it was held that:
. . . it is within the power of a conference committee to include in its report an entirely new provision
that is not found either in the House bill or in the Senate bill. If the committee can propose an
amendment consisting of one or two provisions, there is no reason why it cannot propose several
provisions, collectively considered as an "amendment in the nature of a substitute," so long as such
amendment is germane to the subject of the bills before the committee. After all, its report was not
final but needed the approval of both houses of Congress to become valid as an act of the legislative
department. The charge that in this case the Conference Committee acted as a third legislative
chamber is thus without any basis.31 (Emphasis supplied)
B. R.A. No. 9337 Does Not Violate Article VI, Section 26(2) of the Constitution on the "NoAmendment Rule"
Article VI, Sec. 26 (2) of the Constitution, states:
No bill passed by either House shall become a law unless it has passed three readings on separate
days, and printed copies thereof in its final form have been distributed to its Members three days
before its passage, except when the President certifies to the necessity of its immediate enactment
to meet a public calamity or emergency. Upon the last reading of a bill, no amendment thereto shall
be allowed, and the vote thereon shall be taken immediately thereafter, and the yeas and nays
entered in the Journal.
Petitioners argument that the practice where a bicameral conference committee is allowed to add or
delete provisions in the House bill and the Senate bill after these had passed three readings is in
effect a circumvention of the "no amendment rule" (Sec. 26 (2), Art. VI of the 1987 Constitution), fails
to convince the Court to deviate from its ruling in the Tolentino case that:
Nor is there any reason for requiring that the Committees Report in these cases must have
undergone three readings in each of the two houses. If that be the case, there would be no end to
negotiation since each house may seek modification of the compromise bill. . . .
Art. VI. 26 (2) must, therefore, be construed as referring only to bills introduced for the first
time in either house of Congress, not to the conference committee report. 32 (Emphasis
supplied)
The Court reiterates here that the "no-amendment rule" refers only to the procedure to be
followed by each house of Congress with regard to bills initiated in each of said respective
houses, before said bill is transmitted to the other house for its concurrence or amendment.

Verily, to construe said provision in a way as to proscribe any further changes to a bill after one
house has voted on it would lead to absurdity as this would mean that the other house of Congress
would be deprived of its constitutional power to amend or introduce changes to said bill. Thus, Art.
VI, Sec. 26 (2) of the Constitution cannot be taken to mean that the introduction by the Bicameral
Conference Committee of amendments and modifications to disagreeing provisions in bills that have
been acted upon by both houses of Congress is prohibited.
C. R.A. No. 9337 Does Not Violate Article VI, Section 24 of the Constitution on Exclusive Origination
of Revenue Bills
Coming to the issue of the validity of the amendments made regarding the NIRC provisions on
corporate income taxes and percentage, excise taxes. Petitioners refer to the following provisions, to
wit:

Section 27

Rates of Income Tax on Domestic Corporation

28(A)(1)

Tax on Resident Foreign Corporation

28(B)(1)

Inter-corporate Dividends

34(B)(1)

Inter-corporate Dividends

116

Tax on Persons Exempt from VAT

117

Percentage Tax on domestic carriers and keepers of Garage

119

Tax on franchises

121

Tax on banks and Non-Bank Financial Intermediaries

148

Excise Tax on manufactured oils and other fuels

151

Excise Tax on mineral products

236

Registration requirements

237

Issuance of receipts or sales or commercial invoices

288

Disposition of Incremental Revenue

Petitioners claim that the amendments to these provisions of the NIRC did not at all originate from
the House. They aver that House Bill No. 3555 proposed amendments only regarding Sections 106,
107, 108, 110 and 114 of the NIRC, while House Bill No. 3705 proposed amendments only to
Sections 106, 107,108, 109, 110 and 111 of the NIRC; thus, the other sections of the NIRC which the
Senate amended but which amendments were not found in the House bills are not intended to be
amended by the House of Representatives. Hence, they argue that since the proposed amendments
did not originate from the House, such amendments are a violation of Article VI, Section 24 of the
Constitution.
The argument does not hold water.
Article VI, Section 24 of the Constitution reads:
Sec. 24. All appropriation, revenue or tariff bills, bills authorizing increase of the public debt, bills of
local application, and private bills shall originate exclusively in the House of Representatives but the
Senate may propose or concur with amendments.
In the present cases, petitioners admit that it was indeed House Bill Nos. 3555 and 3705 that
initiated the move for amending provisions of the NIRC dealing mainly with the value-added tax.
Upon transmittal of said House bills to the Senate, the Senate came out with Senate Bill No. 1950
proposing amendments not only to NIRC provisions on the value-added tax but also amendments to
NIRC provisions on other kinds of taxes. Is the introduction by the Senate of provisions not dealing
directly with the value- added tax, which is the only kind of tax being amended in the House bills, still
within the purview of the constitutional provision authorizing the Senate to propose or concur with
amendments to a revenue bill that originated from the House?
The foregoing question had been squarely answered in the Tolentino case, wherein the Court held,
thus:
. . . To begin with, it is not the law but the revenue bill which is required by the Constitution to
"originate exclusively" in the House of Representatives. It is important to emphasize this, because a
bill originating in the House may undergo such extensive changes in the Senate that the result may
be a rewriting of the whole. . . . At this point, what is important to note is that, as a result of the
Senate action, a distinct bill may be produced. To insist that a revenue statute and not only the
bill which initiated the legislative process culminating in the enactment of the law must
substantially be the same as the House bill would be to deny the Senates power not only to
"concur with amendments" but also to "propose amendments." It would be to violate the
coequality of legislative power of the two houses of Congress and in fact make the House superior to
the Senate.

Given, then, the power of the Senate to propose amendments, the Senate can propose its
own version even with respect to bills which are required by the Constitution to originate in
the House.
...
Indeed, what the Constitution simply means is that the initiative for filing revenue, tariff or tax bills,
bills authorizing an increase of the public debt, private bills and bills of local application must come
from the House of Representatives on the theory that, elected as they are from the districts, the
members of the House can be expected to be more sensitive to the local needs and
problems. On the other hand, the senators, who are elected at large, are expected to
approach the same problems from the national perspective. Both views are thereby made to
bear on the enactment of such laws.33 (Emphasis supplied)
Since there is no question that the revenue bill exclusively originated in the House of
Representatives, the Senate was acting within its
constitutional power to introduce amendments to the House bill when it included provisions in
Senate Bill No. 1950 amending corporate income taxes, percentage, excise and franchise taxes.
Verily, Article VI, Section 24 of the Constitution does not contain any prohibition or limitation on the
extent of the amendments that may be introduced by the Senate to the House revenue bill.
Furthermore, the amendments introduced by the Senate to the NIRC provisions that had not been
touched in the House bills are still in furtherance of the intent of the House in initiating the subject
revenue bills. The Explanatory Note of House Bill No. 1468, the very first House bill introduced on
the floor, which was later substituted by House Bill No. 3555, stated:
One of the challenges faced by the present administration is the urgent and daunting task of solving
the countrys serious financial problems. To do this, government expenditures must be strictly
monitored and controlled and revenues must be significantly increased. This may be easier said
than done, but our fiscal authorities are still optimistic the government will be operating on a
balanced budget by the year 2009. In fact, several measures that will result to significant expenditure
savings have been identified by the administration. It is supported with a credible package of
revenue measures that include measures to improve tax administration and control the
leakages in revenues from income taxes and the value-added tax (VAT). (Emphasis supplied)
Rep. Eric D. Singson, in his sponsorship speech for House Bill No. 3555, declared that:
In the budget message of our President in the year 2005, she reiterated that we all acknowledged
that on top of our agenda must be the restoration of the health of our fiscal system.
In order to considerably lower the consolidated public sector deficit and eventually achieve a
balanced budget by the year 2009, we need to seize windows of opportunities which might
seem poignant in the beginning, but in the long run prove effective and beneficial to the
overall status of our economy. One such opportunity is a review of existing tax rates,
evaluating the relevance given our present conditions.34(Emphasis supplied)
Notably therefore, the main purpose of the bills emanating from the House of Representatives is to
bring in sizeable revenues for the government

to supplement our countrys serious financial problems, and improve tax administration and control
of the leakages in revenues from income taxes and value-added taxes. As these house bills were
transmitted to the Senate, the latter, approaching the measures from the point of national
perspective, can introduce amendments within the purposes of those bills. It can provide for ways
that would soften the impact of the VAT measure on the consumer, i.e., by distributing the burden
across all sectors instead of putting it entirely on the shoulders of the consumers. The sponsorship
speech of Sen. Ralph Recto on why the provisions on income tax on corporation were included is
worth quoting:
All in all, the proposal of the Senate Committee on Ways and Means will raise P64.3 billion in
additional revenues annually even while by mitigating prices of power, services and petroleum
products.
However, not all of this will be wrung out of VAT. In fact, only P48.7 billion amount is from the VAT on
twelve goods and services. The rest of the tab P10.5 billion- will be picked by corporations.
What we therefore prescribe is a burden sharing between corporate Philippines and the consumer.
Why should the latter bear all the pain? Why should the fiscal salvation be only on the burden of the
consumer?
The corporate worlds equity is in form of the increase in the corporate income tax from 32 to 35
percent, but up to 2008 only. This will raise P10.5 billion a year. After that, the rate will slide back, not
to its old rate of 32 percent, but two notches lower, to 30 percent.
Clearly, we are telling those with the capacity to pay, corporations, to bear with this emergency
provision that will be in effect for 1,200 days, while we put our fiscal house in order. This fiscal
medicine will have an expiry date.
For their assistance, a reward of tax reduction awaits them. We intend to keep the length of their
sacrifice brief. We would like to assure them that not because there is a light at the end of the tunnel,
this government will keep on making the tunnel long.
The responsibility will not rest solely on the weary shoulders of the small man. Big business will be
there to share the burden.35
As the Court has said, the Senate can propose amendments and in fact, the amendments made on
provisions in the tax on income of corporations are germane to the purpose of the house bills which
is to raise revenues for the government.
Likewise, the Court finds the sections referring to other percentage and excise taxes germane to the
reforms to the VAT system, as these sections would cushion the effects of VAT on consumers.
Considering that certain goods and services which were subject to percentage tax and excise tax
would no longer be VAT-exempt, the consumer would be burdened more as they would be paying
the VAT in addition to these taxes. Thus, there is a need to amend these sections to soften the
impact of VAT. Again, in his sponsorship speech, Sen. Recto said:
However, for power plants that run on oil, we will reduce to zero the present excise tax on bunker
fuel, to lessen the effect of a VAT on this product.
For electric utilities like Meralco, we will wipe out the franchise tax in exchange for a VAT.

And in the case of petroleum, while we will levy the VAT on oil products, so as not to destroy the VAT
chain, we will however bring down the excise tax on socially sensitive products such as diesel,
bunker, fuel and kerosene.
...
What do all these exercises point to? These are not contortions of giving to the left hand what was
taken from the right. Rather, these sprang from our concern of softening the impact of VAT, so that
the people can cushion the blow of higher prices they will have to pay as a result of VAT.36
The other sections amended by the Senate pertained to matters of tax administration which are
necessary for the implementation of the changes in the VAT system.
To reiterate, the sections introduced by the Senate are germane to the subject matter and purposes
of the house bills, which is to supplement our countrys fiscal deficit, among others. Thus, the Senate
acted within its power to propose those amendments.
SUBSTANTIVE ISSUES
I.
Whether Sections 4, 5 and 6 of R.A. No. 9337, amending Sections 106, 107 and 108 of the NIRC,
violate the following provisions of the Constitution:
a. Article VI, Section 28(1), and
b. Article VI, Section 28(2)
A. No Undue Delegation of Legislative Power
Petitioners ABAKADA GURO Party List, et al., Pimentel, Jr., et al., and Escudero, et al. contend in
common that Sections 4, 5 and 6 of R.A. No. 9337, amending Sections 106, 107 and 108,
respectively, of the NIRC giving the President the stand-by authority to raise the VAT rate from 10%
to 12% when a certain condition is met, constitutes undue delegation of the legislative power to tax.
The assailed provisions read as follows:
SEC. 4. Sec. 106 of the same Code, as amended, is hereby further amended to read as follows:
SEC. 106. Value-Added Tax on Sale of Goods or Properties.
(A) Rate and Base of Tax. There shall be levied, assessed and collected on every sale, barter or
exchange of goods or properties, a value-added tax equivalent to ten percent (10%) of the gross
selling price or gross value in money of the goods or properties sold, bartered or exchanged, such
tax to be paid by the seller or transferor:provided, that the President, upon the recommendation
of the Secretary of Finance, shall, effective January 1, 2006, raise the rate of value-added tax
to twelve percent (12%), after any of the following conditions has been satisfied.
(i) value-added tax collection as a percentage of Gross Domestic Product (GDP) of the
previous year exceeds two and four-fifth percent (2 4/5%) or

(ii) national government deficit as a percentage of GDP of the previous year exceeds one and
one-half percent (1 %).
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.
(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 %).
SEC. 6. Section 108 of the same Code, as amended, is hereby further amended to read as follows:
SEC. 108. Value-added Tax on Sale of Services and Use 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 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
(ii) national government deficit as a percentage of GDP of the previous year exceeds one and
one-half percent (1 %). (Emphasis supplied)
Petitioners allege that the grant of the stand-by authority to the President to increase the VAT rate is
a virtual abdication by Congress of its exclusive power to tax because such delegation is not within
the purview of Section 28 (2), Article VI of the Constitution, which provides:
The Congress may, by law, authorize the President to fix within specified limits, and may impose,
tariff rates, import and export quotas, tonnage and wharfage dues, and other duties or imposts within
the framework of the national development program of the government.
They argue that the VAT is a tax levied on the sale, barter or exchange of goods and properties as
well as on the sale or exchange of services, which cannot be included within the purview of tariffs
under the exempted delegation as the latter refers to customs duties, tolls or tribute payable upon

merchandise to the government and usually imposed on goods or merchandise imported or

exported.
Petitioners ABAKADA GURO Party List, et al., further contend that delegating to the President the
legislative power to tax is contrary to republicanism. They insist that accountability, responsibility and
transparency should dictate the actions of Congress and they should not pass to the President the
decision to impose taxes. They also argue that the law also effectively nullified the Presidents power
of control, which includes the authority to set aside and nullify the acts of her subordinates like the
Secretary of Finance, by mandating the fixing of the tax rate by the President upon the
recommendation of the Secretary of Finance.
Petitioners Pimentel, et al. aver that the President has ample powers to cause, influence or create
the conditions provided by the law to bring about either or both the conditions precedent.
On the other hand, petitioners Escudero, et al. find bizarre and revolting the situation that the
imposition of the 12% rate would be subject to the whim of the Secretary of Finance, an unelected
bureaucrat, contrary to the principle of no taxation without representation. They submit that the
Secretary of Finance is not mandated to give a favorable recommendation and he may not even give
his recommendation. Moreover, they allege that no guiding standards are provided in the law on
what basis and as to how he will make his recommendation. They claim, nonetheless, that any
recommendation of the Secretary of Finance can easily be brushed aside by the President since the
former is a mere alter ego of the latter, such that, ultimately, it is the President who decides whether
to impose the increased tax rate or not.
A brief discourse on the principle of non-delegation of powers is instructive.
The principle of separation of powers ordains that each of the three great branches of government
has exclusive cognizance of and is supreme in matters falling within its own constitutionally allocated
sphere.37 A logical
corollary to the doctrine of separation of powers is the principle of non-delegation of powers, as
expressed in the Latin maxim: potestas delegata non delegari potest which means "what has been
delegated, cannot be delegated."38 This doctrine is based on the ethical principle that such as
delegated power constitutes not only a right but a duty to be performed by the delegate through the
instrumentality of his own judgment and not through the intervening mind of another.39
With respect to the Legislature, Section 1 of Article VI of the Constitution provides that "the
Legislative power shall be vested in the Congress of the Philippines which shall consist of a Senate
and a House of Representatives." The powers which Congress is prohibited from delegating are
those which are strictly, or inherently and exclusively, legislative. Purely legislative power, which can
never be delegated, has been described as theauthority to make a complete law complete as
to the time when it shall take effect and as to whom it shall be applicable and to determine
the expediency of its enactment.40 Thus, the rule is that in order that a court may be justified in
holding a statute unconstitutional as a delegation of legislative power, it must appear that the power
involved is purely legislative in nature that is, one appertaining exclusively to the legislative
department. It is the nature of the power, and not the liability of its use or the manner of its exercise,
which determines the validity of its delegation.
Nonetheless, the general rule barring delegation of legislative powers is subject to the following
recognized limitations or exceptions:
(1) Delegation of tariff powers to the President under Section 28 (2) of Article VI of the Constitution;

(2) Delegation of emergency powers to the President under Section 23 (2) of Article VI of the
Constitution;
(3) Delegation to the people at large;
(4) Delegation to local governments; and
(5) Delegation to administrative bodies.
In every case of permissible delegation, there must be a showing that the delegation itself is valid. It
is valid only if the law (a) is complete in itself, setting forth therein the policy to be executed, carried
out, or implemented by the delegate;41 and (b) fixes a standard the limits of which are sufficiently
determinate and determinable to which the delegate must conform in the performance of his
functions.42 A sufficient standard is one which defines legislative policy, marks its limits, maps out its
boundaries and specifies the public agency to apply it. It indicates the circumstances under which
the legislative command is to be effected.43 Both tests are intended to prevent a total transference of
legislative authority to the delegate, who is not allowed to step into the shoes of the legislature and
exercise a power essentially legislative.44
In People vs. Vera,45 the Court, through eminent Justice Jose P. Laurel, expounded on the concept
and extent of delegation of power in this wise:
In testing whether a statute constitutes an undue delegation of legislative power or not, it is usual to
inquire whether the statute was complete in all its terms and provisions when it left the hands of the
legislature so that nothing was left to the judgment of any other appointee or delegate of the
legislature.
...
The true distinction, says Judge Ranney, is between the delegation of power to make the
law, which necessarily involves a discretion as to what it shall be, and conferring an authority
or discretion as to its execution, to be exercised under and in pursuance of the law. The first
cannot be done; to the latter no valid objection can be made.
...
It is contended, however, that a legislative act may be made to the effect as law after it leaves the
hands of the legislature. It is true that laws may be made effective on certain contingencies, as by
proclamation of the executive or the adoption by the people of a particular community. In Wayman
vs. Southard, the Supreme Court of the United States ruled that the legislature may delegate a
power not legislative which it may itself rightfully exercise. The power to ascertain facts is such a
power which may be delegated. There is nothing essentially legislative in ascertaining the
existence of facts or conditions as the basis of the taking into effect of a law. That is a mental
process common to all branches of the government. Notwithstanding the apparent tendency,
however, to relax the rule prohibiting delegation of legislative authority on account of the complexity
arising from social and economic forces at work in this modern industrial age, the orthodox
pronouncement of Judge Cooley in his work on Constitutional Limitations finds restatement in Prof.
Willoughby's treatise on the Constitution of the United States in the following language speaking
of declaration of legislative power to administrative agencies: The principle which permits the
legislature to provide that the administrative agent may determine when the circumstances
are such as require the application of a law is defended upon the ground that at the time this

authority is granted, the rule of public policy, which is the essence of the legislative act, is
determined by the legislature. In other words, the legislature, as it is its duty to do,
determines that, under given circumstances, certain executive or administrative action is to
be taken, and that, under other circumstances, different or no action at all is to be taken.
What is thus left to the administrative official is not the legislative determination of what
public policy demands, but simply the ascertainment of what the facts of the case require to
be done according to the terms of the law by which he is governed. The efficiency of an Act
as a declaration of legislative will must, of course, come from Congress, but the
ascertainment of the contingency upon which the Act shall take effect may be left to such
agencies as it may designate. The legislature, then, may provide that a law shall take effect
upon the happening of future specified contingencies leaving to some other person or body
the power to determine when the specified contingency has arisen. (Emphasis supplied).46
In Edu vs. Ericta,47 the Court reiterated:
What cannot be delegated is the authority under the Constitution to make laws and to alter and
repeal them; the test is the completeness of the statute in all its terms and provisions when it leaves
the hands of the legislature. To determine whether or not there is an undue delegation of legislative
power, the inquiry must be directed to the scope and definiteness of the measure enacted. The
legislative does not abdicate its functions when it describes what job must be done, who is to
do it, and what is the scope of his authority. For a complex economy, that may be the only way in
which the legislative process can go forward. A distinction has rightfully been made between
delegation of power to make the laws which necessarily involves a discretion as to what it
shall be, which constitutionally may not be done, and delegation of authority or discretion as
to its execution to be exercised under and in pursuance of the law, to which no valid
objection can be made. The Constitution is thus not to be regarded as denying the legislature the
necessary resources of flexibility and practicability. (Emphasis supplied). 48
Clearly, the legislature may delegate to executive officers or bodies the power to determine certain
facts or conditions, or the happening of contingencies, on which the operation of a statute is, by its
terms, made to depend, but the legislature must prescribe sufficient standards, policies or limitations
on their authority.49 While the power to tax cannot be delegated to executive agencies, details as to
the enforcement and administration of an exercise of such power may be left to them, including the
power to determine the existence of facts on which its operation depends. 50
The rationale for this is that the preliminary ascertainment of facts as basis for the enactment of
legislation is not of itself a legislative function, but is simply ancillary to legislation. Thus, the duty of
correlating information and making recommendations is the kind of subsidiary activity which the
legislature may perform through its members, or which it may delegate to others to perform.
Intelligent legislation on the complicated problems of modern society is impossible in the absence of
accurate information on the part of the legislators, and any reasonable method of securing such
information is proper.51 The Constitution as a continuously operative charter of government does not
require that Congress find for itself
every fact upon which it desires to base legislative action or that it make for itself detailed
determinations which it has declared to be prerequisite to application of legislative policy to particular
facts and circumstances impossible for Congress itself properly to investigate. 52
In the present case, the challenged section of R.A. No. 9337 is the common proviso in Sections 4, 5
and 6 which reads as follows:

That the President, upon the recommendation of the Secretary of Finance, shall, effective January 1,
2006, raise the rate of value-added tax to twelve percent (12%), after any of the following conditions
has been satisfied:
(i) Value-added tax collection as a percentage of Gross Domestic Product (GDP) of the previous
year exceeds two and four-fifth percent (2 4/5%); or
(ii) National government deficit as a percentage of GDP of the previous year exceeds one and onehalf percent (1 %).
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 wordshall is used in the common proviso. The use of the word shall connotes a mandatory
order. Its use in a statute denotes an imperative obligation and is inconsistent with the idea of
discretion.53 Where the law is clear and unambiguous, it must be taken to mean exactly what it says,
and courts have no choice but to see to it that the mandate is obeyed. 54
Thus, it is the ministerial duty of the President to immediately impose the 12% rate upon the
existence of any of the conditions specified by Congress. This is a duty which cannot be evaded by
the President. Inasmuch as the law specifically uses the word shall, the exercise of discretion by the
President does not come into play. It is a clear directive to impose the 12% VAT rate when the
specified conditions are present. The time of taking into effect of the 12% VAT rate is based on the
happening of a certain specified contingency, or upon the ascertainment of certain facts or
conditions by a person or body other than the legislature itself.
The Court finds no merit to the contention of petitioners ABAKADA GURO Party List, et al. that the
law effectively nullified the Presidents power of control over the Secretary of Finance by mandating
the fixing of the tax rate by the President upon the recommendation of the Secretary of Finance. The
Court cannot also subscribe to the position of petitioners
Pimentel, et al. that the word shall should be interpreted to mean may in view of the phrase "upon
the recommendation of the Secretary of Finance." Neither does the Court find persuasive the
submission of petitioners Escudero, et al. that any recommendation by the Secretary of Finance can
easily be brushed aside by the President since the former is a mere alter ego of the latter.
When one speaks of the Secretary of Finance as the alter ego of the President, it simply means that
as head of the Department of Finance he is the assistant and agent of the Chief Executive. The
multifarious executive and administrative functions of the Chief Executive are performed by and
through the executive departments, and the acts of the secretaries of such departments, such as the
Department of Finance, performed and promulgated in the regular course of business, are, unless
disapproved or reprobated by the Chief Executive, presumptively the acts of the Chief
Executive. The Secretary of Finance, as such, occupies a political position and holds office in an
advisory capacity, and, in the language of Thomas Jefferson, "should be of the President's bosom
confidence" and, in the language of Attorney-General Cushing, is "subject to the direction of the
President."55

In the present case, in making his recommendation to the President on the existence of either of the
two conditions, the Secretary of Finance is not acting as the alter ego of the President or even her
subordinate. In such instance, he is not subject to the power of control and direction of the President.
He is acting as the agent of the legislative department, to determine and declare the event upon
which its expressed will is to take effect.56The Secretary of Finance becomes the means or tool by
which legislative policy is determined and implemented, considering that he possesses all the
facilities to gather data and information and has a much broader perspective to properly evaluate
them. His function is to gather and collate statistical data and other pertinent information and verify if
any of the two conditions laid out by Congress is present. His personality in such instance is in
reality but a projection of that of Congress. Thus, being the agent of Congress and not of the
President, the President cannot alter or modify or nullify, or set aside the findings of the Secretary of
Finance and to substitute the judgment of the former for that of the latter.
Congress simply granted the Secretary of Finance the authority to ascertain the existence of a fact,
namely, whether by December 31, 2005, the value-added tax collection as a percentage of Gross
Domestic Product (GDP) of the previous year exceeds two and four-fifth percent (2 4/5%) or the
national government deficit as a percentage of GDP of the previous year exceeds one and one-half
percent (1%). If either of these two instances has occurred, the Secretary of Finance, by legislative
mandate, must submit such information to the President. Then the 12% VAT rate must be imposed
by the President effective January 1, 2006. There is no undue delegation of legislative power but
only of the discretion as to the execution of a law. This is constitutionally
permissible.57 Congress does not abdicate its functions or unduly delegate power when it describes
what job must be done, who must do it, and what is the scope of his authority; in our complex
economy that is frequently the only way in which the legislative process can go forward. 58
As to the argument of petitioners ABAKADA GURO Party List, et al. that delegating to the President
the legislative power to tax is contrary to the principle of republicanism, the same deserves scant
consideration. Congress did not delegate the power to tax but the mere implementation of the law.
The intent and will to increase the VAT rate to 12% came from Congress and the task of the
President is to simply execute the legislative policy. That Congress chose to do so in such a manner
is not within the province of the Court to inquire into, its task being to interpret the law.59
The insinuation by petitioners Pimentel, et al. that the President has ample powers to cause,
influence or create the conditions to bring about either or both the conditions precedent does not
deserve any merit as this argument is highly speculative. The Court does not rule on allegations
which are manifestly conjectural, as these may not exist at all. The Court deals with facts, not
fancies; on realities, not appearances. When the Court acts on appearances instead of realities,
justice and law will be short-lived.
B. The 12% Increase VAT Rate Does Not Impose an Unfair and Unnecessary Additional Tax Burden
Petitioners Pimentel, et al. argue that the 12% increase in the VAT rate imposes an unfair and
additional tax burden on the people. Petitioners also argue that the 12% increase, dependent on any
of the 2 conditions set forth in the contested provisions, is ambiguous because it does not state if the
VAT rate would be returned to the original 10% if the rates are no longer satisfied. Petitioners also
argue that such rate is unfair and unreasonable, as the people are unsure of the applicable VAT rate
from year to year.
Under the common provisos of Sections 4, 5 and 6 of R.A. No. 9337, if any of the two conditions set
forth therein are satisfied, the President shall increase the VAT rate to 12%. The provisions of the law
are clear. It does not provide for a return to the 10% rate nor does it empower the President to so
revert if, after the rate is increased to 12%, the VAT collection goes below the 24/5 of the GDP of the

previous year or that the national government deficit as a percentage of GDP of the previous year
does not exceed 1%.
Therefore, no statutory construction or interpretation is needed. Neither can conditions or limitations
be introduced where none is provided for. Rewriting the law is a forbidden ground that only Congress
may tread upon.60
Thus, in the absence of any provision providing for a return to the 10% rate, which in this case the
Court finds none, petitioners argument is, at best, purely speculative. There is no basis for
petitioners fear of a fluctuating VAT rate because the law itself does not provide that the rate should
go back to 10% if the conditions provided in Sections 4, 5 and 6 are no longer present. The rule is
that where the provision of the law is clear and unambiguous, so that there is no occasion for the
court's seeking the legislative intent, the law must be taken as it is, devoid of judicial addition or
subtraction.61
Petitioners also contend that the increase in the VAT rate, which was allegedly an incentive to the
President to raise the VAT collection to at least 2 4/5 of the GDP of the previous year, should be
based on fiscal adequacy.
Petitioners obviously overlooked that increase in VAT collection is not the only condition. There is
another condition, i.e., the national government deficit as a percentage of GDP of the previous year
exceeds one and one-half percent (1 %).
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. Natl Govt Deficit/GDP >1.5%
The condition set for increasing VAT when deficit/GDP is 1.5% or less means the fiscal condition of
government has reached a relatively sound position or is towards the direction of a balanced budget
position. Therefore, there is no need to increase the VAT rate since the fiscal house is in a relatively
healthy position. Otherwise stated, if the ratio is more than 1.5%, there is indeed a need to increase
the VAT rate.62
That the first condition amounts to an incentive to the President to increase the VAT collection does
not render it unconstitutional so long as there is a public purpose for which the law was passed,
which in this case, is mainly to raise revenue. In fact, fiscal adequacy dictated the need for a raise in
revenue.
The principle of fiscal adequacy as a characteristic of a sound tax system was originally stated by
Adam Smith in his Canons of Taxation (1776), as:
IV. Every tax ought to be so contrived as both to take out and to keep out of the pockets of the
people as little as possible over and above what it brings into the public treasury of the state. 63

It simply means that sources of revenues must be adequate to meet government expenditures and
their variations.64
The dire need for revenue cannot be ignored. Our country is in a quagmire of financial woe. During
the Bicameral Conference Committee hearing, then Finance Secretary Purisima bluntly depicted the
countrys 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. Thats interest plus amortization of our debt. So clearly, this
is not a sustainable situation. Thats 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 Id 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, weve been lucky because we were operating in a period of basically global
growth and low interest rates. The past few months, we have seen an inching up, in fact, a rapid
increase in the interest rates in the leading economies of the world. And, therefore, our ability to
borrow at reasonable prices is going to be challenged. In fact, ultimately, the question is our ability to
access the financial markets.
When the President made her speech in July last year, the environment was not as bad as it is now,
at least based on the forecast of most financial institutions. So, we were assuming that raising 80
billion would put us in a position where we can then convince them to improve our ability to borrow at
lower rates. But conditions have changed on us because the interest rates have gone up. In fact, just
within this room, we tried to access the market for a billion dollars because for this year alone, the
Philippines will have to borrow 4 billion dollars. Of that amount, we have borrowed 1.5 billion. We
issued last January a 25-year bond at 9.7 percent cost. We were trying to access last week and the
market was not as favorable and up to now we have not accessed and we might pull back because
the conditions are not very good.
So given this situation, we at the Department of Finance believe that we really need to front-end our
deficit reduction. Because it is deficit that is causing the increase of the debt and we are in what we
call a debt spiral. The more debt you have, the more deficit you have because interest and debt
service eats and eats more of your revenue. We need to get out of this debt spiral. And the only way,
I think, we can get out of this debt spiral is really have a front-end adjustment in our revenue base. 65
The image portrayed is chilling. Congress passed the law hoping for rescue from an inevitable
catastrophe. Whether the law is indeed sufficient to answer the states economic dilemma is not for
the Court to judge. In theFarias case, the Court refused to consider the various arguments raised
therein that dwelt on the wisdom of Section 14 of R.A. No. 9006 (The Fair Election Act), pronouncing
that:
. . . policy matters are not the concern of the Court. Government policy is within the exclusive
dominion of the political branches of the government. It is not for this Court to look into the wisdom

or propriety of legislative determination. Indeed, whether an enactment is wise or unwise, whether it

is based on sound economic theory, whether it is the best means to achieve the desired results,
whether, in short, the legislative discretion within its prescribed limits should be exercised in a
particular manner are matters for the judgment of the legislature, and the serious conflict of opinions
does not suffice to bring them within the range of judicial cognizance.66
In the same vein, the Court in this case will not dawdle on the purpose of Congress or the executive
policy, given that it is not for the judiciary to "pass upon questions of wisdom, justice or expediency
of legislation."67
II.
Whether Section 8 of R.A. No. 9337, amending Sections 110(A)(2) and 110(B) of the NIRC; and
Section 12 of R.A. No. 9337, amending Section 114(C) of the NIRC, violate the following provisions
of the Constitution:
a. Article VI, Section 28(1), and
b. Article III, Section 1
A. Due Process and Equal Protection Clauses
Petitioners Association of Pilipinas Shell Dealers, Inc., et al. argue that Section 8 of R.A. No. 9337,
amending Sections 110 (A)(2), 110 (B), and Section 12 of R.A. No. 9337, amending Section 114 (C)
of the NIRC are arbitrary, oppressive, excessive and confiscatory. Their argument is premised on the
constitutional right against deprivation of life, liberty of property without due process of law, as
embodied in Article III, Section 1 of the Constitution.
Petitioners also contend that these provisions violate the constitutional guarantee of equal protection
of the law.
The doctrine is that where the due process and equal protection clauses are invoked, considering
that they are not fixed rules but rather broad standards, there is a need for proof of such persuasive
character as would lead to such a conclusion. Absent such a showing, the presumption of validity
must prevail.68
Section 8 of R.A. No. 9337, amending Section 110(B) of the NIRC imposes a limitation on the
amount of input tax that may be credited against the output tax. It states, in part: "[P]rovided, that the
input tax inclusive of the input VAT carried over from the previous quarter that may be credited in
every quarter shall not exceed seventy percent (70%) of the output VAT: "
Input Tax is defined under Section 110(A) of the NIRC, as amended, as the value-added tax
due from or paid by a VAT-registered person on the importation of goods or local purchase of good
and services, including lease or use of property, in the course of trade or business, from a VATregistered person, and Output Tax is the value-added tax due on the sale or lease of taxable goods
or properties or services by any person registered or required to register under the law.
Petitioners claim that the contested sections impose limitations on the amount of input tax that may
be claimed. In effect, a portion of the input tax that has already been paid cannot now be credited
against the output tax.

Petitioners argument is not absolute. It assumes that the input tax exceeds 70% of the output tax,
and therefore, the input tax in excess of 70% remains uncredited. However, to the extent that the
input tax is less than 70% of the output tax, then 100% of such input tax is still creditable.
More importantly, the excess input tax, if any, is retained in a businesss books of accounts and
remains creditable in the succeeding quarter/s. This is explicitly allowed by Section 110(B), which
provides that "if the input tax exceeds the output tax, the excess shall be carried over to the
succeeding quarter or quarters." In addition, Section 112(B) allows a VAT-registered person to apply
for the issuance of a tax credit certificate or refund for any unused input taxes, to the extent that
such input taxes have not been applied against the output taxes. Such unused input tax may be
used in payment of his other internal revenue taxes.
The non-application of the unutilized input tax in a given quarter is not ad infinitum, as petitioners
exaggeratedly contend. Their analysis of the effect of the 70% limitation is incomplete and onesided. It ends at the net effect that there will be unapplied/unutilized inputs VAT for a given quarter. It
does not proceed further to the fact that such unapplied/unutilized input tax may be credited in the
subsequent periods as allowed by the carry-over provision of Section 110(B) or that it may later on
be refunded through a tax credit certificate under Section 112(B).
Therefore, petitioners argument must be rejected.
On the other hand, it appears that petitioner Garcia failed to comprehend the operation of the 70%
limitation on the input tax. According to petitioner, the limitation on the creditable input tax in effect
allows VAT-registered establishments to retain a portion of the taxes they collect, which violates the
principle that tax collection and revenue should be for public purposes and expenditures
As earlier stated, the input tax is the tax paid by a person, passed on to him by the seller, when he
buys goods. Output tax meanwhile is the tax due to the person when he sells goods. In computing
the VAT payable, three possible scenarios may arise:
First, if at the end of a taxable quarter the output taxes charged by the seller are equal to the input
taxes that he paid and passed on by the suppliers, then no payment is required;
Second, when the output taxes exceed the input taxes, the person shall be liable for the excess,
which has to be paid to the Bureau of Internal Revenue (BIR);69 and
Third, if the input taxes exceed the output taxes, the excess shall be carried over to the succeeding
quarter or quarters. Should the input taxes result from zero-rated or effectively zero-rated
transactions, any excess over the output taxes shall instead be refunded to the taxpayer or credited
against other internal revenue taxes, at the taxpayers option.70
Section 8 of R.A. No. 9337 however, imposed a 70% limitation on the input tax. Thus, a person can
credit his input tax only up to the extent of 70% of the output tax. In laymans term, the value-added
taxes that a person/taxpayer paid and passed on to him by a seller can only be credited up to 70%
of the value-added taxes that is due to him on a taxable transaction. There is no retention of any tax
collection because the person/taxpayer has already previously paid the input tax to a seller, and the
seller will subsequently remit such input tax to the BIR. The party directly liable for the payment of
the tax is the seller.71 What only needs to be done is for the person/taxpayer to apply or credit these
input taxes, as evidenced by receipts, against his output taxes.

Petitioners Association of Pilipinas Shell Dealers, Inc., et al. also argue that the input tax partakes
the nature of a property that may not be confiscated, appropriated, or limited without due process of
law.
The input tax is not a property or a property right within the constitutional purview of the due process
clause. A VAT-registered persons entitlement to the creditable input tax is a mere statutory privilege.
The distinction between statutory privileges and vested rights must be borne in mind for persons
have no vested rights in statutory privileges. The state may change or take away rights, which were
created by the law of the state, although it may not take away property, which was vested by virtue
of such rights.72
Under the previous system of single-stage taxation, taxes paid at every level of distribution are not
recoverable from the taxes payable, although it becomes part of the cost, which is deductible from
the gross revenue. When Pres. Aquino issued E.O. No. 273 imposing a 10% multi-stage tax on all
sales, it was then that the crediting of the input tax paid on purchase or importation of goods and
services by VAT-registered persons against the output tax was introduced. 73 This was adopted by the
Expanded VAT Law (R.A. No. 7716),74 and The Tax Reform Act of 1997 (R.A. No. 8424).75 The right
to credit input tax as against the output tax is clearly a privilege created by law, a privilege that also
the law can remove, or in this case, limit.
Petitioners also contest as arbitrary, oppressive, excessive and confiscatory, Section 8 of R.A. No.
9337, amending Section 110(A) of the NIRC, which provides:
SEC. 110. Tax Credits.
(A) Creditable Input Tax.
Provided, That the input tax on goods purchased or imported in a calendar month for use in trade or
business for which deduction for depreciation is allowed under this Code, shall be spread evenly
over the month of acquisition and the fifty-nine (59) succeeding months if the aggregate acquisition
cost for such goods, excluding the VAT component thereof, exceeds One million pesos
(P1,000,000.00): Provided, however, That if the estimated useful life of the capital goods is less than
five (5) years, as used for depreciation purposes, then the input VAT shall be spread over such a
shorter period: Provided, finally, That in the case of purchase of services, lease or use of properties,
the input tax shall be creditable to the purchaser, lessee or license upon payment of the
compensation, rental, royalty or fee.
The foregoing section imposes a 60-month period within which to amortize the creditable input tax
on purchase or importation of capital goods with acquisition cost of P1 Million pesos, exclusive of the
VAT component. Such spread out only poses a delay in the crediting of the input tax. Petitioners
argument is without basis because the taxpayer is not permanently deprived of his privilege to credit
the input tax.
It is worth mentioning that Congress admitted that the spread-out of the creditable input tax in this
case amounts to a 4-year interest-free loan to the government. 76 In the same breath, Congress also
justified its move by saying that the provision was designed to raise an annual revenue of 22.6
billion.77 The legislature also dispelled the fear that the provision will fend off foreign investments,
saying that foreign investors have other tax incentives provided by law, and citing the case of China,
where despite a 17.5% non-creditable VAT, foreign investments were not deterred. 78 Again, for
whatever is the purpose of the 60-month amortization, this involves executive economic policy and
legislative wisdom in which the Court cannot intervene.

With regard to the 5% creditable withholding tax imposed on payments made by the government for
taxable transactions, Section 12 of R.A. No. 9337, which amended Section 114 of the NIRC, reads:
SEC. 114. Return and Payment of Value-added Tax.
(C) Withholding of Value-added Tax. The Government or any of its political subdivisions,
instrumentalities or agencies, including government-owned or controlled corporations (GOCCs)
shall, before making payment on account of each purchase of goods and services which are subject
to the value-added tax imposed in Sections 106 and 108 of this Code, deduct and withhold a final
value-added tax at the rate of five percent (5%) of the gross payment thereof: Provided, That the
payment for lease or use of properties or property rights to nonresident owners shall be subject to
ten percent (10%) withholding tax at the time of payment. For purposes of this Section, the payor or
person in control of the payment shall be considered as the withholding agent.
The value-added tax withheld under this Section shall be remitted within ten (10) days following the
end of the month the withholding was made.
Section 114(C) merely provides a method of collection, or as stated by respondents, a more
simplified VAT withholding system. The government in this case is constituted as a withholding agent
with respect to their payments for goods and services.
Prior to its amendment, Section 114(C) provided for different rates of value-added taxes to be
withheld -- 3% on gross payments for purchases of goods; 6% on gross payments for services
supplied by contractors other than by public works contractors; 8.5% on gross payments for services
supplied by public work contractors; or 10% on payment for the lease or use of properties or
property rights to nonresident owners. Under the present Section 114(C), these different rates,
except for the 10% on lease or property rights payment to nonresidents, were deleted, and a uniform
rate of 5% is applied.
The Court observes, however, that the law the used the word final. In tax usage, final, as opposed to
creditable, means full. Thus, it is provided in Section 114(C): "final value-added tax at the rate of five
percent (5%)."
In Revenue Regulations No. 02-98, implementing R.A. No. 8424 (The Tax Reform Act of 1997), the
concept of final withholding tax on income was explained, to wit:
SECTION 2.57. Withholding of Tax at Source
(A) Final Withholding Tax. Under the final withholding tax system the amount of income tax
withheld by the withholding agent is constituted as full and final payment of the income tax due
from the payee on the said income. The liability for payment of the tax rests primarily on the payor as
a withholding agent. Thus, in case of his failure to withhold the tax or in case of underwithholding,
the deficiency tax shall be collected from the payor/withholding agent.
(B) Creditable Withholding Tax. Under the creditable withholding tax system, taxes withheld on
certain income payments are intended to equal or at least approximate the tax due of the payee on
said income. Taxes withheld on income payments covered by the expanded withholding tax
(referred to in Sec. 2.57.2 of these regulations) and compensation income (referred to in Sec. 2.78
also of these regulations) are creditable in nature.

As applied to value-added tax, this means that taxable transactions with the government are subject
to a 5% rate, which constitutes as full payment of the tax payable on the transaction. This represents
the net VAT payable of the seller. The other 5% effectively accounts for the standard input VAT
(deemed input VAT), in lieu of the actual input VAT directly or attributable to the taxable transaction. 79
The Court need not explore the rationale behind the provision. It is clear that Congress intended to
treat differently taxable transactions with the government.80 This is supported by the fact that under
the old provision, the 5% tax withheld by the government remains creditable against the tax liability
of the seller or contractor, to wit:
SEC. 114. Return and Payment of Value-added Tax.
(C) Withholding of Creditable Value-added Tax. The Government or any of its political
subdivisions, instrumentalities or agencies, including government-owned or controlled corporations
(GOCCs) shall, before making payment on account of each purchase of goods from sellers and
services rendered by contractors which are subject to the value-added tax imposed in Sections 106
and 108 of this Code, deduct and withhold the value-added tax due at the rate of three percent (3%)
of the gross payment for the purchase of goods and six percent (6%) on gross receipts for services
rendered by contractors on every sale or installment payment which shall becreditable 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 Congresss
intention to treat transactions with the government differently. Since it has not been shown that the
class subject to the 5% final withholding tax has been unreasonably narrowed, there is no reason to
invalidate the provision. Petitioners, as petroleum dealers, are not the only ones subjected to the 5%
final withholding tax. It applies to all those who deal with the government.
Moreover, the actual input tax is not totally lost or uncreditable, as petitioners believe. Revenue
Regulations No. 14-2005 or the Consolidated Value-Added Tax Regulations 2005 issued by the BIR,
provides that should the actual input tax exceed 5% of gross payments, the excess may form part of
the cost. Equally, should the actual input tax be less than 5%, the difference is treated as income. 81
Petitioners also argue that by imposing a limitation on the creditable input tax, the government gets
to tax a profit or value-added even if there is no profit or value-added.
Petitioners stance is purely hypothetical, argumentative, and again, one-sided. The Court will not
engage in a legal joust where premises are what ifs, arguments, theoretical and facts, uncertain. Any
disquisition by the Court on this point will only be, as Shakespeare describes life in Macbeth,82 "full of
sound and fury, signifying nothing."
Whats more, petitioners contention assumes the proposition that there is no profit or value-added. It
need not take an astute businessman to know that it is a matter of exception that a business will sell
goods or services without profit or value-added. It cannot be overstressed that a business is created
precisely for profit.

The equal protection clause under the Constitution means that "no person or class of persons shall
be deprived of the same protection of laws which is enjoyed by other persons or other classes in the
same place and in like circumstances."83
The power of the State to make reasonable and natural classifications for the purposes of taxation
has long been established. Whether it relates to the subject of taxation, the kind of property, the
rates to be levied, or the amounts to be raised, the methods of assessment, valuation and collection,
the States power is entitled to presumption of validity. As a rule, the judiciary will not interfere with
such power absent a clear showing of unreasonableness, discrimination, or arbitrariness. 84
Petitioners point out that the limitation on the creditable input tax if the entity has a high ratio of input
tax, or invests in capital equipment, or has several transactions with the government, is not based on
real and substantial differences to meet a valid classification.
The argument is pedantic, if not outright baseless. The law does not make any classification in the
subject of taxation, the kind of property, the rates to be levied or the amounts to be raised, the
methods of assessment, valuation and collection. Petitioners alleged distinctions are based on
variables that bear different consequences. While the implementation of the law may yield varying
end results depending on ones profit margin and value-added, the Court cannot go beyond what the
legislature has laid down and interfere with the affairs of business.
The equal protection clause does not require the universal application of the laws on all persons or
things without distinction. This might in fact sometimes result in unequal protection. What the clause
requires is equality among equals as determined according to a valid classification. By classification
is meant the grouping of persons or things similar to each other in certain particulars and different
from all others in these same particulars.85
Petitioners brought to the Courts attention the introduction of Senate Bill No. 2038 by Sens. S.R.
Osmea III and Ma. Ana Consuelo A.S. Madrigal on June 6, 2005, and House Bill No. 4493 by
Rep. Eric D. Singson. The proposed legislation seeks to amend the 70% limitation by increasing the
same to 90%. This, according to petitioners, supports their stance that the 70% limitation is arbitrary
and confiscatory. On this score, suffice it to say that these are still proposed legislations. Until
Congress amends the law, and absent any unequivocal basis for its unconstitutionality, the 70%
limitation stays.
B. Uniformity and Equitability of Taxation
Article VI, Section 28(1) of the Constitution reads:
The rule of taxation shall be uniform and equitable. The Congress shall evolve a progressive system
of taxation.
Uniformity in taxation means that all taxable articles or kinds of property of the same class shall be
taxed at the same rate. Different articles may be taxed at different amounts provided that the rate is
uniform on the same class everywhere with all people at all times. 86
In this case, the tax law is uniform as it provides a standard rate of 0% or 10% (or 12%) on all goods
and services. Sections 4, 5 and 6 of R.A. No. 9337, amending Sections 106, 107 and 108,
respectively, of the NIRC, provide for a rate of 10% (or 12%) on sale of goods and properties,
importation of goods, and sale of services and use or lease of properties. These same sections also
provide for a 0% rate on certain sales and transaction.

Neither does the law make any distinction as to the type of industry or trade that will bear the 70%
limitation on the creditable input tax, 5-year amortization of input tax paid on purchase of capital
goods or the 5% final withholding tax by the government. It must be stressed that the rule of uniform
taxation does not deprive Congress of the power to classify subjects of taxation, and only demands
uniformity within the particular class.87
R.A. No. 9337 is also equitable. The law is equipped with a threshold margin. The VAT rate of 0% or
10% (or 12%) does not apply to sales of goods or services with gross annual sales or receipts not
exceedingP1,500,000.00.88 Also, basic marine and agricultural food products in their original state
are still not subject to the tax,89 thus ensuring that prices at the grassroots level will remain
accessible. As was stated in Kapatiran ng mga Naglilingkod sa Pamahalaan ng Pilipinas, Inc. vs.
Tan:90
The disputed sales tax is also equitable. It is imposed only on sales of goods or services by persons
engaged in business with an aggregate gross annual sales exceeding P200,000.00. Small
corner sari-sari stores are consequently exempt from its application. Likewise exempt from the tax
are sales of farm and marine products, so that the costs of basic food and other necessities, spared
as they are from the incidence of the VAT, are expected to be relatively lower and within the reach of
the general public.
It is admitted that R.A. No. 9337 puts a premium on businesses with low profit margins, and unduly
favors those with high profit margins. Congress was not oblivious to this. Thus, to equalize the
weighty burden the law entails, the law, under Section 116, imposed a 3% percentage tax on VATexempt persons under Section 109(v), i.e., transactions with gross annual sales and/or receipts not
exceeding P1.5 Million. This acts as a equalizer because in effect, bigger businesses that qualify for
VAT coverage and VAT-exempt taxpayers stand on equal-footing.
Moreover, Congress provided mitigating measures to cushion the impact of the imposition of the tax
on those previously exempt. Excise taxes on petroleum products 91 and natural gas92 were reduced.
Percentage tax on domestic carriers was removed.93 Power producers are now exempt from paying
franchise tax.94
Aside from these, Congress also increased the income tax rates of corporations, in order to
distribute the burden of taxation. Domestic, foreign, and non-resident corporations are now subject
to a 35% income tax rate, from a previous 32%.95 Intercorporate dividends of non-resident foreign
corporations are still subject to 15% final withholding tax but the tax credit allowed on the
corporations domicile was increased to 20%.96 The Philippine Amusement and Gaming Corporation
(PAGCOR) is not exempt from income taxes anymore.97 Even the sale by an artist of his works or
services performed for the production of such works was not spared.
All these were designed to ease, as well as spread out, the burden of taxation, which would
otherwise rest largely on the consumers. It cannot therefore be gainsaid that R.A. No. 9337 is
equitable.
C. Progressivity of Taxation
Lastly, petitioners contend that the limitation on the creditable input tax is anything but regressive. It
is the smaller business with higher input tax-output tax ratio that will suffer the consequences.
Progressive taxation is built on the principle of the taxpayers ability to pay. This principle was also
lifted from Adam Smiths Canons of Taxation, and it states:

I. The subjects of every state ought to contribute towards the support of the government, as nearly
as possible, in proportion to their respective abilities; that is, in proportion to the revenue which they
respectively enjoy under the protection of the state.
Taxation is progressive when its rate goes up depending on the resources of the person affected. 98
The VAT is an antithesis of progressive taxation. By its very nature, it is regressive. The principle of
progressive taxation has no relation with the VAT system inasmuch as the VAT paid by the consumer
or business for every goods bought or services enjoyed is the same regardless of income. In
other words, the VAT paid eats the same portion of an income, whether big or small. The disparity
lies in the income earned by a person or profit margin marked by a business, such that the higher
the income or profit margin, the smaller the portion of the income or profit that is eaten by VAT. A
converso, the lower the income or profit margin, the bigger the part that the VAT eats away. At the
end of the day, it is really the lower income group or businesses with low-profit margins that is
always hardest hit.
Nevertheless, the Constitution does not really prohibit the imposition of indirect taxes, like the VAT.
What it simply provides is that Congress shall "evolve a progressive system of taxation." The Court
stated in the Tolentino case, thus:
The Constitution does not really prohibit the imposition of indirect taxes which, like the VAT, are
regressive. What it simply provides is that Congress shall evolve a progressive system of taxation.
The constitutional provision has been interpreted to mean simply that direct taxes are . . . to be
preferred [and] as much as possible, indirect taxes should be minimized. (E. FERNANDO, THE
CONSTITUTION OF THE PHILIPPINES 221 (Second ed. 1977)) Indeed, the mandate to Congress
is not to prescribe, but to evolve, a progressive tax system. Otherwise, sales taxes, which perhaps
are the oldest form of indirect taxes, would have been prohibited with the proclamation of Art. VIII,
17 (1) of the 1973 Constitution from which the present Art. VI, 28 (1) was taken. Sales taxes are
also regressive.
Resort to indirect taxes should be minimized but not avoided entirely because it is difficult, if not
impossible, to avoid them by imposing such taxes according to the taxpayers' ability to pay. In the
case of the VAT, the law minimizes the regressive effects of this imposition by providing for zero
rating of certain transactions (R.A. No. 7716, 3, amending 102 (b) of the NIRC), while granting
exemptions to other transactions. (R.A. No. 7716, 4 amending 103 of the NIRC) 99
CONCLUSION
It has been said that taxes are the lifeblood of the government. In this case, it is just an enema, a
first-aid measure to resuscitate an economy in distress. The Court is neither blind nor is it turning a
deaf ear on the plight of the masses. But it does not have the panacea for the malady that the law
seeks to remedy. As in other cases, the Court cannot strike down a law as unconstitutional simply
because of its yokes.
Let us not be overly influenced by the plea that for every wrong there is a remedy, and that the
judiciary should stand ready to afford relief. There are undoubtedly many wrongs the judicature may
not correct, for instance, those involving political questions. . . .
Let us likewise disabuse our minds from the notion that the judiciary is the repository of remedies for
all political or social ills; We should not forget that the Constitution has judiciously allocated the

powers of government to three distinct and separate compartments; and that judicial interpretation
has tended to the preservation of the independence of the three, and a zealous regard of the
prerogatives of each, knowing full well that one is not the guardian of the others and that, for official
wrong-doing, each may be brought to account, either by impeachment, trial or by the ballot box. 100
The words of the Court in Vera vs. Avelino101 holds true then, as it still holds true now. All things
considered, there is no raison d'tre 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.
MA. ALICIA AUSTRIA-MARTINEZ
Associate Justice
WE CONCUR:
HILARIO G. DAVIDE, JR.
Chief Justice

REYNATO S. PUNO

ARTEMIO V. PANGANIBAN

Associate Justice

Associate Justice

LEONARDO A. QUISUMBING

CONSUELO YNARES-SANTIAGO

Associate Justice

Associate Justice

ANGELINA SANDOVAL-GUTIERREZ

ANTONIO T. CARPIO
Associate Justice

Associate Justice

RENATO C. CORONA

CONCHITA CARPIO-MORALES

Associate Justice

Associate Justice

ROMEO J. CALLEJO, SR.

ADOLFO S. AZCUNA

Associate Justice

Associate Justice

DANTE O. TINGA

MINITA V. CHICO-NAZARIO
Associate Justice

Associate Justice

CANCIO C. GARCIA
Associate Justice

CERTIFICATION
Pursuant to Section 13, Article VIII of the Constitution, it is hereby certified that the conclusions in the
above Decision were reached in consultation before the case was assigned to the writer of the
opinion of the Court.
HILARIO G. DAVIDE, JR.
Chief Justice

Footnotes
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."
1

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."
2

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."
3

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."
4

Section 26, R.A. No. 9337.

TSN, July 14, 2005.

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.
7

Section 105, National Internal Revenue of the Philippines, as amended.

Ibid.

Deoferio, Jr., V.A. and Mamalateo, V.C., The Value Added Tax in the Philippines (First
Edition 2000).
10

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.

Id., Deoferio, Jr., V.A. and Mamalateo, V.C., The Value Added Tax in the Philippines (First
Edition 2000).
13

14

Commissioner of Internal Revenue vs. Seagate, G.R. No. 153866, February 11, 2005.

Kapatiran ng mga Naglilingkod sa Pamahalaan ng Pilipinas, Inc. vs. Tan, G.R. Nos. L81311, L-81820, L-81921, L-82152, June 30, 1988, 163 SCRA 371.
15

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."
16

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."
17

Entitled, "An Act Amending the National Internal Revenue Code, as Amended, and for
other Purposes."
18

19

Story, Commentaries 835 (1833).

20

G.R. No. 147387, December 10, 2003, 417 SCRA 503.

21

Id., pp. 529-530.

22

Supra., Note 20.

23

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

24

Id., p. 670.

25

Westers Third New International Dictionary, p. 1897.

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.
26

27

Id., p. 3.

Sponsorship Speech of Representative Teves, in behalf of Representative Jesli Lapus,

TSN, January 7, 2005, pp. 34-35.
28

29

G.R. No. 105371, November 11, 1993, 227 SCRA 703.

30

Supra, Note 23.

31

Id., p. 668.

32

Id., p. 671.

33

Id., pp. 661-663.

34

Transcript of Session Proceedings, January 7, 2005, pp. 19-20.

35

Journal of the Senate, Session No. 67, March 7, 2005, pp. 727-728.

36

Id., p. 726.

37

See Angara vs. Electoral Commission, No. 45081, July 15, 1936, 63 Phil. 139, 156.

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)
38

39

United States vs. Barrias, No. 4349, September 24, 1908, 11 Phil. 327, 330.

40

16 Am Jur 2d, Constitutional Law, 337.

Pelaez vs. Auditor General, No. L-23825, December 24, 1965, 122 Phil. 965, 974 citing
Calalang vs. Williams, No. 47800, December 2, 1940, 70 Phil. 726; Pangasinan Transp. Co.
vs. Public Service Commission, No. 47065, June 26, 1940, 70 Phil. 221; Cruz vs.
Youngberg, No. 34674, October 26, 1931, 56 Phil. 234; Alegre vs. Collector of Customs, No.
30783, August 27, 1929, 53 Phil. 394 et seq.
41

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; Compaia General de Tabacos vs. Board of Public Utility, No.
11216, March 6, 1916, 34 Phil. 136 et seq.
42

43

Edu vs. Ericta, No. L-32096, October 24, 1970, 35 SCRA 481, 497.

Eastern Shipping Lines, Inc. vs. POEA, No. L-76633, October 18, 1988, 166 SCRA 533,
543-544.
44

45

No. 45685, November 16, 1937, 65 Phil. 56.

46

Id., pp. 115-120.

47

Supra, note 43.

48

Id., pp. 496-497.

49

16 C.J.S., Constitutional Law, 138.

50

Ibid.

51

16 Am Jur 2d, Constitutional Law 340.

52

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

Province of Batangas vs. Romulo, G.R. No. 152774, May 27, 2004; Enriquez vs. Court of
Appeals, G.R. No. 140473, January 28, 2003, 396 SCRA 377; Codoy vs. Calugay, G.R. No.
123486, August 12, 1999, 312 SCRA 333.
53

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.
54

55

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

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).
56

Compaia 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. L32096, 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.
57

58

Bowles vs. Willinghan, 321 US 503, 88 l Ed 892, 64 S Ct 641, 28 Ohio Ops 180.

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.
59

Commission on Internal Revenue vs. American Express International, Inc. (Philippine

Branch), G.R. No. 152609, June 29, 2005.
60

Acting Commissioner of Customs vs. MERALCO, No. L-23623, June 30, 1977, 77 SCRA
469, 473.
61

62

Respondents Memorandum, pp. 168-169.

63

The Wealth of Nations, Book V, Chapter II.

64

Chavez vs. Ongpin, G.R. No. 76778, June 6, 1990, 186 SCRA 331, 338.

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.
65

66

G.R. No. 147387, December 10, 2003, 417 SCRA 503, 524.

National Housing Authority vs. Reyes, G.R. No. L-49439, June 29, 1983, 123 SCRA 245,
249.
67

68

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

69

Section 8, R.A. No. 9337, amending Section 110(A)(B),NIRC.

70

Ibid.

Commissioner of Internal Revenue vs. Benguet Corp., G.R. Nos. 134587 & 134588, July 8,
2005.
71

United Paracale Mining Co. vs. Dela Rosa, G.R. Nos. 63786-87, April 7, 1993, 221 SCRA
108, 115.
72

73

E.O. No. 273, Section 1.

74

Section 5.

75

Section 110(B).

76

Journal of the Senate, Session No. 71, March 15, 2005, p. 803.

77

Id., Session No. 67, March 7, 2005, p. 726.

78

Id., Session No. 71, March 15, 2005, p. 803.

79

Revenue Regulations No. 14-2005, 4.114-2(a).

80

Commissioner of Internal Revenue vs. Philam, G.R. No. 141658, March 18, 2005.

81

Revenue Regulations No. 14-2005, Sec. 4. 114-2.

82

Act V, Scene V.

Philippine Rural Electric Cooperatives Association, Inc. vs. DILG, G.R. No. 143076, June
10, 2003, 403 SCRA 558, 565.
83

84

Aban, Benjamin, Law of Basic Taxation in the Philippines (First Edition 1994).

85

Philippine Judges Association case, supra., note 29.

Commissioner of Internal Revenue vs. Court of Appeals, G.R. No. 119761, August 29,
1996, 261 SCRA 236, 249.
86

87

Kee vs. Court of Tax Appeals, No. L-18080, April 22, 1963, 117 Phil 682, 688.

88

Section 7, R.A. No. 9337.

89

Ibid.

90

No. L-81311, June 30, 1988, 163 SCRA 371, 383.

91

Section 17, R.A. No. 9337, amending Section 148, NIRC.

92

Section 18, amending Section 151, NIRC.

93

Section 14, amending Section 117, NIRC.

94

Section 15, amending Section 119, NIRC.

95

Sections 1 and 2, amending Sections 27 and 28, NIRC.

96

Section 2, amending Section 28, NIRC.

97

Section 1, amending Section 27(C), NIRC.

98

Reyes vs. Almanzor, G.R. Nos. 49839-46, April 26, 1991, 196 SCRA 322, 327.

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

100

Vera vs. Avelino, G.R. No. L-543, August 31, 1946, 77 Phil. 365.

101

Ibid.

The Lawphil Project - Arellano Law Foundation

EN BANC
G.R. No. 168056 - ABAKADA GURO PARTY LIST, ET AL. V. EXECUTIVE
SECRETARY EDUARDO R. ERMITA, ET AL.
G.R. No. 168207 - AQUILINO PIMENTEL, JR., ET AL. V. EXECUTIVE SECRETARY EDUARDO
ERMITA, ET AL.

G.R. No. 168461 - ASSOCIATION OF PILIPINAS SHELL DEALERS, INC, ET AL. V. CESAR V.
PURISIMA, ET AL.
G.R. No. 168463 - FRANCIS JOSEPH G. ESCUDERO, ET AL. V. CESAR V. PURISIMA, ET AL.
X- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - X
SEPARATE CONCURRING
AND DISSENTING OPINION
DAVIDE, JR., C.J.:
While I still hold on to my position expressed in my dissenting opinion in the first VAT cases, 1 I partly
yield to the application to the cases at bar of the rule on "germaneness" therein enunciated. Thus, I
concur with the ponenciaof my highly-esteemed colleague Mme. Justice Ma. Alicia Austria-Martinez
except as regards its ruling on the issue of whether Republic Act No. 9337 violates Section 24,
Article VI of the Constitution.
R.A. No. 9337 primarily aims to restructure the value-added tax (VAT) system by broadening its base
and raising the rate so as to generate more revenues for the government that can assuage the
economic predicament that our country is now facing. This recently enacted law stemmed from three
legislative bills: House Bill (HB) No. 3555, HB No. 3705, and Senate Bill (SB) 1950. The first (HB No.
3555) called for the amendment of Sections 106, 107, 108, 109, 110, and 111 of the National Internal
Revenue Code (NIRC) as amended; while the second (HB No. 3705) proposed amendments to
Sections 106, 107, 108, 110, and 114 of the NIRC, as amended. It is significant to note that all these
Sections specifically deal with VAT. And indubitably, these bills are revenue bills in that they are
intended to levy taxes and raise funds for the government. 2
On the other hand, SB No. 1950 introduced amendments to "Sections 27, 28, 34, 106, 108, 109,
110, 111, 112, 113, 114, 116, 117, 118, 119, 125, 148, 236, 237, and 288" of the NIRC, as amended.
Among the provisions sought to be amended, only Sections 106, 108, 109, 110, 111, 112, 113, 114,
and 116 pertain to VAT. And while Sections 236, 237, and 288 are administrative provisions
pertaining to registration requirements and issuance of receipts commercial invoices, the proposed
amendments thereto are related to VAT. Hence, the proposed amendments to these Sections were
validly taken cognizance of and properly considered by the Bicameral Conference Committee
(BCC).
However, I am of the opinion that the inclusion into the law of the amendments proposed in SB No.
1950 to the following provisions (with modifications on the rates of taxes) is invalid.
Provision Subject matter
Section 27 Rate of income tax on domestic corporations
Section 28(A)(1) Rate of income tax on resident foreign corporation
Section 28(B)(1) Rate of income tax on non-resident foreign corporation
Section 28(B)(5-b) Rate of income tax on intra-corporate dividends received by non-resident foreign
corporation

Section 34(B)(1) Deductions from gross income

Section 117 Percentage tax on domestic carriers and keepers of garages
Section 119 Tax on franchises
Section 148 Excise tax on manufactured oils and other fuels
Obviously, these provisions do not deal with VAT. It must be noted that the House Bills initiated
amendments to provisions pertaining to VAT only. Doubtless, the Senate has the constitutional
power to concur with the amendments to the VAT provisions introduced in the House Bills or even to
propose its own version of VAT measure. But that power does not extend to initiation of other tax
measures, such as introducing amendments to provisions on corporate income taxes, percentage
taxes, franchise taxes, and excise taxes like what the Senate did in these cases. It was beyond the
ambit of the authority of the Senate to propose amendments to provisions not covered by the House
Bills or not related to the subject matter of the House Bills, which is VAT. To allow the Senate to do
so would be tantamount to vesting in it the power to initiate revenue bills -- a power that exclusively
pertains to the House of Representatives under Section 24, Article VI of the Constitution, which
provides:
Sec. 24. All appropriation, revenue or tariff bills, bills authorizing increase of the public debt, bills of
local application, and private bills shall originate exclusively in the House of Representatives but the
Senate may propose or concur with amendments.
Moreover, Sections 121 (Percentage Tax on Banks and Non-Bank Financial Intermediaries) and 151
(Excise Tax on Mineral Products) of the NIRC, as amended, have been included by the BCC in R.A.
N0. 9337 even though they were not found in the Senate and House Bills.
In Philippine Judges Association v. Prado,3 the Court described the function of a conference
committee in this wise: "A conference committee may deal generally with the subject matter or it may
be limited to resolving the precise differences between the two houses. Even where the conference
committee is not by rule limited in its jurisdiction, legislative custom severely limits the freedom
with which new subject matter can be inserted into the conference bill."
The limitation on the power of a conference committee to insert new provisions was laid down
in Tolentino v. Secretary of Finance.4 There, the Court, while recognizing the power of a conference
committee to include in its report an entirely new provision that is not found either in the House bill or
in the Senate bill, held that the exercise of that power is subject to the condition that the said
provision is "germane to the subject of the House andSenate bills."
As pointed out by the petitioners, Tolentino differs from the present cases in the sense that in that
case the amendments introduced in the Senate bill were on the same subject matter treated in the
House bill, which was VAT, and the new provision inserted by the conference committee had relation
to that subject matter. Specifically, HB No. 11197 called for the (1) amendment of Sections
99,100,102,103,104,105,106,107, 108, 110, 112,115, 116, 236,237, and 238 of the NIRC, as
amended; and (2) repeal of Sections 113 and 114 of the NIRC, as amended. SB No. 1630, on the
other hand, proposed the (1) amendment of Sections 99,100,102,103,104,105,107, 108, 110, 112,
236, 237, and 238 of the NIRC, as amended; and (2) repeal of Sections 113, 114, and 116 of the
NIRC, as amended. In short, all the provisions sought to be changed in the Senate bill were covered
in the House bill. Although the new provisions inserted by the conference committee were not found
in either the House or Senate bills, they were germane to the general subject of the bills.

In the present cases, the provisions inserted by the BCC, namely, Sections 121 (Percentage Tax on
Banks and Non-Bank Financial Intermediaries) and 151 (Excise Tax on Mineral Products) of the
NIRC, as amended, are undoubtedly germane to SB No. 1950, which introduced amendments to the
provisions on percentage and excise taxes -- but foreign to HB Nos. 3555 and 3705, which dealt with
VAT only. Since the proposed amendments in the Senate bill relating to percentage and excise taxes
cannot themselves be sustained because they did not take their root from, or are not related to the
subject of, HB Nos. 3705 and 3555, in violation of Section 24, Article VI of the Constitution, the new
provisions inserted by the BCC on percentage and excise taxes would have no leg to stand on.
I understand very well that the amendments of the Senate and the BCC relating to corporate
income, percentage, franchise, and excise taxes were designed to "soften the impact of VAT
measure on the consumer, i.e., by distributing the burden across all sectors instead of putting it
entirely on the shoulders of the consumers" and to alleviate the countrys financial problems by
bringing more revenues for the government. However, these commendable intentions do not justify a
deviation from the Constitution, which mandates that the initiative for filing revenue bills should come
from the House of Representatives, not from the Senate. After all, these aims may still be realized by
means of another bill that may later be initiated by the House of Representatives.
Therefore, I vote to declare R.A. No. 9337 as constitutional insofar as it amends provisions
pertaining to VAT. However, I vote to declare as unconstitutional Sections 1, 2, 3, 14, 15, 16, 17,
and 18 thereof which, respectively, amend Sections 27, 28, 34, 117, 119, 121, 148, and 151 of the
NIRC, as amended because these amendments deal with subject matters which were not touched
or covered by the bills emanating from the House of Representatives, thereby violating Section 24 of
Article VI of the Constitution.
HILARIO G. DAVIDE, JR.

Footnotes
Tolentino v. Secretary of Finance, G.R. No. 115455, 25 August 1994, 235 SCRA 630, and
companion cases.
1

ISAGANI A. CRUZ, POLITICAL LAW 154 (2002 ed.) citing U.S. v. Nortorn, 91 U.S. 566.

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

Supra note 1.

The Lawphil Project - Arellano Law Foundation

G.R. No. 168056 ABAKADA GURO PARTY LIST, ET AL. VS. EXECUTIVE SECRETARY
EDUARDO ERMITA,ET AL.

G.R. No. 168207 AQUILINO PIMENTEL, JR., ET AL. VS. EXECUTIVE SECRETARY EDUARDO
ERMITA, ET AL.
G.R. No. 168461 ASSOCIATION OF PILIPINAS SHELL DEALERS, INC., ET AL. VS. CESAR V.
PURISIMA, ET AL.
G.R. No. 168463 FRANCIS JOSEPH G. ESCUDERO, ET AL. VS. CESAR V. PURISIMA, ET AL.
Promulgated: September 1, 2005
x- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - x
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 nondelegation 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:
(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 onehalf percent (1 %).
The power of judicial review under Article VIII, section 5(2) of the 1987 Constitution is limited to the
review of "actual cases and controversies."1 As rightly stressed by retired Justice Vicente V.
Mendoza, this requirement gives the judiciary "the opportunity, denied to the legislature, of seeing
the actual operation of the statute as it is applied to actual facts and thus enables it to reach sounder
judgment" and "enhances public acceptance of its role in our system of government." 2 It also assures
that the judiciary does not intrude on areas committed to the other branches of government and is
confined to its role as defined by the Constitution. 3 Apposite thereto is the doctrine
of ripeness whose basic rationale is "to prevent the courts, through premature adjudication, from
entangling themselves in abstract disagreements."4 Central to the doctrine is the determination of
"whether the case involves uncertain or contingent future events that may not occur as
anticipated, or indeed may not occur at all."5 The ripeness requirement must be satisfied for each
challenged legal provision and parts of a statute so that those which are "not immediately
involved are not thereby thrown open for a judicial determination of constitutionality." 6
It is manifest that the constitutional challenge to sections 4 to 6 of R.A. No. 9337 cannot hurdle the
requirement of ripeness. These sections give the President the power to raise the VAT rate to
12% on January 1, 2006 upon satisfaction of certain fact-based conditions. We are not
endowed with the infallible gift of prophesy to know whether these conditions are certain to happen.
The power to adjust the tax rate given to the President is futuristic and may or may not be exercised.

The Court is therefore beseeched to render a conjectural judgment based on hypothetical facts.
Such a supplication has to be rejected.
Second. With due respect, I submit that the most important constitutional issue posed by the
petitions at bar relates to the parameters of power of a Bicameral Conference Committee. Most
of the issues in the petitions at bar arose because the Bicameral Conference Committee concerned
exercised powers that went beyond reconciling the differences between Senate Bill No. 1950 and
House Bill Nos. 3705 and 3555. In Tolentino v. Secretary of Finance,7 I ventured the view that a
Bicameral Conference Committee has limited powers and cannot be allowed to act as if it were a
"third house" of Congress. I further warned that unless its roving powersare reigned in, a
Bicameral Conference Committee can wreck the lawmaking process which is a cornerstone of the
democratic, republican regime established in our Constitution. The passage of time fortifies my faith
that there ought to be no legal u-turn on this preeminent principle. I wish, therefore, to reiterate my
reasons for this unbending view, viz:8
Section 209, Rule XII of the Rules of the Senate provides:
In the event that the Senate does not agree with the House of Representatives on the provision of
any bill or joint resolution, the differences shall be settled by a conference committee of both
Houses which shall meet within ten days after their composition.
Each Conference Committee Report shall contain a detailed and sufficiently explicit statement of the
changes in or amendments to the subject measure, and shall be signed by the conferees.
(Emphasis supplied)
The counterpart rule of the House of Representatives is cast in near identical language. Section 85
of the Rules of the House of Representatives pertinently provides:
In the event that the House does not agree with the Senate on the amendments to any bill or joint
resolution, the differences may be settled by a conference committee of both chambers.
x x x. Each report shall contain a detailed, sufficiently explicit statement of the changes in or
amendments to the subject measure. (Emphasis supplied)
The Jeffersons Manual has been adopted as a supplement to our parliamentary rules and practice.
Section 456 of Jeffersons Manual similarly confines the powers of a conference committee, viz:
The managers of a conference must confine themselves to the differences committed to them
and may not include subjects not within the disagreements, even though germane to a question in
issue.
This rule of antiquity has been honed and honored in practice by the Congress of the United States.
Thus, it is chronicled by Floyd Biddick, Parliamentarian Emeritus of the United States Senate, viz:
Committees of conference are appointed for the sole purpose of compromising and adjusting the
differing and conflicting opinions of the two Houses and the committees of conference alone can
grant compromises and modify propositions of either Houses within the limits of the disagreement.
Conferees are limited to the consideration of differences between the two Houses.
Congress shall not insert in their report matters not committed to them by either House, nor shall
they strike from the bill matters agreed to by both Houses. No matter on which there is nothing in

either the Senate or House passed versions of a bill may be included in the conference report and
actions to the contrary would subject the report to a point of order. (Emphasis ours)
In fine, there is neither a sound nor a syllable in the Rules of the Senate and the House of
Representatives to support the thesis of the respondents that a bicameral conference committee is
clothed with an ex post veto power.
But the thesis that a Bicameral Conference Committee can wield ex post veto power does not only
contravene the rules of both the Senate and the House. It wages war against our settled ideals of
representative democracy. For the inevitable, catastrophic effect of the thesis is to install a Bicameral
Conference Committee as the Third Chamber of our Congress, similarly vested with the power to
make laws but with the dissimilarity that its laws are not the subject of a free and full discussion of
both Houses of Congress. With such a vagrant power, a Bicameral Conference Committee acting as
a Third Chamber will be a constitutional monstrosity.
It needs no omniscience to perceive that our Constitution did not provide for a Congress composed
of three chambers. On the contrary, section 1, Article VI of the Constitution provides in clear and
certain language: "The legislative power shall be vested in the Congress of the Philippines
which shall consist of a Senate and a House of Representatives " Note that in vesting legislative
power exclusively to the Senate and the House, the Constitution used the word "shall." Its command
for a Congress of two houses is mandatory. It is not mandatory sometimes.
In vesting legislative power to the Senate, the Constitution means the Senate " composed of
twenty-four Senators xxx elected at large by the qualified voters of the Philippines " Similarly,
when the Constitution vested the legislative power to the House, it means the House " composed
of not more than two hundred and fifty members xxx who shall be elected from legislative districts
xxx and those who xxx shall be elected through a party-list system of registered national, regional,
and sectoral parties or organizations." The Constitution thus, did not vest on a Bicameral Conference
Committee with an ad hoc membership the power to legislate for it exclusively vested legislative
power to the Senate and the House as co-equal bodies. To be sure, the Constitution does not
mention the Bicameral Conference Committees of Congress. No constitutional status is accorded to
them. They are not even statutory creations. They owe their existence from the internal rules of the
two Houses of Congress. Yet, respondents peddle the disconcerting idea that they should be
recognized as a Third Chamber of Congress and with ex post veto power at that.
The thesis that a Bicameral Conference Committee can exercise law making power with ex
post veto power is freighted with mischief. Law making is a power that can be used for good or for ill,
hence, our Constitution carefully laid out a plan and a procedure for its exercise. Firstly, it
vouchsafed that the power to make laws should be exercised by no other body except the Senate
and the House. It ought to be indubitable that what is contemplated is the Senate acting as a full
Senate and the House acting as a full House. It is only when the Senate and the House act as whole
bodies that they truly represent the people. And it is only when they represent the people that they
can legitimately pass laws. Laws that are not enacted by the peoples rightful representatives
subvert the peoples sovereignty. Bicameral Conference Committees, with their ad hoc character and
limited membership, cannot pass laws for they do not represent the people. The Constitution does
not allow the tyranny of the majority. Yet, the respondents will impose the worst kind of tyranny the
tyranny of the minority over the majority. Secondly, the Constitution delineated in deft strokes the
steps to be followed in making laws. The overriding purpose of these procedural rules is to assure
that only bills that successfully survive the searching scrutiny of the proper committees of Congress
and the full and unfettered deliberations of both Houses can become laws. For this reason, a bill has
to undergo three (3) mandatory separate readings in each House. In the case at bench, the
additions and deletions made by the Bicameral Conference Committee did not enjoy the enlightened

studies of appropriate committees. It is meet to note that the complexities of modern day legislations
have made our committee system a significant part of the legislative process. Thomas Reed called
the committee system as "the eye, the ear, the hand, and very often the brain of the house."
President Woodrow Wilson of the United States once referred to the government of the United
States as "a government by the Chairmen of the Standing Committees of Congress " Neither did
these additions and deletions of the Bicameral Conference Committee pass through the coils of
collective deliberation of the members of the two Houses acting separately. Due to this
shortcircuiting of the constitutional procedure of making laws, confusion shrouds the enactment of
R.A. No. 7716. Who inserted the additions and deletions remains a mystery. Why they were inserted
is a riddle. To use a Churchillian phrase, lawmaking should not be a riddle wrapped in an enigma. It
cannot be, for Article II, section 28 of the Constitution mandates the State to adopt and implement a
"policy of full public disclosure of all its transactions involving public interest." The Constitution could
not have contemplated a Congress of invisible and unaccountable John and Mary Does. A law
whose rationale is a riddle and whose authorship is obscure cannot bind the people.
All these notwithstanding, respondents resort to the legal cosmetology that these additions and
deletions should govern the people as laws because the Bicameral Conference Committee Report
was anyway submitted to and approved by the Senate and the House of Representatives. The
submission may have some merit with respect to provisions agreed upon by the Committee in the
process of reconciling conflicts between S.B. No. 1630 and H.B. No. 11197. In these instances, the
conflicting provisions had been previously screened by the proper committees, deliberated upon by
both Houses and approved by them. It is, however, a different matter with respect to additions and
deletions which were entirely new and which were made not to reconcile inconsistencies between
S.B. No. 1630 and H.B. No. 11197. The members of the Bicameral Conference Committee did not
have any authority to add new provisions or delete provisions already approved by both Houses as it
was not necessary to discharge their limited task of reconciling differences in bills. At that late stage
of law making, the Conference Committee cannot add/delete provisions which can become laws
without undergoing the study and deliberation of both chambers given to bills on 1st, 2nd, and 3rd
readings. Even the Senate and the House cannot enact a law which will not undergo these
mandatory three (3) readings required by the Constitution. If the Senate and the House cannot enact
such a law, neither can the lesser Bicameral Conference Committee.
Moreover, the so-called choice given to the members of both Houses to either approve or
disapprove the said additions and deletions is more of an optical illusion. These additions and
deletions are not submitted separately for approval. They are tucked to the entire bill. The vote is on
the bill as a package, i.e., together with the insertions and deletions. And the vote is either "aye" or
"nay," without any further debate and deliberation. Quite often, legislators vote "yes" because they
approve of the bill as a whole although they may object to its amendments by the Conference
Committee. This lack of real choice is well observed by Robert Luce:
Their power lies chiefly in the fact that reports of conference committees must be accepted without
amendment or else rejected in toto. The impulse is to get done with the matter and so the motion to
accept has undue advantage, for some members are sure to prefer swallowing unpalatable
provisions rather than prolong controversy. This is the more likely if the report comes in the rush of
business toward the end of a session, when to seek further conference might result in the loss of the
measure altogether. At any time in the session there is some risk of such a result following the
rejection of a conference report, for it may not be possible to secure a second conference, or delay
may give opposition to the main proposal chance to develop more strength.
In a similar vein, Prof. Jack Davies commented that "conference reports are returned to assembly
and Senate on a take-it or leave-it-basis, and the bodies are generally placed in the position that to

leave-it is a practical impossibility." Thus, he concludes that "conference committee action is the
most undemocratic procedure in the legislative process."
The respondents also contend that the additions and deletions made by the Bicameral Conference
Committee were in accord with legislative customs and usages. The argument does not persuade
for it misappreciates the value of customs and usages in the hierarchy of sources of legislative rules
of procedure. To be sure, every legislative assembly has the inherent right to promulgate its own
internal rules. In our jurisdiction, Article VI, section 16(3) of the Constitution provides that "Each
House may determine the rules of its proceedings x x x." But it is hornbook law that the sources of
Rules of Procedure are many and hierarchical in character. Mason laid them down as follows:
xxx
1. Rules of Procedure are derived from several sources. The principal sources are as follows:
a. Constitutional rules.
b. Statutory rules or charter provisions.
c. Adopted rules.
d. Judicial decisions.
e. Adopted parliamentary authority.
f. Parliamentary law.
g. Customs and usages.
2. The rules from the different sources take precedence in the order listed above except that judicial
decisions, since they are interpretations of rules from one of the other sources, take the same
precedence as the source interpreted. Thus, for example, an interpretation of a constitutional
provision takes precedence over a statute.
3. Whenever there is conflict between rules from these sources the rule from the source listed earlier
prevails over the rule from the source listed later. Thus, where the Constitution requires three
readings of bills, this provision controls over any provision of statute, adopted rules, adopted manual,
or of parliamentary law, and a rule of parliamentary law controls over a local usage but must give
way to any rule from a higher source of authority. (Emphasis ours)
As discussed above, the unauthorized additions and deletions made by the Bicameral Conference
Committee violated the procedure fixed by the Constitution in the making of laws. It is reasonless for
respondents therefore to justify these insertions as sanctioned by customs and usages.
Finally, respondents seek sanctuary in the conclusiveness of an enrolled bill to bar any judicial
inquiry on whether Congress observed our constitutional procedure in the passage of R.A. No. 7716.
The enrolled bill theory is a historical relic that should not continuously rule us from the fossilized
past. It should be immediately emphasized that the enrolled bill theory originated in England where
there is no written constitution and where Parliament is supreme. In this jurisdiction, we have a
written constitution and the legislature is a body of limited powers. Likewise, it must be pointed out

that starting from the decade of the 40s, even American courts have veered away from the rigidity
and unrealism of the conclusiveness of an enrolled bill. Prof. Sutherland observed:
xxx
Where the failure of constitutional compliance in the enactment of statutes is not discoverable from
the face of the act itself but may be demonstrated by recourse to the legislative journals, debates,
committee reports or papers of the governor, courts have used several conflicting theories with
which to dispose of the issue. They have held: (1) that the enrolled bill is conclusive and like the
sheriffs return cannot be attacked; (2) that the enrolled bill isprima facie correct and only in case the
legislative journal shows affirmative contradiction of the constitutional requirement will the bill be held
invalid; (3) that although the enrolled bill is prima facie correct, evidence from the journals, or other
extrinsic sources is admissible to strike the bill down; (4) that the legislative journal is conclusive and
the enrolled bills is valid only if it accords with the recital in the journal and the constitutional
procedure.
Various jurisdictions have adopted these alternative approaches in view of strong dissent and
dissatisfaction against the philosophical underpinnings of the conclusiveness of an enrolled bill. Prof.
Sutherland further observed:
x x x. Numerous reasons have been given for this rule. Traditionally, an enrolled bill was "a record"
and as such was not subject to attack at common law. Likewise, the rule of conclusiveness was
similar to the common law rule of the inviolability of the sheriffs 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 kings 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 sheriffs return or
sworn official rule did not in civil litigation deprive the injured party of an action, for always he could
sue the sheriff upon his official bond. Likewise, although collateral attack was not permitted, direct
attack permitted raising the issue of fraud, and at a later date attack in equity was also available; and
that the evidence of the sheriff was not of unusual weight was demonstrated by the fact that in an
action against the sheriff no presumption of its authenticity prevailed.
The argument that the enrolled bill is a "record" and therefore unimpeachable is likewise misleading,
for the correction of records is a matter of established judicial procedure. Apparently, the justification
is either the historical one that the kings 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 faciepresumption of validity which may be attacked by any authoritative source
of information.
Third. I respectfully submit that it is only by strictly following the contours of powers of a Bicameral
Conference Committee, as delineated by the rules of the House and the Senate, that we can
prevent said Committee from acting as a "third" chamber of Congress. Under the clear rules of
both the Senate and House, its power can go no further than settling differences in their bills or
joint resolutions. Sections 88 and 89, Rule XIV of the Rules of the House of
Representatives provide as follows:
Sec. 88. Conference Committee. In the event that the House does not agree with the Senate on
the amendment to any bill or joint resolution, the differences may 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 latters appropriate action.
Sec. 89. Conference Committee Reports. - . . . Each report shall contain a detailed, sufficiently
explicit statement of the changes in or amendments to the subject measure.
...
The Chairman of the House panel may be interpellated on the Conference Committee Report prior
to the voting thereon. The House shall vote on the Conference Committee Report in the same
manner and procedure as it votes a bill on third and final reading.
Section 35, Rule XII 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.
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 latters appropriate action; and (3) the Committee report has to be
voted upon in the same manner and procedure as a bill on third and final reading. Similarly,
the Senate rule underscores in crimson that (1) the power of the Committee is limited - - - to
settle differences with the House; (2) it can make changes or amendments only in the discharge of
this limited power to settle differences with the House; and (3) the changes or amendments are
merely recommendatory for they still have to be approved by the Senate.

Under both rules, it is obvious that a Bicameral Conference Committee is a mere agent of the
House or the Senate with limited powers. The House contingent in the Committee cannot, on its
own, settle differences which are substantial in character. If it is confronted with substantial
differences, it has to go back to the chamber that created it "for the latters 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 differencebetween the bills, it cannot make
any change. Where the difference is substantial, it has to return to the chamber of its origin and
ask for appropriate instructions. It ought to be indubitable that it cannot create a new law, i.e., that
which has never been discussed in either chamber of Congress. Its parameters of power are not
porous, for they are hedged by the clear limitation that its only power is to settle differences in bills
and joint resolutions of the two chambers of Congress.
Fourth. Prescinding from these premises, I respectfully submit that the following acts of the
Bicameral Conference Committee constitute grave abuse of discretion amounting to lack or excess
of jurisdiction and should be struck down as unconstitutional nullities, viz:
a. Its deletion of the pro poor "no pass on provision" which is common in both Senate Bill No. 1950
and House Bill No. 3705.
Sec. 1 of House Bill No. 37059 provides:
Section 106 of the National Internal Revenue Code of 1997, as amended, is hereby further amended
to read as follows:
SEC. 106. Value-added Tax on Sale of Goods or Properties.
xxx
Provided, further, that notwithstanding the provision of the second paragraph of Section 105 of this
Code, the Value-added Tax herein levied on the sale of petroleum products under Subparagraph (1)
hereof shall be paid and absorbed by the sellers of petroleum products who shall be prohibited
from passing on the cost of such tax payments, either directly or indirectly[,] to any
consumer in whatever form or manner, it being the express intent of this act that the Value-added
Tax shall be borne and absorbed exclusively by the sellers of petroleum products x x x.
Sec. 3 of the same House bill provides:
Section 108 of the National Internal Revenue Code of 1997, as amended, is hereby further amended
to read as follows:
Sec. 108. Value-added Tax on Sale of Goods or Properties.
Provided, further, that notwithstanding the provision of the second paragraph of Section 105 of this
Code, the Value-added Tax imposed under this paragraph shall be paid and absorbed by the
subject generation companies who shall be prohibited from passing on the cost of such tax
payments, either directly or indirectly[,] to any consumer in whatever form or manner, it being
the express intent of this act that the Value-added Tax shall be borne and absorbed exclusively [by]
the power-generating companies.
In contrast and comparison, Sec. 5 of Senate Bill No. 1950 provides:

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

x x x Provided, that the VAT on sales of electricity by generation companies, and services of
transmission companies and distribution companies, as well as those of franchise grantees of
electrical utilities shall not apply to residential end-users: Provided, that the Value-added Tax herein
levied shall be absorbed and paid by the generation, transmission and distribution companies
concerned. The said companies shall not pass on such tax payments to NAPOCOR or
ultimately to the consumers, including but not limited to residential end users, either as costs or in
any other form whatsoever, directly or indirectly. x x x.
Even the faintest eye contact with the above provisions will reveal that: (a) both the House bill and
the Senate bill prohibited the passing on to consumers of the VAT on sales of electricity and (b)
the House bill prohibited the passing on to consumers of the VAT on sales of petroleum products
while the Senate bill is silent on the prohibition.
In the guise of reconciling disagreeing provisions of the House and the Senate bills on the
matter, the Bicameral Conference Committee deleted the "no pass on provision" on both the
sales of electricity and petroleum products. This action by the Committee is not warranted by the
rules of either the Senate or the House. As aforediscussed, the only power of a Bicameral
Conference Committee is to reconcile disagreeing provisions in the bills or joint resolutions of the
two houses of Congress. The House and the Senate bills both prohibited the passing on to
consumers of the VAT on sales of electricity. The Bicameral Conference Committee cannot
override this unequivocal decision of the Senate and the House. Nor is it clear that there is a
conflict between the House and Senate versions on the "no pass on provisions" of the VAT on sales
of petroleum products. The House version contained a "no pass on provision" but the Senate had
none. Elementary logic will tell us that while there may be a difference in the two versions, it
does not necessarily mean that there is a disagreement or conflict between the Senate and
the House. The silence of the Senate on the issue cannot be interpreted as an outright
opposition to the House decision prohibiting the passing on of the VAT to the consumers on sales
of petroleum products. Silence can even be conformity, albeit implicit in nature. But granting for the
nonce that there is conflict between the two versions, the conflict cannot escape the characterization
as a substantial difference. The seismic consequence of the deletion of the "no pass on provision"
of the VAT on sales of petroleum products on the ability of our consumers, especially on the
roofless and the shirtless of our society, to survive the onslaught of spiraling prices ought to be
beyond quibble. The rules require that the Bicameral Conference Committee should not, on its own,
act on this substantial conflict. It has to seek guidance from the chamber that created it. It must
receive proper instructions from its principal, for it is the law of nature that no spring can rise higher
than its source. The records of both the Senate and the House do not reveal that this step was taken
by the members of the Bicameral Conference Committee. They bypassed their principal and ran riot
with the exercise of powers that the rules never bestowed on them.
b. Even more constitutionally obnoxious are the added restrictions on local governments 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 units 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 Committees authority and must be
struck down.
I cannot therefore subscribe to the thesis of the majority that "the changes introduced by the
Bicameral Conference Committee on disagreeing provisions were meant only to reconcile and
harmonize the disagreeing provisions for it did not inject any idea or intent that is wholly foreign
to the subject embraced by the original provisions."
Fifth. The majority further defends the constitutionality of the above provisions by holding that "all
the changes or modifications were germane to subjects of the provisions referred to it for
reconciliation."
With due respect, it is high time to re-examine the test of germaneness proffered in Tolentino.
The test of germaneness is overly broad and is the fountainhead of mischief for it allows the
Bicameral Conference Committee to change provisions in the bills of the House and the Senate
when they are not even in disagreement. Worse still, it enables the Committee to introduce
amendments which are entirely new and have not previously passed through the coils of scrutiny of
the members of both houses. The Constitution did not establish a Bicameral Conference Committee
that can act as a "third house" of Congress with super veto power over bills passed by the Senate
and the House. We cannot concede that super veto power without wrecking the delicate
architecture of legislative power so carefully laid down in our Constitution. The clear intent of our
fundamental law is to install a lawmaking structure composed only of two houses whose members
wouldthoroughly debate proposed legislations in representation of the will of their respective
constituents. The institution of this lawmaking structure is unmistakable from the following
provisions: (1) requiring that legislative power shall be vested in a bicameral legislature; 10 (2)
providing for quorum requirements;11 (3) requiring that appropriation, revenue or tariff bills, bills
authorizing increase of public debt, bills of local application, and private bills originate exclusively in
the House of Representatives;12 (4) requiring
that bills embrace one subject expressed in the title thereof;13 and (5) mandating that bills undergo
three readings on separate days in each House prior to passage into law and prohibiting
amendments on the last reading thereof.14 A Bicameral Conference Committee with untrammeled
powers will destroy this lawmaking structure. At the very least, it will diminish the free and open
debate of proposed legislations and facilitate the smuggling of what purports to be laws.
On this point, Mr. Robert Luces disconcerting observations are apropos:

"Their power lies chiefly in the fact that reports of conference committees must be accepted without
amendment or else rejected in toto. The impulse is to get done with the matters and so the
motion to accept has undue advantage, for some members are sure to prefer swallowing
unpalatable provisions rather than prolong controversy. This is more likely if the report comes in
the rush of business toward the end of the session, when to seek further conference might result in
the loss of the measure altogether. At any time in the session there is some risk of such a result
following the rejection of a conference report, for it may not be possible to secure a second
conference, or delay may give opposition to the main proposal chance to develop more strength.
xxx xxx xxx
Entangled in a network of rule and custom, the Representative who resents and would resist this
theft of his rights, finds himself helpless. Rarely can be vote, rarely can he voice his mind, in the
matter of any fraction of the bill. Usually he cannot even record himself as protesting against some
one feature while accepting the measure as whole. Worst of all, he cannot by argument or
suggested change, try to improve what the other branch has done.
This means more than the subversion of individual rights. It means to a degree the abandonment
of whatever advantage the bicameral system may have. By so much it in effect transfers the
lawmaking power to small group of members who work out in private a decision that almost
always prevails. What is worse, these men are not chosen in a way to ensure the wisest choice. It
has become the practice to name as conferees the ranking members of the committee, so that the
accident of seniority determines. Exceptions are made, but in general it is not a question of who are
most competent to serve. Chance governs, sometimes giving way to favor, rarely to merit.
xxx xxx xxx
Speaking broadly, the system of legislating by conference committee is unscientific and therefore
defective.Usually it forfeits the benefit of scrutiny and judgment by all the wisdom available.
Uncontrolled, it is inferior to that process by which every amendment is secured independent
discussion and vote. . . ."15
It cannot be overemphasized that in a republican form of government, laws can only be enacted
by all the duly elected representatives of the people. It cuts against conventional wisdom in
democracy to lodge this power in the hands of a few or in the claws of a committee. It is for
these reasons that the argument that we should overlook the excesses of the Bicameral Conference
Committee because its report is anyway approved by both houses is a futile attempt to square the
circle for an unconstitutional act is void and cannot be redeemed by any subsequent ratification.
Neither can we shut our eyes to the unconstitutional acts of the Bicameral Conference Committee by
holding that the Court cannot interpose its checking powers over mere violations of the internal rules
of Congress. In Arroyo, et al. v. de Venecia, et al.,16 we ruled that when the violations affect private
rights or impair the Constitution,the Court has all the power, nay, the duty to strike them down.
In conclusion, I wish to stress that this is not the first time nor will it be last that arguments will be
foisted for the Court to merely wink at assaults
on the Constitution on the ground of some national interest, sometimes clear and at other times
inchoate. To be sure, it cannot be gainsaid that the country is in the vortex of a financial crisis. The
broadsheets scream the disconcerting news that our debt payments for the year 2006 will exceed
Pph1 billion daily for interest alone. Experts underscore some factors that will further drive up the
debt service expenses such as the devaluation of the peso, credit downgrades and a spike in
interest rates.17 But no doomsday scenario will ever justify the thrashing of the Constitution. The

Constitution is meant to be our rule both in good times as in bad times. It is the Courts
uncompromising obligation to defend the Constitution at all times lest it be condemned as an
irrelevant relic.
WHEREFORE, I concur with the majority but dissent on the following points:
a) I vote to withhold judgment on the constitutionality of the "standby authority" in Sections 4 to 6 of
Republic Act No. 9337 as this issue is not ripe for adjudication.;
b) I vote to declare unconstitutional the deletion by the Bicameral Conference Committee of the pro
poor "no pass on provision" on electricity to residential consumers as it contravened the unequivocal
intent of both Houses of Congress; and
c) I vote to declare Section 21 of Republic Act No. 9337 as unconstitutional as it contains extraneous
provisions not found in its constituent bills.
REYNATO S. PUNO
Associate Justice

Footnotes
Angara v. Electoral Commission, 63 Phil. 139 (1936); See also Tribe, American
Constitutional Law, pp. 311-314 (3rd ed.).
1

Mendoza, Judicial Review of Constitutional Questions: Cases and Materials, p. 86 (2004).

Id. at 87.

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

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.).
5

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).
6

235 SCRA 630 (1994).

See Opinion in 235 SCRA 630, 805-825.

H.B. No. 3555 has no "no pass on provision." House Bill No. 3705 expresses the latest
intent of the House on the matter.
9

1 Sutherland Statutory Construction 6:2 (6th ed.): The provision requiring that legislative
power shall be vested in a bicameral legislature seeks to "assure sound judgment that
comes from separate deliberations and actions in the respective bodies that check and
balance each other."
10

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."
11

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."
12

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."
13

"The failure to indicate in the title of the bill the object intended to be accomplished by the
legislation often resulted in members voting ignorantly for measures which they would not
knowingly have approved; and not only were legislators thus misled, but the public also; so
that legislative provisions were steadily pushed through in the closing hours of a session,
which, having no merit to commend them, would have been made odious by popular
discussion and remonstrance if their pendency had been seasonably announced. The
constitutional clause under discussion is intended to correct these evils; to prevent such
corrupting aggregations of incongruous measures, by confining each act to one subject or
object; to prevent surprise and inadvertence by requiring that subject or object to be
expressed in the title."
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, 440441 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."
14

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
15

the position that to leave-it is a practical impossibility." Thus, he concludes that "conference
committee action is the most undemocratic procedure in the legislative process."
16

268 SCRA 269, 289 (1997).

17

The Manila Standard Today, August 26, 2005, p. 1.

The Lawphil Project - Arellano Law Foundation

EN BANC
GR No. 168056 -- ABAKADA GURO PARTY LIST, etc. et al. v. HON. EXECUTIVE SECRETARY
EDUARDO R. ERMITA et al.
GR No. 168207 -- AQUILINO Q. PIMENTEL JR. et al. v. EXECUTIVE SECRETARY EDUARDO R.
ERMITA et al.
GR No. 168461 -- ASSOCIATION OF PILIPINAS SHELL DEALERS, INC., etc. et al. v. CESAR V.
PURISIMA, etc. et al.
GR No. 168463 -- FRANCIS JOSEPH G. ESCUDERO et al. v. CESAR V. PURISIMA etc., et al.
GR No. 168730 -- BATAAN GOVERNOR ENRIQUE T. GARCIA JR. v. HON. EDUARDO R.
ERMITA, etc. et al.
Promulgated: September 1, 2005
x -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- x
SEPARATE OPINION
PANGANIBAN, J.:
The ponencia written by the esteemed Madame Justice Ma. Alicia Austria-Martinez declares that the
enrolled bill doctrine has been historically and uniformly upheld in our country. Cited as recent
reiterations of this doctrine are the two Tolentino v. Secretary of Finance judgments1 and Farias v.
Executive Secretary.2
Precedence of Mandatory
Constitutional Provisions
Over the Enrolled Bill Doctrine
I believe, however, that the enrolled bill doctrine3 is not absolute. It may be all-encompassing in
some countries like Great Britain,4 but as applied to our jurisdiction, it must yield to mandatory

provisions of our 1987 Constitution. The Court can take judicial notice of the form of government 5 in
Great Britain.6 It is unlike that in our country and, therefore, the doctrine from which it
originated7 could be modified accordingly by our Constitution.
In fine, the enrolled bill doctrine applies mainly to the internal rules and processes followed by
Congress in its principal duty of lawmaking. However, when the Constitution imposes certain
conditions, restrictions or limitations on the exercise of congressional prerogatives, the judiciary has
both the power and the duty to strike down congressional actions that are done in plain
contravention of such conditions, restrictions or limitations.8 Insofar as the present case is
concerned, the three most important restrictions or limitations to the enrolled bill doctrine are the
"origination," "no-amendment" and "three-reading" rules which I will discuss later.
Verily, these restrictions or limitations to the enrolled bill doctrine are safeguarded by the
expanded9 constitutional mandate of the judiciary "to determine whether or not there has been a
grave abuse of discretion amounting to lack or excess of jurisdiction on the part of any branch or
instrumentality of the government."10 Even the ponenteof Tolentino,11 the learned Mr. Justice Vicente
V. Mendoza, concedes in another decision that each house "may not by its rules ignore
constitutional restraints or violate fundamental rights, and there should be a reasonable relation
between the mode or method of proceeding established by the rule and the result which is sought to
be attained."12
The Bicameral Conference Committee (BCC) created by Congress to iron out differences between
the Senate and the House of Representatives versions of the E-VAT bills 13 is one such "branch or
instrumentality of the government," over which this Court may exercise certiorari review to determine
whether or not grave abuse of discretion has been committed; and, specifically, to find out whether
the constitutional conditions, restrictions and limitations on law-making have been violated.
In general, the BCC has at least five options in performing its functions: (1) adopt the House version
in part or in toto, (2) adopt the Senate version in part or in toto, (3) consolidate the two versions, (4)
reject non-conflictingprovisions, and (5) adopt completely new provisions not found in either version.
This, therefore, is the simple question: In the performance of its function of reconciling conflicting
provisions, has the Committee blatantly violated the Constitution?
My short answer is: No, except those relating to income taxes referred to in Sections 1, 2 and 3 of
Republic Act (RA) No. 9337. Let me explain.
Adopting the House
Version in Part or in Toto
First, the BCC had the option of adopting the House bills either in part or in toto, endorsing them
without changes. Since these bills had passed the three-reading requirement 14 under the
Constitution,15 it readily becomes apparent that no procedural impediment would arise. There would
also be no question as to their origination,16because the bills originated exclusively from the House of
Representatives itself.
In the present case, the BCC did not ignore the Senate and adopt any of the House bills in part or in
toto. Therefore, this option was not taken by the BCC.
Adopting the Senate

Version in Part or in Toto

Second, the BCC may choose to adopt the Senate version either
in part or in toto, endorsing it also without changes. In so doing, the question of origination arises.
Under the 1987 Constitution, all "revenue x x x bills x x x shall originate exclusively in the House of
Representatives, but the Senate may propose or concur with amendments." 17
If the revenue bill originates exclusively from the Senate, then obviously the origination provision 18 of
the Constitution would be violated. If, however, it originates exclusively from the House and
presumably passes the three-reading requirement there, then the question to contend with is
whether the Senate amendments complied with the "germane" principle.
While in the Senate, the House version may, per Tolentino, undergo extensive changes, such that
the Senate may rewrite not only portions of it but even all of it. 19 I believe that such rewriting is limited
by the "germane" principle: although "relevant"20 or "related"21 to the general subject of taxation, the
Senate version is not necessarily "germane" all the time. The "germane" principle requires a legal -not necessarily an economic22 or political -- interpretation. There must be an "inherent logical
connection."23 What may be germane in an economic or political sense is not necessarily germane in
the legal sense. Otherwise, any provision in the Senate version that is entirely new and extraneous,
or that is remotely or even slightly connected, to the vast and perplexing subject of taxation, would
always be germane. Under this interpretation, the origination principle would surely be rendered
inutile.
To repeat, in Tolentino, the Court said that the Senate may even write its own version, which in effect
would be an amendment by substitution.24 The Court went further by saying that "the Constitution
does not prohibit the filing in the Senate of a substitute bill in anticipation of its receipt of the bill from
the House, so long as action by the Senate as a body is withheld pending receipt of the House
bill."25 After all, the initiative for filing a revenue bill must come from the House26 on the theory that,
elected as its members are from their respective districts, the House is more sensitive to local needs
and problems. By contrast, the Senate whose members are elected at large approaches the matter
from a national perspective,27 with a broader and more circumspect outlook.28
Even if I have some reservations on the foregoing sweeping pronouncements in Tolentino, I shall not
comment any further, because the BCC, in reconciling conflicting provisions, also did not take the
second option of ignoring the House bills completely and of adopting only the Senate version in part
or in toto. Instead, the BCC used or applied the third option as will be discussed below.
Compromising
by Consolidating
As a third option, the BCC may reach a compromise by
consolidating both the Senate and the House versions. It can adopt some parts and reject other
parts of both bills, and craft new provisions or even a substitute bill. I believe this option is viable,
provided that there is no violation of the origination and germane principles, as well as the threereading rule. After all, the report generated by the BCC will not become a final valid act of the
Legislative Department until the BCC obtains the approval of both houses of Congress. 29
Standby Authority. I believe that the BCC did not exceed its authority when it crafted the so-called
"standby authority" of the President. The originating bills from the House imposed a 12 percent VAT
rate,30 while the bill from the Senate retained the
original 10 percent.31 The BCC opted to initially use the 10 percent Senate provision and to increase

this rate to the 12 percent House provision, effective January 1, 2006, upon the occurrence of a
predetermined factual scenario as follows:
"(i) [VAT] collection as a percentage of Gross Domestic Product (GDP) of the previous year exceeds
two and four-fifth percent (2 4/5%) or
(ii) National Government Deficit as a percentage of GDP of the previous year exceeds one and onehalf percent (1 1/2%)."32
In the computation of the percentage requirements in the alternative conditions under the law, the
amounts of the VAT collection, National Deficit,33 and GDP34 -- as well as the interrelationship among
them -- can easily be derived by the finance secretary from the proper government bodies charged
with their determination. The law is complete and standards have been fixed. 35 Only the fact-finding
mathematical computation for its implementation on January 1, 2006, is necessary.
Once either of the factual and mathematical events provided in the law takes place, the President
has no choice but to implement the increase of the VAT rate to 12 percent. 36 This eventuality has
been predetermined by Congress.37
The taxing power has not been delegated by Congress to either or both the President and the
finance secretary. What was delegated
was only the power to ascertain the facts in order to bring the law into operation. In fact, there was
really no "delegation to speak of;
__________________
Culled from the same record, the following excerpts show the position of public respondents:
"Justice Panganiban: It will be based on actual figures?
"Usec. Bonoan: It will be based on actual figures.
"Justice Panganiban: That creates a problem[,] because where do you get the actual figures[?]
"Usec. Bonoan: I understand that[,] traditionally[,] we can come in March, but there is no
impediment to speeding up the gathering.
"Justice Panganiban: Speed it up. February 15?
"Usec. Bonoan: Even within January, Your Honor, I think this can be.
"Justice Panganiban: Alright at the end of January, its just estimate to get the figures in January.
"Usec. Bonoan: Yes, Your Honor (pp. 661-662); and
xxx

"Justice Panganiban: My only point is, I raised this earlier and I promised counsel for the petitioner
whom I was questionin[g] that I will raise it with you, whether the date January 1, 2006 would
present an impossibility of a condition happening.
"Usec. Bonoan: It will not, Your Honor.
"Justice Panganiban: So, your position [is] it will not present an impossibility. Elaborate on it in your
memorandum.
"Usec. Bonoan: Yes, Your Honor.
"Justice Panganiban: Because it is important. The administrative regulations are important[,]
because they clarify the law and it will guide taxpayers. So[,] by January 1[,] [taxpayers] would
not be wondering. Do we charge the end consumers 10 [percent] or 12 [percent]? The regulations
should be able to spell that out [i]n the same manner that even now the various consumers of
various products and services must be able to get from your
there was merely a declaration of an administrative, not a legislative, function.38
I concur with the ponencia in that there was no undue delegation of legislative power in the increase
from 10 percent to 12 percent of the VAT rate. I respectfully disagree, however, with the statements
therein that, first, the secretary of finance is "acting as the agent of the legislative department" or an
"agent of Congress" in determining and declaring the event upon which its expressed will is to take
effect; and, second, that the secretarys 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 Presidents alter ego in finance matters, to determine
the factual bases for making the increase in VAT rate operative.39 Indeed, as I have mentioned
earlier, the fact-finding condition is a mere administrative, notlegislative, function.
The ponencia states that Congress merely delegates the implementation of the law to the secretary
of finance. How then can the latter be its agent? Making a law is different from implementing it. While
the first (the making of laws) may be delegated under certain conditions and only in specific
instances provided under the Constitution, the second (the implementation of laws) may not be done
by Congress. After all, the legislature does not have the power to implement laws. Therefore,
congressional agency arises only in the first, not in the second. The first is a legislative function;
the second, an executive one.
Petitioners argument is that because the GDP does not account for the economic effects of socalled underground businesses, it is an inaccurate indicator of either economic growth or slowdown
in transitional economies.40 Clearly, this matter is within the confines of lawmaking. This Court is
neither a substitute for the wisdom, or lack of it, in Congress,41 nor an arbiter of flaws within the
latters internal rules.42 Policy matters lie within the domain of the political branches of
government,43 outside the range of judicial cognizance.44 "[T]he right to select the measure and
objects of taxation devolves upon the Congress, and not upon the courts, and such selections are
valid unless constitutional limitations are overstepped."45 Moreover, each house of Congress has the

power and authority to determine the rules of its proceedings.46 The contention that this case is not
ripe for determination because there is no violation yet of the Constitution regarding the exercise of
the Presidents standby authority has no basis. The question raised is whether the BCC, in passing
the law, committed grave abuse of discretion, not whether the provision in question had been
violated. Hence, this case is not premature and is, in fact, subject to judicial determination.
Amendments on Income Taxes. I respectfully submit that the amendments made by the BCC (that
were culled from the Senate version) regarding income taxes 47 are not legally germane to the subject
matter of the House bills. Revising the income tax rates on domestic, resident foreign and
nonresident foreign corporations; increasing the tax credit against taxes due from nonresident
foreign corporations on intercorporate dividends; and reducing the allowable deduction for interest
expense are legally unrelated and not germane to the subject matter contained in the House bills;
they violate the origination principle.48 The reasons are as follows:
One, an income tax is a direct tax imposed on actual or presumed income -- gross or net -- realized
by a taxpayer during a given taxable year,49 while a VAT is an indirect tax not in the context of who is
directly and legally liable for its payment, but in terms of its nature as "a tax on
consumption."50 The former cannot be passed on to the consumer, but the latter can.51 It is too wide a
stretch of the imagination to even relate one concept with the other. In like manner, it is
inconceivable how the provisions that increase corporate income taxes can be considered
as mitigating measures for increasing the VAT and, as I will explain later, for effectively imposing a
maximum of 3 percent tax on gross sales or revenues because of the 70 percent cap. Even the
argument that the corporate income tax rates will be reduced to 30 percent does not hold water. This
reduction will take effect only in 2009, not 2006 when the 12 percent VAT rate will have been
implemented.
Two, taxes on intercorporate dividends are final, but the input VAT is generally creditable. Under
a finalwithholding tax system, the amount of income tax that is withheld by a withholding agent is
constituted as a full and final payment of the income tax due from the payee on said income. 52 The
liability for the tax primarily rests upon the payor as a withholding agent. 53 Under
a creditable withholding tax system, taxes withheld on certain payments are meant to approximate
the tax that is due of the payee on said payments.54 The liability for the tax rests upon the payee who
is mandated by law to still file a tax return, report the tax base, and pay the difference between the
tax withheld and the tax due.55
From this observation alone, it can already be seen that not only are dividends alien to the tax base
upon which the VAT is imposed, but their respective methods of withholding are totally different. VATregistered persons may not always be nonresident foreign corporations that declare and pay
dividends, while intercorporate dividends are certainly not goods or properties for sale, barter,
exchange, lease or importation. Certainly, input VAT credits are different from tax credits on
dividends received by nonresident foreign corporations.
Three, itemized deductions from gross income partake of the nature of a tax exemption. 56 Interest -which is among such deductions -- refers to the amount paid by a debtor to a creditor for the use or
forbearance of money.57 It is an expense item that is paid or incurred within a given taxable year on
indebtedness in connection with a taxpayers trade, business or exercise of profession. 58 In order to
reduce revenue losses, Congress enacted RA 842459 which reduces the amount of interest expense
deductible by a taxpayer from gross income, equal to the applicable percentage of interest income
subject to final tax.60 To assert that reducing the allowable deduction in interest expense is a matter
that is legally related to the proposed VAT amendments is too far-fetched. Interest expenses are not
allowed as credits against output VAT. Neither are VAT-registered persons always liable for interest.

Having argued on the unconstitutionality (non-germaneness) of the BCC insertions on income taxes,
let me now proceed to the other provisions that were attacked by petitioners.
No Pass-on Provisions. I agree with the ponencia that the BCC did not exceed its authority when it
deleted the no pass-on provisions found in the congressional bills. Its authority to make amendments
not only implies the power to make insertions, but also deletions, in order to
resolve conflicting provisions.
The no pass-on provision in House Bill (HB) No. 3705 referred to the petroleum products subject to
excise tax (and the raw materials used in the manufacture of such products), the sellers of petroleum
products, and the generation companies.61 The analogous provision in Senate Bill (SB) No. 1950
dealt with electricity, businesses other than generation companies, and services of franchise
grantees of electric utilities.62 In contrast, there was a marked absence of the no pass-on provision in
HB 3555. Faced with such variances, the BCC had the option of retaining or modifying the no passon provisions and determining their extent, or of deleting them altogether. In opting for deletion to
resolve the variances, it was merely acting within its discretion. No grave abuse may be imputed to
the BCC.
The 70 Percent Cap on Input Tax and the 5 Percent Final Withholding VAT. Deciding on the 70
percent cap and the 5 percent final withholding VAT in the consolidated bill is also within the power
of the BCC. While HB 3555 included limits of 5 percent and 11 percent on input tax, 63 SB 1950
proposed an even spread over 60 months.64The decision to put a cap and fix its rate, so as to
harmonize or to find a compromise in settling the apparent differences in these versions, 65 was within
the sound discretion of the BCC.
In like manner, HB 3555 contained provisions on the withholding of creditable VAT at the rates of 5
percent, 8 percent, 10.5 percent, and 12 percent.66 HB 3705 had no such equivalent amendment,
and SB 1950 pegged the rates at only 5 percent and 10 percent. 67 I believe that the decision to
impose a final (not creditable) VAT and to fix the rates at 5 percent and 10 percent, so as to
harmonize the apparent differences in all three versions, was also within the sound discretion of the
BCC.
Indeed, the tax credit method under our VAT system is not only practical, but also principally used in
almost all taxing jurisdictions. This does not mean, however, that in the eyes of Congress through
the BCC, our country can neither deviate from this method nor modify its application to suit our fiscal
requirements. The VAT is usuallycollected through the tax credit method (and in the past, even
through the cost deduction method or a mixture of these two methods),68 but there is no hard and
fast rule that 100 percent of the input taxes will always be allowed as a tax credit.
In fact, it was Maurice Laur, a French engineer,69 who invented the VAT. In 1954, he had the idea of
imposing an indirect tax on consumption, called taxe sur la valeur ajoute,70 which was quickly
adopted by the Direction Gnrale des Impost, the new French tax authority of which he became
joint director. Consequently, taxpayers at all levels in the production process, rather than retailers or
tax authorities, were forced to administer and account for the tax themselves. 71
Since the unutilized input VAT can be carried over to succeeding quarters, there is no undue
deprivation of property. Alternatively, it can be passed on to the consumers; 72 there is no law
prohibiting that. Merely speculative and unproven, therefore, is the contention that the law is arbitrary
and oppressive.73 Laws that impose taxes are necessarily burdensome, compulsory, and involuntary.
The deferred input tax account -- which accumulates the unutilized input VAT -- remains an asset in
the accounting records of a business. It is not at all confiscated by the government. By deleting

Section 112(B) of the Tax Code,74 Congress no longer made available tax credit certificates for such
asset account until retirement from or cessation of business, or changes in or cessation of VATregistered status.75 This is a matter of policy, not legality. The Court cannot step beyond the confines
of its constitutional power, if there is absolutely no clear showing of grave abuse of discretion in the
enactment of the law.
That the unutilized input VAT would be rendered useless is merely speculative. 76 Although it is
recorded as a deferred asset in the books of a company, it remains to be a mere privilege. It may be
written off or expensed outright; it may also be denied as a tax credit.
There is no vested right in a deferred input tax account; it is a mere statutory privilege.77 The State
may modify or withdraw such privilege, which is merely an asset granted by operation of
law.78 Moreover, there is no vested right in generally accepted accounting principles. 79 These refer to
accounting concepts, measurement techniques, and standards of presentation in a companys
financial statements, and are not rooted in laws of nature, as are the laws of physical science, for
these are merely developed and continually modified by local and international regulatory accounting
bodies.80 To state otherwise and recognize such asset account as a vested right is to limit the taxing
power of the State. Unlimited, plenary, comprehensive and supreme, this power cannot be unduly
restricted by mere creations of the State.
That the unutilized input VAT would also have an unequal effect on businesses -- some with low,
others with high, input-output ratio -- is not a legal ground for invalidating the law. Profit margins are
a variable of sound business judgment, not of legal doctrine. The law applies equally to all
businesses; it is up to each of them to determine the best formula for selling their goods or services
in the face of stiffer competition. There is, thus, no violation of the equal protection clause. If the
implementation of the 70 percent cap would cause an ad infinitum deferment of input taxes or an
unequal effect upon different types of businesses with varying profit margins and capital
requirements, then the remedy would be an amendment of the law -- not an unwarranted and
outright declaration of unconstitutionality.
The matter of business establishments shouldering 30 percent of output tax and remitting the
amount, as computed, to the government is in effect imposing a tax that is equivalent to a maximum
of 3 percent of gross sales or revenues.81 This imposition is arguably another tax on gross -- not net
-- income and thus a deviation from the concept of VAT as a tax on consumption; it also assumes
that sales or revenues are on cash basis or, if on credit, given credit terms shorter than a quarter of a
year. However, such additional imposition and assumption are also arguably within the power of
Congress to make. The State may in fact choose to impose an additional 3 percent tax on gross
income, in lieu of the 70 percent cap, and thus subject the income of businesses to two types of
taxes -- one on gross, the other on net. These impositions may constitute double taxation, 82 which is
not constitutionally proscribed.83
Besides, prior to the amendments introduced by the BCC, already extant in the Tax Code was a 3
percentpercentage tax on the gross quarterly sales or receipts of persons who were not VATregistered, and whose sales or receipts were exempt from VAT.84 This is another type of tax imposed
by the Tax Code, in addition to the tax on their respective incomes. No question as to its validity was
raised before; none is being brought now. More important, there is a presumption in favor of
constitutionality,85 "rooted in the doctrine of separation of powers which enjoins upon the three
coordinate departments of the Government a becoming courtesy for each others acts." 86
As to the argument that Section 8 of RA 9337 contravenes Section 1 of Article III and Section 20 of
Article II of the 1987 Constitution, I respectfully disagree.

One, petitioners have not been denied due process or, as I have illustrated earlier, equal protection.
In the exercise of its inherent power to tax, the State validly interferes with the right to property of
persons, natural or artificial. Those similarly situated are affected in the same way and treated alike,
"both as to privileges conferred and liabilities enforced."87
RA 9337 was enacted precisely to achieve the objective of raising revenues to defray the necessary
expenses of government.88 The means that this law employs are reasonably related to the
accomplishment of such objective, and not unduly oppressive. The reduction of tax credits is a
question of economic policy, not of legal perlustration. Its determination is vested in Congress, not in
this Court. Since the purpose of the law is to raise revenues, it cannot be denied that the means
employed is reasonably related to the achievement of that purpose. Moreover, the proper
congressional procedure for its enactment was followed; 89 neither public notice nor public hearings
were denied.
Two, private enterprises are not discouraged. Tax burdens are never delightful, but with the
imposition of the 70 percent cap, there will be an assurance of a steady cash flow to the
government, which can be translated to the production of improved goods, rendition of better
services, and construction of better facilities for the people, including all private enterprises.
Perhaps, Congress deems it best to make our economy depend more on businesses that are easier
to monitor, so there will be a more efficient collection of taxes. Whatever is expected of the outcome
of the law, or its wisdom, should be the sole responsibility of the representatives chosen by the
electorate.
The profit margin rates of various industries generally do not change. However, the profit
margin figures do, because these are obviously monetary variables that affect business, along with
the level of competition, the quality of goods and services offered, and the cost of their production.
And there will inevitably be a conscious desire on the part of those who engage in business and
those who consume their output to adapt or adjust accordingly to any congressional modification of
the VAT system.
In addition, it is contended that the VAT should be proportional in nature. I submit that this
proportionality pertains to the rate imposable, not the credit allowable. Private enterprises are
subjected to a proportional VAT rate, but VAT credits need not be. The VAT is, after all, a human
concept that is neither immutable nor invariable. In fact, it has changed after it was adopted as a
system of indirect taxation by other countries. Again unlike the laws of physical science, the VAT
system can always be modified to suit modern fiscal demands. The State, through the Legislative
Department, may even choose to do away with it and revert to our previous system of turnover
taxes, sales taxes and compensating taxes, in which credits may be disallowed altogether.
Not expensed, but amortized over its useful life, is capital equipment, which is purchased or treated
as capital leases by private enterprises. Aimed at achieving the twin objectives of profitability and
solvency, such purchase or lease is a matter of prudence in business decision-making.
Hence, business judgments, sales volume, and their effect on competition are for businesses to
determine and for Congress to regulate -- not for this Court to interfere with, absent a clear showing
that constitutional provisions have been violated. Tax collection and administrative feasibility are for
the executive branch to focus on, again not for this Court to dwell upon.
The Transcript of the Oral Arguments on July 14, 2005 clearly point out in a long line of relevant
questioning that, absent a violation of constitutional provisions, the Court cannot interfere with the 70
percent cap, the 5 percent final withholding tax, and the 60-month amortization, there being other
extra-judicial remedies available to petitioners, thus:

"Atty. Baniqued: But if your profit margin is low as i[n] the case of the petroleum dealers, x x x then
we would have a serious problem, Your Honor.
"Justice Panganiban: Isnt the solution to increase the price then?
"Atty. Baniqued: If you increase the price which you can very well do, Your Honor, then that [will] be
deflationary and it [will] have a cascading effect on all other basic commodities[, especially] because
what is involved here is petroleum, Your Honor.
"Justice Panganiban: That may be true[,] but its 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]ts unjust and its
unreasonable, Your Honor.
"Justice Panganiban: But it can be passed as a part of sales, sales costs rather.
"Atty. Baniqued: But the petroleum dealers here themselves interrupted
"Justice Panganiban: In your [b]alance [s]heet, it could be reflected as Cost of Sales and therefore
the price will go up?
"Atty. Baniqued: Even if it were to be reflected as part of the Cost of Sales, Your Honor, the [input
VAT] that you cannot claim, the benefit to you is only to the extent of the corporate tax rate which is
32 now 35 [percent].
"Justice Panganiban: Yes.
"Atty. Baniqued: Its not 100 [percent] credi[ta]bility[,] unlike if it were applied against your [output
VAT], you get to claim 100 [percent] of it, Your Honor.
"Justice Panganiban: That might be true, but we are talking about whether that particular provision
would be unconstitutional. You say its oppressive, but you have a remedy, you just pass it on to
the customer. I am not sayin[g] its good[.] [N]either am I saying its wise[.] [A]ll Im talking about is,
whether its constitutional or not.
"Atty. Baniqued: Yes, in fact we acknowledge, Your Honor, that that is a remedy available to the
petroleum dealers, but considering the impact of that limitation[,] and were just talking of the 70
[percent cap] on [input VAT] in the level of the petroleum dealers. Were not even talking yet of the
limitation on the [input VAT] available to the manufacturers, so, what if they pass that on as well?
"Justice Panganiban: Yes.
"Atty. Baniqued: Then, it would complicate interrupted
"Justice Panganiban: What I am saying is, there is a remedy, which is business in character. The
mere fact that the government is imposing that [seventy percent] cap does not make the law
unconstitutional, isnt it?
"Atty. Baniqued: It does, Your Honor, if it can be shown. And as we have shown, it is oppressive and
unreasonable, it is excessive, Your Honor interrupted

"Justice Panganiban: If you have no way of recouping it. If you have no way of recouping that
amount, then it will be oppressive, but you have a business way of recouping it[.] I am saying that,
not advising that its good. All I am saying is, is it constitutional or not[?] Were not here to determine
the wisdom of the law, thats 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 its [VAT]. If Congress will just say all petroleum will pay 3
[percent] of their Gross Sales, but you dont bear that, you pass that on, isnt it?
"Atty. Baniqued: We acknowledge your concern, Your Honor, but we should not forget that when the
petroleum dealers pass these financial burden or this tax differential to the consumers, they
themselves are consumers in their own right. As a matter of fact, they filed this case both as
petroleum dealer[s] and as taxpayers. If they pass if on, they themselves would ultimately bear the
burden[, especially] in increase[d] cost of electricity, land transport, food, everything, Your Honor.
"Justice Panganiban: Yes, but the issue here in this Court, is whether that act of Congress is
unconstitutional.
"Atty. Baniqued: Yes, we believe it is unconstitutional, Your Honor.
"Justice Panganiban: You have a right to complain that it is oppressive, it is excessive, it burdens the
people too much, but is it unconstitutional?
"Atty. Baniqued: Besides, passing it on, Your Honor, may not be as simple as it may seem. As a
matter of fact, at the strike of midnight on June 30, when petroleum prices were being changed
upward, the [s]ecretary of [the] Department of Energy was going around[.] [H]e was seen on TV
going around just to check that prices dont go up. And as a matter of fact, he had pronouncements
that, the increase in petroleum price should only be limited to the effect of 10 [percent] E-VAT.
"Justice Panganiban: Its 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. Its 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 sidesinterrupted
"Justice Panganiban: Thats 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 therell be no confusion and therell 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], isnt it?
"Atty. Baniqued: It will be a very hard decision to make, Your Honor.
"Justice Panganiban: Why, you will not pass it on?

"Atty. Baniqued: I cannot speak for the dealers. interrupted.

"Justice Panganiban: As a consumer, I will thank you if you dont pass it on[;] but you or your clients
as businessm[e]n, I know, will pass it on.
"Atty. Baniqued: As I have said, Your Honor, there are many constraints on their ability to do that[,]
and that is why the first step that we are seeking is to seek redress from this Honorable Court[,]
because we feel that the imposition is excessive and oppressive.. interrupted
"Justice Panganiban: You can find redress here, only if you can show that the law is unconstitutional.
"Atty. Baniqued: We realized that, Your Honor.
"Justice Panganiban: Alright. Lets talk about the 5 [percent] [d]epreciation rate, but that applies
only to the capital equipment worth over a million?
"Atty. Baniqued: Yes, Your Honor.
"Justice Panganiban: And that doesnt apply at all times, isnt it?
"Atty. Baniqued: Well
"Justice Panganiban: That doesnt at all times?
"Atty. Baniqued: For capital goods costing less than 1 million, Your Honor, then.
"Justice Panganiban: That will not apply?
"Atty. Baniqued: That will not apply, but you will have the 70 [percent] cap on input [VAT], Your
Honor.
"Justice Panganiban: Yes, but we talked already about the 70 [percent].
"Atty. Baniqued: Yes, Your Honor.
"Justice Panganiban: When you made your presentation on the balance sheet, it is as if every capital
expenditure you made is subject to the 5 [percent,] rather the [five year] depreciation schedule[.]
[T]hats not so. So, the presentation you made is a little inaccurate and misleading.
"Atty. Baniqued: At the start of our presentation, Your Honor[,] we stated clearly that this applies only
to capital goods costing more than one [million].
"Justice Panganiban: Yes, but you combined it later on with the 70 [percent] cap to show that the
dealers are so disadvantaged. But you didnt tell us that that will apply only when capital equipment
or goods is one million or more. And in your case, what kind of capital goods will be worth one million
or more in your existing gas stations?
"Atty. Baniqued: Well, you would have petroleum dealers, Your Honor, who would have[,] aside from
sale of petroleum[,] they would have their service centers[,] like[] to service cars and they would
have those equipments, they are, Your Honor.

"Justice Panganiban: But thats a different profit center, thats not from the sale of
"Atty. Baniqued: No, they would form part of their [VATable] sale, Your Honor.
Justice Panganiban: Its a different profit center[;] its not in the sale of petroleum products. In fact the
mode now is to put up super stores in huge gas stations. I do not begrudge the gas station[.] [A]ll I
am saying is it should be presented to us in perspective. Neither am I siding with the government. All
I am saying is, when I saw your complicated balance sheet and mathematics, I saw that you were to
put in all the time the depreciation that should be spread over [five] years. But we have agreed that
that applies only to capital equipment [-- ]not to any kind of goods [--] but to capital equipment
costing over 1 million pesos.
"Atty. Baniqued: Yes, Your Honor, we apologize if it has caused a little confusion.
"Justice Panganiban: Again the solution could b[e] to pass that on, because thats an added
cost, isnt it?
"Atty. Baniqued: Well, yes, you can pass it on.
"Justice Panganiban: I am not teaching you, I am just saying that you have a remedy I am not
saying either that the remedy is wise or should be done, because[,] as a consumer[,] I wouldnt want
that to be done to me.
"Atty. Baniqued: We realiz[e] that, Your Honor, but the fact remain[s] that whether it is in the hands of
the petroleum dealers or in the hands of the consumers[,] if this imposition is unreasonable and
oppressive, it will remain so, even after it is passed on, Your Honor.
"Justice Panganiban: Alright. Lets 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.
"Justice Panganiban: So, you can pass on this 5 [percent] to the [g]overnment. After all, that 5
[percent] will still go back to the government.
"Atty. Baniqued: Then it will come back to haunt us, Your Honor..
"Justice Panganiban: Why?
"Atty. Baniqued: By way of, for example sales to NAPOCOR or NTC. interrupted
"Justice Panganiban: Sales of petroleum products.
"Atty. Baniqued: in the case of NTC, Your Honor, it would come back to us by way of
increase[d] cost, Your Honor.
"Justice Panganiban: Okay, lets see. You sell, lets 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.

"Justice Panganiban: 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.
"Justice Panganiban: So, the Supreme Court will pay more, you will not [be] going to [absorb] that 5
[percent], will you?
"Atty. Baniqued; If it is passed on, Your Honor, thats of course we agree. Interrupted.
"Justice Panganiban: Not if, you can pass it on.
"Atty. Baniqued: Yes, we can. interrupted
"Justice Panganiban: There is no prohibition to passing it on[.] [P]robably the gas station will simply
pass it on to the Supreme Court and say[,] well[,] there is this 5 [percent] final VAT on you so[,]
therefore, for every tank full you buy[,] well 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, isnt it[?] So, how [will] you be affected?
"Atty. Baniqued: I hope the passing on of the burden, Your Honor, doesnt come back to party
litigants by way of increase in docket fees, Your Honor.
"Justice Panganiban: But thats 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 its not business in character.
"Atty. Baniqued: Yes, Your Honor, it is our submission that this limitation in the input [VAT] credit as
well as the amortization.
"Justice Panganiban: All you talk about is equal protection clause, about due process, depreciation
of property without observance of due process[,] could really be a remedy than a business way.
"Atty. Baniqued: Business in the level of the petroleum dealers, Your Honor, or in the level of
Congress, Your Honor.
"Justice Panganiban: Yes, you can pass them on to customers[,] in other words. Its the customers
who should [complain].
"Atty. Baniqued: Yes, Your Honor interrupted
"Justice Panganiban: And perhaps will not elect their representatives anymore[.]
"Atty. Baniqued: Yes, Your Honor..
"Justice Panganiban: For agreeing to it, because the wisdom of a law is not for the Supreme Court to
pass upon.

"Atty. Baniqued: It just so happens, Your Honor, that what is [involved] here is a commodity that
when it goes up, it affects everybody.
"Justice Panganiban: Yes, inflationary and inflammatory.
"Atty. Baniqued: just like what Justice Puno says it shakes the entire economic foundation, Your
Honor.
"Justice Panganiban: Yes, its inflationary[,] brings up the prices of everything
"Atty. Baniqued: And it is our submission that[,] if the petroleum dealers cannot absorb it and they
pass it on to the customers, a lot of consumers would neither be in a position to absorb it too and
that[s] why we patronize, Your Honor.
"Justice Panganiban: There might be wisdom in what youre saying, but is that unconstitutional?
"Atty. Baniqued: Yes, because as I said, Your Honor, there are even constraints in the petroleum
dealers to pass it on, and we[]re not even sure whether.interrupted
"Justice Panganiban: Are these constraints [--] legal constraints?
"Atty. Baniqued: Well, it would be a different story, Your Honor[.] [T]hats something we probably
have to take up with the Department of Energy, lest [we may] be accused of ..
"Justice Panganiban: In other words, thats your remedy
[--] to take it up with the Department of Energy
"Atty. Baniqued: ..unreasonable price increases, Your Honor.
"Justice Panganiban: Not for us to declare those provisions unconstitutional.
"Atty. Baniqued: We, again, wish to stress that the petroleum dealers went to this Court[,] both as
businessmen and as consumers. And as consumers, [were] also going to bear the burden of
whatever they themselves pass on.
"Justice Panganiban: You know[,] as a consumer, I wish you can really show that the laws are
unconstitutional, so I dont 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 BCCs amendments
regarding other taxes90 are both germane in a legal sense and reasonably necessary in an economic
sense. This fact is evident, considering that the proposed changes in the VAT law will have inevitable
implications and repercussions on such taxes, as well as on the procedural requirements and the
disposition of incremental revenues, in the Tax Code. Either mitigating measures91 have to be put in
place or increased rates imposed, in order to achieve the purpose of the law, cushion the impact of
increased taxation, and still maintain the equitability desired of any other revenue law.92 Directly

related to the proposed VAT changes, these amendments are expected also to have a salutary effect
on the national economy.
The no-amendment rule93 in the Constitution was not violated by the BCC, because no completely
new provision was inserted in the approved bill. The amendments may be unpopular or even work
hardship upon everyone (this writer included). If so, the remedy cannot be prescribed by this Court,
but by Congress.
Rejecting Non-Conflicting
Provisions
Fourth, the BCC may choose neither to adopt nor to consolidate the versions presented to it by both
houses of Congress, but instead to reject non-conflicting provisions in those versions. In other
words, despite the lack of conflict in them, such provisions are still eliminated entirely from the
consolidated bill. There may be a constitutional problem here.
The no pass-on provisions in the congressional bills are the only item raised by petitioners
concerning deletion.94As 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 nonconflicting provisions of the E-VAT bills were rejected indiscriminately by the BCC.
Approving and Inserting
Completely New Provisions
Fifth, the BCC had the option of inserting completely new provisions not found in any of the
provisions of the bills of either house of Congress, or make and endorse an entirely new bill as a
substitute. Taking this option may be a blatant violation of the Constitution, for not only will the
surreptitious insertion or unwarranted creation contravene the "origination" principle; it may likewise
desecrate the three-reading requirement and the no-amendment rule.95
Fortunately, however, the BCC did not approve or insert completely new provisions. Thus, no
violation of the Constitution was committed in this regard.
Summary
The enrolled bill doctrine is said to be conclusive not only as to the provisions of a law, but also to its
due enactment. It is not absolute, however, and must yield to mandatory provisions of the 1987
Constitution. Specifically, this Court has the duty of striking down provisions of a law that in their
enactment violate conditions, restrictions or limitations imposed by the Constitution. 96 The Bicameral
Conference Committee (BCC) is a mere creation of Congress. Hence, the BCC may resolve
differences only in conflicting provisions of congressional bills that are referred to it; and it may do so
only on the condition that such resolution does not violate the origination, the three-reading, and the
no-amendment rules of the Constitution.

In crafting RA 9337, the BCC opted to reconcile the conflicting provisions of the Senate and House
bills, particularly those on the 70 percent cap on input tax; the 5 percent final withholding tax;
percentage taxes on domestic carriers, keepers of garages and international carriers; franchise
taxes; amusement taxes; excise taxes on manufactured oils and other fuels; registration
requirements; issuance of receipts or sales or commercial invoices; and disposition of incremental
revenues. To my mind, these changes do not violate the origination or the germaneness principles.
Neither is there undue delegation of legislative power in the standby authority given by Congress to
the President. The law is complete, and the standards are fixed. While I concur with
the ponencias 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 Executives alter ego, not an agent of Congress.
The BCC exercised its prerogative to delete the no pass-on provisions, because these were in
conflict. I believe, however, that it blatantly violated the origination and the germaneness principles
when it inserted provisions not found in the House versions of the E-VAT Law: (1) increasing the tax
rates on domestic, resident foreign and nonresident foreign corporations; (2) increasing the tax credit
against taxes due from nonresident foreign corporations on intercorporate dividends; and (3)
reducing the allowable deduction for interest expense. Hence, I find these insertions
unconstitutional.
Some have criticized the E-VAT Law as oppressive to our already suffering people. On the other
hand, respondents have justified it by comparing it to bitter medicine that patients must endure to be
healed eventually of their maladies. The advantages and disadvantages of the E-VAT Law, as well
as its long-term effects on the economy, are beyond the reach of judicial review. The economic
repercussions of the statute are policy in nature and are beyond the power of the courts to pass
upon.
I have combed through the specific points raised in the Petitions. Other than the three items on
income taxes that I respectfully submit are unconstitutional, I cannot otherwise attribute grave abuse
of discretion to the BCC, or Congress for that matter, for passing the law.
"[T]he Court -- as a rule -- is deferential to the actions taken by the other branches of government
that have primary responsibility for the economic development of our country." 97 Thus, in upholding
the Philippine ratification of the treaty establishing the World Trade Organization (WTO), Taada v.
Angara held that "this Court never forgets that the Senate, whose act is under review, is one of two
sovereign houses of Congress and is thus entitled to great respect in its actions. It is itself a
constitutional body, independent and coordinate, and thus its actions are presumed regular and
done in good faith. Unless convincing proof and persuasive arguments are presented to overthrow
such presumption, this Court will resolve every doubt in its favor." 98 As pointed our inCawaling Jr. v.
Comelec, the grounds for nullity of the law "must be beyond reasonable doubt, for to doubt is to
sustain."99 Indeed, "there must be clear and unequivocal showing that what the Constitutions
prohibits, the statute permits."100
WHEREFORE, I vote to GRANT the Petitions in part and to declare Sections 1, 2, and 3 of Republic
Act No. 9337 unconstitutional, insofar as these sections (a) amend the rates of income tax on
domestic, resident foreign, and nonresident foreign corporations; (b) amend the tax credit against
taxes due from nonresident foreign corporations on intercorporate dividends; and (c) reduce the
allowable deduction for interest expense. The other provisions are constitutional, and as to these I
vote to DISMISS the Petitions.
ARTEMIO V. PANGANIBAN

Associate Justice

Footnotes
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.
1

417 SCRA 503, December 10, 2003.

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

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." Farias v. Executive Secretary, supra, p. 529, per Callejo
Sr., J.
4

Mabanag v. Lopez Vito, supra, p. 12.

1 of Rule 129 of the Rules of Court.

The United Kingdom has an uncodified Constitution, consisting of both written and
unwritten sources, capable of evolving to be responsive to political and social change, and
found partly in conventions and customs and partly in statute. Its Parliament has the power
to change or abolish any written or unwritten element of the Constitution. There is neither
separation of powers nor formal checks and balances. Every bill drafted has to be approved
by both the House of Commons and the House of Lords, before it receives the Royal Assent
and becomes an Act of Parliament. The House of Lords is the second chamber that
complements the work of the Commons, whose members are elected to represent their
constituents. The first is the House of Commons that alone may start bills to raise taxes or
authorize expenditures. Each bill goes through several stages in each House. The first stage,
called the first reading, is a mere formality. The second -- the second reading -- is when
general principles of the bill are debated upon. At the second reading, the House may vote to
reject the bill. Once the House considers the bill, the third reading follows. In the House of
Commons, no further amendments may be made, and the passage of the motion amounts to
passage of the whole bill. The House of Lords, however, may not amend a bill so as to insert
a provision relating to taxation.
http://en.wikipedia.org/wiki/Constitution_of_the_United_Kingdom; http://
www.oefre.unibe.ch/law/icl/uk00000_.html; www.parliament.uk; and
6

http://encyclopedia.thefreedictionary.com/British+Parliament (Last visited August 4, 2005,

11:30am PST).
7

See Dissenting Opinion of Puno, J. in Tolentino v. Secretary of Finance, supra, p. 818.

Cf. Francisco Jr. v. House of Representatives, 415 SCRA 44, November 10, 2003.

Tolentino v. Secretary of Finance, supra.

10

2nd paragraph, 1 of Article VIII of the 1987 Constitution.

11

Tolentino v. Secretary of Finance, supra.

12

Arroyo v. De Venecia, 343 Phil. 42, 61-62, August 14, 1997, per Mendoza, J.

13

These refer to House Bill Nos. 3555 & 3705; and Senate Bill No. 1950.

14

26(2) of Article VI of the 1987 Constitution.

"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.
15

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.

19

Tolentino v. Secretary of Finance, supra, p. 661, August 25, 1994.

20

Garner (ed. in chief), Blacks Law Dictionary (8th ed., 2004), p. 708.

21

Statsky, Wests Legal Thesaurus/Dictionary (1986), p. 348.

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.
22

Exxon Mobil Corp. v. Allapattah Services, Inc., 125 S.Ct. 2611, 2622, June 23, 2005, per
Kennedy, J.
23

Tolentino v. Secretary of Finance, supra, p. 663, August 25, 1994. See Cruz, Philippine
Political Law(2002), p. 154.
24

25

Tolentino v. Secretary of Finance, supra, August 25, 1994, per Mendoza, J.

26

Cruz, Philippine Political Law (2002), p. 155.

27

Tolentino v. Secretary of Finance, supra, August 25, 1994.

28

Cruz, Philippine Political Law (2002), p. 111.

29

Tolentino v. Secretary of Finance, supra, p. 668, August 25, 1994.

There is no allegation in any of the memoranda submitted to this Court that the consolidated
bill was not approved. In fact, both houses of Congress voted separately and majority of
each house approved it.
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.
30

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."
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.
31

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.
32

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
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.
33

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).
34

35

See Pelaez v. Auditor General, 122 Phil. 965, 974, December 24, 1965.

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.
36

The following excerpts from the Transcript of the Oral Arguments in GR Nos. 168461,
168463, 168056, and 168207, held on July 14, 2005 at the Supreme Court Session Hall, are
instructive on the position of petitioners:
"Atty. Gorospe: [Its] 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 [lets 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, isnt it?
"Atty. Gorospe: Yes, Your Honor.
"Justice Panganiban: x x x if its only determined on March 1[,] then how can the law become
effective January 1[.] In other words, how will the [people be] able to pay the tax if ever that
formula is exceeded x x x?" (pp. 59-60);
xxx
"Atty. Gana: Well, x x x it would take a grace period of 6 to 8 months[,] because
obviously, determination could not be made on January 1, 2006. Yes, they were under
the impression that at the earliest it would take 30 days.
"Justice Panganiban: Historically, when [will] these figures [be] available[:] the GDP, [VAT]
collection?" (p. 192);
xxx

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

would not know whether the rate would be increased or not, even if there is no
discretion?
"Atty. Gana: Thats true, Your Honor, even if there is no discretion.
"Justice Panganiban: It will take weeks, or months to be able to determine that?
"Atty. Gana: Well, they anticipated it, would take at most by March." (p. 193); and
xxx
"Justice Panganiban: March, I will ask the government later on when they argue.
"Atty. Gana: As early as January but not later than 60 to 90 days." (boldface supplied; p.
194).
37

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.
38

"Usec. Bonoan: Yes, Your Honor." (boldface supplied; pp. 665-666).

37 Using available statistics, it is approximated that the 2 4/5 percent has been reached. VAT
collection (in million pesos) for the first quarter alone of 2004 is 83,542.83, or 83 percent of
revenue collections amounting to 100,654.01. Divided into GDP of 13,053, the quotient is
already 6.4 percent. http://www.nscb.gov.ph/sna/2005/1stQ2005/2005per1.asp; and the 2003
Bureau of Internal Revenue (BIR) Annual Report found on www.bir.gov.ph (Last visited July
14, 2005, 10:45am PST).
[38] Besides, the use of the word "shall" in 106(A), 107(A) & 108(A) of the Tax Code, as
amended respectively by 4, 5 & 6 of RA 9337, is mandatory, imperative and compulsory.
See Agpalo, Statutory Construction (4th ed., 1998), p. 333.
See Separate Opinion (Concurring and Dissenting) of Panganiban, J., in Southern Cross
Cement Corp. v. Philippine Cement Manufacturers Corp., GR No. 158540, August 3, 2005, p.
31.
39

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

Farias v. Executive Secretary, 417 SCRA, 503, 530, December 10, 2003.

"Any meaningful change in the method and procedures of Congress or its committees
must x x x be sought in that body itself." Tolentino v. Secretary of Finance, supra, p. 650,
October 30, 1995, per Mendoza, J.
42

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.)
43

44

Farias 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.

46

16(3) of Article VI of the 1987 Constitution.

"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 Osmea Jr. v. Pendatun, 109 Phil
863, 870-871, October 28, 1960, per Bengzon, J.).
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.
47

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.
48

49

Mamalateo, Philippine Income Tax (2004), p. 1.

Commissioner of Internal Revenue v. American Express International, Inc. (Philippine

Branch), GR No. 152609, p. 20, June 29, 2005, per Panganiban, J. See Deoferio Jr. &
Mamalateo, The Value Added Tax in the Philippines (2000), p. 36.
50

51

De Leon, The Fundamentals of Taxation (12th ed., 1998), pp. 92 & 132.

52

Mamalateo, Philippine Income Tax (2004), p. 379.

53

Vitug, Tax Law and Jurisprudence (2nd ed., 2000), p. 188.

54

Mamalateo, Philippine Income Tax (2004), p. 380.

De Leon, The Law on Transfer and Business Taxation with Illustrations, Problems, and
Solutions (1998), pp. 195-196 & 222-224.
55

56

Mamalateo, Philippine Income Tax (2004), p. 173.

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.
57

58

Mamalateo, Philippine Income Tax (2004), p. 196.

59

RA 8424 refers to the Tax Reform Act of 1997.

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:
60

35% - 20% = 15%

15% : 35% = 42%, the amount of reduction.
61

1-3 of HB 3705.

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
Senates Committee on Ways & Means to the Senate President on March 7, 2005, show that
SB 1950 does not contain a no-pass on provision, the petitioners and respondents show that
it does (Pimentel Memorandum, Annex A showing a "Matrix on the Disagreeing Provisions of
the [VAT] Bills," pp. 9-11; Escudero Memorandum, p. 42; and Respondents Memorandum,
pp. 109-110). Notably, the qualified dissent of Senator Joker Arroyo to the Bicameral
Conference Report states that the Senate version prohibits the power companies from
passing on the VAT that they will pay.
62

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.
63

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.
64

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.

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,
66

instrumentalities or agencies -- including government-owned-and-controlled corporations

(GOCCs) -- before making any payment on account of each purchase of goods from sellers
and services rendered by contractors. The VAT deducted and withheld shall be at the rates
of 5% of the gross payment for the purchase of goods and 8% of the gross receipts for
services rendered by contractors on every sale or installment payment. The VAT that is
deducted and withheld shall be creditable against their respective VAT liabilities -- 10.5%, in
case of government public works contractors; and 12% of the payments for the lease or use
of properties or property rights to nonresident owners.
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.
67

68

Deoferio Jr. & Mamalateo, The Value Added Tax in the Philippines (2000), pp. 34-35 & 44.

http://explanation-guide.info/meaning/Maurice-Laur.html (Last visited August 23, 2005,

3:25pm PST).
69

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).

The Transcript of the Oral Arguments in GR Nos. 168461, 168463, 168056, and 168207,
held on July 14, 2005 at the Supreme Court Session Hall, show that the act of passing on to
consumers is a mere cash flow problem, as agreed to by counsel for petitioners in GR No.
168461:
72

"Justice Panganiban: So, the final consumer pays the tax?

"Atty. Baniqued: Yes, Your Honor.
"Justice Panganiban: The trade people in between the middlemen just take it as an input and
then [collect] it as output, isnt it?
Atty. Baniqued: Yes, Your Honor.
"Justice Panganiban: Its just a cash flow problem for them, essentially?
"Atty. Baniqued: Yes x x x." (p. 375).
The 5 percent final withholding tax may also be charged as part of a suppliers Cost of
Sales.
73

74

This refers to RA 8424, as amended.

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.
75

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.
76

77

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

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

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:
79

1. Securities and Exchange Commission (SEC);

2. Accounting Standards Council;
3. Standards issued by the International Accounting Standards Board (now Committee); and
4. Accounting principles and practices for which there has been a long history of acceptance
and usage.
If there appears to be a conflict between any of the bodies listed above, the pronouncements
of the first listed body shall be applied. SEC Securities Regulation Code Rule 68(1)(b)(iv) as
amended, cited in Appendix C of Morales, The Philippine Securities Regulation Code
(Annotated), [2005], p. 578.
Recommended by the World Bank and the Asian Development Bank, and increasingly
recognized worldwide, international accounting standards (IAS) have been merely adopted
by Philippine regulatory bodies and accredited professional organizations. The SEC, for
instance, complies with the agreement among co-members of the International Organization
of Securities Commissions to adopt IAS in order to ensure high-quality and transparent
financial reporting, with full disclosure as a means to promote credibility and efficiency in the
capital markets. In implementing the General Agreement on Trade in Services, the
Professional Regulatory Board of Accountancy (PRBOA) of the Professional Regulatory
Commission supports the adoption of IAS. The Philippine Institute of Certified Public
Accountants, a member of the International Accounting Standards Committee (IASC), also
has the commitment to support the work of the IASC and uses best endeavors to foster
compliance with IAS. http://www.picpa.com.ph/adb/index.htm (Last visited August 23, 2005,
3:15pm PST).
80

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

Under 9(b) & (g) of RA 9298, the PRBOA shall supervise the practice of accountancy in the
Philippines and adopt measures -- such as the promulgation of accounting and auditing

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

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

"Double taxation means taxing the same property [or subject matter] twice when it should
be taxed only once; that is, taxing the same person twice by the same jurisdiction for the
same thing." Commissioner of Internal Revenue v. Solidbank Corp., 416 SCRA 436,
November 25, 2003, per Panganiban, J.; (citingAfisco Insurance Corp. v. CA, 361 Phil. 671,
687, January 25, 1999, per Panganiban, J.). SeeCommissioner of Internal Revenue v. Bank
of Commerce, GR No. 149636, pp. 17-18, June 8, 2005.
82

"The rule x x x is well settled that there is no constitutional prohibition against double
taxation." China Banking Corp. v. CA, 403 SCRA 634, 664, June 10, 2003, per Carpio, J.
Cruz, Constitutional Law (1998), p. 89.
83

84

116 of the Tax Code as amended.

"[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.)
85

Cawaling Jr. v. COMELEC, 420 Phil. 524, 530, October 26, 2001, per SandovalGutierrez, J.
86

87

Ichong v. Hernandez, 101 Phil. 1155, 1164, May 31, 1957, per Labrador, J.

88

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

89

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

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.
90

"[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.
91

The Transcript of the Oral Arguments in GR Nos. 168461, 168463, 168056, and 168207 on
July 14, 2005 also reveals the effect of mitigating measures upon petitioners in GR No.
168461:
"Justice Panganiban: As a matter of fact[,] a part of the mitigating measures would be the
elimination of the [e]xcise [t]ax and the import duties. That is [why] it is not correct to say that
the [VAT] as to petroleum dealers increase to 10 [percent].
"Atty. Baniqued: Yes, Your Honor.
"Justice Panganiban: And[,] therefore, there is no justification for increasing the retail price by
10 [percent] to cover the E-[VAT.] [I]f you consider the excise tax and the import duties, the
[n]et [t]ax would probably be in the neighborhood of 7 [percent]? We are not going into exact
figures[.] I am just trying to deliver a point that different industries, different products, different
services are hit differently. So its not correct to say that all prices must go up by 10 [percent].
"Atty. Baniqued: Youre right, Your Honor.
"Justice Panganiban: Now. For instance, [d]omestic [a]irline companies, Mr. Counsel, are at
present imposed a [s]ales [t]ax of 3 [percent]. When this E-[VAT] law took effect[,] the [s]ales
[t]ax was also removed as a mitigating measure. So, therefore, there is no justification to
increase the fares by 10 [percent;] at best 7 [percent], correct?
"Atty. Baniqued: I guess so, Your Honor, yes." (pp. 367-368).
92

28(1) of Article VI of the 1987 Constitution.

93

26(2) of Article VI of the 1987 Constitution.

94

These bills refer to HB 3705 and SB 1950.

95

26(2), supra.

"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.
96

Panganiban, Leveling the Playing Field (2004), PRINTTOWN Group of Companies, pp. 4647.
97

98

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

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

Veterans Federation Party v. COMELEC, 396 Phil. 419, 452-453, October 6, 2000, per
Panganiban, J.; (citing Garcia v. COMELEC, 227 SCRA 100, 107-108, October 5, 1993).
100

The Lawphil Project - Arellano Law Foundation

EN BANC
G.R. No. 168056 --- ABAKADA Guro Party List (Formerly AASJAS) Officers Samson S.
Alcantara and Ed Vincent S. Albano, Petitioners, versus The Honorable Executive Secretary
Eduardo Ermita, et al.,Respondents.
G.R. No. 168207 --- Aquilino Q. Pimentel, Jr., et al., Petitioners, versus Executive Secretary
Eduardo R. Ermita, et al., Respondents.
G.R. No. 168461 --- Association of Pilipinas Shell Dealers, Inc., et al., Petitioners, versus Cesar
V. Purisima, et al., Respondents.
G.R. No. 168463 --- Francis Joseph G. Escudero, et al., Petitioners, versus Cesar V. Purisima, et
al.,Respondents.
G.R. No. 168730 --- Bataan Governor Enrique T. Garcia, Jr., et al., Petitioners, versus Hon.
Eduardo R. Ermita, et al., Respondents.
Promulgated:
September 1, 2005
x ---------------------------------------------------------------------------------------- x
CONCURRING AND DISSENTING OPINION
YNARES-SANTIAGO, J.:
The ponencia states that under the provisions of the Rules of the House of Representatives and the
Senate Rules, the Bicameral Conference Committee is mandated to settle differences between the
disagreeing provisions in the House bill and Senate bill. However, the ponencia construed the term
"settle" as synonymous to "reconcile" and "harmonize," and as such, the Bicameral Conference
Committee may either (a) adopt the specific provisions of either the House bill or Senate

bill, (b) decide that neither provisions in the House bill or the provisions in the Senate bill would be
carried into the final form of the bill, and/or (c) try to arrive at a compromise between the
disagreeing provisions.
I beg to differ on the third proposition.
Indeed, Section 16(3), Article VI of the 1987 Constitution explicitly allows each House to determine
the rules of its proceedings. However, the rules must not contravene constitutional provisions. The
rule-making power of Congress should take its bearings from the Constitution. If in the exercise of
this rule-making power, Congress failed to set parameters in the functions of the committee and
allowed the latter unbridled authority to perform acts which Congress itself is prohibited, like the
passage of a law without undergoing the requisite three-reading and the so-called no-amendment
rule, then the same amount to grave abuse of discretion which this Court is empowered to correct
under its expanded certiorari jurisdiction. Notwithstanding the doctrine of separation of powers,
therefore, it is the duty of the Court to declare as void a legislative enactment, either from want of
constitutional power to enact or because the constitutional forms or conditions have not
been observed.1 When the Court declares as unconstitutional a law or a specific provision thereof
because procedural requirements for its passage were not complied, the Court is by no means
asserting its ascendancy over the Legislature, but simply affirming the supremacy of the Constitution
as repository of the sovereign will.2 The judicial branch must ensure that constitutional norms for the
exercise of powers vested upon the two other branches are properly observed. This is the very
essence of judicial authority conferred upon the Court under Section 1, Article VII of the 1987
Constitution.
The Rules of the House of Representatives and the Rules of the Senate provide that in the event
there is disagreement between the provisions of the House and Senate bills, the differences shall be
settled by a bicameral conference committee.
By this, I fully subscribe to the theory advanced in the Dissenting Opinion of Chief Justice Hilario G.
Davide, Jr. inTolentino v. Secretary of Finance3 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 Senates
amendments, or (c) by way of a compromise, to agree that neither provisions in the House
bill amended by the Senate nor the latters amendments thereto be carried into the final form
of the former.
Otherwise stated, the Bicameral Conference Committee is authorized only to adopt either the
version of the House bill or the Senate bill, or adopt neither. It cannot, as the ponencia proposed, "try
to arrive at a compromise", such as introducing provisions not included in either the House or Senate
bill, as it would allow a mere ad hoc committee to substitute the will of the entire Congress and
without undergoing the requisite three-reading, which are both constitutionally proscribed. To allow
the committee unbridled discretion to overturn the collective will of the whole Congress defies logic
considering that the bills are passed presumably after study, deliberation and debate in both houses.
A lesser body like the Bicameral Conference Committee should not be allowed to substitute its
judgment for that of the entire Congress, whose will is expressed collectively through the passed
bills.
When the Bicameral Conference Committee goes beyond its limited function by substituting its own
judgment for that of either of the two houses, it violates the internal rules of Congress and
contravenes material restrictions imposed by the Constitution, particularly on the passage of law.
While concededly, the internal rules of both Houses do not explicitly limit the Bicameral Conference

Committee to a consideration only of conflicting provisions, it is understood that the provisions of the
Constitution should be read into these rules as imposing limits on what the committee can or cannot
do. As such, it cannot perform its delegated function in violation of the three-reading requirement and
the no-amendment rule.
Section 26(2) of Article VI of the 1987 Constitution provides that:
(2) No bill shall be passed by either House shall become a law unless it has passed three readings
on separate days, and printed copies thereof in its final form have been distributed to its Members
three days before its passage, except when the President certifies to the necessity of its immediate
enactment to meet a public calamity or emergency. Upon the last reading of a bill, no amendment
hereto shall be allowed, and the vote thereon shall be taken immediately thereafter, and
the yeas and nays entered in the Journal.
Thus, before a bill becomes a law, it must pass three readings. Hence, the ponencias 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 committees version would no longer undergo the same since it would be
immediately put into vote by the respective houses. In effect, it is not a bill that was passed by the
entire Congress but by the members of the ad hoc committee only, which of course is constitutionally
infirm.
I disagree that the no-amendment rule referred only to "the procedure to be followed by each house
of Congress with regard to bills initiated in each of said respective houses" because it would relegate
the no-amendment rule to a mere rule of procedure. To my mind, the no-amendment rule should be
construed as prohibiting the Bicameral Conference Committee from introducing amendments and
modifications to non-disagreeing provisions of the House and Senate bills. In sum, the committee
could only either adopt the version of the House bill or the Senate bill, or adopt neither. As Justice
Reynato S. Puno said in his Dissenting Opinion in Tolentino v. Secretary of Finance,4 there is
absolutely no legal warrant for the bold submission that a Bicameral Conference Committee
possesses the power to add/delete provisions in bills already approved on third reading by both
Houses or an ex post veto power.
In view thereof, it is my submission that the amendments introduced by the Bicameral Conference
Committee which are not found either in the House or Senate versions of the VAT reform bills, but
are inserted merely by the Bicameral Conference Committee and thereafter included in Republic Act
No. 9337, should be declared unconstitutional. The insertions and deletions made do not merely
settle conflicting provisions but materially altered the bill, thus giving rise to the instant petitions.
I, therefore, join the concurring and dissenting opinion of Mr. Justice Reynato S. Puno.
CONSUELO YNARES-SANTIAGO
Associate Justice

Footnotes
1

Cooley on Constitutional Limitations, 8th Ed., Vol. I, p. 332.

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

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

Supra, p. 811.

The Lawphil Project - Arellano Law Foundation

G.R. NO. 168056 ABAKADA GURO PARTY LIST (FORMERLY AASJAS) OFFICERS SAMSON S.
ALCANTARA AND ED VINCENT S. ALBANO, petitioners versus THE HONORABLE
EXECUTIVE SECRETARY EDUARDO ERMITA, ET AL., respondents.
G.R. NO. 168207 AQUILINO Q. PIMENTEL, JR., ET AL., petitioners versus THE
HONORABLE EXECUTIVE SECRETARY EDUARDO ERMITA, ET AL., respondents.
G.R. NO. 168461 ASSOCIATION OF PILIPINAS SHELL DEALERS, INC., ET AL., petitioners
versus CESAR V. PURISIMA, ET AL., respondents.
G.R. NO. 168463 FRANCIS JOSEPH G. ESCUDERO, ET AL., petitioners versus CESAR V.
PURISIMA, ET AL., respondents.
G.R. NO. 168730 BATAAN GOVERNOR ENRIQUE T. GARCIA, JR., ET AL., petitioners versus
HONORABLE EXECUTIVE SECRETARY EDUARDO ERMITA, ET AL., respondents.
Promulgated:
September 1, 2005
x----------------------------------------------------------------------------------------------x
CONCURRING AND DISSENTING OPINION
SANDOVAL GUTIERREZ, J.:
Adam Smith, the great 18th century political economist, enunciated the dictum that "the subjects of
every state ought to contribute to the support of government, as nearly as possible, in proportion to
their respective abilities; that is, in proportion to the revenue which they respectively enjoy under the
protection of the state."1 At no other time this dictum becomes more urgent and obligatory as in the
present time, when the Philippines is in its most precarious fiscal position.
At this juncture, may I state that I join Mr. Senior Justice Reynato S. Puno in his Opinion, specifically
on the following points:
1. It is "high time to re-examine the test of germaneness proffered in Tolentino;"

2. The Bicameral Conference Committee "cannot exercise its unbridled discretion," "it cannot create
a new law," and its deletion of the "no pass on provision" common in both Senate Bill No. 1950 and
House Bill No. 3705 is "unconstitutional."
In addition to the above points raised by Mr. Senior Justice Puno, may I expound on the issues
specified hereunder:
There is no reason to rush and stamp the imprimatur of validity to a tax law, R.A. 9337, that contains
patently unconstitutional provisions. I refer to Sections 4 to 6 which violate the principle of nondelegation of legislative power. These Sections authorize the President, upon recommendation of
the Secretary of Finance, to raise the VAT rate from
10% to 12% effective January 1, 2006, if the conditions specified therein are met, thus:
. . . That the President, upon the recommendation of the Secretary of Finance, shall, effective
January 1, 2006, raise the rate of value-added tax to twelve percent (12%) after any of the following
conditions has been satisfied:
(i) Value-added tax collection as a percentage of Gross Domestic Product (GDP) of the
previous year exceeds two and four-fifth percent (2 4/5%); or
(ii) National government deficit as a percentage of GDP of the previous year exceeds one and
one-half percent (1 %).
This proviso on the authority of the President is uniformly appended to Sections 4, 5 and 6 of R.A.
No. 9337, provisions amending Sections 106, 107 and 108 of the NIRC, respectively. Section 4
imposes a 10% VAT on sales of goods and properties, Section 5 imposes a 10% VAT on importation
of goods, and Section 6 imposes a 10% VAT on sale of services and use or lease of properties.
Petitioners in G.R. Nos. 168056,2 1682073 and 1684634 assail the constitutionality of the above
provisions on the ground that such stand-by authority granted to the President constitutes: (1) undue
delegation of legislative power; (2) violation of due process; and (3) violation of the principle of
"exclusive origination." They cited as their basis Article VI, Section 28 (2); Article III, Section 1; and
Article VI, Section 24 of the Constitution.
I
Undue Delegation of Legislative Power
Taxation is an inherent attribute of sovereignty.5 It is a power that is purely legislative and which the
central legislative body cannot delegate either to the executive or judicial department of government
without infringing upon the theory of separation of powers.6 The rationale of this doctrine may be
traced from the democratic principle of "no taxation without representation." The power of taxation
being so pervasive, it is in the best interest of the people that such power be lodged only in the
Legislature. Composed of the peoples representatives, it is "closer to the pulse of the people and
are therefore in a better position to determine both the extent of the legal burden the people are
capable of bearing and the benefits they need."7 Also, this set-up provides security against the abuse
of power. As Chief Justice Marshall said: "In imposing a tax, the legislature acts upon its
constituents. The power may be abused; but the interest, wisdom, and justice of the representative
body, and its relations with its constituents, furnish a sufficient security."

Consequently, Section 24, Article VI of our Constitution enshrined the principle of "no taxation
without representation" by providing that "all revenue bills shall originate exclusively in the
House of Representatives, but the Senate may propose or concur with amendments." This provision
generally confines the power of taxation to the Legislature.
R.A. No. 9337, in granting to the President the stand-by authority to increase the VAT rate from
10% to 12%, the Legislature abdicated its power by delegating it to the President. This is
constitutionally impermissible. The Legislature may not escape its duties and responsibilities by
delegating its power to any other body or authority. Any attempt to abdicate the power is
unconstitutional and void, on the principle that potestas delegata non delegare potest.8 As Judge
Cooley enunciated:
"One of the settled maxims in constitutional law is, that the power conferred upon the legislature to
make laws cannot be delegated by that department to any other body or authority. Where the
sovereign power of the state has located the authority, there it must remain; and by the
constitutional agency alone the laws must be made until the Constitution itself is
changed. The power to whose judgment, wisdom, and patriotism this high prerogative has been
entrusted cannot relieve itself of the responsibility by choosing other agencies upon which the power
shall be devolved, nor can it substitute the judgment, wisdom, and patriotism of any other body for
those to which alone the people have seen fit to confide this sovereign trust." 9
Of course, the rule which forbids the delegation of the power of taxation is not absolute and
inflexible. It admits of exceptions. Retired Justice Jose C. Vitug enumerated such exceptions, to
wit: (1) delegations to local governments (to be exercised by the local legislative bodies thereof) or
political subdivisions; (2) delegations allowed by the Constitution; and (3) delegations relating merely
to administrative implementation that may call for some degree of discretionary powers under a set
of sufficient standards expressed by law.10
Patently, the act of the Legislature in delegating its power to tax does not fall under any of the
exceptions.
First, it does not involve a delegation of taxing power to the local government. It is a delegation to
the President.
Second, it is not allowed by the Constitution. Section 28 (2), Article VI of the Constitution
enumerates the charges or duties, the rates of which may be fixed by the President pursuant to a
law passed by Congress, thus:
The Congress may, by law, authorize the President to fix within specified limits, and subject to
such limitations and restrictions as it may impose, tariff rates, import and export
quotas, tonnage and wharfage dues, and other duties or imposts within the framework of the
national development program of the Government.
Noteworthy is the absence of tax rates or VAT rates in the enumeration. If the intention of the
Framers of the Constitution is to permit the delegation of the power to fix tax rates or VAT rates to
the President, such could have been easily achieved by the mere inclusion of the term "tax rates" or
"VAT rates" in the enumeration. It is a dictum in statutory construction that what is expressed puts
an end to what is implied. Expressium facit cessare tacitum.11 This is a derivative of the more
familiar maxim express mention is implied exclusion orexpressio unius est exclusio
alterius. Considering that Section 28 (2), Article VI expressly speaks only of "tariff
rates,12 import13 and export

quotas,14 tonnage15 and wharfage dues16 and other duties and imposts,17" 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 delegate of the
legislature.18
In the present case, the President is the delegate of the Legislature, endowed with the power to
raise the VAT rate from 10 % to 12% if any of the following conditions, to reiterate, has been
satisfied: (i) value-added tax collection as a percentage of gross domestic product (GDP) of the
previous year exceeds two and four-fifths percent (2 4/5%) or (ii) National Government deficit as a
percentage of GDP of the previous year exceeds one and one-half percent (1 %).
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 herauthority 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 %
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 Presidents exercise of an authority is practically within her control is tantamount to giving
no conditions at all. I believe this amounts to a virtual surrender of legislative power to her. It must be
stressed that the validity of a law is not tested by what has been done but by what may be done
under its provisions.19
II
Violation of Due Process
The constitutional safeguard of due process is briefly worded in Section 1, Article III of the
Constitution which states that, "no person shall be deprived of life, liberty or property without due
process of law."20
Substantive due process requires the intrinsic validity of the law in interfering with the rights of the
person to his property. The inquiry in this regard is not whether or not the law is being enforced in
accordance with the prescribed manner but whether or not, to begin with, it is a proper exercise
of legislative power.
To be so, the law must have a valid governmental objective, i.e., the interest of the public as
distinguished from those of a particular class, requires the intervention of the State. This objective

must be pursued in a lawful manner, or in other words, the means employed must be reasonably
related to the accomplishment of the purpose and not unduly oppressive.
There is no doubt that R.A. No. 9337 was enacted pursuant to a valid governmental objective, i.e. to
raise revenues for the government. However, with respect to the means employed to accomplish
such objective, I am convinced that R.A. No. 9337, particularly Sections 4, 5 and 6 thereof, are
arbitrary and unduly oppressive.
A reading of the Senate deliberation reveals that the first condition constitutes a reward to the
President for her effective collection of VAT. Thus, the President may increase the VAT rate from
10% to 12% if her VAT collection during the previous year exceeds 2 4/5% of the Gross Domestic
Product. I quote the deliberation:
Senator Lacson. Thank you, Mr. President. Now, I will go back to my original question, my first
question. Who are we threatening to punish on the imposed condition No. 1 the public or the
President?
Senator Recto. That is not a punishment, that is supposed to be a reward system.
Senator Lacson. Yes, an incentive. So we are offering an incentive to the Chief Executive.
Senator Recto. That is right.
Senator Lacson. in order for her to be able to raise the VAT to 12 %.
Senator Recto. That is right. That is the intention, yes.
xxxxxx
Senator Osmena. All right. Therefore, with the lifting of exemptions it stands to reason that
Value-added tax collections as a percentage of GDP will be much higher than Now, if it is
higher than 2.5%, in other words, because they collected more, we will allow them to even tax
more. Is that the meaning of this particular phrase?
Senator Recto. Yes, Mr. President, that is why it is as low as 2.8%. It is like if a person has a
son and his son asks him for an allowance, I do not think that he would immediately give his
son an increase in allowance unless he tells his son, You better improve your grades and I
will give you an allowance. That is the analogy of this.
xxxxxx
Senator Osmena. So the gentleman is telling the President, If you collect more than 138
billion, I will give you additional powers to tax the people.
Senator Recto. x x x We are saying, kung mataas and grade mo, dadagdagan ko an allowance
mo. Katulad ng sinabi natin ditto. What we are saying here is you prove to me that you can
collect it, then we will increase your rate, you can raise your rate. It is an incentive.21
Why authorize the President to increase the VAT rate on the premise alone that she deserves an
"incentive" or "reward"? Indeed, why should she be rewarded for performing a duty reposed upon
her by law?

The rationale stated by Senator Recto is flawed. One of the principles of sound taxation is fiscal
adequacy. The proceeds of tax revenue should coincide with, and approximate the needs of,
government expenditures. Neither an excess nor a deficiency of revenue vis--vis the needs of
government would be in keeping with the principle.22
Equating the grant of authority to the President to increase the VAT rate with the grant of additional
allowance to a studious son is highly inappropriate. Our Senators must have forgotten that for every
increase of taxes, the burden always redounds to the people. Unlike the additional allowance given
to a studious son that comes from the pocket of the granting parent alone, the increase in the VAT
rate would be shouldered by the masses. Indeed, mandating them to pay the increased rate as an
award to the President is arbitrary and unduly oppressive. Taxation is not a power to be exercised at
ones whim.
III
Exclusive Origination from the
House of Representatives
Section 24, Article VI of the Constitution provides:
SEC. 24. All appropriations, revenue or tariff bills, bills authorizing increase of the public debt, bills of
local application, and private bills shall originate exclusively in the House of Representatives, but
the Senate may propose or concur with amendments.
In Tolentino vs. Secretary of Finance,23 this Court expounded on the foregoing provision by holding
that:
"x x x To begin with, it is not the law but the revenue bill which is required by the Constitution to
originate exclusively in the House of Representatives. It is important to emphasize this, because a
bill originating the in the House may undergo such extensive changes in the Senate that the result
may be a rewriting of the whole x x x. At this point, what is important to note is that, as a result of the
Senate action, a distinct bill may be produced. To insist that a revenue statute -- and not only the bill
which initiated the legislative process culminating in the enactment of the law must substantially be
the same as the House Bill would be to deny the Senates power not only to concur with
amendments: but also to propose amendments. It would be to violate the co-equality of the
legislative power of the two houses of Congress and in fact, make the House superior to the
Senate."
The case at bar gives us an opportunity to take a second hard look at the efficacy of the foregoing
jurisprudence.
Section 25, Article VI is a verbatim re-enactment of Section 18, Article VI of the 1935 Constitution.
The latter provision was modeled from Section 7 (1), Article I of the United States Constitution, which
states:
"All bills for raising revenue shall originate in the House of Representatives, but the Senate
may propose or concur with amendments, as on other bills."

The American people, in entrusting what James Madison termed "the power of the purse" to their
elected representatives, drew inspiration from the British practice and experience with the House of
Commons. As one commentator puts it:
"They knew the inestimable value of the House of Commons, as a component branch of the British
parliament; and they believed that it had at all times furnished the best security against the
oppression of the crown and the aristocracy. While the power of taxation, of revenue, and of
supplies remained in the hands of a popular branch, it was difficult for usurpation to exist for
any length of time without check, and prerogative must yield of that necessity which
controlled at once the sword and the purse."
But while the fundamental principle underlying the vesting of the power to propose revenue bills
solely in the House of Representatives is present in both the Philippines and US Constitutions,
stress must be laid on the differences between the two quoted provisions. For one, the word
"exclusively" appearing in Section 24, Article VI of our Constitution is nowhere to be found in
Section 7 (1), Article I of the US Constitution. For another, the phrase "as on other bills," present in
the same provision of the US Constitution, is not written in our Constitution.
The adverb "exclusively" means "in an exclusive manner." 24 The term "exclusive" is defined as
"excluding or having power to exclude; limiting to or limited to; single, sole, undivided, whole." 25 In
one case, this Court define the term "exclusive" as "possessed to the exclusion of others;
appertaining to the subject alone, not including, admitting, or pertaining to another or others." 26
As for the term "originate," its meaning are "to cause the beginning of; to give rise to; to initiate;
to start on a course or journey; to take or have origin; to be deprived; arise; begin or start."27
With the foregoing definitions in mind, it can be reasonably concluded that when Section 24, Article
VI provides that revenue bills shall originate exclusively from the House of Representatives, what
the Constitution mandates is that any revenue statute must begin or start solely and only in the
House. Not the Senate. Not both Chambers of Congress. But there is more to it than that. It also
means that "an act for taxation must pass the House first." It is no consequence what
amendments the Senate adds.28
A perusal of the legislative history of R.A. No. 9337 shows that it did not "exclusively originate"
from the House of Representatives.
The House of Representatives approved House Bill Nos. 355529 and 370530. These Bills intended to
amend Sections 106, 107, 108, 109, 110, 111 and 114 of the NIRC. For its part, the Senate
approved Senate Bill No.1950,31 taking into consideration House Bill Nos. 3555 and 3705. It
intended to amend Sections 27, 28, 34, 106, 108, 109, 110, 112, 113, 114, 116, 117, 119, 121, 125,
148, 151, 236, 237 and 288 of the NIRC.
Thereafter, on April 13, 2005, a Committee Conference was created to thresh out the disagreeing
provisions of the three proposed bills.
In less than a month, the Conference Committee "after having met and discussed in full free and
conference," came up with a report and recommended the approval of the consolidated version of
the bills. The Senate and the House of Representatives approved it.
On May 23, 2005, the enrolled copy of the consolidated version of the bills was transmitted to
President Arroyo, who signed it into law. Thus, the enactment of R.A. No. 9337, entitled "An Act

Amending Sections 27, 28, 34, 106, 107, 108, 109, 110, 111, 112, 113, 114, 116, 117, 119, 121, 148,
151, 236, 237 and 288 of the National Internal Revenue Code of 1997, As Amended and For Other
Purposes."
Clearly, Senate Bill No. 1950 is not based on any bill passed by the House of Representatives. It has
a legislative identity and existence separate and apart from House Bills No. 3555 and 3705. Instead
of concurring or proposing amendments, Senate Bill No. 1950 merely "takes into consideration"
the two House Bills. To take into consideration means "to take into account." Consideration, in this
sense, means "deliberation, attention, observation or contemplation.32 Simply put, the Senate in
passing Senate Bill No. 1950, a tax measure, merely took into account House Bills No. 3555 and
3705, but did not concur with or amend either or both bills. As a matter of fact, it did not even take
these two House Bills as a frame of reference.
In Tolentino, the majority subscribed to the view that Senate may amend the House revenue bill by
substitution or by presenting its own version of the bill. In either case, the result is "two bills on the
same subject."33 This is the source of the "germaneness" rule which states that the Senate bill must
be germane to the bill originally passed by the House of Representatives. In Tolentino, this was not
really an issue as both the House and Senate Bills in question had one subject the VAT.
The facts obtaining here is very much different from Tolentino. It is very apparent that House Bills
No. 3555 and 3705 merely intended to amend Sections 106, 107, 108, 109, 110, 111 and 114 of the
NIRC of 1997, pertaining to the VAT provisions. On the other hand, Senate Bill No. 1950 intended to
amend Sections 27, 28, 34, 106, 108, 109, 110, 112, 113, 114, 116, 117, 119, 121, 125, 148, 151,
236, 237 and 288 of the NIRC, pertaining to matters outside of VAT, such as income tax, percentage
tax, franchise tax, taxes on banks and other financial intermediaries, excise taxes, etc.
Thus, I am of the position that the Senate could not, without violating the germaneness rule and the
principle of "exclusive origination," propose tax matters not included in the House Bills.
WHEREFORE, I vote to CONCUR with the majority opinion except with respect to the points abovementioned.
ANGELINA SANDOVAL-GUTIERREZ
Associate Justice

Footnotes
1

Book V of The Wealth of Nations.

ABAKADA GURO Party List (Formerly AASJAS), Officers Samson S. Alcantara and Ed
Vincent S. Albano.
2

Aquilino Q. Pimentel, Jr., Luisa P. Ejercito-Estrada, Jinggoy E. Estrada, Panfilo M. Lacson,

Alfredo S. Lim, Jamby A.S. Madrigal and Sergio R. Osmena III.
3

Francis Joseph G. Escudero, Vincent Crisologo, Emmanuel Joel J. Villanueva, Rodolfo G.

Plaza, Darlene Antonino-Custodio, Oscar G. Malapitan, Benjamin C. Agarao, Jr., Juan
4

Edgardo M. Angara, Justin Marc SB. Chipeco, Florencio G. Noel, Mujiv S. Hataman, Renato
B. Magtubo, Joseph A. Santiago, Teofisto DL. Guingona III, Ruy Elias C. Lopez, Rodolfo Q.
Agbayani and Teodoro A. Casino.
Luzon Stevedoring Co. vs. Court of Tax Appeals, L-302332, July 29, 1998, 163 SCRA 647
cited in Vitug, Acosta, Tax Law and Jurisprudence, Second Edition, at 7.
5

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.
6

Bernas, SJ, The 1987 Constitution of the Republic of the Philippines, A Commentary, 1996
Edition, at 687.
7

People vs. Vera, 65 Phil. 56 (1937).

Cooley on Constitutional Limitations, 8th ed., Vol. I, p. 224.

10

Vitug, Acosta, Tax Law and Jurisprudence, Second Edition, at 8-9.

Espiritu vs. Cipriano, G.R. No. 32743, February 15, 1974, 55 SCRA 533, 538,
citing Sutherlands Statutory Construction, Vol. 2, Section 4945, p. 412.
11

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. (Blacks Law Dictionary [6th Edition], 1990, at 1456).
12

An import quota is a quantitative restriction on the importation of an article into a country,

and is a remedy available to the executive department upon its determination that an
imported article threatens serious injury to a domestic industry. (Id. at 755).
13

An export quota is an amount of specific goods which may be exported and are set by the
government for purposes of national defense, economic stability and price support. (Id. at
579).
14

Tonnage dues are duties laid upon vessels according to their tonnage or cubical capacity.
(Id. at 1488).
15

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).
16

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).
17

18

People vs. Vera, supra.

19

Walter E. Olsen & Co. vs. Aldanese and Trinidad (1922), 43 Phil., 259; 12 C. J., p. 786.

20

Cruz, Constitutional Law, 1987 Edition, at 101.

21

TSN, May 10, 2005, Annex E" of the Petition in G.R. No. 168056.

22

Vitug, Acosta, Tax Law and Jurisprudence, Second Edition, at 3.

23

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

24

Merriam-Websters Third New International Dictionary (1993 Ed.), at 793.

25

Id.

City Mayor vs. The Chief of Philippine Constabulary, G.R. No. 20346, October 31, 1967, 21
SCRA 665, 673.
26

27

Merriam-Websters Third New International Dictionary (1993 Ed.), at 1592.

28

Davies, Legislative Law and Process, (2d. Ed. 1986), at 89.

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.
29

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.
30

Entitled "An Act Amending Sections 27, 28, 34, 106,108, 109,110, 112, 113, 114, 116, 117,
119, 121, 125, 148, 151, 236, 237 and 288 of the National Internal Revenue Code of 1997,
As Amended, and For Other Purposes." Approved on April1 3, 2005.
31

32

Merriam-Websters Third New International Dictionary (1993 Ed.), at 484.

33

Supra.

The Lawphil Project - Arellano Law Foundation

G.R. No. 168056 (Abakada Guro Party List [Formerly AASJAS] Officers Samson S. Alcantara
and Ed Vincent S. Albano v. The Hon. Executive Secretary Eduardo Ermita, et al.)
G.R. No. 168207 (Aquilino Q. Pimentel, Jr., et al. v. Executive Secretary Eduardo R. Ermita,
et al.)
G.R. No. 168461 (Association of Filipinas Shell Dealers, Inc., et al. v. Cesar V. Purisima, et
al.)

G.R. No. 168463 (Francis Joseph G. Escudero, et al. v. Cesar V. Purisima, et al.)
G.R. No. 168730 (Bataan Governor Enrique T. Garcia, Jr. v. Hon. Eduardo R. Ermita, et al.)
Promulgated:
September 1, 2005
X--------------------------------------------------X
CONCURRING AND DISSENTING OPINION
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, theponencia relies mainly on the Courts rulings in Tolentino v. Secretary of Finance.1 To
recall, Tolentino involved Republic Act No. 7716, which similarly amended the NIRC by widening the
tax base of the VAT system. The procedural attacks against R.A. No. 9337 are substantially the
same as those leveled against R.A. No. 7716, e.g., violation of the "Origination Clause" (Article VI,
Section 24) and the "Three-Reading Rule" and the "No-Amendment Rule" (Article VI, Section 26[2])
of the Constitution.
The present petitions provide an opportune occasion for the Court to re-examine its rulings
in Tolentinoparticularly with respect to the scope of the powers of the Bicameral Conference
Committee vis--vis Article VI, Section 26(2) of the Constitution.
The crucial issue posed by the present petitions is whether the Bicameral Conference Committee
may validly introduce amendments that were not contained in the respective bills of the Senate and
the House of Representatives. As a corollary, whether it may validly delete provisions uniformly
contained in the respective bills of the Senate and the House of Representatives.
In Tolentino, the Court declared as valid amendments introduced by the Bicameral Conference
Committee even if these were not contained in the Senate and House bills. The majority opinion
therein held:
As to the possibility of an entirely new bill emerging out of a Conference Committee, it has been
explained:
Under congressional rules of procedures, conference committees are not expected to make any
material change in the measure at issue, either by deleting provisions to which both houses have

already agreed or by inserting new provisions. But this is a difficult provision to enforce. Note the
problem when one house amends a proposal originating in either house by striking out everything
following the enacting clause and substituting provisions which make it an entirely new bill. The
versions are now altogether different, permitting a conference committee to draft essentially a new
bill
The result is a third version, which is considered an "amendment in the nature of a substitute," the
only requirement for which being that the third version be germane to the subject of the House and
Senate bills.
Indeed, this Court recently held that it is within the power of a conference committee to include in its
report an entirely new provision that is not found either in the House bill or in the Senate Bill. If the
committee can propose an amendment consisting of one or two provisions, collectively considered
as an "amendment in the nature of a substitute," so long as such an amendment is germane to the
subject of the bills before the committee. After all, its report was not final but needed the approval of
both houses of Congress to become valid as an act of the legislative department. The charge that in
this case the Conference Committee acted a third legislative chamber is thus without any basis. 2
The majority opinion in Tolentino relied mainly on the practice of the United States legislature in
making the foregoing disquisition. It was held, in effect, that following the US Congress practice
where a conference committee is permitted to draft a bill that is entirely different from the bills of
either the House of Representatives or Senate, the Bicameral Conference Committee is similarly
empowered to make amendments not found in either the House or Senate bills.
The ponencia upholds the acts of the Bicameral Conference Committee with respect to R.A. No.
9337, following the said ruling in Tolentino.
To my mind, this unqualified adherence by the majority opinion in Tolentino, and now by
the ponencia, to the practice of the US Congress and its conference committee system ought to be
re-examined. There are significant textual differences between the US Federal Constitutions and our
Constitutions prescribed congressional procedure for enacting laws. Accordingly, the degree of
freedom accorded by the US Federal Constitution to the US Congress markedly differ from that
accorded by our Constitution to the Philippine Congress.
Section 7, Article I of the US Federal Constitution reads:
[1] All Bills for raising Revenue shall originate in the House of Representatives; but the Senate may
propose or concur with Amendments as on other Bills.
[2] Every Bill which shall have passed the House of Representatives and the Senate, shall, before it
become a Law, be presented to the President of the United States; If he approve he shall it, but if not
he shall return it, with his Objections to the House in which it shall have originated, who shall enter
the Objections at large on their Journal, and proceed to reconsider it. If after such Reconsideration
two thirds of that House shall agree to pass the Bill, it shall be sent together with the Objections, to
the other House, by which it shall, likewise, be reconsidered, and if approved by two thirds of that
House, it shall become a Law. But in all such Cases the Votes of both Houses shall be determined
by yeas and Nays, and the Names of the Persons voting for and against the Bill shall be entered on
the Journal of each House respectively. If any Bill shall not be returned by the President within ten
Days (Sundays excepted) after it shall have been presented to him, the Same shall be a Law, in like
Manner as if he had signed it, unless the Congress by their Adjournment prevent its return in which
Case it shall not be a Law.

[3] Every Order, Resolution, or Vote to Which the Concurrence of the Senate and House of
Representatives may be necessary (except on a question of Adjournment) shall be presented to the
President of the United States; and before the Same shall take Effect, shall be approved by him, or
being disapproved by him, shall be repassed by two thirds of the Senate and House of
Representatives, according to the Rules and Limitations prescribed in the Case of a Bill.
On the other hand, Article VI of our Constitution prescribes for the following procedure for enacting a
law:
Sec. 26. (1) Every bill passed by Congress shall embrace only one subject which shall be expressed
in the title thereof.
(2) No bill passed by either House shall become a law unless it has passed three readings on
separate days, and printed copies thereof in its final form have been distributed to its Members three
days before its passage, except when the President certifies to the necessity of its immediate
enactment to meet a public calamity or emergency. Upon the last reading of a bill, no amendment
thereto shall be allowed, and the vote thereon shall be taken immediately thereafter, and
the yeas and nays entered in the Journal.
Sec. 27. (1) Every bill passed by Congress shall, before it becomes a law, be presented to the
President. If he approves the same, he shall sign it; otherwise, he shall veto it and return the same
with his objections to the House where it originated, which shall enter the objections at large in its
Journal and proceed to reconsider it. If, after such reconsideration, two-thirds of all the Members of
such House shall agree to pass the bill, it shall be sent, together with the objections, to the other
House by which it shall likewise be reconsidered, and if approved by two-thirds of all the Members of
that House, it shall become a law. In all such cases, the votes of each House shall be determined
by yeas and nays, and the names of the Members voting for or against shall be entered in its
Journal. The President shall communicate his veto of any bill to the House where it originated within
thirty days after the date of receipt thereof; otherwise, it shall become a law as if he had signed it.
(2) The President shall have the power to veto any particular item or items in an appropriation,
revenue, or tariff bill, but the veto shall not affect the item or items to which he does not object.
Two distinctions are readily apparent between the two procedures:
1. Unlike the US Federal Constitution, our Constitution prescribes the "three-reading" rule or that no
bill shall become a law unless it shall have been read on three separate days in each house except
when its urgency is certified by the President; and
2. Unlike the US Federal Constitution, our Constitution prescribes the "no-amendment" rule or that
no amendments shall be allowed upon the last reading of the bill.
American constitutional experts have lamented that certain congressional procedures have not been
entrenched in the US Federal Constitution. According to a noted constitutional law professor, the
absence of the "three-reading" requirement as well as similar legislative-procedure rules from the US
Federal Constitution is a "cause for regret."3
In this connection, it is interesting to note that the conference committee system in the US Congress
has been described in this wise:
Conference Committees

Another main mechanism of joint House and Senate action is the conference committee. Inherited
from the English Constitution, the conference committee system is an evolutionary product whose
principal threads were woven on the loom of congressional practice into a unified pattern by the
middle of the nineteenth century. "By 1852," writes Ada McCown, historian of the origin and
development of the conference committee, "the customs of presenting identical reports from the
committees of conference in both houses, of granting high privilege to these conference reports, of
voting upon the conference report as a whole and permitting no amendment of it, of keeping secret
the discussions carried on in the meetings of the conference committee, had become established in
American parliamentary practice."
Conference committees are composed of Senators and Representatives, usually three each,
appointed by the presiding officers of both houses, for the purpose of adjusting differences between
bills they have passed. This device has been extensively used by every Congress since 1789. Of the
1157 laws enacted by the 78th Congress, for example, 107 went through conference and, of these,
36 were appropriation bills on which the House had disagreed to Senate amendments. In practice,
most important legislation goes through the conference closet and is there revised, sometimes
beyond recognition, by the all-powerful conferees or managers, as they are styled. A large body of
law and practice has been built up over the years governing conference procedure and reports.
Suffice it to say here that serious evils have marked the development of the conference committee
system. In the first place, it is highly prodigal of members time. McConachie calculated that the
average time consumed in conference was 33 days per bill. Bills are sent to conference without
reading the amendments of the other chamber. Despite rules to the contrary, conferees do not
confine themselves to matters in dispute, but often initiate entirely new legislation and even strike out
identical provisions previously approved by both houses. This happened during the 78th Congress,
for instance, when an important amendment to the surplus property bill, which had been approved
by both houses, was deleted in conference.
Conference committees, moreover, suffer like other committees from the seniority rule. The senior
members of the committees concerned, who are customarily appointed as managers on the part of
the House and Senate, are not always the best informed on the questions at issue, nor do they
always reflect the majority sentiment of their houses. Furthermore, conference reports must be
accepted or rejected in toto without amendment and they are often so complex and obscure that
they are voted upon without knowledge of their contents. What happens in practice is that Congress
surrenders its legislative function to irresponsible committees of conference. The standing rules
against including new and extraneous matter in conference reports have been gradually whittled
away in recent years by the decisions of presiding officers. Senate riders attached to appropriation
bills enable conference committees to legislate and the House usually accepts them rather than
withhold supply, thus putting it, as Senator Hoar once declared, under a degrading duress.
It is also alleged that under this secret system lobbyist are able to kill legislation they dislike and that
"jokers" designed to defeat the will of Congress can be inserted without detection. Senator George
W. Norris once characterized the conference committee as a third house of Congress. "The
members of this house, he said, "are not elected by the people. The people have no voice as to
who these members shall be ... This conference committee is many times, in very important matters
of legislation, the most important branch of our legislature.There is no record kept of the workings of
the conference committee. Its work is performed, in the main, in secret.No constituent has any
definite knowledge as to how members of this conference committee vote, and there is no record to
prove the attitude of any member of the conference committee ... As a practical proposition we have
legislation, then, not by the voice of the members of the Senate, not by the members of the House of
Representatives, but we have legislation by the voice of five or six men. And for practical purposes,
in most cases, it is impossible to defeat the legislation proposed by this conference committee.

Every experienced legislator knows that it is the hardest thing in the world to defeat a conference
report."
Despite these admitted evils, impartial students of the conference committee system defend it on net
balance as an essential part of the legislative process. Some mechanism for reconciling differences
under bicameral system is obviously indispensable. The remedy for the defects of the device is not
to abolish it, but to keep it under congressional control. This can be done by enforcing the rules
which prohibit the inclusion in conference reports of matter not committed to them by either house
and forbid the deletion of items approved by both bodies; by permitting conference managers to
report necessary new matter separately and the houses to consider it apart from the conference
report; by fixing a deadline toward the close of a session after which no bills could be sent to
conference, so as to eliminate congestion at the end of the session a suggestion made by the
elder Senator La Follete in 1919; by holding conferences in sessions open to the public, letting
conference reports lie over longer, and printing them in bill form (with conference changes in italics)
so as to allow members more time to examine them and discover "jokers."4
The "three-reading" and "no-amendment" rules, absent in the US Federal Constitution, but expressly
mandated by Article VI, Section 26(2) of our Constitution are mechanisms instituted to remedy the
"evils" inherent in a bicameral system of legislature, including the conference committee system.
Sadly, the ponencias refusal to apply Article VI, Section 26(2) of the Constitution on the Bicameral
Conference Committee and the amendments it introduced to R.A. No. 9337 has "effectively
dismantled" the "three-reading rule" and "no-amendment rule." As posited by Fr. Joaquin Bernas, a
member of the Constitutional Commission:
In a bicameral system, bills are independently processed by both House of Congress. It is not
unusual that the final version approved by one House differs from what has been approved by the
other. The "conference committee," consisting of members nominated from both Houses, is an extraconstitutional creation of Congress whose function is to propose to Congress ways of reconciling
conflicting provisions found in the Senate version and in the House version of a bill. It performs a
necessary function in a bicameral system. However, since conference committees have merely
delegated authority from Congress, they should not perform functions that Congress itself may not
do. Moreover, their proposals need confirmation by both Houses of Congress.
In Tolentino v. Secretary of Finance, the Court had the opportunity to delve into the limits of what
conference committees may do. The petitioners contended that the consolidation of the House and
Senate bills made by the conference committee contained provisions which neither the Senate bill
nor the House bill had. In her dissenting opinion, Justice Romero laid out in great detail the
provisions that had been inserted by the conference committee. These provisions, according to the
petitioners had been introduced "surreptitiously" during a closed door meeting of the committee.
The Courts answer to this was that in United States practice conference committees could be held
in executive sessions and amendments germane to the purpose of the bill could be introduced even
if these were not in either original bill. But the Court did not bother to check whether perhaps the
American practice was based on a constitutional text different from that of the Philippine
Constitution.
There are as a matter of fact significant differences in the degree of freedom American and
Philippine legislators have. The only rule that binds the Federal Congress is that it may formulate its
own rules of procedure. For this reason, the Federal Congress is master of its own procedures. It is
different with the Philippine Congress. Our Congress indeed is also authorized to formulate its own
rules of procedure but within limits not found in American law. For instance, there is the "three

readings on separate days" rule. Another important rule is that no amendments may be introduced
by either house during third reading. These limitations were introduced by the 1935 and 1973
Constitutions and confirmed by the 1987 Constitution as a defense against the inventiveness of the
stealthy and surreptitious. These, however, were disregarded by the Court in Tolentino in favor of
contrary American practice.
This is not to say that conference committees should not be allowed. But an effort should be made to
lay out the scope of what conference committees may do according to the requirements and the
reasons of the Philippine Constitution and not according to the practice of the American Congress.
For instance, if the two Houses are not allowed to introduce and debate amendments on third
reading, can they circumvent this rule by coursing new provisions through the instrumentality of a
conference committee created by Congress and meeting in secret? The effect of the Courts
uncritical embrace of the practice of the American Congress and its conference committees is to
dismantle the no-amendment rule.5
The task at hand for the Court, but which the ponencia eschews, is to circumscribe the powers of the
Bicameral Conference Committee in light of the "three-reading" and "no-amendment" rules in Article
VI, Section 26(2) of the Constitution.
The Bicameral Conference Committee, in
deleting the "no pass on provision" contained in
Senate Bill No. 1950 and House Bill No. 3705,
violated Article VI , Section 26(2) of the Constitution
Pertinently, in his dissenting opinion in Tolentino, Justice Davide (now Chief Justice) opined that the
duty of the Bicameral Conference Committee was limited to the reconciliation of disagreeing
provisions or the resolution of differences or inconsistencies. This proposition still applies as can be
gleaned from the following text of Sections 88 and 89, Rule XIV of the Rules of the House of
Representatives:
Sec. 88. Conference Committee. In the event that the House does not agree with the Senate on
the amendments to any bill or joint resolution, the differences may 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 latters appropriate action.
Sec. 89. Conference Committee Reports. - Each report shall contain a detailed, sufficiently explicit
statement of the changes in or amendments to the subject measure.

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

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.
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 Senates amendments, or (c) by way of
compromise, to agree that neither provisions in the House Bill amended by the Senate nor the
latters 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 Jeffersons Manual, a
conference committee may introduce germane matters in a particular bill. However, such matters
should be circumscribed by the committees sole authority and function to reconcile differences.
In the case of R.A. No. 9337, the Bicameral Conference Committee made an "amendment by
deletion" with respect to the "no pass on provision" contained in both House Bill (HB) No. 3705 and
Senate Bill (SB) No. 1950. HB 3705 proposed to amend Sections 106 and 108 of the NIRC by
expressly stating therein that sellers of petroleum products and power generation companies selling
electricity are prohibited from passing on the VAT to the consumers. SB 1950 proposed to amend
Section 108 by likewise prohibiting power generation companies from passing on the VAT to the
consumers. However, these "no pass on provisions" were altogether deleted by the Bicameral
Conference Committee. At the least, since there was no disagreement between HB 3705 and SB
1950 with respect to the "no pass on provision" on the sale of electricity, the Bicameral Conference
Committee acted beyond the scope of its authority in deleting the pertinent proviso.
At this point, it is well to recall the rationale for the "no-amendment rule" and the "three-reading rule"
in Article VI, Section 26(2) of the Constitution. The proscription on amendments upon the last
reading is intended to subject all bills and their amendments to intensive deliberation by the
legislators and the ample ventilation of issues to afford the public an opportunity to express their
opinions or objections thereon.6 Analogously, it is said that the "three-reading rule" operates "as a
self-binding mechanism that allows the legislature to guard against the consequences of its own
future passions, myopia, or herd behavior. By requiring that bills be read and debated on successive
days, legislature may anticipate and forestall future occasions on which it will be seized by
deliberative pathologies."7 As Jeremy Bentham, a noted political analyst, put it: "[t]he more
susceptible a people are of excitement and being led astray, so much the more ought they to place
themselves under the protection of forms which impose the necessity of reflection, and prevent
surprises."8
Reports of the Bicameral Conference Committee, especially in cases where substantial
amendments, or in this case deletions, have been made to the respective bills of either house of
Congress, ought to undergo the "three-reading" requirement in order to give effect to the letter and
spirit of Article VI, Section 26(2) of the Constitution.
The Bicameral Conference Committee Report that eventually became R.A. No. 9337, in fact,
bolsters the argument for the strict compliance by Congress of the legislative procedure prescribed
by the Constitution. As can be gleaned from the said Report, of the 9 Senators-Conferees, 9 only 5

Senators10 unqualifiedly approved it. Senator Joker P. Arroyo expressed his qualified dissent while
Senators Sergio R. Osmea III and Juan Ponce Enrile approved it with reservations. On the other
hand, of the twenty-eight (28) Members of the House of Representatives-Conferees, 11 fourteen
(14)12 approved the same with reservations while three13 voted no. All the reservations expressed by
the conferees relate to the deletion of the "no pass on provision." Only eleven (11) unqualifiedly
approved it. In other words, even among themselves, the conferees were not unanimous on their
Report. Nonetheless, Congress approved it without even thoroughly discussing the reservations or
qualifications expressed by the conferees therein.
This "take it or leave it" stance vis--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 committees limited powers but never to violations of the Constitution.
Congress is not above the Constitution."14
Enrolled Bill Doctrine is not applicable where, as in
this case, there is grave violation of the Constitution
As expected, the ponencia invokes the enrolled bill doctrine to buttress its refusal to pass upon the
validity of the assailed acts of the Bicameral Conference Committee. Under the "enrolled bill
doctrine," the signing of a bill by the Speaker of the House and the Senate President and the
certification of the Secretaries of both houses of Congress that it was passed are conclusive of its
due enactment. In addition to Tolentino, the ponencia citesFarias v. Executive Secretary15 where the
Court declined to go behind the enrolled bill vis--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 Farias is quite misplaced. The Courts 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 Osmea v. Pendatun, it was held: "At any rate, courts have declared
that the rules adopted by deliberative bodies are subject to revocation, modification or waiver at the
pleasure of the body adopting them. And it has been said that Parliamentary rules are merely
procedural, and with their observance, the courts have no concern. They may be waived or
disregarded by the legislative body. Consequently, mere failure to conform to parliamentary usage
will not invalidate the action (taken by a deliberative body) when the requisite number of members
have agreed to a particular measure.16
Thus, in Farias, the Courts refusal to go behind the enrolled bill was based on the fact that the
alleged irregularities that attended the passage of R.A. No. 9006 merely involved the internal rules of
both houses of Congress. The procedural irregularities allegedly committed by the conference
committee therein did not amount to a violation of a provision of the Constitution. 17
In contrast, the act of the Bicameral Conference Committee of deleting the "no pass on provision" of
SB 1950 and HB 3705 infringe Article VI, Section 26(2) of the Constitution. The violation of this
constitutional provision warrants the exercise by the Court of its constitutionally-ordained power to
strike down any act of a branch or instrumentality of government or any of its officials done with
grave abuse of discretion amounting to lack or excess of jurisdiction. 18
ACCORDINGLY, I join the concurring and dissenting opinion of Mr. Justice Reynato S. Puno and
vote to dismiss the petitions with respect to Sections 4, 5 and 6 of Republic Act No. 9337 for being
premature. Further, I vote to declare as unconstitutional Section 21 thereof and the deletion of the
"no pass on provision" contained in the constituent bills of Republic Act No. 9337.
ROMEO J. CALLEJO, SR.
Associate Justice

Footnotes
1

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

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

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

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

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

Dissenting Opinion of Justice Romero in Tolentino, supra.

Vermuele, supra.

Id. citing Bentham, J., Political Tactics.

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.
9

10

Senators Recto, Villar, Gordon, Biazon.

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.
11

Representatives Suarez, Fuentebella, Cua, Locsin, Jr., Teves, Gullas, Javier, Cua,
Defensor, Crisologo, Cayetano, Santiago, Malapitan and Marcos.
12

13

Representatives Del Mar, Suplico and Paras.

14

Dissenting Opinion in Tolentino, supra.

15

G.R. No. 147387, 10 December 2003, 417 SCRA 503.

16

Id., pp. 529-530. (Emphases mine.)

By way of explanation, the constitutional issues raised in Farias 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 Farias 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.
17

18

Article VIII, Section 1, CONSTITUTION.

The Lawphil Project - Arellano Law Foundation

EN BANC
G.R. No. 168056 (ABAKADA Guro Party List [formerly ASSJS] Officers Samson S. Alcantara,
et al. v. Hon. Executive Secretary Eduardo Ermita, et al.);
G.R. No. 168207 (Aquilino Q. Pimentel, Jr., et al. v. Executive Secretary Eduardo R. Ermita, et
al.);

G.R. No. 168461 (Association of Pilipinas Shell Dealers, Inc., etc., et al. v. Cesar V. Purisima,
etc., et al.);
G.R. No. 168463 (Francis Joseph G. Escudero, et al. v. Cesar V. Purisima, etc., et al.); and
G.R. No. 168730 (Bataan Governor Enrique T. Garcia, Jr. v. Hon. Eduardo R. Ermita, etc., et al.)
Promulgated:
September 1, 2005
X----------------------------------------------------------------------------------------X
CONCURRING AND DISSENTING OPINION
AZCUNA, J.:
Republic Act No. 9337, the E-VAT law, is assailed as an unconstitutional abdication of Congress of
its power to tax through its delegation to the President of the decision to increase the rate of the tax
from 10% to 12%, effective January 1, 2006, after any of two conditions has been satisfied. 1
The two conditions are:
(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 onehalf percent (1 %).2
A scrutiny of these "conditions" shows that one of them is certain to happen on January 1, 2006.
The first condition is that the collection from the E-VAT exceeds 2 4/5% of the Gross Domestic
Product (GDP) of the previous year, a ratio that is known as the tax effort.
The second condition is that the national government deficit exceeds 1 % 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) orcondition (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 % 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 % or less, will trigger the happening of condition (i) under the law. Thus, the happening of
condition (i) or condition (ii) is in reality certain and unavoidable, as of January 1, 2006.
This becomes all the more clear when we consider the figures provided during the oral arguments.
The Gross Domestic Product for 2005 is estimated at P5.3 Trillion pesos.

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

The national budgetary deficit against the GDP is now at 3%.
So to reduce the deficit to 1.5% from 3%, one has to increase the tax effort from VAT, now at 1.5%,
to at least 3%, thereby exceeding the 2 4/5 percent ceiling in condition (i), making condition (i)
happen.
If, on the other hand, this is not done, then condition (ii) happens the budget deficit remains over
1.5%.
What is the result of this? The result is that in reality, the law does not impose any condition, or the
rate increase thereunder, from 10% to 12%, effective January 1, 2006, is unconditional. For a
condition is an event that may or may not happen, or one whose occurrence is uncertain. 3 Now while
condition (i) is indeed uncertain and condition (ii) is likewise uncertain, the combination of both
makes the occurrence of one of them certain.
Accordingly, there is here no abdication by Congress of its power to fix the rate of the tax since the
rate increase provided under the law, from 10% to 12%, is definite and certain to occur, effective
January 1, 2006. All that the President will do is state which of the two conditions occurred and
thereupon implement the rate increase.
At first glance, therefore, it would appear that the decision to increase the rate is to be made by the
President, or that the increase is still uncertain, as it is subject to the happening of any of two
conditions.
Nevertheless, the contrary is true and thus it would be best in these difficult and critical times to let
our people know precisely what burdens they are being asked to bear as the necessary means to
recover from a crisis that calls for a heroic sacrifice by all.
It is for this reason that the Court required respondents to submit a copy of the rules to implement
the E-VAT, particularly as to the impact of the tax on prices of affected commodities, specially oil and
electricity. For the onset of the law last July 1, 2005 was confusing, resulting in across-the-board
increases of 10% in the prices of commodities. This is not supposed to be the effect of the law, as
was made clear during the oral arguments, because the law also contains provisions that mitigate
the impact of the E-VAT through reduction of other kinds of taxes and duties, and other similar
measures, specially as to goods that go into the supply chain of the affected products. A proper
implementation of the E-VAT, therefore, should cause only the appropriate incremental increase in
prices, reflecting the net incremental effect of the tax, which is not necessarily 10%, but possibly
less, depending on the products involved.
The introduction of the mitigating or cushioning measures through the Senate or through the
Bicameral Conference Committee, is also being questioned by petitioners as unconstitutional for
violating the rule against amendments after third reading and the rule that tax measures must
originate exclusively in the House of Representatives (Art. VI, Secs. 24 and 26 [2], Constitution). For
my part, I would rather give the necessary leeway to Congress, as long as the changes are germane
to the bill being changed, the bill which
originated from the House of Representatives, and these are so, since these were precisely the
mitigating measures that go hand-on-hand with the E-VAT, and are, therefore, essential -- and
hopefully sufficient -- means to enable our people to bear the sacrifices they are being asked to

make. Such an approach is in accordance with the Enrolled Bill Doctrine that is the prevailing rule in
this jurisdiction. (Tolentino v. Secretary of Finance, 249 SCRA 628 [1994]). The exceptions I find are
the provisions on corporate income taxes, which are not germane to the E-VAT law, and are not
found in the Senate and House bills.
I thus agree with Chief Justice Hilario G. Davide, Jr. in his separate opinion that the following are not
germane to the E-VAT legislation:
Amended TAX
CODE Provision Subject Matter
Section 27 Rate of income tax on domestic corporations
Section 28(A)(1) Rate of income tax on resident foreign corporations
Section 28(B)(1) Rate of income tax on non-resident foreign corporations
Section 28(B)(5-b) Rate of income tax on intercorporate dividends received by non-resident foreign
corporations
Section 34(B)(1) Deduction from gross income
Similarly, I agree with Justice Artemio V. Panganiban in his separate opinion that the following are
not germane to the E-VAT law:
"Sections 1, 2, and 3 of the Republic Act No. 9337, in so far as these sections (a) amend the rates
of income tax on domestic, resident foreign, and nonresident foreign corporations; (b) amend the tax
credit against taxes due from nonresident foreign corporations on the intercorporate dividends; and
(c) reduce the allowable deduction from interest expense."
Respondents should, in any case, now be able to implement the E-VAT law without confusion and
thereby achieve its purpose.4
I vote to GRANT the petitions to the extent of declaring unconstitutional the provisions in Republic
Act. No. 9337 that are not germane to the subject matter and DENY said petitions as to the rest of
the law, which are constitutional.
ADOLFO S. AZCUNA
Associate Justice

Footnotes
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
1

the framework of the national development program of the Government." (Art. VI, Sec. 28 [2],
emphasis supplied.)
Petitioners claim that the power does not extend to fixing the rates of taxes, since taxes
are not tariffs, import and export quotas, tonnage and wharfage dues, or other duties or
imposts.
2

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

SEC. 4. Section 106 of the same Code, as amended, is hereby further amended to read as
follows:
"SEC. 106. Value-added Tax on Sale of Goods or Properties.
"(A) Rate and Base of Tax. There shall be levied, assessed and collected on every sale,
barter or exchange of goods or properties, a value-added tax equivalent to ten percent (10%)
of the gross selling price or gross value in money of the goods or properties sold, bartered or
exchanged, such tax to be paid by the seller or transferor: Provided, That the President,
upon the recommendation of the Secretary of Finance, shall, effective January 1, 2006, raise
the rate of value-added tax to twelve percent (12%), after any of the following conditions has
been satisfied:
"(i) Value-added tax collection as a percentage of Gross Domestic Product (GDP) 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 %)."
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.
3

...
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).
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.
4

The Lawphil Project - Arellano Law Foundation

GR No. 168056 - (ABAKADA GURO PARTY LIST (Formerly AASJAS) OFFICERS SAMSON S.
ALCANTARA and ED VINCENT S. ALBANO v. THE HONORABLE EXECUTIVE SECRETARY
EDUARDO ERMITA; HONORABLE SECRETARY OF THE DEPARTMENT OF FINANCE CESAR
PURISIMA; and HONORABLE COMMISSIONER OF INTERNAL REVENUE GUILLERMO
PARAYNO, JR.)
GR No. 168207 (AQUILINO Q. PIMENTEL, JR., LUISA P. EJERCITO-ESTRADA, JINGGOY E.
ESTRADA, PANFILO M. LACSON, ALFREDO S. LIM, JAMBY A.S. MADRIGAL, and SERGIO R.
OSMEA III v. EXECUTIVE SECRETARY EDUARDO R. ERMITA, CESAR V. PURISIMA,
SECRETARY OF FINANCE, GUILLERMO L. PARAYNO, JR., COMMISSIONER OF THE BUREAU
OF INTERNAL REVENUE)
GR No. 168461 ASSOCIATION OF PILIPINAS SHELL DEALERS, INC. represented by its
President, ROSARIO ANTONIO; PETRON DEALERS ASSOCIATION represented by its
President, RUTH E. BARBIBI; ASSOCIATION OF CALTEX DEALERS OF THE PHILIPPINES
represented by its President, MERCEDITAS A. GARCIA; ROSARIO ANTONIO doing business
under the name and style of "ANB NORTH SHELL SERVICE STATION"; LOURDES MARTINEZ
doing business under the name and style of "SHELL GATE N. DOMINGO"; BETHZAIDA TAN
doing business under the name and style of "ADVANCED SHELL STATION"; REYNALDO P.
MONTOYA doing business under the name and style of "NEW LAMUAN SHELL SERVICE
STATION"; EFREN SOTTO doing business under the name and style of "REDFIELD SHELL
SERVICE STATION"; DONICA CORPORATION represented by its President, DESI
TOMACRUZ; RUTH E. MARBIBI doing business under the name and style of "R&R PETRO
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 "NTE GASOLINE & SERVICE STATION"; JULIAN CESAR P. POSADAS doing business
under the name and style of "STARCARGA ENTERPRISES"; ADORACION MAEBO doing
business under the name and style of "CMA MOTORISTS CENTER"; SUSAN M. ENTRATA
doing business under the name and style of "LEONAS GASOLINE STATION and SERVICE
CENTER"; CARMELITA BALDONADO doing business under the name and style of "FIRST
CHOICE SERVICE CENTER: RHEAMAR A. RAMOS doing business under the name and style
of "RJAM PTT GAS STATION"; MA. ISABEL VIOLAGO doing business under the name and
style of "VIOLAGO-PTT SERVICE CENTER"; MOTORISTS HEART CORPORATON
represented by its Vice-President for Operations, JOSELITO F. FLORDELIZA; MOTORISTS
HARVARD CORPORATION represented by its Vice-President for Operations, JOSELITO F.
FLORDELIZA; MOTORISTS HERITAGE CORPORATION represented by its Vice-President for
Operations, JOSELITO F. FLORDELIZA; PHILIPPINE STANDARD OIL CORPORATION
represented by its Vice-President for Operations, JOSELITO F. FLORDELIZA; ROMEO
MANUEL doing business under the name and style of "ROMMAN GASOLINE STATION";
ANTHONY ALBERT CRUZ III doing business under the name and style of "TRUE SERVICE
STATION" v. CESAR V. PURISIMA, in his capacity as Secretary of the Department of Finance
and GUILLERMO L. PARAYNO, JR., in his capacity as Commissioner of Internal Revenue.
GR No. 168463 FRANCIS JOSEPH G. ESCUDERO, VINCENT CRISOLOGO, EMMANUEL
JOSEL J. VILLANUEVA, RODOLFO G. PLAZA, DARLENE ANTONINO-CUSTODIO, OSCAR G.
MALAPITAN, BENJAMIN C. AGARAO, JR., JUAN EDGARDO M. ANGARA, JUSTIN MARC SB.
CHIPECO, FLORENCIOI 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. CASIO, v. 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.

GR. No. 168730 BATAAN GOVERNOR ENRIQUE T. GARCIA, JR. v. 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 Customs.
x-------------------------------------------------------------------x
DISSENTING OPINION
Tinga, J.:
The E-VAT Law,1 as it stands, will exterminate our countrys 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 hangmans noose. Justice Holmes once
confidently asserted that "the power to tax is not the power to destroy while this Court sits", and we
should very well live up to this expectation not only of the revered Holmes, but of the Filipino people
who rely on this Court as the guardian of their rights. At stake is the right to exist and subsist
despite taxes, which is encompassed in the due process clause.
I respectfully submit these views while maintaining the deepest respect for the prerogative of the
legislature to impose taxes, and of the national government to chart economic policy. Such respect
impels me to vote to deny the petitions in G.R. Nos. 168056, 168207, 168463, 2 and 168730, even as
I acknowledge certain merit in the challenges against the E-VAT law that are asserted in those
petitions. In the final analysis, petitioners therein are unable to convincingly demonstrate the
constitutional infirmity of the provisions they seek to assail. The only exception is Section 21 of the
law, which I consider unconstitutional, for reasons I shall later elaborate.
However, I see the petition in G.R. No. 168461 as meritorious and would vote to grant it. Accordingly,
I dissent and hold as unconstitutional Section 8 of Republic Act No. 9337, insofar as it amends
Section 110(A) and (B) of the National Internal Revenue Code (NIRC) as well as Section 12 of the
same law, with respect to its amendment of Section 114(C) of the NIRC.
The first part of my discussion pertains to the petitions in G.R. Nos. 168056, 168207, 168463, and
168730, while the second part is devoted to what I deem the most crucial issue before the Court, the
petition in G.R. No. 168461.
I.
Undue Delegation and the Increase
Of the VAT Rate
My first point pertains to whether or not Sections 4, 5 and 6 of the E-VAT Law constitutes an undue
delegation of legislative power. In appreciating the aspect of undue delegation as regards taxation
statutes, the fundamental point remains that the power of taxation is inherently legislative, 3 and may

be imposed or revoked only by the legislature.4 In tandem with Section 1, Article VI of the
Constitution which institutionalizes the law-making power of Congress, Section 24 under the same
Article crystallizes this principle, as it provides that "[a]ll appropriation, revenue or tariff bills shall
originate exclusively in the House of Representatives."5
Consequently, neither the executive nor judicial branches of government may originate tax
measures. Even if the President desires to levy new taxes, the imposition cannot be done by mere
executive fiat. In such an instance, the President would have to rely on Congress to enact tax laws.
Moreover, this plenary power of taxation cannot be delegated by Congress to any other branch of
government or private persons, unless its delegation is authorized by the Constitution itself. 6 In this
regard, the situation stands different from that in the recent case Southern Cross v.
PHILCEMCOR,7 wherein I noted in my ponencia that the Tariff Commission and the DTI Secretary
may be regarded as agents of Congress for the purpose of imposing safeguard measures. That
pronouncement was made in light of Section 28(2) Article VI, which allows Congress to delegate to
the President through law the power to impose tariffs and imposts, subject to limitations and
restrictions as may be ordained by Congress. In the case of taxes, no such constitutional
authorization exists, and the discretion to ascertain the rates, subjects, and conditions of taxation
may not be delegated away by Congress.
However, as the majority correctly points out, the power to ascertain the facts or conditions as the
basis of the taking into effect of a law may be delegated by Congress,8 and that the details as to the
enforcement and administration of an exercise of taxing power may be delegated to executive
agencies, including the power to determine the existence of facts on which its operation depends. 9
Proceeding from these principles, Sections 4, 5, and 6 of the E-VAT Law warrant examination. The
provisions read:
SEC. 4. Sec. 106 of the same Code, as amended, is hereby further amended to read as follows:
SEC. 106. Value-Added Tax on Sale of Goods or Properties.
(A) Rate and Base of Tax. There shall be levied, assessed and collected on every sale, barter or
exchange of goods or properties, a value-added tax equivalent to ten percent (10%) of the gross
selling price or gross value in money of the goods or properties sold, bartered or exchanged, such
tax to be paid by the seller or transferor;provided, that the President, upon the recommendation
of the Secretary of Finance, shall, effective January 1, 2006, raise the rate of value-added tax
to twelve percent (12%), after any of the following conditions has been satisfied.
(i) value-added tax collection as a percentage of Gross Domestic Product (GDP) of the
previous year exceeds two and four-fifth percent (2 4/5%) or
(ii) national government deficit as a percentage of GDP of the previous year exceeds one and
one-half percent 1 %).
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.
(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 %).
SEC. 6. Section 108 of the same Code, as amended, is hereby further amended to read as
follows:
SEC. 108. Value-added Tax on Sale of Services and Use of Lease of Properties(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 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
(ii) national government deficit as a percentage of GDP of the previous year exceed same and onhalf percent (1 %).
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 valueadded tax collection as a percentage of Gross Domestic Product (GDP) of the previous year
exceeds two and four-fifth percent (2 4/5%); or that the national government deficit as a percentage
of GDP of the previous year exceed same and on-half percent (1 %).
At first blush, it does seem that the assailed provisions are constitutionally deficient. It is Congress,
and not the President, which is authorized to raise the rate of VAT from 10% to 12%, no matter the
circumstance. Yet a closer analysis of the proviso reveals that this is not exactly the operative effect
of the law. The qualifier "shall" denotes a mandatory, rather than discretionary function on the part of
the President to raise the rate of VAT to 12% upon the existence of any of the two listed conditions.
Since the President is not given any discretion in refusing to raise the VAT rate to 12%, there is
clearly no delegation of the legislative power to tax by Congress to the executive branch. The use of
the word "shall" obviates any logical construction that would allow the President leeway in not raising
the tax rate. More so, it is accepted that the principle of constitutional construction that every
presumption should be indulged in favor of constitutionality and the court in considering the validity
of the 'statute in question should give it such reasonable construction as can be reached to bring it
within the fundamental law.10 While all reasonable doubts should be resolved in favor, of the

constitutionality of a statute,11 it should necessarily follow that the construction upheld should be one
that is not itself noxious to the Constitution.
Congress should be taken to task for imperfect draftsmanship at least. Much trouble would have
been avoided had the provisos instead read: "that effective January 1, 2006, the rate of value-added
tax shall be raised to twelve percent (12%), after any of the following conditions has been satisfied
xxx." This, after all is the operative effect of the provision as it stands. In relation to the operation of
the tax increase, the denominated role of the President and the Secretary of Finance may be
regarded as a superfluity, as their imprimatur as a precondition to the increase of the VAT rate must
have no bearing.
Nonetheless, I cannot ignore the fact that both the President and the Secretary of Finance have
designated roles in the implementation of the tax increase. Considering that it is Congress, and not
these officials, which properly have imposed the increase in the VAT rate, how should these roles be
construed?
The enactment of a law should be distinguished from its implementation. Even if it is Congress which
exercises the plenary power of taxation, it is not the body that administers the implementation of the
tax. Under Section 2 of the National Internal Revenue Code (NIRC), the assessment and collection
of all national internal revenue taxes, and the enforcement of all forefeitures, penalties and fines
connected therewith had been previously delegated to the Bureau of Internal Revenue, under the
supervision and control of the Department of Finance.12
Moreover, as intimated earlier, Congress may delegate to other components of the government the
power to ascertain the facts or conditions as the basis of the taking into effect of a law. It follows that
ascertainment of the existence of the two conditions precedent for the increase as stated in the law
could very well be delegated to the President or the Secretary of Finance. 13
Nonetheless, the apprehensions arise that the process of ascertainment of the listed conditions
delegated to the Secretary of Finance and the President effectively vest discretionary authority to
raise the VAT rate on the President, through the subterfuges that may be employed to delay the
determination, or even to manipulate the factual premises. Assuming arguendo that these feared
abuses may arise, I think it possible to seek judicial enforcement of the increased VAT rate, even
without the participation or consent of the President or Secretary of Finance, upon indubitable
showing that any of the two listed conditions do exist. After all, the Court is ruling that the increase in
the VAT rate is mandatory and beyond the discretion of the President to impose or delay.
The majority states that in making the recommendation to the President on the existence of either of
the two conditions, the Secretary of Finance is acting as the agent of the legislative branch, to
determine and declare the event upon which its expressed will is to take effect. 14 This recognition of
agency must be qualified. I do not doubt the ability of Congress to delegate to the Secretary of
Finance administrative functions in the implementation of tax laws, as it does under Section 2 of the
NIRC. Yet it would be impermissible for Congress to delegate to the Secretary of Finance the
plenary function of enacting a tax law. As stated earlier, the situation stands different from that
in Southern Cross wherein the Constitution itself authorizes the delegation by Congress through a
law to the President of the discretion to impose tariff measures, subject to restrictions and limitations
provided in the law.15 Herein, Congress cannot delegate to either the President or the Secretary of
Finance the discretion to raise the tax, as such power belongs exclusively to the legislative branch.
Perhaps the term "agency" is not most suitable in describing the delegation exercised by Congress
in this case, for agency implies that the agent takes on attributes of the principal by reason of
representative capacity. In this case, whatever "agency" that can be appreciated would be of

severely limited capacity, encompassing as it only could the administration, not enactment, of the tax
measure.
I do not doubt the impression left by the provisions that it is the President, and not Congress, which
is authorized to raise the VAT rate. On paper at least, these imperfect provisions could be multiple
sources of mischief. On the political front, whatever blame or scorn that may be attended with the
increase of the VAT rate would fall on the President, and not on Congress which actually increased
the tax rate. On the legal front, a President averse to increasing the VAT rate despite the existence
of the two listed conditions may take refuge in the infelicities of the provision, and refuse to do so on
the ground that the law, as written, implies some form of discretion on the part of the President who
was, after all, "authorized" to increase the tax rate. It is critical for the Court to disabuse this notion
right now.
The Continued Viability of
Tolentino v. Secretary of Finance
One of the more crucial issues now before us, one that has seriously divided the Court, pertains to
the ability of the Bicameral Conference Committee to introduce amendments to the final bill which
were not contained in the House bill from which the E-VAT Law originated. Most of the points
addressed by the petitioners have been settled in our ruling in Tolentino v. Secretary of Finance,16 yet
a revisit of that precedent is urged upon this Court. On this score, I offer my qualified concurrence
with the ponencia.
Two key provisions of the Constitution come into play: Sections 24 and 26(2), Article VI of the
Constitution. They read:
Section 24: All appropriation, revenue or tariff bills, bills authorizing increase of the public debt, bills
of local application, and private bills shall originate exclusively in the House of Representatives, but
the Senate may propose or concur with amendments.
Section 26(2): No bill passed by either House shall become a law unless it has passed three
readings on separate days, and printed copies thereof in its final form have been distributed to its
Members three days before its passage, except when the President certifies to the necessity of its
immediate enactment to meet a public calamity or emergency. Upon the last reading of a bill, no
amendment thereto shall be allowed, and the vote thereon shall be taken immediately thereafter,
and the yeas and nays entered in the Journal.
Section 24 is also known as the origination clause, which derives origin from British practice. From
the assertion that the power to tax the public at large must reside in the representatives of the
people, the principle evolved that money bills must originate in the House of Commons and may not
be amended by the House of Lords.17 The principle was adopted across the shores in the United
States, and was famously described by James Madison inThe Federalist Papers as follows:
This power over the purse, may in fact be regarded as the most compleat and effectual weapon with
which any constitution can arm the immediate representatives of the people, for obtaining a redress
of every grievance, and for carrying into effect every just and salutary measure. 18
There is an eminent difference from the British system from which the principle emerged, and from
our own polity. To this day, only members of the British House of Commons are directly elected by
the people, with the members of the House of Lords deriving their seats from hereditary peerage.

Even in the United States, members of the Senate were not directly elected by the people, but
chosen by state legislatures, until the adoption of the Seventeenth Amendment in 1913. Hence, the
rule assured the British and American people that tax legislation arises with the consent of the
sovereign people, through their directly elected representatives. In our country though, both
members of the House and Senate are directly elected by the people, hence the vitality of the
original conception of the rule has somewhat lost luster.
Still, the origination clause deserves obeisance in this jurisdiction, simply because it is provided in
the Constitution. At the same time, its proper interpretation is settled precedent, as enunciated
in Tolentino:
To begin with, it is not the law but the revenue bill which is required by the Constitution to
"originate exclusively" in the House of Representatives. It is important to emphasize this, because a
bill originating in the House may undergo such extensive changes in the Senate that the result may
be a rewriting of the whole. The possibility of a third version by the conference committee will be
discussed later. At this point, what is important to note is that, as a result of the Senate action, a
distinct bill may be produced. To insist that a revenue statute and not only the bill which initiated
the legislative process culminating in the enactment of the law must substantially be the same as
the House bill would be to deny the Senate's power not only to "concur with amendments" but also
to " propose amendments." It would be to violate the coequality of legislative power of the two
houses of Congress and in fact make the House superior to the Senate. 19
The vested power of the Senate to " propose or concur with amendments" necessarily implies the
ability to adduce transformations from the original House bill into the final law. Since the House and
Senate sit separately in sessions, the only opportunity for the Senate to introduce its amendments
would be in the Bicameral Conference Committee, which emerges only after both the House and the
Senate have approved their respective bills.
In the present petitions, Tolentino comes under fire on two fronts. The first controversy arises from
the adoption inTolentino of American legislative practices relating to bicameral committees despite
the difference in constitutional frameworks, particularly the limitation under Section 26(2), Article VI
which does not exist in the American Constitution.
The majority points out that the "no amendment rule" refers only to the procedure to be followed by
each house of Congress with regard to bills initiated in the house concerned, before said bills are
transmitted to the other house for its concurrence or amendment. I agree with this statement.
Clearly, the procedure under Section 26(2), Article VI only relates to the passage of a bill before the
House and Senate, and not the process undertaken afterwards in the Bicameral Conference
Committee.
Indeed, Sections 26 and 27 of Article VI, which detail the procedure how a bill becomes a law, are
silent as to what occurs between the passage by both houses of their respective bills, and the
presentation to the President of
"every bill passed by the Congress".20 Evidently, "Congress" means both Houses, such that a bill
approved by the Senate but not by the House is not presented to the President for approval. There is
obviously a need for joint concurrence by the House and Senate of a bill before it is transmitted to
the President, but the Constitution does not provide how such concurrence is acquired. This lacuna
has to be filled, otherwise no bill may be transmitted to the President.
Even if the Bicameral Conference Committee is not a constitutionally organized body, it has existed
as the necessary conclave for both chambers of Congress to reconcile their respective versions of a

prospective law. The members of the Bicameral Conference Committee may possess in them the
capacity to represent their particular chamber, yet the collective is neither the House nor the Senate.
Hence, the procedure contained in Section 26(2), Article VI cannot apply to the Bicameral
Conference Committee.
Tellingly, the version approved by the Bicameral Conference Committee still undergoes deliberation
and approval by both Houses. Only one vote is taken to approve the reconciled bill, just as only one
vote is taken in order to approve the original bill. Certainly, it could not be contended that this final
version surreptitiously evades approval of either the House or Senate.
The second front concerns the scope and limitations of the Bicameral Conference Committee to
amend, delete, or otherwise modify the bills as approved by the House and the Senate.
Tolentino adduced the principle, adopted from American practice, that the version as approved by
the Bicameral Conference Committee need only be germane to the subject of the House and Senate
bills in order to be valid.21The majority, in applying the test of germaneness, upholds the contested
provisions of the E-VAT Law. Even the members of the Court who prepared to strike down provisions
of the law applying germaneness nonetheless accept the basic premise that such test is controlling.
I agree that any amendment made by the Bicameral Conference Committee that is not germane to
the subject matter of the House or Senate Bills is not valid. It is the only valid ground by which an
amendment introduced by the Bicameral Conference Committee may be judicially stricken.
The germaneness standard which should guide Congress or the Bicameral Conference Committee
should be appreciated in its normal but total sense. In that regard, my views contrast with that of
Justice Panganiban, who asserts that provisions that are not "legally germane" should be stricken
down. The legal notion of germaneness is just but one component, along with other factors
such as economics and politics, which guides the Bicameral Conference Committee, or the
legislature for that matter, in the enactment of laws. After all, factors such as economics or
politics are expected to cast a pervasive influence on the legislative process in the first place, and it
is essential as well to allow such "non-legal" elements to be considered in ascertaining whether
Congress has complied with the criteria of germaneness.
Congress is a political body, and its rationale for legislating may be guided by factors other
than established legal standards. I deem it unduly restrictive on the plenary powers of
Congress to legislate, to coerce the body to adhere to judge-made standards, such as a
standard of "legal germaneness". The Constitution is the only legal standard that Congress
is required to abide by in its enactment of laws.
Following these views, I cannot agree with the position maintained by the Chief Justice, Justices
Panganiban and Azcuna that the provisions of the law that do not pertain to VAT should be stricken
as unconstitutional. These would include, for example, the provisions raising corporate income
taxes. The Bicameral Conference Committee, in evaluating the proposed amendments, necessarily
takes into account not just the provisions relating to the VAT, but the entire revenue generating
mechanism in place. If, for example, amendments to non-VAT related provisions of the NIRC were
intended to offset the expanded coverage for the VAT, then such amendments are germane to the
purpose of the House and Senate Bills.
Moreover, it would be myopic to consider that the subject matter of the House Bill is solely the VAT
system, rather than the generation of revenue. The majority has sufficiently demonstrated that the
legislative intent behind the bills that led to the E-VAT Law was the generation of revenue to counter
the countrys dire fiscal situation.

The mere fact that the law is popularly known as the E-VAT Law, or that most of its provisions pertain
to the VAT, or indirect taxes, does not mean that any and all amendments which are introduced by
the Bicameral Conference Committee must pertain to the VAT system. As the Court noted in Tatad v.
Secretary of Energy:22
[I]t is contended that section 5(b) of R.A. No. 8180 on tariff differential violates the provision 17 of the
Constitution requiring every law to have only one subject which should be expressed in its title. We
do not concur with this contention. As a policy, this Court has adopted a liberal construction of
the one title - one subject rule. We have consistently ruled that the title need not mirror, fully
index or catalogue all contents and minute details of a law. A law having a single general
subject indicated in the title may contain any number of provisions, no matter how diverse
they may be, so long as they are not inconsistent with or foreign to the general subject, and
may be considered in furtherance of such subject by providing for the method and means of
carrying out the general subject. We hold that section 5(b) providing for tariff differential is
germane to the subject of R.A. No. 8180 which is the deregulation of the downstream oil industry.
The section is supposed to sway prospective investors to put up refineries in our country and make
them rely less on imported petroleum.23
I submit that if the amendments are attuned to the goal of revenue generation, the stated purpose of
the original House Bills, then the test of germaneness is satisfied. It might seem that the goal of
revenue generation, which is stated in virtually all tax or tariff bills, is so encompassing in scope as to
justify the inclusion by the Bicameral Conference Committee of just about any revenue generation
measure. This may be so, but it does not mean that the test of germaneness would be rendered
inutile when it comes to revenue laws.
I do believe that the test of germaneness was violated by the E-VAT Law in one regard. Section 21
of the law, which was not contained in either the House or Senate Bills, imposes restrictions on the
use by local government units of their incremental revenue from the VAT. These restrictions are alien
to the principal purposes of revenue generation, or the purposes of restructuring the VAT system. I
could not see how the provision, which relates to budgetary allocations, is germane to the E-VAT
Law. Since it was introduced only in the Bicameral Conference Committee, the test of germaneness
is essential, and the provision does not pass muster. I join Justice Puno and the Chief Justice in
voting to declare Section 21 as unconstitutional.
I also offer this brief comment regarding the deletion of the so-called "no pass on" provisions, which
several of my colleagues deem unconstitutional. Both the House and Senate Bills contained these
provisions that would prohibit the seller/producer from passing on the cost of the VAT payments to
the consumers. However, an examination of the said bills reveal that the "no pass on" provisions in
the House Bill affects a different subject of taxation from that of the Senate Bill. In the House Bill No.
3705, the taxpayers who are prohibited from passing on the VAT payments are the sellers of
petroleum products and electricity/power generation companies. In Senate Bill No. 1950, no
prohibition was adopted as to sellers of petroleum products, but enjoined therein are
electricity/power generation companies but also transmission and distribution companies.
I consider such deletions as valid, for the same reason that I deem the amendments valid. The
deletion of the two disparate "no pass on" provisions which were approved by the House in one
instance, and only by the Senate in the other, remains in the sphere of compromise that ultimately
guides the approval of the final version. Again, I point out that even while the two provisions may
have been originally approved by the House and Senate respectively, their subsequent deletion by
the Bicameral Conference Committee is still subject to approval by both chambers of Congress
when the final version is submitted for deliberation and voting.

Moreover, the fact that the nature of the "no pass on" provisions adopted by the House essentially
differs from that of the Senate necessarily required the corrective relief from the Bicameral
Conference Committee. The Committee could have either insisted on the House version, the Senate
version, or both versions, and it is not difficult to divine that any of these steps would have obtained
easy approval. Hence, the deletion altogether of the "no pass on" provisions existed as a tangible
solution to the possible impasse, and the Committee should be accorded leeway to implement such
a compromise, especially considering that the deletion would have remained germane to the law,
and would not be constitutionally prohibited since the prohibition on amendments under Section
26(2), Article VI does not apply to the Committee.
An outright declaration that the deletion of the two elementally different "no-pass on" provisions is
unconstitutional, is of dubious efficacy in this case. Had such pronouncement gained endorsement
of a majority of the Court, it could not result in the ipso facto restoration of the provision, the
omission of which was ultimately approved in both the House and Senate. Moreover, since the
House version of the "no pass on" is quite different from that of the Senate, there would be a
question as to whether the House version, the Senate version, or both versions would be reinstated.
And of course, if it were the Court which would be called upon to choose, such would be way beyond
the bounds of judicial power.
Indeed, to intimate that the Court may require Congress to reinstate a provision that failed to meet
legislative approval would result in a blatant violation of the principle of separation of powers, with
the Court effectively dictating to Congress the content of its legislation. The Court cannot simply
decree to Congress what laws or provisions to enact, but is limited to reviewing those enactments
which are actually ratified by the legislature.
II.
My earlier views, as are the submissions I am about to offer, are rooted in nothing more than
constitutional interpretation. Perhaps my preceding discussion may lead to an impression that I
whole-heartedly welcome the passage of the E-VAT Law. Yet whatever relief I may have over the
enactment of a law designed to relieve our countrys financial woes are sadly obviated with the
realization that a key amendment introduced in the law is not only unconstitutional, but of fatal
consequences. The clarion call of judicial review is most critical when it stands as the sole barrier
against the deprivation of life, liberty and property without due process of law. It becomes even more
impelling now as we are faced with provisions of the E-VAT Law which, though in bland disguise,
would operate as the most destructive of tax measures enacted in generations.
Tax Statutes and the Due Process Clause
It is the duty of the courts to nullify laws that contravene the due process clause of the Bill of Rights.
This task is at the heart not only of judicial review, but of the democratic system, for the fundamental
guarantees in the Bill of Rights become merely hortatory if their judicial enforcement is unavailing.
Even if the void law in question is a tax statute, or one that encompasses national economic policy,
the courts should not shirk from striking it down notwithstanding any notion of deference to the
executive or legislative branch on questions of policy. Neither Congress nor the President has the
right to enact or enforce unconstitutional laws.
The Bill of Rights is by no means the only constitutional yardstick by which the validity of a tax law
can be measured. Nonetheless, it stands as the most unyielding of constitutional standards, given its
position of primacy in the fundamental law way above the articles on governmental power.24 If the
question lodged, for example, hinges on the proper exercise of legislative powers in the enactment
of the tax law, leeway can be appreciated in favor of affirming the legislatures inherent power to levy

taxes. On the other hand, no quarter can be ceded, no concession yielded, on the peoples
fundamental rights as enshrined in the Bill of Rights, even if the sacrifice is ostensibly made "in the
national interest." It is my understanding that "the national interests," however comported, always
subsumes in the first place recognition and enforcement of the Bill of Rights, which manifests where
we stand as a democratic society.
The constitutional safeguard of due process is embodied in the fiat "No person shall be deprived of
life, liberty or property without due process of law".25 The purpose of the guaranty is to prevent
governmental encroachment against the life, liberty and property of individuals; to secure the
individual from the arbitrary exercise of the powers of the government, unrestrained by the
established principles of private rights and distributive justice; to protect property from confiscation
by legislative enactments, from seizure, forfeiture, and destruction without a trial and conviction by
the ordinary mode of judicial procedure; and to secure to all persons equal and impartial justice and
the benefit of the general law.26
In Magnano Co. v. Hamilton,27 the U.S. Supreme Court recognized that the due process clause may
be utilized to strike down a taxation statute, "if the act be so arbitrary as to compel the conclusion
that it does not involve an exertion of the taxing power, but constitutes, in substance and effect, the
direct exertion of a different and forbidden power, as, for example, the confiscation of
property."28 Locally, Sison v. Ancheta29 has long provided sanctuary for persons assailing the
constitutionality of taxing statutes. The oft-quoted pronouncement of Justice Fernando follows:
2. The power to tax moreover, to borrow from Justice Malcolm, "is an attribute of sovereignty. It is the
strongest of all the powers of government." It is, of course, to be admitted that for all its
plenitude, the power to tax is not unconfined. There are restrictions. The Constitution sets
forth such limits. Adversely affecting as it does property rights, both the due process and
equal protection clauses may properly be invoked, as petitioner does, to invalidate in
appropriate cases a revenue measure. If it were otherwise, there would be truth to the 1803
dictum of Chief Justice Marshall that "the power to tax involves the power to destroy." In a separate
opinion in Graves v. New York, Justice Frankfurter, after referring to it as an "unfortunate remark,"
characterized it as "a flourish of rhetoric [attributable to] the intellectual fashion of the times [allowing]
a free use of absolutes." This is merely to emphasize that it is not and there cannot be such a
constitutional mandate. Justice Frankfurter could rightfully conclude: "The web of unreality spun from
Marshall's famous dictum was brushed away by one stroke of Mr. Justice Holmes's pen: 'The power
to tax is not the power to destroy while this Court sits.'" So it is in the Philippines.
3. This Court then is left with no choice. The Constitution as the fundamental law overrides any
legislative or executive act that runs counter to it. In any case therefore where it can be
demonstrated that the challenged statutory provision as petitioner here alleges fails to
abide by its command, then this Court must so declared and adjudge it null. The inquiry thus is
centered on the question of whether the imposition of a higher tax rate on taxable net income
derived from business or profession than on compensation is constitutionally infirm.
4. The difficulty confronting petitioner is thus apparent. He alleges arbitrariness. A mere allegation,
as here, does not suffice. There must be a factual foundation of such unconstitutional taint.
Considering that petitioner here would condemn such a provision as void on its face, he has not
made out a case. This is merely to adhere to the authoritative doctrine that where the due process
and equal protection clauses are invoked, considering that they are not fixed rules but rather broad
standards, there is a need for proof of such persuasive character as would lead to such a
conclusion. Absent such a showing, the presumption of validity must prevail.

5. It is undoubted that the due process clause may be invoked where a taxing statute is so
arbitrary that it finds no support in the Constitution. An obvious example is where it can be
shown to amount to the confiscation of property. That would be a clear abuse of power. It
then becomes the duty of this Court to say that such an arbitrary act amounted to the
exercise of an authority not conferred. That properly calls for the application of the Holmes
dictum. It has also been held that where the assailed tax measure is beyond the jurisdiction
of the state, or is not for a public purpose, or, in case of a retroactive statute is so harsh and
unreasonable, it is subject to attack on due process grounds.30
Sison pronounces more concretely how a tax statute may contravene the due process clause.
Arbitrariness, confiscation, overstepping the states 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.31 After all, the inherent nature of taxation is to cause pain and
injury to the taxpayer, albeit for the greater good of society. Perhaps whatever collective notion there
may be of what constitutes an arbitrary, confiscatory, and unreasonable tax might draw more from
the fairy tale/legend traditions of absolute monarchs and the oppressed peasants they tax. Indeed, it
is easier to jump to the conclusion that a tax is oppressive and unfair if it is imposed by a tyrant or an
authoritarian state.
But could an arbitrary, confiscatory or unreasonable tax actually be enacted by a democratic state
such as ours? Of course it could, but these would exist in more palatable guises. In a democratic
society wherein statutes are enacted by a representative legislature only after debate and
deliberation, tax statutes will most likely, on their face, seem fair and even-handed. After all, if
Congress passes a tax law that on facial examination is obviously harsh and unfair, it faces the
wrath of the voting public, to say nothing of the media.
In testing the validity of a tax statute as against the due process clause, I think that the Court should
go beyond a facial examination of the statute, and seek to understand how exactly it would operate.
The express terms of a statute, especially tax laws, are usually inadequate in spelling out the
practical effects of its implementation. The devil is usually in the details.
Admittedly, the degree of difficulty involved of judicial review of tax laws has increased with the
growing complexities of business, economic and accounting practices. These are sciences which
laymen are not normally equipped by their general education to fully grasp, hence the possible
insecurity on their part when confronted with such questions on these fields.
However, we should not cede ground to those transgressions of the peoples 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 laws unconstitutionality of course has
the burden to demonstrate the violations in understandable terms, but if such proof is presented, the
Courts duty is to engage accordingly.

The Viability of the Clear and Present

Danger Doctrine as Counterweight
To the Shibboleths of Speculation
and Wisdom
I do not see as an impediment to the annulment of a tax law the fact that it has yet to be
implemented, or the fear that doing so constitutes an undue attack on the wisdom, rather than the
legality of a statute. However, my position in this petition has been challenged on those grounds, and
I see it fit to refute these preemptive allegations before delving into the operative aspect of the E-VAT
Law.
If there is cause to characterize my arguments as speculative, it is only because the E-VAT
Law has yet to be implemented. No person as of yet can claim to have sustained actual injury by
reason of the implementation of the assailed provisions in G.R. No. 168461. Yet this should not
mean that the Court is impotent from declaring a provision of law as violative of the due process
clause if it is clear that its implementation will cause the illegal deprivation of life, liberty or property
without due process of
law. This is especially so if, as in this case, the injury is of mathematical certainty, and the extent of
the loss quantifiable through easy reference to the most basic of business practices.
These arguments are conjectural for the same reason that the bare statement "firing a
gunshot into the head will cause a fatal wound" would be conjectural. Some people are lucky
enough to survive gunshot wounds to the head, while many others are not. Yet just because the fear
of mortality would be merely speculative, it does not mean that there should be less compulsion to
avoid a situation of getting shot in the head.
Indeed, the Court has long responded to strike down prospective actions, even if the injury has not
yet even occurred. One of the most significant legal principles of the last century, the "clear
and present danger" doctrine in free speech cases, in fact emanates from the prospectivity,
and not the actuality of danger. The Court has not been hesitant to nullify acts which might cause
injury, owing to the presence of a clear and present danger of a substantive evil which the State has
the right to prevent. It has even extended the "clear and present danger rule" beyond the confines of
freedom of expression to the
realm of freedom of religion, as noted by Justice Puno in his ponencia in Estrada v. Escritor.32
Justice Teodoro Padilla goes further in his concurring opinion in Basco v. PAGCOR, and asserts that
the clear and present danger test squarely applies to the due process clause: "The courts, as the
decision states, cannot inquire into the wisdom, morality or expediency of policies adopted
by the political departments of government in areas which fall within their authority, except
only when such policies pose a clear and present danger to the life, liberty or property of the
individual."
I see no reason why the clear and present danger test cannot apply in this case, or any case
wherein a taxing statute poses a clear and present danger to the life, liberty or property of the
individual. The application of this standard frees the Court from inutility in the face of
patently unconstitutional tax laws that have been enacted but are yet to be fully operational.

If for example, Congress deems it wise to impose the most draconian of tax measures 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
contravenes a primordial principle or guarantee on which our polity is founded.
If it can be shown that the E-VAT Law violates these provisions of the Constitution, especially the
due process clause, then the Court should accordingly act and nullify. Such is the essence of judicial
review, which stands as the sole barrier to the implementation of an unconstitutional law.
The Separate Opinion of Justice Panganiban notes that "[t]he Court cannot step beyond the confines
of its constitutional power, if there is absolutely no clear showing of grave abuse of discretion in the
enactment of the law"33. This, I feel, is an unduly narrow view of judicial review, implying that such
merely encompasses the procedural aspect by which a law is enacted. If the policy of the law, and/or
the means by which such policy is implemented run counter to the Constitution, then the Court is
empowered to strike down the law, even if the legislative and executive branches act within their
discretion in legislating and signing the law.
It is also asserted that if the implementation of the 70% cap imposes an unequal effect on different
types of businesses with varying profit margins and capital requirements, then the remedy would be
an amendment of the law.34 Of course, the remedy of legislative amendment applies to even the
most unconstitutional of laws. But if our society can take cold comfort in the ability of the legislature
to amend its enactments as the defense against unconstitutional laws, what remains then as the
function of judicial review? This legislative capacity to amend unconstitutional laws runs concurrently
with the judicial capacity to strike down unconstitutional laws. In fact, the long-standing tradition has
been reliance on the judicial branch, and not the legislative branch, for salvation from
unconstitutional laws.
I do recognize that the Separate Opinion of Justice Panganiban ultimately proceeds from the
premise that the assailed provisions of the E-VAT Law may be merely unwise, but not
unconstitutional. Hence, its preference to rely on Congress to amend the offending provisions rather
than judicial nullification. But I maintain that the assailed provisions of the E-VAT Law violate the due
process clause of the Constitution and must be stricken down.
The Nature of VAT
To understand why Sections 8 and 12 of the E-VAT law contravenes the due process clause, it is
essential to understand the nature of the value-added tax itself. Filipino consumers may comprehend
VAT at its elemental form, having been accustomed for several years now in paying an extra 10% of
the listed selling price for a wide class of consumer goods. From the perspective of the end

consumer, such as the patron who purchases a meal from a fastfood restaurant, VAT is simply a tax
on transactions involving the sale of goods. The tax is shouldered by the buyer, and is based on a
percentage of the purchase price. Since an excise or percentage tax shares the same
characteristics, there could be some confusion as between such taxes and the VAT.
However, VAT is distinguishable from the standard excise or percentage taxes in that it is imposable
not only on the final transaction involving the end user, but on previous stages as well so long as
there was a sale involved. Thus, VAT does not simply pertain to the extra percentage paid by the
buyer of a fast-food meal, but also that paid by restaurant itself to its suppliers of raw food products.
This multi-stage system is more acclimated to the vagaries of the modern industrial climate, which
has long surpassed the stage when there was only one level of transfer between the farmer who
harvests the crop and the person who eats the crop. Indeed, from the extraction or production of the
raw material to its final consumption by a user, several transactions or sales materialize. The VAT
system assures that the government shall reap income for every transaction that is had, and not just
on the final sale or transfer.
The European Union, which has long required its member states to apply the VAT system, provided
the following definition of the tax which I deem clear and comprehensive:
The principle of the common system of value added tax involves the application to goods and
services of a general tax on consumption exactly proportional to the price of the goods and
services, whatever the number of transactions that take place in the production and
distribution process before the stage at which tax is charged.
On each transaction, value added tax, calculated on the price of the goods or services at the rate
applicable to such goods or services, shall be chargeable after deduction of the amount of value
added tax borne directly by the various cost components.35
The above definition alludes to a key characteristic of the VAT system, that the imposable tax
remains proportional to the price of goods and services no matter the number of transactions that
takes place.
There is another key characteristic of the VAT that no matter how many the taxable transactions
that precede the final purchase or sale, it is the end-user, or the consumer, that ultimately shoulders
the tax. Despite its name, VAT is generally not intended to be a tax on value added, but rather as a
tax on consumption. Hence, there is a mechanism in the VAT system that enables firms to offset the
tax they have paid on their own purchases of goods and services against the tax they charge on
their sales of goods and services.36 Section 105 of the NIRC assures that "the amount of tax may be
shifted or passed on to the buyer, transferee or lessee of the goods, properties or services." The
assailed provisions of the E-VAT law strike at the heart of this accepted principle.
And there is one final basic element of the VAT system integral to this disquisition: the mode by
which the tax is remitted to the government. In simple theory, the VAT payable can be remitted to the
government immediately upon the occurrence of the transaction, but such a demand proves
excessively unwieldy. The number of VAT covered transactions a modern enterprise may contract in
a single day, plus the recognized principle that it is the final end user who ultimately shoulders the
tax; render the remittance of the tax on a per transaction basis impossible.
Thus, the VAT is delivered by the purchaser not directly to the government but to the seller, who then
collates the VAT received and remits it to the government every quarter. The process may seem
simple if cast in this manner, but there is a wrinkle, due to the offsetting mechanism designed to
ultimately make the end consumer bear the cost of the VAT.

The Concepts of Input and

Output VAT
This mechanism is employed through the introduction of two concepts, the input tax and the output
tax. Section 110(A) of the National Internal Revenue Code defines the input tax as the VAT due from
or paid by a VAT-registered person on the importation of goods or local purchase of goods and
services in the course of trade or business, from a VAT registered person.
Let us put this in operational terms. A VAT registered person, engaged in an enterprise, necessarily
purchases goods such as raw materials and machinery in order to produce consumer goods. The
purchase of such raw materials and machineries is subject to VAT, hence the enterprise pays an
additional 10% of the purchase price to the supplier as VAT. This extra amount paid by the enterprise
constitutes its input VAT. The enterprise likewise pays input VAT when it purchases services covered
by the tax, or rentals of property.
Since VAT is a final tax that is supposed to be ultimately shouldered by the end consumer, the VAT
system allows for a mechanism by which the business is able to recover the input VAT that it paid.
This comes into play when the business, having transformed the raw materials into consumer goods,
sells these goods to the public. As widely known, the consumer pays to the business an additional
amount of 10% of the purchase price as VAT. As to the business, this VAT payments it collects from
the consumer represents output VAT, which is formally described under Section 110(A) of the NIRC
as "the value-added tax due on the sale or lease of taxable goods or properties or services by" by
any VAT-registered person.
The output VAT collected by the business from the consumers accumulates, until the end of every
quarter, when the enterprise is obliged to remit the collected output VAT to the government. This is
where the crediting mechanism comes into play. Since the business is entitled to recover the prepaid
input VAT, it does so in every quarter by applying the amount of prepaid input VAT against the
collected output VAT which is to be remitted. If the output VAT collected exceeds the prepaid input
VAT, then the amount of input VAT is deducted from the output VAT, and it is entitled to remit only the
remainder as output VAT to the government. To illustrate, if Business X collects P1,000,000.00 as
output VAT and incurs P500,000.00 as input VAT, the P500,000.00 is deducted from
the P1,000,000.00 output VAT, and X is required to remit only P500,000.00 of the output VAT it
collected from customers.
On the other hand, if the input VAT prepaid exceeds the output VAT collected, then the business
need not remit any amount as output VAT for the quarter. Moreover, the difference between the input
VAT and the output VAT may be credited as input VAT by the business in the succeeding quarter.
Thus, if in the First Quarter of a year, Business X prepays P1,000,000.00 as input VAT, and collects
only P500,000.00 as output VAT, it need not remit any amount of output VAT to the government.
Moreover, in the Second Quarter, Business X can credit the remaining P500,000.00 as part of its
input VAT for that quarter. Hence, if in the Second Quarter, X actually prepays P400,000.00 as input
VAT, and collects P500,000.00 as output VAT, it may add the P500,000.00 input VAT from the
previous quarter to the P400,000.00 prepaid in the current quarter, bringing the total input VAT it
could claim to P900,000.00. Since the input VAT of P900,000.00 now exceeds the output VAT
collected ofP500,000, 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 sold does not necessarily increase the gross sales, as it could have the countereffect of repelling the consumer and diminishing the number of goods sold. At the same time,
keeping the selling price low may increase the volume of goods sold, but not necessarily the amount
of gross sales.
Profit is a chancy matter, and in cases of small to medium enterprises, usually small if any. It is quite
common for retail and distribution enterprises to incur profits of less than 1% of their gross revenues.
Low profitability is not an automatic badge of poor business skills, but a reality dictated by the laws
of the marketplace. The probability of profit is lower than that of capital expenditures, and ultimately,
many business establishments end up with a higher input tax than output tax in a given quarter. This
would be especially true for small to medium enterprises who do not reap sufficient profits from its
business in the first place, and for those firms that opt to also invest in capital expenses in addition to
the overhead. Whatever miniscule profit margins that can be obtained usually spell the difference
between life and death of the business.
The possibility of profit is further diminished by the fact that businesses have to shoulder the input
VAT in the purchase of their capital expenses. Yet the erstwhile VAT system was not tainted by
the label of oppressiveness and neither did it bear the confiscatory mode. This was because
of the immediate relief afforded from the input taxes paid by the crediting system. In theory,
VAT is not supposed to affect the profit margin. If such margin is affected, it is only because
of the prepayment of the input taxes, and this should be remedied by the immediate recovery
through the crediting system of the settled input taxes.
The new E-VAT law changes all that, and puts in jeopardy the survival of small to medium
enterprises.
The Effects of the 70% Cap on Creditable Input VAT
The first radical shift introduced by the E-VAT law to the creditable input system 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 toP980,000, it would then appear on paper that Y incurred
a profit of P20,000. However, with the 70% cap, Y would be obliged to remit to the
government P30,000, thus wiping out the profit margin for the quarter. Y would be entitled to credit
the excess input VAT it prepaid for the next quarter, but the continuous operation of the 70% cap
obviates whatever benefits this may give, and cause the accumulation of the unutilized creditable
input VAT which should be returned to the business.
The difference is even more dramatic if seen how the unutilized creditable input VAT accumulates
over a one year period. To illustrate, Business Y prepays the following amounts of input VAT over a
one-year period:P100,000.00 - First Quarter; P100,000.00 2nd Quarter; P34,000.00 3rd Quarter;
and P50,000.00 4th Quarter. On the other hand, Y collects the following amounts of output VAT
from consumers: P60,000.00 - First Quarter; P60,000.00 2nd Quarter; P100,000.00 3rd Quarter;
and P50,000.00 4th Quarter. Applying the 70% cap, which would limit the amount of the declarable
input VAT to 70% in a quarter, the following results obtain, as presented in tabular form:

Particulars

Output VAT

Input VAT
(Actual) + Carry
Over

1st Quarter

2nd Quarter

3rd Quarter

4th Quarter

60,000

60,000

100,000

50,000

100,000

100,000 [input]
+58,000

34,000

50,000

[input]

[input]

+116,000

+80,000

[excess
creditable]

[excess
creditable]

150,000

130,000

[excess creditable]
158,000

DeclarableInput
VAT (70% of
output VAT)

(60,000x70%)

(60,000x70%) (100,000x70%)

(50,000x70%)

42,000

42,000

70,000

35,000

Lower of actual
and 70% cap

(60,000 -42,000)

(60,000 -42,000)

(100,000-

(50,000-

allowable

18,000

18,000

VAT

70,000)

35,000)

30,000

15,000

(150,000-

(130,00035,000)

Payable

CreditableInput
VAT

(100,000 (158,000 42,000)

42,000)
116,000
58,000

70,000)
95,000
80,000

This stands in contrast to same business VAT accountability under the present system, using the
same variables of output VAT and input VAT. The need to distinguish a declarable input VAT is
obviated with the elimination of the 70% cap.

Particulars 1st Quarter

2nd Quarter

3rd Quarter

4th Quarter

Output VAT

60,000

60,000

100,000

50,000

Input VAT
(Actual) +
Carry Over

100,000

100,000 [input]

34,000

50,000

+40,000

[input]

[input]

[excess
creditable]

+80,000

+ 14,000

[excess
creditable]

(excess

140,000

creditable)
114,000
50,000

VAT Payable

Creditable
Input VAT

40,000

80,000

14,000

14,000

The difference is dramatic, as is the impact on the businesss profit margin and available cash on
hand. Under normal conditions, small to medium enterprises are already encumbered with the
likelihood of obtaining only a minimal profit margin. Without the 70% cap, those businesses would
nonetheless be able to expect an immediate return on its input taxes earlier advanced, taxes which
under the VAT system it is not supposed to shoulder in the first place. However, with the 70% cap in
place, the unutilized input taxes would continue to accumulate, and the enterprise precluded from
immediate recovery thereof. The inability to utilize these input taxes, which could spell the
difference between profit and loss, solvency and insolvency, will eventually impair, if not kill
off the enterprise.
The majority fails to consider one of the most important concepts in finance, time value for
money.37 Simply put, the value of one peso is worth more today than in 2006. Money that you hold
today is worth more because you can invest it and earn interest.38 By reason of the 70% cap, the
amount of input VAT credit that remains unutilized would continue accumulate for months and years.
The longer the amount remains unutilized, the higher the degree of its depreciation in value, in
accordance with the concept of time value of money. Even assuming that the business eventually
recovers the input VAT credit, the sum recovered would have decreased in practical value.
It would be sad, but fair, if a business ceases because of its inability to compete with other
businesses. It would be utter malevolence to condemn an enterprise to death solely through
the employment of a deceptive accounting wizardry. For the raison detre of this 70% cap is
to make it appear on paper that the government is more solvent than it actually is. Conceding
for the nonce, there is a temporary advantage gained by the government by this 70% cap, as the
steady remittance by businesses of the 30% output VAT would assure a cash flow. Such collection
may only momentarily resolve an endemic problem in our local tax system, the problem of collection
itself.
If the 70% cap was designed in order to enhance revenue collection, then I submit that the means
employed stand beyond reason. If sheer will proves insufficient in assuring that the State all taxes
due it, there should be allowable discretion for the government to formulate creative means to
enhance collection. But to do so by depriving low profit enterprises of whatever meager income
earned and consequently assuring the death of these industries goes beyond any valid State
purpose.
Only stable businesses with substantial cash flows, or extraordinarily successful enterprises will be
able to remain in operation should the 70% cap be retained. The effect of the 70% cap is to
effectively impose a tax amounting to 3% of gross revenue. The amount may seem insignificant to
those without working knowledge of the ways of business, but anybody who is actually familiar with
business would be well aware the profit margins of the retailing and distribution sectors typically
amount to less than 1% of the gross revenues. A taxpayer has to earn a margin of at least 3% on
gross revenue in order to recoup the losses sustained due to the 70% cap. But as stated earlier,
profits are chancy, and the entrepreneur does not have full control of the conditions that lead to
profit.
Even more galling is the fact that the 70% cap, oppressive as it already is to the business
establishment, even limits the options of the business to recover the unutilized input VAT credit.
During the deliberations, the argument was raised that the problem presented by the 70% cap was a
business problem, which can only be solved by business. Yet there is only one viable option for the
enterprise to resolve the problem, and that is to increase the selling price of goods. 39 It would be
incorrect to assume that increase the volume of the goods sold could solve the problem, since for
items with the same purchasing cost, the effect of the 70% cap remains constant regardless of an
increase in volume.

But the additional burden is not limited to the increase of prices by the retailer to the end consumer.
Since VAT is a transaction tax, every level of distribution becomes subject not only to the VAT, but
also to the 70% cap. The problem increases due to a cascading effect as the number of distribution
levels increases since it will result in the collection of an effective 3% percentage tax at every
distribution level.
In analyzing the effects of the 70% cap, and appreciating how it violates the due process clause, we
should not focus solely on the end consumers. Undoubtedly, consumers will face hardships due to
the increased prices, but their threshold of physical survival, as individual people, is significantly less
than that of enterprises. Somehow, I do not think the new E-VAT would generally deprive consumers
of the bare necessities such as food, water, shelter and clothing. There may be significant
deprivation of comfort as a result, but not of life.
The same does not hold true for businesses. The standard of "deprivation of life" of juridical persons
employs different variables than that of natural persons. What food and water may be for persons,
profit is for an enterprise the bare necessity for survival. For businesses, the implementation of
the same law, with the 70% cap and 60-month amortization period, would mean the deprivation of
profit, which is the determinative necessity for the survival of a business.
It is easy to admonish both the consumer and the enterprise to cut back on expenditures to survive
the new E-VAT Law. However, this can be realistically expected only of the consumer. The
small/medium enterprise cannot just cut back easily on expenditures in order to survive the
implementation of the E-VAT Law. For such businesses, expenditures do not normally contemplate
unnecessary expenses such as executive perks which can be dispensed with without injury to the
enterprises. These expenditures pertain to expenses necessary for the survival of the enterprise,
such as wages, overhead and purchase of raw materials. Those three basic items of expenditure
cannot simply be reduced, as to do so with impair the ability of the business to operate on a daily
basis.
And reduction of expenditures is not the exclusive antidote to these impositions under the E-VAT
Law, as there must also be a corresponding increase in the amount of gross sales. To do so though,
would require an increase in the selling price, dampening consumer enthusiasm, and further
impairing the ability of the enterprise to recover from the E-VAT Law. This is your basic Catch2240 situation no matter which means the enterprise employs to recover from the E-VAT Law, it will
still go down in flames.
Section 8 of the E-VAT law, while ostensibly even-handed in application, fails to appreciate valid
substantial distinctions between large scale enterprises and small and medium enterprises. The
latter group, owing to the limited capability for capital investment, subsists on modest profit margins,
whereas the former expects, by reason of its substantial capital investments, a high margin. In
essentially prohibiting the recovery of small profit margins, the E-VAT law effectively sends
the message that only high margin businesses are welcome to do business in the
Philippines. It stifles any entrepreneurial ambitions of Filipinos unfortunate enough to have
been born poor yet seek a better life by sacrificing all to start a small business.
Among the enunciated State policies in the Constitution, as stated in Section 20, Article II, is that
"the State recognizes the indispensable role of the private sector, encourages private
enterprise, and provides incentives to needed investments."41 The provision, as with other
declared State policies in the Constitution, have sufficient import and consequence such that in
assessing the constitutionality of the governmental action, these provisions should be considered
and weighed as against the rationale for the assailed State action.42 The incompatibility of the 70%
cap with this provision is patent.

Pilipinas Shell Dealers, on whom the burden to establish the violation of due process and equal
protection lies, offers the following chart of the income statement of a typical petroleum dealer:
QUARTERLY PROFIT AND LOSS STATEMENT
DEALER "A"

Price

VAT (without 70% cap) VAT (with 70%

cap)

Sales/Output

32,748,534

3,274,853.40

Cost of Sales

31,834,717

3,183,471.70

Gross Margin

Operating Expenses Nonvatable items

3,274,853.40

913,817

536,249

31,758.40

317,584
Vatable Items

Total Cost

853,833

Net Profit

59,984

Total Input Tax

VAT Payable

3,215,230.10

2,292,397.38

59,623.30

982,456.02

Unutilized Input VAT 922,832.72

*computed by multiplying output VAT by 70% [3,274,853.40 x 70% = 2,292.397.38]
The presentation of the Pilipinas Shell Dealers more or less jibes with my own observations on the
impact of the 70% cap. The dealer whose income is illustrated above has to outlay a cash amount
of P922,832.72 more than what would have been shelled out if the 70% cap were not in place.
Considering that the net profit of the dealer is only P59,984.00, the consequences could very well be
fatal, especially if these state of events persist in succeeding quarters.

The burden of proof was on the Pilipinas Shell Dealers to prove their allegations, and accordingly,
these figures have been duly presented to the Court for appreciation and evaluation. Instead, the
majority has shunted aside these presentations as being merely theoretical, despite the fact that
they present a clear and present danger to the very life of our nations enterprises. The majoritys
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 Panglossian43optimism.
The obligation of the majority to refute on the merits the arguments of the Petroleum Dealers
becomes even more grave considering that the respondents have abjectly failed to convincingly
dispute the claims. During oral arguments, respondents attempted to counter the arguments that the
70% cap was oppressive and confiscatory by presenting the following illustration, which I fear is
severely misleading:
Slide 1
Item Cost VAT

Sales 1,000,000.00 100,000.00

Purchases 800,000.00 80,000.00
Due BIR without cap Due BIR with 70% cap

Output VAT 100,000.00 Output VAT 100,000.00

Actual Input VAT 80,000.00 Allowable Input VAT 70,000.00

Net VAT Payable 20,000.00 Net VAT Payable 30,000.00

Excess Input VAT 10,000.00
Carry-over to next quarter

Slide 2
___________________________________________
Item Cost VAT
Sales 1,000,000.00 100,000.00
Purchases 600,000.00 60,000.00
Due BIR without cap Due BIR with 70% cap

Output VAT 100,000.00 Output VAT 100,000.00

Actual Input VAT (60% of output VAT) 60,000.00 Allowable Input VAT 60,000.00
Net VAT Payable 40,000.00 Net VAT Payable 40,000.00

Excess Input VAT 0

Carry-over to next quarter
This presentation of the respondents is grossly deceptive, as it fails to account for the excess
creditable input VAT that remains unutilized due to the 70% cap. This excess or creditable input VAT
is supposed to be carried over for the computation of the input VAT of the next quarter. Instead, this
excess or creditable input VAT magically disappears from the table of the respondents. In their
memorandum, the Pilipinas Shell Dealers counter with their own presentation using the same
variables as respondents, but taking into account the excess creditable input VAT and extending the
situation over a one-year period. I cite with approval the following chart 44 of the Pilipinas Shell
Dealers:
Slide 1

Quarter 1
Item No. Cost VAT
Sales 1,000,000.00 100,000.00
Purchases 800,000.00 80,000.00
Due BIR with 70% cap
Output VAT 100,000.00
Allowable Input VAT 70,000.00
Net VAT Payable 30,000.00
Excess Input Vat
Carry-over to next quarter 10,000.00
Quarter 2
Cost VAT
Sales 1,000,000.00 100,000.00
Purchases 800,000.00 80,000.00
Due BIR with 7-% cap
Output VAT 100,000.00
Less: Input VAT
Excess Input VAT fr. 1st Quarter 10,000.00
Input VAT-Current Qtr. 80,000.00
Total Available Input VAT 90,000.00
Allowable Input VAT (100,000 x 70%) 70,000.00 70,000.00
Net VAT Payable 30,000.00
=========
Total Available Input VAT 90,000.00
Allowable Input VAT 70,000.00

Excess Input VAT to be carried over to next

Quarter 20,000.00
=========
Quarter 3
Cost VAT
Sales 1,000,000.00 100,000.00
Purchases 800,000.00 80,000.00
Due BIR with 70% cap
Output VAT 100,000.00
Less: Input VAT
Excess Input VAT fr. 2nd Qtr. 20,000.00
Input VAT-Current Qtr. 80,000.00
Total Available Input VAT 100,000.00
Allowable Input VAT (100,000 x 70%) 70,000.00 70,000.00
Net VAT Payable 30,000.00
=========
Total Available Input VAT 100,000.00
Allowable Input VAT 70,000.00
Excess Input VAT to be carried over to next quarter 30,000.00
==========
Quarter 4
Cost VAT
Sales 1,000,000.00 100,000.00
Purchases 800,000.00 80,000.00
Due BIR with 70% cap

Output VAT 100,000.00

Less: Input VAT
Excess Input VAT fr. 3rd Qtr. 30,000.00
Input VAT-Current Qtr. 80,000.00
Total Available Input VAT 110,000.00
Allowable Input VAT (100,000 x 70%) 70,000.00 70,000.00
Net VAT Payable 30,000.00
========
Total Available Input VAT 110,000.00
Allowable Input VAT 70,000.00
Excess Input VAT to be carried over to next quarter 40,000.00
==========
The 70% cap is not merely an unwise imposition. It is a burden designed, either through
sheer heedlessness or cruel calculation, to kill off the small and medium enterprises that are
the soul, if not the heart, of our economy. It is not merely an undue taking of property, but
constitutes an unjustified taking of life as well.
And what legitimate, germane purposes does this lethal 70% cap serve? It certainly does not
increase the governments 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 governments debts. I do see that the
70% cap temporarily allows the government to brag to the world of an increased cash flow.
But this situation would be akin to the provincial man who borrows from everybody in the
barrio in order to show off money and maintain the pretense of prosperity to visiting city
relatives. The illusion of wealth is hardly a legitimate state purpose, especially if projected at
the expense of the very business life of the country.
The majority, in an effort to belittle these concerns, points out that that the excess input tax remains
creditable in succeeding quarters. However, as seen in the above illustration, the actual application
of the excess input tax will always be limited by the amount of output taxes collected in a quarter, as
a result of the 70% cap. Thus, it is entirely possible that a VAT-registered person, through the
accumulation of unutilized input taxes, would have in a quarter an express creditable input tax
of P50,000,000, but would be allowed to actually credit only P70,000 if the output tax collected for
that quarter were only P100,000.
The burden of the VAT may fall at first to the immediate buyers, but it is supposed to be eventually
shifted to the end-consumer. The 70% cap effectively prevents this from happening, as it limits the
ability of the business to recover the prepaid input taxes. This is unconscionable, since in the first
place, these intervening

players the manufacturers, producers, traders, retailers are not even supposed to sustain the
losses incurred by reason of the prepayment of the input taxes. Worse, they would be obliged every
quarter to pay to the government from out of their own pockets the equivalent of 30% of the output
taxes, no matter their own particular financial condition. Worst, this twin yoke on the taxpayer of
having to sustain a debit equivalent to 30% of output taxes, and having to await forever in order to
recover the prepaid taxes would impair the cash flow and prove fatal for a shocking number of
businesses which, as they now stand, have to make do with a minimum profit that stands to be
wiped out with the introduction of the 70% cap.
Nonetheless, the majority notes that the excess creditable input tax may be the subject of a tax
credit certificate, which then could be used in payment of internal revenue taxes, or a refund to the
extent that such input taxes have not been applied against output taxes. 45 What the majority fails to
mention is that under Section 10 of the E-VAT Law, which amends Section 112 of the NIRC,
such credit or refund may not be done while the enterprise remains operational:
SEC. 10. Section 112 of the same Code, as amended, is hereby further amended to read as follows:
SEC. 112. Refunds or Tax Credits of Input Tax.
xxx
"(B) Cancellation of VAT Registration. A person whose registration has been cancelled due to
retirement from or cessation of business or due to changes or cessation of status under
Section 106(C) of this Code may, within two (2) years from the date of cancellation, apply for
the issuance of a tax credit certificate for any unused input tax which may be used in
payment of his other internal revenue taxes.
xxx
This stands in marked contrast to Section 112(B) of the NIRC as it read prior to this amendment.
Under the previous rule, a VAT-registered person was entitled to apply for the tax credit certificate or
refund paid on capital goods even while it remained in operation:
SEC. 112. Refunds or Tax Credits of Input Tax.
xxx
"(B) Capital Goods . A VAT-registered person may apply for the issuance of a tax credit certificate
or refund of input taxes paid on capital goods imported or locally purchased, to the extent that such
input taxes have not been applied against output taxes. The application may be made only within
two (2) years after the close of the taxable quarter when the importation or purchase was made.
This provision, which could have provided foreseeable and useful relief to the VAT-registered person,
was deleted under the new E-VAT Law. At present, the refund or tax credit certificate may only be
issued upon two instances: on zero-rated or effectively zero-rated sales, and upon cancellation of
VAT registration due to retirement from or cessation of business.46 This is the cruelest cut of all.
Only after the business ceases to be may the State be compelled to repay the entire amount
of the unutilized input tax. It is like a macabre form of sweepstakes wherein the winner is to
be paid his fortune only when he is already dead. Aanhin pa ang damo kung patay na ang
kabayo.

Moreover, the inability to immediately credit or otherwise recover the unutilized input VAT could
cause such prepaid amount to actually be recognized in the accounting books as a loss. Under
international accounting practices, the unutilized input VAT due to the 70% cap would not even be
recognized as a deferred asset. The same would not hold true if the 70% cap were eliminated.
Under the International Accounting Standards47, 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" 48 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".49 As demonstrated, the continuous operation of the 70% cap precludes
the recovery of input VAT prepaid months or years prior. Moreover, the inability to claim a refund or
tax credit certificate until after the business has already ceased virtually renders it improbable for the
input VAT to be recovered. As such, under the International Accounting Standards, it is with all
likelihood that the prepaid input VAT, ostensibly creditable, would actually be reflected as a
loss.50 What heretofore was recognized as an asset would now, with the imposition of the 70% cap,
be now considered as a loss, enhancing the view that the 70% cap is ultimately confiscatory in
nature.
This leads to my next point. The majority asserts that the input tax is not a property or property right
within the purview of the due process clause.51 I respectfully but strongly disagree.
Tellingly, the BIR itself has recognized that unutilized input VAT is one of those assets, corporate
attributes or property rights that, in the event of a merger, are transferred to the surviving corporation
by operation of law.52Assets 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" 53 If not
probable, it would be recognized as a loss.54Since these international standards, duly recognized by
the Securities and Exchange Commission as controlling in this jurisdiction, attribute tangible gain or
loss to the VAT credit, it necessarily follows that there is proprietary value attached to such gain or
loss.
Moreover, the prepaid input tax represents unutilized profit, which can only be utilized if it is refunded
or credited to output taxes. To assert that the input VAT is merely a privilege is to correspondingly
claim that the business profit is similarly a mere privilege. The Constitution itself recognizes the right
to profit by private enterprises. As I stated earlier, one of the enunciated State policies under the
Constitution is the recognition of the indispensable role of the private sector, the encouragement of
private enterprise, and the provision of incentives to needed investments. 55 Moreover, the
Constitution also requires the State to recognize the right of enterprises to reasonable
returns on investments, and to expansion and growth.56 This, I believe, encompasses profit.
60-Month Amortization Period
Another portion of Section 8 of the E-VAT Law is unconstitutional, essentially for the same reasons
as above. The relevant portion reads:

SEC. 8. Section 110 of the same Code, as amended, is hereby further amended to read as follows:
"SEC. 110. Tax Credits.
(A) Creditable Input Tax.
....
Provided, That the input tax on goods purchased or imported in a calendar month for use in
trade or business for which deduction for depreciation is allowed under this Code, shall be
spread evenly over the month of acquisition and the fifty-nine (59) succeeding months if the
aggregate acquisition cost for such goods, excluding the VAT component thereof, exceeds
One million pesos (P1,000,000): Provided,however, That if the estimated useful life of the capital
good is less than five (5) years, as used for depreciation purposes, then the input VAT shall be
spread over such a shorter period: Provided, finally, that in the case of purchase of services, lease or
use of properties, the input tax shall be creditable to the purchaser, lessee or licensee upon payment
of the compensation, rental, royalty or fee.
Again, this provision unreasonably severely limits the ability of an enterprise to recover its prepaid
input VAT. On its face, it might appear injurious primarily to high margin enterprises, whose purchase
of capital goods in a given quarter would routinely exceed P1,000,000.00. The amortization over a
five-year period of the input VAT on these capital goods would definitely eat up into their profit
margin. But it is still possible for such big businesses to survive despite this new restriction, and their
financial pain alone may not be sufficient to cause the invalidity of a taxing statute.
However, this amortization plan will prove especially fatal to start-ups and other new
businesses, which need to purchase capital goods in order to start up their new
businesses. It is a known fact in the financial community that a majority of businesses start earning
profit only after the second or third year, and many enterprises do not even get to survive that long.
The first few years of a business are the most crucial to its survival, and any financial benefits it can
obtain in those years, no matter how miniscule, may spell the difference between life and death. For
such emerging businesses, it is already difficult under the present system to recover the prepaid
input VAT from the output VAT collected from customers because initial sales volumes are usually
low. With this further limitation, diminishing as it does any opportunity to have a sustainable cash
flow, the ability of new businesses to survive the first three years becomes even more endangered.
Even existing small to medium enterprises are imperiled by this 60 month amortization restriction,
especially considering the application of the 70% cap. The additional purchase of capital goods
bears as a means of adding value to the consumer good, as a means to justify the increased selling
price. However, the purchase of capital goods in excess of P1,000,000.00 would impose another
burden on the small to medium enterprise by further restricting their ability to immediately recover
the entire prepaid input VAT (which would exceed at leastP100,000.00), 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 Courts previous recognition of the aims of the VAT system to "rationalize the system
of taxes on goods and services, [and] simplify tax administration". 57 With the amortization
requirement, the taxpayer would be forced to segregate assets into several classes and strictly
monitor the useful life of assets so that proper classification can be made. The administrative

requirements of the taxpayer in order to monitor the input VAT from the purchase of capital assets
thus has exponentially increased.
5% Withholding VAT on Sales
Pilipinas Shell Dealers argue that Section 12 of the E-VAT law, which amends Section 114(C) of the
NIRC, is also unconstitutional. The provision is supremely unwise, oppressive and confiscatory
in nature, and ruinous to private enterprise and even State development. The provision reads:
SEC. 12. Section 114 of the same Code, as amended, is hereby further amended to read as follows:
"SEC. 114. Return and Payment of Value-Added Tax.
xxx
"(C) Withholding of Value-added Tax. The Government or any of its political subdivisions,
instrumentalities or agencies, including government-owned or controlled corporations (GOCCs)
shall, before making payment on account of each purchase of goods and services which are subject
to the value-added tax imposed in Sections 106 and 108 of this Code, deduct and withhold a final
value-added tax at the rate of five percent (5%) of the gross payment thereof: Provided, That the
payment for lease or use of properties or property rights to nonresident owners shall be subject to
ten percent (10%) withholding tax at the time of payment. For purposes of this Section, the payor or
person in control of the payment shall be considered as the withholding payment. xxx
The principle that the Government and its subsidiaries may deduct and withhold a final value-added
tax on its purchase of goods and services is not new, as the NIRC had allowed such deduction and
withholding at the rate of 3% of the gross payment for the purchase of goods, and 6% of the gross
receipts for services. However, the NIRC had also provided that this tax withheld would also be
creditable against the VAT liability of the seller or contractor, a mechanism that was deleted
by the E-VAT law. The deletion of this credit apparatus effectively compels the private
enterprise transacting with the government to shoulder the output VAT that should have been
paid by the government in excess of 5% of the gross selling price, and at the same time
unduly burdens the private enterprise by precluding it from applying any creditable input VAT
on the same transaction.
Notably, the removal of the credit mechanism runs contrary to the essence of the VAT system, which
characteristically allows the crediting of input taxes against output taxes. Without such crediting
mechanism, which allows the shifting of the VAT to only the final end user, the tax becomes a
straightforward tax on business or income. The effect on the enterprise doing business with
the government would be that two taxes would be imposed on the income by the business
derived on such transaction: the regular personal or corporate income tax on such income,
and this final withholding tax of 5%.
Granted that Congress is not bound to adopt with strict conformity the VAT system, and that it has to
power to impose new taxes on business income, this amendment to Section 114(C) of the NIRC still
remains unconstitutional. It unfairly discriminates against entities which contract with the
government by imposing an additional tax on the income derived from such transactions.
The end result of such discrimination is double taxation on income that is both oppressive
and confiscatory.

It is a legitimate purpose of a tax law to devise a manner by which the government could save
money on its own transactions, but it is another matter if a private enterprise is punished for
doing business with the government. The erstwhile NIRC worked towards such advantage, by
allowing the government to reduce its cash outlay on purchases of goods and services by
withholding the payment of a percentage thereof. While the new E-VAT law retains this benefit to the
government, at the same time it burdens the private enterprise with an additional tax by refusing to
allow the crediting of this tax withheld to the businesss input VAT.
This imposition would be grossly unfair for private entities that transact with the government,
especially on a regular basis. It might be argued that the provision, even if concededly unwise,
nonetheless fails to meet the standard of unconstitutionality, as it affects only those persons or
establishments that choose to do business with the government. However, it is an acknowledged
fact that the government and its subsidiaries rely on contracts with private enterprises in order to be
able to carry out innumerable functions of the State. This provision effectively discourages
private enterprises to do business with the State, as it would impose on the business a
higher rate of tax if it were to transact with the State, as compared to transactions with other
private entities.
Established industries with track records of quality performance could very well be dissuaded from
doing further business with government entities as the higher tax rate would make no economic
sense. Only those enterprises which really need the money, such as those with substandard track
records that have affected their viability in the marketplace, would bother seeking out government
contracts. The corresponding sacrifice in quality would eventually prove detrimental to the State. Our
society can ill afford shoddy infrastructures such as roads, bridges and buildings that would
unnecessarily pose danger to the public at large simply because the government wanted to skimp on
expenses.
The provision squarely contradicts Section 20, Article II of the Constitution as it vacuously
discourages private enterprise, and provides disincentives to needed investments such as
those expected by the State from private businesses. Whatever advantages may be gained by
the temporary increase in the government coffers would be overturned by the disadvantages of
having a reduced pool of private enterprises willing to do business with the government. Moreover,
since government contracts with private enterprises will still remain a necessary fact of life, the
amendment to Section 114(C) of the NIRC introduced by the E-VAT Law.
Double taxation means taxing for the same tax period the same thing or activity twice, when it should
be taxed but once, for the same purpose and with the same kind of character of tax. 58 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."59 Certainly, both the 5% final tax withheld and the general
corporate income tax are both paid for the benefit of the national government, and for the same
incidence of taxation, the sale/lease of goods and services to the government.
The Court, in Re: Request of Atty. Bernardo Zialcita60 had cause to make the following observation I
submitapropos to the case at bar, on double taxation in a case involving the attempt of the BIR to tax
the commuted accumulated leave credits of a government lawyer upon his retirement:
Section 284 of the Revised Administrative Code grants to a government employee 15 days vacation
leave and 15 days sick leave for every year of service. Hence, even if the government employee
absents himself and exhausts his leave credits, he is still deemed to have worked and to have
rendered services. His leave benefits are already imputed in, and form part of, his salary which
in turn is subject to withholding tax on income. He is taxed on the entirety of his salaries

without any deductions for any leaves not utilized. It follows then that the money values
corresponding to these leave benefits both the used and unused have already been taxed
during the year that they were earned. To tax them again when the retiring employee receives
their money value as a form of government concern and appreciation plainly constitutes an
attempt to tax the employee a second time. This is tantamount to double taxation.61
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 governments 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 nations
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
governments finances will be the death of local business, and correspondingly, the demise
of our society. It is a measure just as draconian as the standard issue taxes of medieval
tyrants.
I am not normally inclined towards the language of the overwrought, yet if the sky were indeed truly
falling, how else could that fact be communicated. The E-VAT Law is of multiple fatal consequences.
How are we to survive as a nation without the bulwark of private industries? Perhaps the larger
scale, established businesses may ultimately remain standing, but they will be unable to sustain the
void left by the demise of small to medium enterprises. Or worse, domestic industry would be left in
the absolute control of monopolies, combines or cartels, whether dominated by foreigners or local
oligarchs. The destruction of subsisting industries would be bad enough, the destruction of
opportunity and the entrepreneurial spirit would be even more grievous and tragic, as it would mark
as well the end of hope. Taxes may be the lifeblood of the state, but never at the expense of the life
of its subjects.
Accordingly, I VOTE to:

1) DENY the Petitions in G.R. Nos. 168056, 168207, and 168730 for lack of merit;
2) PARTIALLY GRANT the Petition in G.R. Nos. 168463 and declare Section 21 of the E-VAT Law as
unconstitutional;
3) GRANT the Petition in G.R. No. 168461 and declare as unconstitutional Section 8 of Republic Act
No. 9337, insofar as it amends Section 110(A) and (B) of the National Internal Revenue Code
(NIRC) as well as Section 12 of the same law, with respect to its amendment of Section 114(C) of
the NIRC.
DANTE O. TINGA
Associate Justice

Footnotes
1

Republic Act No. 9337. Referred to intext as "E-VAT Law."

Except insofar as it prays that Section 21 of the E-VAT Law be declared

unconstitutional. Infra.
2

J. Vitug and E. Acosta, Tax Law and Jurisprudence (2nd ed., 2000), at 7-8.

See National Power Corporation v. Province of Albay, G.R. No. 87479, 4 June 1990, 186
SCRA 198, 203.
4

See Section 24, Article VI, Constitution.

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.
6

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

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

Decision, infra.

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

People v. Vera, supra note 8.

11

12

See Section 2, National Internal Revenue Code.

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
13

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 delegates 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.
Decision, infra, citing Alunan v. Mirasol, G.R. No. 108399, 31 July 1997, 276 SCRA 501,
513-514.
14

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.
15

16

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

M. Evans, A Source of Frequent and Obstinate Altercations: The History and Application of
the Origination Clause.
17

The Federalist No. 58, at 394 (J. Madison) (J.Cooke ed. 1961), cited in J. M. Medina, The
Orignation Clause in the American Constitution: A Comparative Survey, 23 Tulsa Law Journal
2, at 165.
18

19

Tolentino v. Secretary of Finance, supra note 16 at 661.

20

See Section 27(1), Article VI, Constitution.

21

Tolentino v. Secretary of Finance, supra note 16 at 668.

22

G.R. No. 124360, 5 November 1997, 281 SCRA 330.

23

Id. at 349-350.

24

People v. Tudtud, G.R. No. 144037, 26 September 2003, 412 SCRA 142, 168.

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).
25

26

16 C.J.S., at 1150-1151.

27

292 U.S. 40 (1934).

28

Id. at 44.

29

G.R. No. L-59431, 25 July 1984, 130 SCRA 654.

30

Id. at 660-662.

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 persons net income would
clearly be oppressive and could unquestionably struck down as a deprivation of his property
without due process of law. A property tax retroacting to as long as fifty years back would by
tyrannical and unrealistic, as the property might not yet have been then in the possession of
the taxpayer nor, presumably, would he have acquired it had he known of the tax to be
imposed on it." I. Cruz, Constitutional Law, p. 85.
31

32

"After defining religion, the Court, citing Tanada and Fernando, made this statement, viz:

The constitutional guaranty of the free exercise and enjoyment of religious profession and
worship carries with it the right to disseminate religious information. Any restraint of such
right can only be justified like other restraints of freedom of expression on the grounds that
there is a clear and present danger of any substantive evil which the State has the right to
prevent. (Tanada and Fernando on the Constitution of the Philippines, vol. 1, 4th ed., p. 297)
(emphasis supplied)
This was the Court's maiden unequivocal affirmation of the "clear and present danger" rule in
the religious freedom area, and in Philippine jurisprudence, for that matter." Estrada v.
Escritor, A.M. No. P-02-1651, 4 August 2003, 408 SCRA 1.
33

Separate Opinion, infra.

34

Ibid.

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.
35

36

Liam & Ebrill, The Modern VAT.

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

Time Value of Money. http://www.jetobjects.com/components/finance/ TVM/concepts.html.

Last visited, 30 August 2005.
38

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."
39

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

41

Section 20, Article II, Constitution.

The due process clause alone is sufficient to invalidate any contravening taxing statute. On
the other hand, Section 20, Article II on its own might not be similarly sufficient. However, if
42

the taxing statute violates both the due process clause and Section 20, Article II, then the
impetus to strike down the offending law becomes even more compelling, so as to defeat the
generalist invocation of the States inherent powers of taxation.
Pangloss was a famed character ridiculed in Voltaires Candide, renowned for his absolute
blind faith in optimism, no matter how dire the circumstances.
43

44

Id. at 29-30.

45

Decision, infra.

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:
46

"[Q]: Is there a way by which such unapplied excess input tax credits can be claimed for
refund or issuance of TCC?
[A]: The only time application for refund/issuance of TCC is allowed for input taxes
incurred on the purchase of domestic goods/services is when the same are directly
attributable to zero-rated or effectively zero-rated sales (of goods/services). xxx
For those engaged purely in domestic transactions, the only time that unapplied input
taxes may be applied for the issuance of TCC is when the VAT registration of the
taxpayer is cancelled due to retirement or cessation of business or change in the
status of the taxpayer as a VAT registered taxpayer. As provided for in Section 112(B0, in
case of cancellation of VAT registration due to cessation of business or change in status of
taxpayer, the only recourse given to such taxpayer is to apply for the issuance of TCC on his
excess input tax credits which may be used in payment of his other internal revenue taxes,
application for refund thereof is not an option."
See Annexes "18-N" and "18-O", Compliance dated 12 July 2005.
See SRC Rule 68(1)(b)(c), Implementing Rules and Regulations to the Securities and
Regulations Code.
47

48

Section 34, International Accounting Standards 12.

49

Section 36, id.

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. SeeSeparate 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."
50

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
51

since by shifting the forum of the petitioners 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.
52

See Part III, Paragraph 3, Revenue Memorandum Ruling No. 1-2002.

53

Section 32, International Accounting Standards 12.

54

Supra note 47.

55

Supra note 9.

56

Section 3, Article XIII, Constitution.

Kapatiran ng Mga Naglilingkod sa Pamahalaan ng Pilipinas, Inc. et al. v. Tan, G.R. No. L81311, 30 June 1988.
57

58

J. Vitug and E. Acosta, supra note 3 at 41.

Pepsi-Cola Bottling Co. of the Philippines, Inc. v. Municipality of Tanauan, G.R. No. L31156, 27 February 1976, 69 SCRA 460, 466-67; citing CIR v. Lednicky, L-18169, July 31,
1964, 11 SACRA 609 and SMB, Inc. v. City of Cebu, L-20312, February 26, 1972, 43 SCRA
280.
59

60

A.M. No. 90-6-015-SC, 18 October 1990, 190 SCRA 851.

61

Id. at 856.

The Lawphil Project - Arellano Law Foundation

EN BANC
G.R. No. 168056 ABAKADA GURO PARTY LIST (Formerly AASJAS) OFFICERS SAMSON S.
ALCANTARA and ED VINCENT S. ALBANO v. THE HONORABLE EXECUTIVE SECRETARY
EDUARDO ERMITA, ET AL.
G.R. No. 168207 AQUILINO Q. PIMENTEL, JR., ET AL. v. EXECUTIVE SECRETARY
EDUARDO R. ERMITA
G.R. No. 168461 ASSOCIATION OF PILIPINAS SHELL DEALERS, INC., ET AL. v. CESAR V.
PURISIMA, ET AL.
G.R. No. 168463 FRANCIS JOSEPH G. ESCUDERO, ET AL. v. CESAR V. PURISIMA, ET AL.

G.R. No. 168730 BATAAN GOVERNOR ENRIQUE T. GARCIA, JR., ET AL. v. HON. EDUARDO
R. ERMITA, ET AL.
Promulgated:
September 1, 2005
x--------------------------------------------------x
CONCURRING OPINION
CHICO-NAZARIO, J.:
Five petitions were filed before this Court questioning the constitutionality of Republic Act No. 9337.
Rep. Act No. 9337, which amended certain provisions of the National Internal Revenue Code of
1997,1 by essentially increasing the tax rates and expanding the coverage of the Value-Added Tax
(VAT). Undoubtedly, during these financially difficult times, more taxes would be additionally
burdensome to the citizenry. However, like a bitter pill, all Filipino citizens must bear the burden of
these new taxes so as to raise the much-needed revenue for the ailing Philippine economy. Taxation
is the indispensable and inevitable price for a civilized society, and without taxes, the government
would be paralyzed.2 Without the tax reforms introduced by Rep. Act No. 9337, the then Secretary of
the Department of Finance, Cesar V. Purisima, assessed that "all economic scenarios point to the
National Governments inability to sustain its precarious fiscal position, resulting in severe erosion of
investor confidence and economic stagnation."3
Finding Rep. Act No. 9337 as not unconstitutional, both in its procedural enactment and in its
substance, I hereby concur in full in the foregoing majority opinion, penned by my esteemed
colleague, Justice Ma. Alicia Austria-Martinez.
According to petitioners, the enactment of Rep. Act No. 9337 by Congress was riddled with
irregularities and violations of the Constitution. In particular, they alleged that: (1) The Bicameral
Conference Committee exceeded its authority to merely settle or reconcile the differences among
House Bills No. 3555 and 3705 and Senate Bill No. 1950, by including in Rep. Act No. 9337
provisions not found in any of the said bills, or deleting from Rep. Act No. 9337 or amending
provisions therein even though they were not in conflict with the provisions of the other bills; (2) The
amendments introduced by the Bicameral Conference Committee violated Article VI, Section 26(2),
of the Constitution which forbids the amendment of a bill after it had passed third reading; and (3)
Rep. Act No. 9337 contravened Article VI, Section 24, of the Constitution which prescribes that
revenue bills should originate exclusively from the House of Representatives.
Invoking the expanded power of judicial review granted to it by the Constitution of 1987, petitioners
are calling upon this Court to look into the enactment of Rep. Act No. 9337 by Congress and,
consequently, to review the applicability of the enrolled bill doctrine in this jurisdiction. Under the said
doctrine, the enrolled bill, as signed by the Speaker of the House of Representatives and the Senate
President, and certified by the Secretaries of both Houses of Congress, shall be conclusive proof of
its due enactment.4
Petitioners arguments failed to convince me of the wisdom of abandoning the enrolled bill doctrine. I
believe that it is more prudent for this Court to remain conservative and to continue its adherence to
the enrolled bill doctrine, for to abandon the said doctrine would be to open a Pandoras Box, giving
rise to a situation more fraught with evil and mischief. Statutes enacted by Congress may not attain

finality or conclusiveness unless declared so by this Court. This would undermine the authority of our
statutes because despite having been signed and certified by the designated officers of Congress,
their validity would still be in doubt and their implementation would be greatly hampered by
allegations of irregularities in their passage by the Legislature. Such an uncertainty in the statutes
would indubitably result in confusion and disorder. In all probability, it is the contemplation of such a
scenario that led an American judge to proclaim, thus
. . . Better, far better, that a provision should occasionally find its way into the statute through
mistake, or even fraud, than, that every Act, state and national, should at any and all times be liable
to put in issue and impeached by the journals, loose papers of the Legislature, and parol evidence.
Such a state of uncertainty in the statute laws of the land would lead to mischiefs absolutely
intolerable. . . .5
Moreover, this Court must attribute good faith and accord utmost respect to the acts of a co-equal
branch of government. While it is true that its jurisdiction has been expanded by the Constitution, the
exercise thereof should not violate the basic principle of separation of powers. The expanded
jurisdiction does not contemplate judicial supremacy over the other branches of government. Thus,
in resolving the procedural issues raised by the petitioners, this Court should limit itself to a
determination of compliance with, or conversely, the violation of a specified procedure in the
Constitution for the passage of laws by Congress, and not of a mere internal rule of proceedings of
its Houses.
It bears emphasis that most of the irregularities in the enactment of Rep. Act No. 9337 concern the
amendments introduced by the Bicameral Conference Committee. The Constitution is silent on such
a committee, it neither prescribes the creation thereof nor does it prohibit it. The creation of the
Bicameral Conference Committee is authorized by the Rules of both Houses of Congress. That the
Rules of both Houses of Congress provide for the creation of a Bicameral Conference Committee is
within the prerogative of each House under the Constitution to determine its own rules of
proceedings.
The Bicameral Conference Committee is a creation of necessity and practicality considering that our
Congress is composed of two Houses, and it is highly improbable that their respective bills on the
same subject matter shall always be in accord and consistent with each other. Instead of all their
members, only the appointed representatives of both Houses shall meet to reconcile or settle the
differences in their bills. The resulting bill from their meetings, embodied in the Bicameral
Conference Report, shall be subject to approval and ratification by both Houses, voting separately.
It does perplex me that members of both Houses would again ask the Court to define and limit the
powers of the Bicameral Conference Committee when such committee is of their own creation. In a
number of cases,6 this Court already made a determination of the extent of the powers of the
Bicameral Conference Committee after taking into account the existing Rules of both Houses of
Congress. In gist, the power of the Bicameral Conference Committee to reconcile or settle the
differences in the two Houses respective bills is not limited to the conflicting provisions of the bills;
but may include matters not found in the original bills but germane to the purpose thereof. If both
Houses viewed the pronouncement made by this Court in such cases as extreme or beyond what
they intended, they had the power to amend their respective Rules to clarify or limit even further the
scope of the authority which they grant to the Bicameral Conference Committee. Petitioners
grievance that, unfortunately, they cannot bring about such an amendment of the Rules on the
Bicameral Conference Committee because they are members of the minority, deserves scant
consideration. That the majority of the members of both Houses refuses to amend the Rules on the
Bicameral Conference Committee is an indication that it is still satisfied therewith. At any rate, this is
how democracy works the will of the majority shall be controlling.

Worth reiterating herein is the concluding paragraph in Arroyo v. De Venecia,7 which reads
It would be unwarranted invasion of the prerogative of a coequal department for this Court either to
set aside a legislative action as void because the Court thinks the house has disregarded its own
rules of procedure, or to allow those defeated in the political arena to seek a rematch in the judicial
forum when petitioners can find remedy in that department. The Court has not been invested with a
roving commission to inquire into complaints, real or imagined, of legislative skullduggery. It would
be acting in excess of its power and would itself be guilty of grave abuse of its discretion were it to
do so. . . .
Present jurisprudence allows the Bicameral Conference Committee to amend, add, and delete
provisions of the Bill under consideration, even in the absence of conflict thereon between the
Senate and House versions, but only so far as said provisions are germane to the purpose of the
Bill.8 Now, there is a question as to whether the Bicameral Conference Committee, which produced
Rep. Act No. 9337, exceeded its authority when it included therein amendments of provisions of the
National Internal Revenue Code of 1997 not related to VAT.
Although House Bills No. 3555 and 3705 were limited to the amendments of the provisions on VAT
of the National Internal Revenue Code of 1997, Senate Bill No. 1950 had a much wider scope and
included amendments of other provisions of the said Code, such as those on income, percentage,
and excise taxes. It should be borne in mind that the very purpose of these three Bills and,
subsequently, of Rep. Act No. 9337, was to raise additional revenues for the government to address
the dire economic situation of the country. The National Internal Revenue Code of 1997, as its title
suggests, is the single Code that governs all our national internal revenue taxes. While it does cover
different taxes, all of them are imposed and collected by the national government to raise revenues.
If we have one Code for all our national internal revenue taxes, then there is no reason why we
cannot have a single statute amending provisions thereof even if they involve different taxes under
separate titles. I hereby submit that the amendments introduced by the Bicameral Conference
Committee to non-VAT provisions of the National Internal Revenue Code of 1997 are not
unconstitutional for they are germane to the purpose of House Bills No. 3555 and 3705 and Senate
Bill No. 1950, which is to raise national revenues.
Furthermore, the procedural issues raised by the petitioners were already addressed and resolved
by this Court in Tolentino v. Executive Secretary.9 Since petitioners failed to proffer novel factual or
legal argument in support of their positions that were not previously considered by this Court in the
same case, then I am not compelled to depart from the conclusions made therein.
The majority opinion has already thoroughly discussed each of the substantial issues raised by the
petitioners. I would just wish to discuss additional matters pertaining to the petition of the petroleum
dealers in G.R. No. 168461.
They claim that the provision of Rep. Act No. 9337 limiting their input VAT credit to only 70% of their
output VAT deprives them of their property without due process of law. They argue further that such
70% cap violates the equal protection and uniformity of taxation clauses under Article III, Section 1,
and Article VI, Section 28(1), respectively, of the Constitution, because it will unduly prejudice
taxpayers who have high input VAT and who, because of the cap, cannot fully utilize their input VAT
as credit.
I cannot sustain the petroleum dealers position for the following reasons
First, I adhere to the view that the input VAT is not a property to which the taxpayer has vested
rights. Input VAT consists of the VAT a VAT-registered person had paid on his purchases or

importation of goods, properties, and services from a VAT-registered supplier; more simply, it is VAT
paid. It is not, as averred by petitioner petroleum dealers, a property that the taxpayer acquired for
valuable consideration.10 A VAT-registered person incurs input VAT because he complied with the
National Internal Revenue Code of 1997, which imposed the VAT and made the payment thereof
mandatory; and not because he paid for it or purchased it for a price.
Generally, when one pays taxes to the government, he cannot expect any direct and concrete
benefit to himself for such payment. The benefit of payment of taxes shall redound to the society as
a whole. However, by virtue of Section 110(A) of the National Internal Revenue Code of 1997, prior
to its amendment by Rep. Act No. 9337, a VAT-registered person is allowed, subject to certain
substantiation requirements, to credit his input VAT against his output VAT.
Output VAT is the VAT imposed by the VAT-registered person on his own sales of goods, properties,
and services or the VAT he passes on to his buyers. Hence, the VAT-registered person selling the
goods, properties, and services does not pay for the output VAT; said output VAT is paid for by his
consumers and he only collects and remits the same to the government.
The crediting of the input VAT against the output VAT is a statutory privilege, granted by Section 110
of the National Internal Revenue Code of 1997. It gives the VAT-registered person the opportunity to
recover the input VAT he had paid, so that, in effect, the input VAT does not constitute an additional
cost for him. While it is true that input VAT credits are reported as assets in a VAT-registered
persons financial statements and books of account, this accounting treatment is still based on the
statutory provision recognizing the input VAT as a credit. Without Section 110 of the National Internal
Revenue Code of 1997, then the accounting treatment of any input VAT will also change and may no
longer be booked outright as an asset. Since the privilege of an input VAT credit is granted by law,
then an amendment of such law may limit the exercise of or may totally withdraw the privilege.
The amendment of Section 110 of the National Internal Revenue Code of 1997 by Rep. Act No.
9337, which imposed the 70% cap on input VAT credits, is a legitimate exercise by Congress of its
law-making power. To say that Congress may not trifle with Section 110 of the National Internal
Revenue Code of 1997 would be to violate a basic precept of constitutional law that no law is
irrepealable.11 There can be no vested right to the continued existence of a statute, which precludes
its change or repeal.12
It bears to emphasize that Rep. Act No. 9337 does not totally remove the privilege of crediting the
input VAT against the output VAT. It merely limits the amount of input VAT one may credit against his
output VAT per quarter to an amount equivalent to 70% of the output VAT. What is more, any input
VAT in excess of the 70% cap may be carried-over to the next quarter.13 It is certainly a departure
from the VAT crediting system under Section 110 of the National Internal Revenue Code of 1997, but
it is an innovation that Congress may very well introduce, because
VAT will continue to evolve from its pioneering original structure. Dynamically, it will be subjected to
reforms that will make it conform to many factors, among which are: the changing requirements of
government revenue; the social, economic and political vicissitudes of the times; and the conflicting
interests in our society. In the course of its evolution, it will be injected with some oddities and
inevitably transformed into a structure which its revisionists believe will be an improvement
overtime.14
Second, assuming for the sake of argument, that the input VAT credit is indeed a property, the
petroleum dealers right thereto has not vested. A right is deemed vested and subject to
constitutional protection when

". . . [T]he right to enjoyment, present or prospective, has become the property of some particular
person or persons as a present interest. The right must be absolute, complete, and unconditional,
independent of a contingency, and a mere expectancy of future benefit, or a contingent interest in
property founded on anticipated continuance of existing laws, does not constitute a vested right. So,
inchoate rights which have not been acted on are not vested." (16 C. J. S. 214-215) 15
Under the National Internal Revenue Code of 1997, before it was amended by Rep. Act No. 9337,
the sale or importation of petroleum products were exempt from VAT, and instead, were subject to
excise tax.16 Petroleum dealers did not impose any output VAT on their sales to consumers. Since
they had no output VAT against which they could credit their input VAT, they shouldered the costs of
the input VAT that they paid on their purchases of goods, properties, and services. Their sales not
being subject to VAT, the petroleum dealers had no input VAT credits to speak of.
It is only under Rep. Act No. 9337 that the sales by the petroleum dealers have become subject to
VAT and only in its implementation may they use their input VAT as credit against their output VAT.
While eager to use their input VAT credit accorded to it by Rep. Act No. 9337, the petroleum dealers
reject the limitation imposed by the very same law on such use.
It should be remembered that prior to Rep. Act No. 9337, the petroleum dealers input VAT credits
were inexistent they were unrecognized and disallowed by law. The petroleum dealers had no
such property called input VAT credits. It is only rational, therefore, that they cannot acquire vested
rights to the use of such input VAT credits when they were never entitled to such credits in the first
place, at least, not until Rep. Act No. 9337.
My view, at this point, when Rep. Act No. 9337 has not yet even been implemented, is that
petroleum dealers right to use their input VAT as credit against their output VAT unlimitedly has not
vested, being a mere expectancy of a future benefit and being contingent on the continuance of
Section 110 of the National Internal Revenue Code of 1997, prior to its amendment by Rep. Act No.
9337.
Third, although the petroleum dealers presented figures and computations to support their
contention that the cap shall lead to the demise of their businesses, I remain unconvinced.
Rep. Act No. 9337, while imposing the 70% cap on input VAT credits, allows the taxpayer to carryover 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--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 VATtaxpayer, at least, on equal footing with a VAT-exempt taxpayer under Section 109(V) of the National
Internal Revenue Code, as amended by Rep. Act No. 9337. 17 The latter taxpayer is exempt from VAT
on the basis that his sale or lease of goods or properties or services do not exceed P1,500,000;
instead, he is subject to pay a three percent (3%) tax on his gross receipts in lieu of the VAT.18 If a
taxpayer with presumably a smaller business is required to pay three percent (3%) gross receipts
tax, a type of tax which does not even allow for any crediting, a VAT-taxpayer with a bigger business
should be obligated, likewise, to pay a minimum of 30% output VAT (which should be equivalent to

3% of the gross selling price per good or property or service sold). The cap assures the government
a collection of at least 30% output VAT, contributing to an improved cash flow for the government.
Attention is further called to the fact that the output VAT is the VAT imposed on the sales by a VATtaxpayer; it is paid by the purchasers of the goods, properties, and services, and merely collected
through the VAT-registered seller. The latter, therefore, serves as a collecting agent for the
government. The VAT-registered seller is merely being required to remit to the government a
minimum of 30% of his output VAT collection.
Fourth, I give no weight to the figures and computations presented before this Court by the
petroleum dealers, particularly the supposed quarterly profit and loss statement of a "typical dealer."
How these data represent the financial status of a typical dealer, I would not know when there was
no effort to explain the manner by which they were surveyed, collated, and averaged out. Without
establishing their source therefor, the figures and computations presented by the petroleum dealers
are merely self-serving and unsubstantiated, deserving scant consideration by this Court. Even
assuming that these figures truly represent the financial standing of petroleum dealers, the
introduction and application thereto of the VAT factor, which forebode the collapse of said petroleum
dealers businesses, would be nothing more than an anticipated damage an injury that may or may
not happen. To resolve their petition on this basis would be premature and contrary to the
established tenet of ripeness of a cause of action before this Court could validly exercise its power of
judicial review.
Fifth, in response to the contention of the petroleum dealers during oral arguments before this Court
that they cannot pass on to the consumers the VAT burden and increase the prices of their goods, it
is worthy to quote below this Courts ruling in Churchill v. Concepcion,19 to wit
It will thus be seen that the contention that the rates charged for advertising cannot be raised is
purely hypothetical, based entirely upon the opinion of the plaintiffs, unsupported by actual test, and
that the plaintiffs themselves admit that a number of other persons have voluntarily and without
protest paid the tax herein complained of. Under these circumstances, can it be held as a matter of
fact that the tax is confiscatory or that, as a matter of law, the tax is unconstitutional? Is the exercise
of the taxing power of the Legislature dependent upon and restricted by the opinion of two interested
witnesses? There can be but one answer to these questions, especially in view of the fact that
others are paying the tax and presumably making reasonable profit from their business.
As a final observation, I perceive that what truly underlies the opposition to Rep. Act No. 9337 is not
the question of its constitutionality, but rather the wisdom of its enactment. Would it truly raise
national revenue and benefit the entire country, or would it only increase the burden of the Filipino
people? Would it contribute to a revival of our economy or only contribute to the difficulties and
eventual closure of businesses? These are issues that we cannot resolve as the Supreme Court. As
this Court explained in Agustin v. Edu,20 to wit
It does appear clearly that petitioners objection to this Letter of Instruction is not premised on lack of
power, the justification for a finding of unconstitutionality, but on the pessimistic, not to say negative,
view he entertains as to its wisdom. That approach, it put it at its mildest, is distinguished, if that is
the appropriate word, by its unorthodoxy. It bears repeating "that this Court, in the language of
Justice Laurel, does not pass upon questions of wisdom, justice or expediency of legislation. As
expressed by Justice Tuason: It is not the province of the courts to supervise legislation and keep it
within the bounds of propriety and common sense. That is primarily and exclusively a legislative
concern. There can be no possible objection then to the observation of Justice Montemayor: As
long as laws do not violate any Constitutional provision, the Courts merely interpret and apply them
regardless of whether or not they are wise or salutary. For they, according to Justice Labrador, are

not supposed to override legitimate policy and * * * never inquire into the wisdom of the law. It is
thus settled, to paraphrase Chief Justice Concepcion in Gonzales v. Commission on Elections, that
only congressional power or competence, not the wisdom of the action taken, may be the basis for
declaring a statute invalid. This is as it ought to be. The principle of separation of powers has in the
main wisely allocated the respective authority of each department and confined its jurisdiction to
such sphere. There would then be intrusion not allowable under the Constitution if on a matter left to
the discretion of a coordinate branch, the judiciary would substitute its own" 21
To reiterate, we cannot substitute our discretion for Congress, and even though there are provisions
in Rep. Act No. 9337 which we may believe as unwise or iniquitous, but not unconstitutional, we
cannot strike them off by invoking our power of judicial review. In such a situation, the recourse of
the people is not judicial, but rather political. If they severely doubt the wisdom of the present
Congress for passing a statute such as Rep. Act No. 9337, then they have the power to hold the
members of said Congress accountable by using their voting power in the next elections.
In view of the foregoing, I vote for the denial of the present petitions and the upholding of the
constitutionality of Rep. Act No. 9337 in its entirety.
MINITA V. CHICO-NAZARIO
Associate Justice

Footnotes
1

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

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

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.
3

Farias v. Executive Secretary, G.R. No. 147387, 10 December 2003, 417 SCRA 503, 529.

Justice Sawyer, in Sherman v. Story, 30 Cal. 253, 256, as quoted in Marshall Field & Co. v.
Clark, 143 U.S. 294, 304.
5

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.
6

G.R. No. 127255, 14 August 1997, 277 SCRA 268, 299.

Supra, note 6.

Supra, note 3.

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.
10

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).
11

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.
12

Section 110(B) of the National Internal Revenue Code of 1997, as amended by Section 8
of Rep. Act No. 9337.
13

Victorio A. Deoferio, Jr. and Victorino C. Mamalateo, The Value Added Tax in the
Philippines 48 (2000).
14

15

Benguet Consolidated Mining Co. v. Pineda, 98 Phil 711, 722 (1956).

16

Section 109(e) of the National Internal Revenue Code of 1997.

17

TSN, 18 April 2005, IV-2, p. 5.

18

Section 116 of the National Internal Revenue Code, as amended by Rep. Act No. 9337.

19

34 Phil. 969, 973 (1916).

20

G.R. No. L-49112, 02 February 1979, 88 SCRA 195.

21

Id., pp. 210-211.