The Court, by a majority vote and per the Decision written by Justice Ma. Alicia Austria-Martinez,
all the Petitions and upheld the constitutionality of Republic Act No. 9337 in its entirety. However, the following Justices dissented and voted to declare specific provisions of the law unconstitutional per their Separate Opinions, as follows:
In addition, Justices Puno, Ynares-Santiago, Sandoval-Gutierrez, Corona, Callejo, Sr., and Garcia voted to declare unconstitutional the deletion by the Bicameral Conference Committee of the "no pass on provision."
While I still hold on to my position expressed in my dissenting opinion in the first VAT cases,
I partly yield to the application to the cases at bar of the rule on “germaneness” therein enunciated. Thus, I concur with the ponencia of my highly-esteemed colleague Mme. Justice Ma. Alicia Austria-Martinez except as regards its ruling on the issue of whether Republic Act No. 9337 violates Section 24, Article VI of the Constitution.
R.A. No. 9337 primarily aims to restructure the value-added tax (VAT) system by broadening its base and raising the rate so as to generate more revenues for the government that can assuage the economic predicament that our country is now facing. This recently enacted law stemmed from three legislative bills: House Bill (HB) No. 3555, HB No. 3705, and Senate Bill (SB) 1950. The first (HB No. 3555) called for the 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.
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.
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:
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.
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
The limitation on the power of a conference committee to insert new provisions was laid down in
.
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
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
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 country’s 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
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.
Tolentino v. Secretary of Finance, G.R. No. 115455, 25 August 1994, 235 SCRA 630, and companion cases.
SAGANI 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.)
Supra note 1.
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 judgments
[1] and
Fariñas v. Executive Secretary.
[2]Precedence of Mandatory
Constitutional Provisions
Over the Enrolled Bill DoctrineI believe, however, that the enrolled bill doctrine
[3] 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 originated
[7] 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 expanded
[9] 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
ponente of
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-conflicting provisions, and (5) adopt completely new provisions not found in either version. This, therefore, is the simple question: In the performance of its function of reconciling conflicting provisions, has the Committee blatantly violated the Constitution?
My short answer is: No, except those relating to income taxes referred to in Sections 1, 2 and 3 of Republic Act (RA) No. 9337. Let me explain.
Adopting the House
Version in Part or in TotoFirst, 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,
[16] because the bills originated exclusively from the House of Representatives itself.
In the present case, the BCC did not ignore the Senate and adopt any of the House bills in part or
in toto. Therefore, this option was not taken by the BCC.
Adopting the Senate
Version in Part or in TotoSecond, 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 economic
[22] 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 House
[26] 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 ConsolidatingAs a
third option, the BCC may reach a compromise by consolidating both the Senate and the House versions. It can adopt some parts and reject other parts of both bills, and craft new provisions or even a substitute bill. I believe this option is viable, provided that there is no violation of the origination and germane principles, as well as the three-reading rule. After all, the report generated by the BCC will not become a 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 one-half 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 GDP
[34] -- 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; 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 secretary’s 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 President’s 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, not
legislative, function.
The
ponencia states that Congress merely delegates the implementation of the law to the secretary of finance. How then can the latter be its agent?
Making a law is different from
implementing it. While the
first (the making of laws) may be delegated under certain conditions and only in specific instances provided under the Constitution, the
second (the implementation of laws) may not be done by Congress. After all, the legislature does not have the power to implement laws. Therefore, congressional agency arises only in the
first, not in the
second. The
first is a legislative function; the
second, an executive one.
Petitioners’ argument is that because the GDP does not account for the economic effects of so-called 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 latter’s 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 President’s 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
final withholding 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. VAT-registered persons may not always be nonresident foreign corporations that declare and pay dividends, while intercorporate dividends are certainly not goods or properties for sale, barter, exchange, lease or importation. Certainly, input VAT credits are different from tax credits on dividends received by nonresident foreign corporations.
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 taxpayer’s trade, business or exercise of profession.
[58] In order to reduce revenue losses, Congress enacted RA 8424
[59] 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 pass-on provisions and determining their extent, or of deleting them altogether. In opting for deletion to resolve the variances, it was merely acting within its discretion. No grave abuse may be imputed to the BCC.
The 70 Percent Cap on Input Tax and the 5 Percent Final Withholding VAT. Deciding on the 70 percent cap and the 5 percent final withholding VAT in the consolidated bill is also within the power of the BCC. While HB 3555 included limits of 5 percent and 11 percent on input tax,
[63] SB 1950 proposed an even spread over 60 months.
[64] The 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
usually collected 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 Lauré, 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 ajoutée,
[70] which was quickly adopted by the
Direction Générale des Impost, the new French tax authority of which he became joint director. Consequently, taxpayers at all levels in the production process, rather than retailers or tax authorities, were forced 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 VAT-registered 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 company’s financial statements, and are not rooted in laws of nature, as are the laws of physical science, for these are merely developed and continually modified by 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 percent
percentage tax on the gross quarterly sales or receipts of persons who were not VAT-registered, 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 other’s 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: | Isn’t the solution to increase the price then?
|
“Atty. Baniqued: | If you increase the price which you can very well do, Your Honor, then that [will] be deflationary and it [will] have a cascading effect on all other basic commodities[, especially] because what is involved here is petroleum, Your Honor.
|
“Justice Panganiban: | That may be true[,] but it’s not unconstitutional?
|
“Atty. Baniqued: | That may be true, Your Honor, but the very limitation of the [seventy percent] input [VAT], when applied to the case of the petroleum dealers[,] is oppressive[.] [I]t’s unjust and it’s unreasonable, Your Honor.
|
“Justice Panganiban: | But it can be passed as a part of sales, sales costs rather.
|
“Atty. Baniqued: | But the petroleum dealers here themselves…… interrupted
|
“Justice Panganiban: | In your [b]alance [s]heet, it could be reflected as Cost of Sales and therefore the price will go up?
|
“Atty. Baniqued: | Even if it were to be reflected as part of the Cost of Sales, Your Honor, the [input VAT] that you cannot claim, the benefit to you is only to the extent of the corporate tax rate which is 32 now 35 [percent].
|
“Justice Panganiban | Yes.
|
“Atty. Baniqued: | It’s not 100 [percent] credi[ta]bility[,] unlike if it were applied against your [output VAT], you get to claim 100 [percent] of it, Your Honor.
|
“Justice Panganiban: | That might be true, but we are talking about whether that particular provision would be unconstitutional. You say it’s oppressive, but you have a remedy, you just pass it on to the customer. I am not sayin[g] it’s good[.] [N]either am I saying it’s wise[.] [A]ll I’m talking about is, whether it’s constitutional or not.
|
“Atty. Baniqued: | Yes, in fact we acknowledge, Your Honor, that that is a remedy available to the petroleum dealers, but considering the impact of that limitation[,] and were just talking of the 70 [percent cap] on [input VAT] 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, isn’t 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 it’s good. All I am saying is, is it constitutional or not[?] We’re not here to determine the wisdom of the law, that’s up for Congress. As pointed out earlier, if the law is not wise, the law makers will be changed by the people[.] [T]hat is their solution t[o] the lack of wisdom of a law. If the law is unconstitutional[,] then the Supreme Court will declare it unconstitutional and void it, but[,] in this case[,] there seems to be a business remedy in the same manner that Congress may just impose that tax straight without saying it’s [VAT]. If Congress will just say all petroleum will pay 3 [percent] of their Gross Sales, but you don’t bear that, you pass that on, isn’t it?
|
“Atty. Baniqued: | We acknowledge your concern, Your Honor, but we should not forget that when the petroleum dealers pass these financial burden or this tax differential to the consumers, they themselves are consumers in their own right. As a matter of fact, they filed this case both as petroleum dealer[s] and as taxpayers. If they pass if on, they themselves would ultimately bear the burden[, especially] in increase[d] cost of electricity, land transport, food, everything, Your Honor.
|
“Justice Panganiban: | Yes, but the issue here in this Court, is whether that act of Congress is unconstitutional.
|
“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 don’t 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: | It’s 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. It’s up for the dealers to guess, and the dealers were guessing to their advantage by saying plus 10 [percent] anyway, right?
|
“Atty. Baniqued: | In fact, the petroleum dealers, Your Honors, are not only faced with constitutional issues before this Court. They are also faced with a possibility of the Department of Energy not allowing them to pass it on[,] because this would be an unreasonable price increase. And so, they are being hit from both sides…interrupted
|
“Justice Panganiban: | That’s 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 there’ll be no confusion and there’ll 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], isn’t 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 don’t pass it on[;] but you or your clients as businessm[e]n, I know, will pass it on.
|
“Atty. Baniqued: | As I have said, Your Honor, there are many constraints on their ability to do that[,] and that is why the first step that we are seeking is to seek redress from this Honorable Court[,] because we feel that the 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. Let’s talk about the 5 [percent] [d]epreciation rate, but that applies only to the capital equipment worth over a million?
|
“Atty. Baniqued: | Yes, Your Honor.
|
“Justice Panganiban: | And that doesn’t apply at all times, isn’t it?
|
“Atty. Baniqued: | Well……
|
“Justice Panganiban: | That doesn’t at all times?
|
“Atty. Baniqued: | For capital goods costing less than 1 million, Your Honor, then….
|
“Justice Panganiban: | That will not apply?
|
“Atty. Baniqued: | 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]hat’s 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 didn’t tell us that that will apply only when capital equipment or goods is one million or more. And in your case, what kind of capital goods will be worth one million or more in your existing gas stations?
|
“Atty. Baniqued: | Well, you would have petroleum dealers, Your Honor, who would have[,] aside from sale of petroleum[,] they would have their service centers[,] like[…] to service cars and they would have those equipments, they are, Your Honor.
|
“Justice Panganiban: | But that’s a different profit center, that’s not from the sale of…
|
“Atty. Baniqued: | No, they would form part of their [VATable] sale, Your Honor.
|
“Justice Panganiban: | It’s a different profit center[;] it’s not in the sale of petroleum products. In fact the mode now is to put up super stores in huge gas stations. I do not begrudge the gas station[.] [A]ll I am saying is it should be presented to us in perspective. Neither am I siding with the government. All I am saying is, when I saw your complicated balance sheet and mathematics, I saw that you were to put in all the time the depreciation that should be spread over [five] years. But we have agreed that that applies only to capital equipment [-- ]not to any kind of goods [--] but to capital equipment costing over 1 million pesos.
|
“Atty. Baniqued: | Yes, Your Honor, we apologize if it has caused a little confusion….
|
“Justice Panganiban: | Again the solution could b[e] to pass that on, because that’s an added cost, isn’t it?
|
“Atty. Baniqued: | Well, yes, you can pass it on….
|
“Justice Panganiban: | I am not teaching you, I am just saying that you have a remedy… I am not saying either that the remedy is wise or should be done, because[,] as a consumer[,] I wouldn’t want that to be done to me.
|
“Atty. Baniqued: | We realiz[e] that, Your Honor, but the fact remain[s] that whether it is in the hands of the petroleum dealers or in the hands of the consumers[,] if this imposition is unreasonable and oppressive, it will remain so, even after it is passed on, Your Honor.
|
“Justice Panganiban: | Alright. Let’s 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, let’s see. You sell, let’s 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, that’s 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[,] we’ll just have to [charge] you 5 [percent] more. Well, the Supreme Court will probably say, well, anyway, that 5 [percent] that we will pay the gas dealer, will be paid back to the government, isn’t it[?] So, how [will] you be affected?
|
“Atty. Baniqued: | I hope the passing on of the burden, Your Honor, doesn’t come back to party litigants by way of increase in docket fees, Your Honor.
|
“Justice Panganiban: | But that’s quite another m[a]tter, though…(laughs) [W]hat I am saying, Mr. [C]ounsel is, you still have to show to us that your remedy is to declare the law unconstitutional[,] and it’s not business in character.
|
“Atty. Baniqued: | Yes, Your Honor, it is our submission that this limitation in the input [VAT] credit as well as the amortization…….
|
“Justice Panganiban: | All you talk about is equal protection clause, about due process, depreciation of property without observance of due process[,] could really be a remedy than a business way.
|
“Atty. Baniqued: | Business in the level of the petroleum dealers, Your Honor, or in the level of Congress, Your Honor.
|
“Justice Panganiban: | Yes, you can pass them on to customers[,] in other words. It’s the customers who should [complain].
|
“Atty. Baniqued: | 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, it’s inflationary[,] brings up the prices of everything…
|
“Atty. Baniqued: | And it is our submission that[,] if the petroleum dealers cannot absorb it and they pass it on to the customers, a lot of consumers would neither be in a position to absorb it too and that[’s] why we patronize, Your Honor.
|
“Justice Panganiban: | There might be wisdom in what you’re saying, but is that unconstitutional?
|
“Atty. Baniqued: | Yes, because as I said, Your Honor, there are even constraints in the petroleum dealers to pass it on, and we[‘]re not even sure whether….interrupted
|
“Justice Panganiban | Are these constraints [--] legal constraints?
|
“Atty. Baniqued: | Well, it would be a different story, Your Honor[.] [T]hat’s something we probably have to take up with the Department of Energy, lest [we may] be accused of …..
|
“Justice Panganiban: | In other words, that’s 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, [we’re] 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 don’t 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 BCC’s amendments regarding other taxes
[90] 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 measures[91] 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 rule
[93] 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
ProvisionsFourth, 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.
[94] As I have already mentioned earlier, these provisions were in conflict. Thus, the BCC exercised its prerogative to remove them. In fact, congressional rules give the BCC the power to reconcile disagreeing provisions, and in the process of reconciliation, to delete them.
No other non-conflicting provision was deleted.At this point, and after the extensive discussion above, it can readily be seen no
non-conflicting provisions of the E-VAT bills were rejected indiscriminately by the BCC.
Approving and Inserting
Completely New ProvisionsFifth, 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
ponencia’s 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 Executive’s 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), Tañada v. Angara held that “this Court never forgets that the Senate, whose act is under review, is one of two sovereign houses of Congress and is thus entitled to great respect in its actions. It is itself a constitutional body, independent and coordinate, and thus its actions are presumed regular and done in good faith. Unless convincing proof and persuasive arguments are presented to overthrow such presumption, this Court will resolve every doubt in its favor.”[98] As pointed our in Cawaling 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.
[1] 235 SCRA 630, August 25, 1994; and 249 SCRA 628, October 30, 1995. The second case is an en banc Resolution on the Motions for Reconsideration of the first case.
[2] 417 SCRA 503, December 10, 2003.
[3] “[I]t is well settled that the enrolled bill doctrine is conclusive upon the courts as regards the tenor of the measure passed by 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 Concepción,
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.
Following
Field v. Clark (143 US 649, 12 S.Ct. 495, February 29, 1892), such conclusiveness refers not only to the provisions of the law, but also to its due enactment.
Mabanag v. Lopez Vito, 78 Phil. 1, 13-18, March 5, 1947.
“[T]he signing of a bill by the Speaker of the House and the Senate President and the certification of the Secretaries of both [h]ouses of Congress that it was passed are conclusive of its due enactment.”
Fariñas v. Executive Secretary, supra, p. 529, per Callejo Sr.,
J.[4] Mabanag v. Lopez Vito, supra, p. 12.
[5] §1 of Rule 129 of the Rules of Court.
[6] The United Kingdom has an uncodified Constitution, consisting of both written and unwritten sources, capable of evolving to be responsive to political and social change, and found partly in conventions and customs and partly in statute. Its Parliament has the power to change or abolish any written or unwritten element of the Constitution. There is neither separation of powers nor formal checks and balances. Every bill drafted has to be approved by both the House of Commons and the House of Lords, before it receives the Royal Assent and becomes an Act of Parliament. The House of Lords is the second chamber that complements the work of the Commons, whose members are elected to represent their constituents. The first is the House of Commons that alone may start bills to raise taxes or authorize expenditures. Each bill goes through several stages in each House. The first stage, called the first reading, is a mere 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 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.
[8] Cf.
Francisco Jr. v. House of Representatives, 415 SCRA 44, November 10, 2003.
[9] Tolentino v. Secretary of Finance, supra.
[10] 2
nd 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.
[15] “The purpose for which three readings on separate days is required is said to be two-fold: (1) to inform the members of Congress of what they must vote on and (2) to give them notice that a measure is progressing through the enacting process, thus enabling them and others interested in the measure to prepare their positions with reference to it.”
Tolentino v. Secretary of Finance, supra, p. 647, October 30, 1995, per Mendoza,
J.
[16] §24 of Article VI of the 1987 Constitution.
[17] §24 of Article VI of the 1987 Constitution.
The power of the Senate to propose or concur with amendments is, apparently, without restriction. By virtue of this power, the Senate can practically rewrite a bill that is required to come from the House and leave only a trace of the original bill. See
Flint v. Stone Tracy Co., 220 US 107, 31 S.Ct. 342, March 13, 1911.
[18] §24 of Article VI of the 1987 Constitution.
[19] Tolentino v. Secretary of Finance, supra, p. 661, August 25, 1994.
[20] Garner (ed. in chief),
Black’s Law Dictionary (8
th ed., 2004), p. 708.
[21] Statsky,
West’s Legal Thesaurus/Dictionary (1986), p. 348.
[22] To argue that the raising of revenues makes the non-VAT provisions of a VAT bill automatically germane is to bring legal analysis within the penumbra of economic scrutiny. The burden or impact of any tax depends on the relative elasticities of supply and demand and is chiefly a matter of policy confined within the august halls of Congress. See Pindyck and Rubinfeld,
Microeconomics (5
th ed., 2003), pp. 314-317.
[23] Exxon Mobil Corp. v. Allapattah Services, Inc., 125 S.Ct. 2611, 2622, June 23, 2005, per Kennedy, J.
[24] Tolentino v. Secretary of Finance, supra, p. 663, August 25, 1994.
See Cruz,
Philippine Political Law (2002), p. 154.
[25] Tolentino v. Secretary of Finance, supra, August 25, 1994, per Mendoza,
J.[26] Cruz,
Philippine Political Law (2002), p. 155.
[27] Tolentino v. Secretary of Finance, supra, August 25, 1994.
[28] Cruz,
Philippine Political Law (2002), p. 111.
[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.
[30] On the one hand, §§1-3 of House Bill (HB) No. 3555 seek to amend §§106, 107 & 108 the Tax Code by increasing the VAT rate to 12% on every sale, barter or exchange of goods or properties; importation of goods; and sale or exchange of services, including the use or lease of properties.
§§1-3 of HB 3705, on the other, seek to amend §§106, 107 & 108 the Tax Code by also
increasing the VAT rate to 12% on every sale, barter or exchange of goods or properties; importation of goods; and sale or exchange of services, including the use or lease of properties, but
decreasing such rate to 8% on every importation of certain goods; 6% on the sale, barter or exchange of certain locally manufactured goods; and 4% on the sale, barter or exchange, as well as importation, of petroleum products subject to excise tax and raw materials to be used in their manufacture (subject to subsequent increases of such reduced rates), and on the gross receipts derived from services rendered on the sale of generated power.
The Tax Code referred to in this case is RA 8424, otherwise known as the “Tax Reform Act of 1997.”
[31] §§4-5 of Senate Bill (SB) No. 1950 seek to amend §§106 & 108 of the Tax Code by retaining the VAT rate of 10% on every sale, barter or exchange of goods or properties; and on the sale or exchange of services, including the use or lease of properties, and the sale of electricity by generation, transmission, and distribution companies.
[32] §§4-6 of the consolidated bill amending §§106-108 of the Tax Code, respectively.
Conference Committee Report on HBs 3555 & 3705, and SB 1950, pp. 4-7.
The predetermined factual scenario in the above-cited sections of the consolidated bill also appears in §§4-6 of Republic Act (RA) No. 9337, amending the same provisions of the Tax Code. Mathematically, it is expressed as follows:
VAT Collection | > | 2.8% |
GDP | or |
|
National Government Deficit | > | 1.5% |
GDP |
|
|
[33] A negative budget surplus, or an excess of expenditure over revenues, is a budget deficit. Dornbusch, Fischer, and Startz,
Macroeconomics (9
th ed., 2005), p. 231.
[34] GDP refers to the value of all goods and services produced domestically; the sum of gross value added of all resident institutional units engaged in production (plus any taxes, and minus any subsidies, on products not included in the values of their outputs). www.nscb.gov.ph/sna/default.asp (Last visited July 14, 2005 10am PST).
[35] See
Pelaez v. Auditor General, 122 Phil. 965, 974, December 24, 1965.
[36] The acts of retroactively implementing the 12 percent VAT rate, should the finance secretary be able to make recommendation only weeks or months after the end of fiscal year 2005, or reverting to 10 percent if both conditions are not met, are best addressed to the political branches of government.
The following excerpts from the
Transcript of the Oral Arguments in 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: | [It’s] supposed to be 2005, Your Honor, but apparently, it [will] be impossible to determine GDP the first day of 2006, Your Honor.” (p. 57);
|
x x x
|
“Justice Panganiban: | Now [let’s see] when it is possible then to determine this formula. It cannot be on the first day of January 2006, because the year [2005] ended just the midnight before, isn’t it?
|
“Atty. Gorospe: | Yes, Your Honor.
|
“Justice Panganiban: | x x x if it’s only determined on March 1[,] then how can the law 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);
|
x x x
|
“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);
|
x x x
|
“Justice Panganiban: | But certainly not on January 1. Therefore, by January 1, people would not know whether the rate would be increased or not, even if there is no discretion?
|
“Atty. Gana: | That’s true, Your Honor, even if there is no discretion.
|
“Justice Panganiban: | It will take weeks, or months to be able to determine that?
|
“Atty. Gana: | Well, they anticipated it, would take at most by March.” (p. 193); and
|
x x x
|
“Justice Panganiban: | March, I will ask the government later on when they argue.
|
“Atty. Gana: | As early as January but not later than 60 to 90 days.” (boldface supplied; p. 194). |
Culled from the same record, the following excerpts show the position of public respondents:
“Justice Panganiban: | It will be based on actual figures?
|
“Usec. Bonoan: | It will be based on actual figures.
|
“Justice Panganiban: | That creates a problem[,] because where do you get the actual figures[?]
|
“Usec. Bonoan: | I understand that[,] traditionally[,] we can come in March, but 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, it’s just estimate to get the figures in January.
|
“Usec. Bonoan: | Yes, Your Honor (pp. 661-662); and
|
x x x
|
“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 regulations how much they [would] be charged, how much should gasoline stations charge in addition to their correct prices, how much carriers should charge[,] so there [would] be no confusion.
|
“Usec. Bonoan: | Yes, Your Honor.” (boldface supplied; pp. 665-666). |
[37] Using available statistics, it is approximated that the 2 4/5 percent has been reached. VAT collection (in million pesos) for the first quarter alone of 2004 is 83,542.83, or 83 percent of revenue collections amounting to 100,654.01. Divided into GDP of 13,053, the 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 (4
th ed., 1998), p. 333.
[39] 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.
[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 (9
th ed., 2005), pp. 35-36.
[41] Fariñas v. Executive Secretary, 417 SCRA, 503, 530, December 10, 2003.
[42] “Any meaningful change in the method and procedures of Congress or its committees must x x x be sought in that body itself.”
Tolentino v. Secretary of Finance, supra, p. 650, October 30, 1995, per Mendoza,
J.[43] The necessity, desirability or expediency of a law must be addressed to Congress as the body that is responsible to the electorate, for “legislators are the ultimate guardians of the liberties and welfare of the people in quite as great a degree [as the] courts.”
Tolentino v. Secretary of Finance, supra, p. 650, October 30, 1995, per Mendoza,
J.; (citing
Missouri, K. & T. Ry. Co. v. May, 194 US 267, 270, 24 S.Ct. 638, 639, May 2, 1904, per Holmes,
J.)
[44] Fariñas v. Executive Secretary, 417 SCRA, 503, 524, December 10, 2003.
[45] Flint v. Stone Tracy Co., 220 US 107, 167, 31 S.Ct. 342, 355, March 13, 1911, per Day,
J.[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
Osmeña Jr. v. Pendatun, 109 Phil 863, 870-871, October 28, 1960, per Bengzon,
J.).
[47] HBs 3555 & 3705 do not contain any provision that seeks to revise non-VAT provisions of the Tax Code, but SB 1950 has §§1-3 that seek to amend the rates of income tax on domestic, resident foreign and nonresident foreign corporations at 35% (30% in 2009), with a tax credit on intercorporate dividends at 20% (15% in 2009); and to reduce the allowable deductions for interest expense by 42% (33% in 2009) of the interest income subject to final tax.
[48] The amendments to income taxes also partake of the nature of taxation without representation. As I will discuss in the succeeding paragraphs of this Opinion, they did not emanate from the House of Representatives that, under §24 of Article VI of the 1987 Constitution, is the only body from which revenue bills should exclusively originate.
[49] Mamalateo,
Philippine Income Tax (2004), p. 1.
[50] Commissioner of Internal Revenue v. American Express International, Inc. (Philippine Branch), 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.
[51] De Leon,
The Fundamentals of Taxation (12
th ed., 1998), pp. 92 & 132.
[52] Mamalateo,
Philippine Income Tax (2004), p. 379.
[53] Vitug,
Tax Law and Jurisprudence (2
nd ed., 2000), p. 188.
[54] Mamalateo,
Philippine Income Tax (2004), p. 380.
[55] De Leon, T
he Law on Transfer and Business Taxation with Illustrations, Problems, and Solutions (1998), pp. 195-196 & 222-224.
[56] Mamalateo,
Philippine Income Tax (2004), p. 173.
[57] See §78 of
Revenue Regulations No. 2-1940, recommended by Bibiano L. Meer, then Collector of Internal Revenue, and promulgated by Manuel Roxas, then Secretary of Finance, later President of the Republic of the Philippines, on February 11, 1941, XXXIX OG 18, 325.
[58] Mamalateo,
Philippine Income Tax (2004), p. 196.
[59] RA 8424 refers to the Tax Reform Act of 1997.
[60] The 42 percent reduction rate under §3 of RA 9337, amending §34(B)(1) of the Tax Code, is derived by first subtracting the 20 percent tax on interest income from the increased tax rate of 35 percent imposed on domestic, resident foreign, and nonresident foreign corporations, and then dividing the difference obtained by the increased rate. Hence, it is computed as follows:
35% - 20% = 15%
15% : 35% = 42%, the amount of reduction.
[61] §§1-3 of HB 3705.
[62] §5 of SB 1950. There seems to be a discrepancy between the Conference Committee Report and the various pleadings before this Court. While such report, attaching a copy of the bill as reconciled and approved by its conferees, as well as the report submitted by the Senate’s Committee on Ways & Means to the Senate President on March 7, 2005, show that SB 1950 does not contain a no-pass on provision, the petitioners and respondents show that it does (Pimentel Memorandum, Annex A showing a “Matrix on the Disagreeing Provisions of the [VAT] Bills,” pp. 9-11; Escudero Memorandum, p. 42; and Respondents’ Memorandum, pp. 109-110). Notably, the qualified dissent of Senator Joker Arroyo to the Bicameral Conference Report states that the Senate version prohibits the power companies from passing on the VAT that they will pay.
[63] §4 of HB 3555 seeks to amend §110(A) of the Tax Code by limiting to 5% and 11% of their respective total amounts the claim for input tax credit of capital goods, through equal distribution of the amount of such claim over their depreciable lives; and of goods and services other than capital goods, and goods purchased by persons engaged in retail trade.
[64] §7 of SB 1950 seeks to amend §110 of the Tax Code by also limiting the claim for input tax credit of goods purchased or imported for use in trade or business, through an even depreciation or amortization over the month of acquisition and the 59 succeeding months, if the aggregate acquisition cost of such goods exceeds P 660,000.
The depreciation or amortization in the amendments is referred to as a “spread-out” in an unnumbered Revenue Memorandum Circular dated July 12, 2005, submitted to this Court by public respondents in their Compliance dated August 16, 2005. Such spread-out recognizes industries where capital assets are constructed or assembled.
[65] No cap is found in HB 3705.
[66] §5 of HB 3555 seeks to amend §114 of the Tax Code by requiring that the VAT be deducted and withheld by the government or by any of its political subdivisions, instrumentalities or agencies -- including government-owned-and-controlled corporations (GOCCs) -- before making any payment on account of each purchase of goods from sellers and services rendered by contractors. The VAT deducted and withheld shall be at the rates of 5% of the gross payment for the purchase of goods and 8% of the gross receipts for services rendered by contractors on every sale or installment payment. The VAT that is deducted and withheld shall be creditable against their respective VAT liabilities -- 10.5%, in case of government public works contractors; and 12% of the payments for the lease or use of properties or property rights to nonresident owners.
[67] §11 of SB 1950 seeks to amend §114 of the Tax Code by requiring that the VAT be deducted and withheld by the government or by any of its political subdivisions, instrumentalities or agencies -- including government-owned or -controlled corporations (GOCCs) -- before making any payment on account of each purchase of goods from sellers and services rendered by contractors. The VAT deducted and withheld shall be at the rates of 5% of the gross payment for the purchase of goods and on the gross receipts for services rendered by contractors, including public works contractors. The VAT that is deducted and withheld shall be creditable against the VAT liability of the seller; and 10% of the gross payment for the lease or use of properties or property rights to nonresident owners.
[68] Deoferio Jr. & Mamalateo,
The Value Added Tax in the Philippines (2000), pp. 34-35 & 44.
[69] http://explanation-guide.info/meaning/Maurice-Lauré.html (Last visited August 23, 2005, 3:25pm PST).
[70] This refers to a “tax on value added” -- TVA in French and VAT in English.
[71] http://en.wikipedia.org/wiki/ Maurice-Lauré (Last visited August 23, 2005, 3:20pm PST).
[72] 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:
“Justice Panganiban: | So, the final consumer pays the tax?
|
“Atty. Baniqued: | Yes, Your Honor.
|
“Justice Panganiban: | The trade people in between the middlemen just take it as an input and then [collect] it as output, isn’t it?
|
Atty. Baniqued: | Yes, Your Honor.
|
“Justice Panganiban: | It’s just a cash flow problem for them, essentially?
|
“Atty. Baniqued: | Yes x x x.” (p. 375). |
[73] The 5 percent final withholding tax may also be charged as part of a supplier’s Cost of Sales.
[74] This refers to RA 8424, as amended.
[75] In fact, §112(B) of the Tax Code, prior to and after its amendment by §10 of RA 9337, does not at all prohibit the application of unused input taxes against other internal revenue taxes. The manner of application is determined though by the BIR through §4.112-1(b) of Revenue Regulations No. 14-2005, otherwise known as the “Consolidated VAT Regulations of 2005,” dated June 22, 2005.
[76] That the unutilized input VAT can be considered an ordinary and necessary expense for which a corresponding deduction will be allowed against gross income under §34(A)(1) of the Tax Code --instead of a deferred asset -- is another matter to be adjudicated upon in proper cases.
[77] See
United Paracale Mining Co. v. De la Rosa, 221 SCRA 108, 115, April 7, 1993.
[78] The law referred to is not only the Tax Code, but also RA 9298, otherwise known as the “Philippine Accountancy Act of 2004.”
[79] These are based on pronouncements of recognized bodies involved in setting accounting principles. Greatest weight shall be given to their pronouncements in the order listed below:
- Securities and Exchange Commission (SEC);
- Accounting Standards Council;
- Standards issued by the International Accounting Standards Board (now Committee); and
- 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.
[81] The VAT is collected on each sale of goods or properties or upon the actual or constructive receipt of consideration for services, starting from the production stage, followed by the intermediate stages in the distribution process, and culminating with the sale to the final consumer. This is the essence of a VAT; it is a tax on the value added, that is, on the excess of sales over purchases.
See Deoferio Jr. & Mamalateo,
The Value Added Tax in the Philippines (2000), pp. 33-34. With the 70 percent cap on output tax that is allowable as an input tax credit, the remaining 30 percent becomes an outright expense that is, however, immediately payable and remitted by the business establishment to the government. This amount can never be recovered or passed on to the consumer, but it can be an allowable deduction from gross income under §34(A)(1) of the Tax Code. In effect, it is a tax computed by multiplying 30 percent to the 10 percent VAT that is imposed on gross sales, receipts or revenues. It is not a tax on tax and, mathematically, it is derived as follows:
30% x 10% = 3% of gross sales, receipts or revenues.
==========================
[82] “Double taxation means taxing the same property [or subject matter] twice when it should be taxed only once; that is, ‘taxing the same person twice by the same jurisdiction for the same thing.’”
Commissioner of Internal Revenue v. Solidbank Corp., 416 SCRA 436, November 25, 2003, per Panganiban,
J.; (citing
Afisco Insurance Corp. v. CA, 361 Phil. 671, 687, January 25, 1999, per Panganiban,
J.). See
Commissioner of Internal Revenue v. Bank of Commerce, GR No. 149636, pp. 17-18, June 8, 2005.
[83] “The rule x x x is well settled that there is no constitutional prohibition against double taxation.”
China Banking Corp. v. CA, 403 SCRA 634, 664, June 10, 2003, per Carpio,
J. Cruz,
Constitutional Law (1998), p. 89.
[84] §116 of the Tax Code as amended.
[85] “[C]ourts accord the presumption of constitutionality to legislative enactments, not only because the legislature is presumed to abide by the Constitution[,] but also because the judiciary[,] in the determination of actual cases and controversies[,] must reflect the wisdom and justice of the people as expressed through their representatives in the executive and legislative departments of the government.”
Angara v. Electoral Commission, 63 Phil. 139, 158-159, July 15, 1936, per Laurel, J.; (cited in
Francisco Jr. v. House of Representatives, supra, pp. 121-122.)
[86] Cawaling Jr. v. COMELEC, 420 Phil. 524, 530, October 26, 2001, per Sandoval-Gutierrez,
J.[87] Ichong v. Hernandez, 101 Phil. 1155, 1164, May 31, 1957, per Labrador,
J.[88] De Leon,
The Fundamentals of Taxation (12
th ed., 1998), p. 1.
[89] Except, as earlier discussed, for Sections 1, 2 and 3 of the law.
[90] §§13-20 of SB 1950 seek to amend Tax Code provisions on percentage taxes on domestic carriers and keepers of garages in §117, and on international carriers in §118; franchise taxes in §119; amusement taxes in §125; excise taxes on manufactured oils and other fuels in §148; registration requirements in §236; issuance of receipts or sales or commercial invoices in §237; and disposition of incremental revenues in §288.
[91] “[T]he removal of the excise tax on diesel x x x and other socially sensitive products such as kerosene and fuel oil substantially lessened the impact of VAT. The reduction in import duty x x x also eased the impact of VAT.” Manila Bulletin, “
Impact of VAT on prices of oil products should be less than 10%, says DoE,” by James A. Loyola, Business Bulletin B-3, Friday, July 1, 2005, attached as Annex A to the Memorandum filed by the Association of Pilipinas Shell Dealers, Inc.
The Transcript of the Oral Arguments in 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 it’s not correct to say that all prices must go up by 10 [percent].
|
“Atty. Baniqued: | You’re right, Your Honor.
|
“Justice Panganiban: | Now. For instance, [d]omestic [a]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.
[96] “Each house may not by its rules ignore constitutional restraints or violate fundamental rights, and there should be a reasonable relation between the mode or method of proceeding established by the rule and the result which is sought to be attained.”
US v. Ballin, 144 US 1, 5, 12 S.Ct. 507, 509, February 29, 1892, per Brewer,
J.[97] Panganiban,
Leveling the Playing Field (2004), PRINTTOWN Group of Companies, pp. 46-47.
[98] 338 Phil. 546, 604-605, May 2, 1997, per Panganiban,
J.[99] 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.).
[100] 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).
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. in
Tolentino v. Secretary of Finance[3] 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 Senate’s amendments, or (c) by way of a compromise, to agree that neither provisions in the House bill amended by the Senate nor the latter’s 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
ponencia’s submission that despite its limited authority, the Bicameral Conference Committee could “compromise the disagreeing provisions” by substituting it with its own version – clearly violate the three-reading requirement, as the committee’s version would no longer undergo the same since it would be immediately put into vote by the respective houses. In effect, it is not a bill that was passed by the entire Congress but by the members of the ad hoc committee only, which of course is constitutionally infirm.
I disagree that the no-amendment rule referred only to “the procedure to be followed by each house of Congress with regard to bills initiated in each of said respective houses” because it would relegate the no-amendment rule to a mere rule of procedure. To my mind, the no-amendment rule should be construed as prohibiting the Bicameral Conference Committee from introducing amendments and modifications to non-disagreeing provisions of the House and Senate bills. In sum, the committee could only either adopt the version of the House bill or the Senate bill, or adopt neither. As Justice Reynato S. Puno said in his Dissenting Opinion in
Tolentino v. Secretary of Finance,
[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.
[1] Cooley on Constitutional Limitations, 8
th Ed., Vol. I, p. 332.
[2] Angara v. Electoral Commission, 63 Phil. 139, 158 [1936].
[3] G.R. Nos. 115455, 115525, 115543, 115544, 115754, 115781, 115852, 115873, 115931, 25 August 1994, 235 SCRA 630, 750.
[4] Supra, p. 811.
CONCURRING AND DISSENTING OPINION
SANDOVAL – GUTIERREZ, J.:Adam Smith, the great 18
th – 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:
- It is “high time to re-examine the test of germaneness proffered in Tolentino;”
- The Bicameral Conference Committee “cannot exercise its unbridled discretion,” “it cannot create a new law,” and its deletion of the “no pass on provision” common in both Senate Bill No. 1950 and House Bill No. 3705 is “unconstitutional.”
In addition to the above points raised by Mr. Senior Justice Puno, may I expound on the issues specified hereunder:
There is no reason to rush and stamp the imprimatur of validity to a tax law, R.A. 9337, that contains patently unconstitutional provisions. I refer to Sections 4 to 6 which violate the principle of non-delegation of legislative power. These Sections authorize the President, upon recommendation of the Secretary of Finance, to raise the VAT rate from 10% to 12% effective January 1, 2006, if the conditions specified therein are met, thus:
. . . That the President, upon the recommendation of the Secretary of Finance, shall, effective January 1, 2006, raise the rate of value-added tax to twelve percent (12%) after any of the following 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 ½%). |
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] 168207
[3] and 168463
[4] 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 people’s 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 or
expressio unius est exclusio alterius. Considering that Section 28 (2), Article VI expressly speaks only of “tariff rates,
[12] import
[13] and export quotas,
[14] tonnage
[15] and wharfage dues
[16] 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 ½%).
At first glance, the two conditions may appear to be definite standards sufficient to guide the President. However, to my mind, they are ineffectual and malleable as they give the President ample opportunity to exercise her
authority in arbitrary and discretionary fashion.
The two conditions set forth by law would have been sufficient had it not been for the fact that the President, being at the helm of the entire officialdom, has more than enough power of control to bring about the existence of such conditions. Obviously, R.A. No. 9337 allows the President to determine for herself whether the VAT rate shall be increased or not at all. The fulfillment of the conditions is entirely placed in her hands. If she wishes to increase the VAT rate, all she has to do is to strictly enforce the VAT collection so as to exceed the 2 4/5% ceiling. The same holds true with the national government deficit. She will just limit government expenses so as not to exceed the 1 ½% ceiling. On the other hand, if she does not wish to increase the VAT rate, she may discourage the Secretary of Finance from making the recommendation.
That the President’s exercise of an authority is practically within her control is tantamount to giving no conditions at all. I believe this amounts to a virtual surrender of legislative power to her. It must be stressed that the validity of a law is not tested by what has been done but by
what may be done under its provisions.
[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.
|
| x x x x x x
|
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.
|
| x x x x x x
|
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-à-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 one’s 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 Senate’s power not only to ‘concur with amendments: but also to ‘propose amendments.’ It would be to violate the co-equality of the legislative power of the two houses of Congress and in fact, make the House superior to the Senate.”
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. 3555[29] and
3705[30]. 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 above-mentioned.
[1] Book V of
The Wealth of Nations.[2] ABAKADA GURO Party List (Formerly AASJAS), Officers Samson S. Alcantara and Ed Vincent S. Albano.
[3] Aquilino Q. Pimentel, Jr., Luisa P. Ejercito-Estrada, Jinggoy E. Estrada, Panfilo M. Lacson, Alfredo S. Lim, Jamby A.S. Madrigal and Sergio R. Osmena III.
[4] Francis Joseph G. Escudero, Vincent Crisologo, Emmanuel Joel J. Villanueva, Rodolfo G. Plaza, Darlene Antonino-Custodio, Oscar G. Malapitan, Benjamin C. Agarao, Jr., Juan Edgardo M. Angara, Justin Marc SB. Chipeco, Florencio G. Noel, Mujiv S. Hataman, Renato B. Magtubo, Joseph A. Santiago, Teofisto DL. Guingona III, Ruy Elias C. Lopez, Rodolfo Q. Agbayani and Teodoro A. Casino.
[5] Luzon Stevedoring Co. vs. Court of Tax Appeals, L-302332, July 29, 1998, 163 SCRA 647 cited in Vitug, Acosta,
Tax Law and Jurisprudence, Second Edition, at 7.
[6] Pepsi Cola Bottling Company of the Philippines vs. Municipality of Tanauan, Leyte, G.R. No. L-31156, February 27, 1976, 69 SCRA 460. See also
National Power Corporation vs. Albay, G.R. No. 87479, June 4, 1990, 186 SCRA 198.
[7] Bernas, SJ,
The 1987 Constitution of the Republic of the Philippines, A Commentary, 1996 Edition, at 687.
[8] People vs. Vera, 65 Phil. 56 (1937).
[9] Cooley on Constitutional Limitations, 8th ed., Vol. I, p. 224.
[10] Vitug, Acosta, Tax Law and Jurisprudence, Second Edition, at 8-9.
[11] Espiritu vs. Cipriano, G.R. No. 32743, February 15, 1974, 55 SCRA 533, 538, citing
Sutherlands Statutory Construction, Vol. 2, Section 4945, p. 412.
[12] A tariff is a list or schedule of articles on which a duty is imposed upon their importation, with the rates at which they are severally taxed, it is also the custom or duty payable on such articles. (Black’s Law Dictionary [6
th Edition], 1990, at 1456).
[13] An import quota is a quantitative restriction on the importation of an article into a country, and is a remedy available to the executive department upon its determination that an imported article threatens serious injury to a domestic industry. (
Id. at 755).
[14] An export quota is an amount of specific goods which may be exported and are set by the government for purposes of national defense, economic stability and price support. (
Id. at 579).
[15] Tonnage dues are duties laid upon vessels according to their tonnage or cubical capacity. (
Id. at 1488).
[16] Wharfage dues are generally understood to be the fees paid for landing goods upon or loading them from a wharf. It is a charge for the use of the wharf and may be treated either as rent or compensation. (
Marine Lighterage Corp. vs. Luckenbach S.S. Co., 119 Misc. 612, 248 NYS 71).
[17] A duty is generally understood to be a tax on the importation or exportation of goods, merchandise and other commodities, while imposts are duties or impositions levied for various reasons. (
Crew Levick Co. vs. Commonwealth of Pennsylvania, 245 US 292, 62 L. Ed. 295, 38 S. Ct. 126).
[18] People vs. Vera, supra.[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-Webster’s Third New International Dictionary (1993 Ed.), at 793.
[25] Id.[26] City Mayor vs. The Chief of Philippine Constabulary, G.R. No. 20346, October 31, 1967, 21 SCRA 665, 673.
[27] Merriam-Webster’s Third New International Dictionary (1993 Ed.), at 1592.
[28] Davies, Legislative Law and Process, (2d. Ed. 1986), at 89.
[29] Entitled “
An Act Restructuring the Value-Added Tax, Amending for the Purpose Sections 106, 107, 108, 110 and 114 of the National Internal Revenue Code of 1997, As amended, and For Other Purposes.” Approved on January 27, 2005.
[30] Entitled “
An Act Amending Sections 106, 107, 108, 109, 110 and 111 of the National Internal Revenue Code of 1997, As Amended, and For Other Purposes.” Approved on February 28, 2005.
[31] Entitled “
An Act Amending Sections 27, 28, 34, 106,108, 109,110, 112, 113, 114, 116, 117, 119, 121, 125, 148, 151, 236, 237 and 288 of the National Internal Revenue Code of 1997, As Amended, and For Other Purposes.” Approved on April1 3, 2005.
[32] Merriam-Webster’s Third New International Dictionary (1993 Ed.), at 484.
[33] Supra.
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 FinanceIn ruling that Congress, in enacting R.A. No. 9337, complied with the formal requirements of the Constitution, the
ponencia relies mainly on the Court’s 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
Tolentino particularly with respect to the scope of the powers of the Bicameral Conference Committee vis-à-vis Article VI, Section 26(2) of the Constitution.
The crucial issue posed by the present petitions is whether the Bicameral Conference Committee may validly introduce amendments that were not contained in the respective bills of the Senate and the House of Representatives. As a corollary, whether it may validly delete provisions uniformly contained in the respective bills of the Senate and the House of Representatives.
In
Tolentino, the Court declared as valid amendments introduced by the Bicameral Conference Committee even if these were not contained in the Senate and House bills. The majority opinion therein held:
As to the possibility of an entirely new bill emerging out of a Conference Committee, it has been explained: Under congressional rules of procedures, conference committees are not expected to make any material change in the measure at issue, either by deleting provisions to which both houses have already agreed or by inserting new provisions. But this is a difficult provision to enforce. Note the problem when one house amends a proposal originating in either house by striking out everything following the enacting clause and substituting provisions which make it an entirely new bill. The versions are now altogether different, permitting a conference committee to draft essentially a new bill …
The result is a third version, which is considered an “amendment in the nature of a substitute,” the only requirement for which being that the third version be germane to the subject of the House and Senate bills.
Indeed, this Court recently held that it is within the power of a conference committee to include in its report an entirely new provision that is not found either in the House bill or in the Senate Bill. If the committee can propose an amendment consisting of one or two provisions, collectively considered as an “amendment in the nature 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 Constitution’s and our Constitution’s 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:
- 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
- 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
ponencia’s 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 extra-constitutional creation of Congress whose function is to propose to Congress ways of reconciling conflicting provisions found in the Senate version and in the House version of a bill. It performs a necessary function in a bicameral system. 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 Court’s 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 Court’s 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 ConstitutionPertinently, 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 latter’s 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 Senate’s amendments, or (c) by way of compromise, to agree that neither provisions in the House Bill amended by the Senate nor the latter’s 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
Jefferson’s Manual, a conference committee may introduce
germane matters in a particular bill. However, such matters should be circumscribed by the committee’s 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 Senators
[10] unqualifiedly approved it. Senator Joker P. Arroyo expressed his qualified dissent while Senators Sergio R. Osmeña III and Juan Ponce Enrile approved it with reservations. On the other hand, of the twenty-eight (28) Members of the House of Representatives-Conferees,
[11] fourteen (14)
[12] approved the same with reservations while three
[13] 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-à-vis conference committee reports opens the possibility of amendments, which are substantial and not even germane to the original bills of either house, being introduced by the conference committees and voted upon by the legislators without knowledge of their contents. This practice cannot be countenanced as it patently runs afoul of the essence of Article VI, Section 26(2) of the Constitution. Worse, it is tantamount to Congress surrendering its legislative functions to the conference committees.
Ratification by Congress did not cure the
unconstitutional act of the Bicameral Conference
Committee of deleting the “no pass on provision”That both the Senate and the House of Representatives approved the Bicameral Conference Committee Report which deleted the “no pass on provision” did not cure the unconstitutional act of the said committee. As succinctly put by Chief Justice Davide in his dissent in Tolentino, “[t]his doctrine of ratification may apply to minor procedural flaws or tolerable breaches of the parameters of the bicameral conference committee’s 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 ConstitutionAs 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 cites
Fariñas v. Executive Secretary[15] where the Court declined to go behind the enrolled bill vis-à-vis the allegations of the petitioners therein that irregularities attended the passage of Republic Act No. 9006, otherwise known as the Fair Election Act.
Reliance by the
ponencia on
Fariñas is quite misplaced. The Court’s adherence to the enrolled bill doctrine in the said case was justified for the following reasons:
The Court finds no reason to deviate from the salutary in this case where the irregularities alleged by the petitioners mostly involved the internal rules of Congress, whether House or Senate. Parliamentary rules are merely procedural and with their observance the courts have no concern. Whatever doubts there may be as to the formal validity of Rep. Act No. 9006 must be resolved in its favor. The Court reiterates its ruling in Arroyo v. De Venecia, viz.: But the cases, both here and abroad, in varying forms of expression, all deny to the courts the power to inquire into the allegations that, in enacting a law, a House of Congress failed to comply with its own rules, in the absence of showing that there was a violation of a constitutional provision or the rights of private individuals. In Osmeña v. Pendatun, it was held: “At any rate, courts have declared that ‘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
Fariñas, the Court’s 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.
[1] G.R. No. 115455, 25 August 1994, 235 SCRA 630.
[2] Tolentino v. Secretary of Finance, supra, at 667-668.
[3] See, for example, Vermuele, A., The Constitutional Law of Congressional Procedure, 71 U. Chi. L. Rev. 361 (Spring 2004).
[4] Galloway, G., Congress at the Crossroads, pp. 98-100.
[5] Bernas SJ, J., The 1987 Constitution of the Republic of the Philippines, A Commentary, pp. 702-703 (1996 Ed.).
[6] Dissenting Opinion of Justice Romero in
Tolentino, supra.[7] Vermuele,
supra.
[8] Id. citing Bentham, J., Political Tactics.
[9] Senators Ralph G. Recto, Joker P. Arroyo, Manuel B. Villar, Richard J. Gordon, Rodolfo G. Biazon, Edgardo G. Angara, M.A. Madrigal, Sergio R. Osmena III, Juan Ponce Enrile.
[10] Senators Recto, Villar, Gordon, Biazon.
[11] Representatives Jesli A. Lapus, Danilo E. Suarez, Arnulfo P. Fuentebella, Eric D. Singson, Junie E. Cua, Teodoro L. Locsin, Jr., Salacnib Baterina, Edcel C. Lagman, Luis R. Villafuerte, Herminio G. Teves, Eduardo G. Gullas, Joey Sarte Salceda, Prospero C. Nograles, Exequiel B. Javier, Rolando G. Andaya, Jr., Guillermo P. Cua, Arthur D. Defensor, Raul V. Del Mar, Ronaldo B. Zamora, Rolex P. Suplico, Jacinto V. Paras, Vincent P. Crisologo, Alan Peter S. Cayetano, Joseph Santiago, Oscar G. Malapitan, Catalino Figueroa, Antonino P. Roman and Imee R. Marcos.
[12] Representatives Suarez, Fuentebella, Cua, Locsin, Jr., Teves, Gullas, Javier, Cua, Defensor, Crisologo, Cayetano, Santiago, Malapitan and Marcos.
[13] Representatives Del Mar, Suplico and Paras.
[14] Dissenting Opinion in
Tolentino, supra.
[15] G.R. No. 147387, 10 December 2003, 417 SCRA 503.
[16] Id., pp. 529-530. (Emphases mine.)
[17] By way of explanation, the constitutional issues raised in
Fariñas were (1) whether Section 14 of R.A. No. 9006 was a rider or that it violated Article VI, Section 26(1) of the Constitution requiring that “[e]very bill passed by Congress shall embrace only one subject which shall be expressed in the title thereof;” and (2) whether Section 14 of R.A. No. 9006 violated the equal protection clause of the Constitution. On both issues the Court ruled in the negative. To reiterate, unlike in the present cases, the acts of the conference committee with respect to R.A. No. 9006 in Fariñas allegedly violated the internal rules of either house of Congress, but it was not alleged therein that they amounted to a violation of any constitutional provision on legislative procedure.
[18] Article VIII, Section 1, CONSTITUTION.
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 one-half percent (1 ½%).[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 ½% of the GDP of the previous year.
Note that the law says that the rate shall be increased if
any of the two conditions happens,
i.e., if condition (i)
or condition (ii) occurs.
Now, in realistic terms, considering the short time-frame given, the only practicable way that the present deficit of the national government can be reduced to 1 ½% 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 ½% 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.
[1] The Constitution states that “Congress may, by law, allow the President to fix within specified limits, and subject to such limitations and restrictions as it may impose,
tariff rates, import and export quotas, tonnage and wharfage dues, and other duties as imposts within the framework of the national development program of the Government.” (Art. VI, Sec. 28 [2], emphasis supplied.)
Petitioners claim that the power does not extend to fixing the rates of
taxes, since taxes are
not tariffs, import and export quotas, tonnage and wharfage dues, or other duties or imposts.
[2] Section 4, Republic Act No. 9337. The pertinent portion of the provision states:
SEC. 4. Section 106 of the same Code, as amended, is hereby further amended to read as follows:
“SEC. 106. Value-added Tax on Sale of Goods or Properties. –
“(A) Rate and Base of Tax. – There shall be levied, assessed and collected on every sale, barter or exchange of goods or properties, a value-added tax equivalent to ten percent (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 ½%).”
[3] Condition has been defined by Escriche as “every future and uncertain event upon which an obligation or provision is made to depend.” It is a future and uncertain event upon which the acquisition or resolution of rights is made to depend by those who execute the juridical act. Futurity and uncertainty must concur as characteristics of the event.
. . .
An event which is not uncertain but must necessarily happen cannot be a condition; the obligation will be considered as one with a term. (IV TOLENTINO, COMMENTARIES AND JURISPRUDENCE ON THE CIVIL CODE OF THE PHILIPPINES, 144).
[4] I voted for the issuance of the temporary restraining order to prevent the disorderly implementation of the law that would have defeated its very purpose and disrupted the entire VAT system, resulting in less revenues. The rationale, therefore, of the rule against enjoining the collection of taxes, that taxes are the lifeblood of Government, leaned in favor of the temporary restraining order.
DISSENTING and CONCURRING OPINION
TINGA, J.:The E-VAT Law,[1] as it stands, will exterminate our country’s small to medium enterprises. This will be the net effect of affirming Section 8 of the law, which amends Sections 110 of the National Internal Revenue Code (NIRC) by imposing a seventy percent (70%) cap on the creditable input tax a VAT-registered person may apply every quarter and a mandatory sixty (60) -month amortization period on 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 hangman’s 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 RateMy 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 ½%).
Sec. 5. Section 107 of the same Code, as amended, is hereby further amended to read as follows: SEC. 107. Value-Added Tax on Importation of Goods.—
(a) In General.— There shall be levied, assessed and collected on every importation of goods a value-added tax equivalent to ten percent (10%) based on the total value used by the Bureau of Customs in determining tariff and customs duties, plus customs duties, excise taxes, if any, and other charges, such tax to be paid by the importer prior to the release of such goods from customs custody: Provided, That where the customs duties are determined on the basis of the quantity or volume of the goods, the value-added tax shall be based on the landed cost plus excise taxes, if any: provided, further, that the President, upon the recommendation of the Secretary of Finance, shall, effective January 1, 2006, raise the rate of value-added tax to twelve percent (12%) after any of the following conditions has been satisfied.
(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 ½%).
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 on-half percent (1 ½%).
The petitioners deem as noxious the proviso common to these provisions that “the President, upon the recommendation of the Secretary of Finance, shall, effective January 1, 2006, raise the rate of value-added tax to twelve percent (12%),” after the satisfaction of the twin conditions that value-added tax collection as a percentage of Gross Domestic Product (GDP) of the previous year exceeds two and four-fifth percent (2 4/5%); or that the national government deficit as a percentage of GDP of the previous year exceed same and on-half percent (1 ½%).
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 FinanceOne 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 in
The 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 in
Tolentino of American legislative practices relating to bicameral committees despite the difference in constitutional frameworks, particularly the limitation under Section 26(2), Article VI which does not exist in the American Constitution.
The majority points out that the “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.
[21] The majority, in applying the test of germaneness, upholds the contested provisions of the E-VAT Law. Even the members of the Court who prepared to strike down provisions of the law applying germaneness nonetheless accept the basic premise that such test is controlling.
I agree that any amendment made by the Bicameral Conference Committee that is not germane to the subject matter of the House or Senate Bills is not valid. It is the only valid ground by which an amendment introduced by the Bicameral Conference Committee may be judicially stricken.
The germaneness standard which should guide Congress or the Bicameral Conference Committee should be appreciated in its
normal but total sense. In that regard, my views contrast with that of Justice Panganiban, who asserts that provisions that are not “legally germane” should be stricken down.
The legal notion of germaneness is just but one component, along with other factors such as economics and politics, which guides the Bicameral Conference Committee, or the legislature for that matter, in the enactment of laws. After all, factors such as economics or politics are expected to cast a pervasive influence on the legislative process in the first place, and it is essential as well to allow such “non-legal” elements to be considered in ascertaining whether Congress has complied with the criteria of germaneness.
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 country’s 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 country’s 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 ClauseIt 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 legislature’s inherent power to levy taxes. On the other hand, no quarter can be ceded, no concession yielded, on the people’s 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. Ancheta
[29] has long provided sanctuary for persons assailing the constitutionality of taxing statutes. The oft-quoted pronouncement of Justice Fernando follows:
- 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.
- 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.
- 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.
- 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 state’s 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
ponencia 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 people’s 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 law’s unconstitutionality of course has the burden to demonstrate the violations in understandable terms, but if such proof is presented, the Court’s duty is to engage accordingly.
The Viability of the Clear and Present
Danger Doctrine as Counterweight
To the Shibboleths of Speculation
and WisdomI 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 VATTo 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 VATThis 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 of P500,000, then X need not remit any output VAT as well to the government for the Second Quarter.
However, reality is far bleaker than that befaced by Business X. The VAT collected and remitted is not the most relevant statistic evaluated by the business. The figure of primary concern of the enterprise would be the profit margin, which is simply the excess of revenue less expenditures. Revenue is derived from the gross sales of the business. Expenditures encompass all expenses incurred by the business including overhead expenses, wages and purchases of capital goods. Crucially, expenditures would include the input VAT prepaid by the business on its capital expenditures.
Since a significant amount of the capital outlay incurred by a business is subjected to the prepayment of input taxes, the necessity of recovering these losses through the output VAT collected becomes more impelling. These output taxes are obviously proportional to the volume of gross sales the higher the gross sales ─ the higher the output VAT collected.
The output taxes collected on sales answer for not only those input taxes paid on the purchase of the raw materials, but also for the input taxes paid on the multifarious overhead expenses covered by VAT. The burden carried by the sales volume on the stability, if not survival of the business thus just became more crucial. The maintenance of the proper equilibrium is not an easy matter. Increasing the selling price of the goods sold does not necessarily increase the gross sales, as it could have the counter-effect of repelling the consumer and diminishing the number of goods sold. At the same time, keeping the selling price low may increase the volume of goods sold, but not necessarily the amount of gross sales.
Profit is a chancy matter, and in cases of small to medium enterprises, usually small if any. It is quite common for retail and distribution enterprises to incur profits of less than 1% of their gross revenues. Low profitability is not an automatic badge of poor business skills, but a reality dictated by the laws of the marketplace. The probability of profit is lower than that of capital expenditures, and ultimately, many business establishments end up with a higher input tax than output tax in a given quarter. This would be especially true for small to medium enterprises who do not reap sufficient profits from its business in the first place, and for those firms that opt to also invest in capital expenses in addition to the overhead. Whatever miniscule profit margins that can be obtained usually spell the difference between life and death of the business.
The possibility of profit is further diminished by the fact that businesses have to shoulder the input VAT in the purchase of their capital expenses.
Yet the erstwhile VAT system was not tainted by the label of oppressiveness and neither did it bear the confiscatory mode. This was because of the immediate relief afforded from the input taxes paid by the crediting system. In theory, VAT is not supposed to affect the profit margin. If such margin is affected, it is only because of the prepayment of the input taxes, and this should be remedied by the immediate recovery through the crediting system of the settled input taxes.
The new E-VAT law changes all that, and puts in jeopardy the survival of small to medium enterprises.The Effects of the 70% Cap on Creditable Input VATThe first radical shift introduced by the E-VAT law to the creditable input system ─ the 70% cap on the creditable input tax that may be carried over into the next quarter ─ is provided in Section 8 of the law, which amends Section 110(A) of the NIRC, among others. Section 110(A) as amended would now read:
Sec. 110. Tax Credits. –
(B) | Excess Output or Input Tax. – If at the end of any taxable quarter the output tax exceeds the input tax, the excess shall be paid by the VAT-registered person. If the input tax exceeds the output tax, the excess shall be carried over to the succeeding quarter or quarters. Provided, That the input tax inclusive of input VAT carried over from the previous quarter that may be credited in every quarter shall not exceed seventy percent (70%) of the output VAT: Provided, however, That any input tax attributable to zero rated sales by a VAT-registered person may at his option be refunded or credited against other internal revenue taxes, subject to the provisions of Section 112. (emphasis supplied) |
All hope for entrepreneurial stability is dashed with the imposition of the 70% cap. Under the E-VAT Law, the business, regardless of stability or financial capability, is obliged to remit to the government every quarter at least 30% of the output VAT collected from customers, or roughly 3% of the amount of gross sales. Thus, if a quarterly gross sales of Y Business totaled P1,000,000, and Y is prudent enough to keep its capital expenses down to P980,000, it would then appear on paper that Y incurred a profit of P20,000. However, with the 70% cap, Y would be obliged to remit to the government P30,000, thus wiping out the profit margin for the quarter. Y would be entitled to credit the excess input VAT it prepaid for the next quarter, but the continuous operation of the 70% cap obviates whatever benefits this may give, and cause the accumulation of the unutilized creditable input VAT which should be returned to the business.
The difference is even more dramatic if seen how the unutilized creditable input VAT accumulates over a one year period. To illustrate, Business Y prepays the following amounts of input VAT over a one-year period: P100,000.00 - First Quarter; P100,000.00 – 2nd Quarter; P34,000.00 – 3rd Quarter; and P50,000.00 – 4th Quarter. On the other hand, Y collects the following amounts of output VAT from consumers: P60,000.00 - First Quarter; P60,000.00 – 2nd Quarter; P100,000.00 – 3rd Quarter; and P50,000.00 – 4th Quarter. Applying the 70% cap, which would limit the amount of the declarable input VAT to 70% in a quarter, the following results obtain, as presented in tabular form:
Particulars | 1st 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] +58,000 [excess creditable] 158,000 | 34,000 [input] +116,000 [excess creditable] 150,000 | 50,000 [input] +80,000 [excess creditable]
130,000 |
Declarable Input VAT (70% of output VAT) | (60,000x70%)
42,000 | (60,000x70%)
42,000 | (100,000x70%)
70,000 | (50,000x70%)
35,000 |
Lower of actual and 70% cap – allowable VAT Payable | (60,000 -42,000)
18,000 | (60,000 -42,000)
18,000 | (100,000- 70,000)
30,000 | (50,000- 35,000)
15,000 |
Creditable Input VAT | (100,000 – 42,000) 58,000 | (158,000 – 42,000) 116,000 | (150,000- 70,000) 80,000 | (130,000- 35,000) 95,000 |
This stands in contrast to same business VAT accountability under the present system, using the same variables of output VAT and input VAT. The need to distinguish a 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] +40,000 [excess creditable] 140,000 | 34,000 [input] +80,000 [excess creditable] 114,000 | 50,000 [input] + 14,000 (excess creditable) 50,000 |
VAT Payable | 0 | 0 | 0 | 0 |
Creditable Input VAT | 40,000
| 80,000
| 14,000
| 14,000
|
The difference is dramatic, as is the impact on the business’s 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 d’etre 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 Catch-22
[40] 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 | 3,274,853.40 |
Cost of Sales | 31,834,717 | 3,183,471.70 |
|
Gross Margin | 913,817 |
|
|
Operating Expenses Non-vatable items Vatable Items | 536,249 317,584 | 31,758.40 |
|
Total Cost | 853,833 |
|
|
Net Profit | 59,984 |
|
|
Total Input Tax |
| 3,215,230.10 | 2,292,397.38 |
VAT Payable |
| 59,623.30 | 982,456.02 |
Unutilized Input VAT | 922,832.72 |
*computed by multiplying output VAT by 70% [3,274,853.40 x 70% = 2,292.397.38]
The presentation of the Pilipinas Shell Dealers more or less jibes with my own observations on the impact of the 70% cap. The dealer whose income is illustrated above has to outlay a cash amount of P922,832.72 more than what would have been shelled out if the 70% cap were not in place. Considering that the net profit of the dealer is only P59,984.00, the consequences could very well be fatal, especially if these state of events persist in succeeding quarters.
The burden of proof was on the Pilipinas Shell 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 nation’s enterprises. The majority’s position would have been more credible had it faced the issue squarely, and endeavored to demonstrate in like numerical fashion why the 70% cap is not oppressive, confiscatory, or otherwise violative of the due process clause.
Sadly, the majority refuses to confront the figures or engage in a meaningful demonstration of how these assailed provisions truly operate. Instead, it counters with platitudes and bromides that do not intellectually satisfy. Considering that the very vitality, if not life of our domestic economy is at stake, I think it derelict to our duty to block out these urgent concerns presented to the Court with blind faith tinged with irrational Panglossian
[43] optimism.
The obligation of the majority to refute on the merits the arguments of the Petroleum Dealers becomes even more grave considering that the respondents have abjectly failed 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 | 60,000.00 | 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 |
|
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 |
|
Sales | 1,000,000.00 | 100,000.00 |
Purchases | 800,000.00 | 80,000.00
|
Due BIR with 7-% cap
|
|
|
Output VAT |
|
|
Less: Input VAT |
| 100,000.00
|
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 |
|
Sales | 1,000,000.00 | 100,000.00 |
Purchases | 800,000.00 | 80,000.00
|
Due BIR with 70% cap
|
|
|
Output VAT |
|
|
Less: Input VAT |
| 100,000.00 |
Excess Input VAT fr. 2nd Quarter | 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 |
|
Sales | 1,000,000.00 | 100,000.00 |
Purchases | 800,000.00 | 80,000.00
|
Due BIR with 70% cap
|
|
|
Output VAT |
|
|
Less: Input VAT |
| 100,000.00 |
Excess Input VAT fr. 2nd Quarter | 20,000.00 |
|
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 government’s revenue since the unutilized creditable input VAT should be entered in the government books as a debt payable as it is supposed to be eventually repaid to the taxpayer, and so on the contrary it increases the government’s debts. I do see that the 70% cap temporarily allows the government to brag to the world of an increased cash flow. But this situation would be akin to the provincial man who borrows from everybody in the barrio 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 Standards
[47], 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 recogni[z]ed”.
[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.
[52] Assets would fall under the purview of property under the due process clause, and if the taxing arm of the State recognizes that such property belongs to the taxpayer and not to the State, then due respect should be given to such expert opinion.
Even under the International Accounting Standards I adverted to above, the unutilized input VAT credit may be recognized as an asset “to the extent that it is probable that future taxable profit will be available against which the unused tax losses and unused tax credits can be utili[z]ed”
[53] If not probable, it would be recognized as a loss.
[54] Since these international standards, duly recognized by the Securities and Exchange Commission as controlling in this jurisdiction, attribute tangible gain or loss to the VAT credit, it necessarily follows that there is proprietary value attached to such gain or loss.
Moreover, the prepaid input tax represents unutilized profit, which can only be utilized if it is refunded or credited to output taxes. To assert that the input VAT is merely a privilege is to correspondingly claim that the business profit is similarly a mere privilege. The Constitution itself recognizes the right to profit by private enterprises. As I stated earlier, one of the enunciated State policies under the Constitution is the recognition of the indispensable role of the private sector, the encouragement of private enterprise, 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 PeriodAnother 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 least P100,000.00), as they would be compelled to wait for at least five years before they can do so. Another hurdle is imposed for such small to medium enterprise to obtain the profit margin critical to survival.
For some lucky enterprises who may be able to survive the injury brought about by the 70% cap, this 60 month amortization period might instead provide the mortal head wound.Moreover, the increased administrative burden on the taxpayer should not be discounted, considering this Court’s 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 SalesPilipinas 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 business’s 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 Zialcita[60] had cause to make the following observation I submit apropos to the case at bar, on double taxation in a case involving the attempt of the BIR to tax the commuted accumulated leave credits of a government lawyer upon his retirement:
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]
ConclusionsThe VAT system, in itself, is intelligently designed, and stands as a fair means to raise revenue. It has been adopted worldwide by countries hoping to employ an efficient means of taxation. The concerns I have raised do not detract from my general approval of the VAT system.
I do lament though that our government’s wholehearted adoption of the VAT system is endemic of what I deem a flaw in our national tax policy in the last few decades. The power of taxation, inherent in the State and ever so powerful, has been generally employed by our financial planners for a solitary purpose: the raising of revenue. Revenue generation is a legitimate purpose of taxation, but standing alone, it is a woefully unsophisticated design. Intelligent tax policy should extend beyond the singular-minded goal of raising State funds ─ the old-time philosophy behind the taxing schemes of war-mongering monarchs and totalitarian states ─ and should sincerely explore the concept of taxation as a means of providing genuine incentives to private enterprise to spur economic growth; of promoting egalitarian social justice that would allow everyone to their fair share of the nation’s wealth.
Instead, we are condemned by a national policy driven by the monomania for State revenue. It may be beyond my oath as a Justice to compel the government to adopt an economic policy in consonance with my personal views, but I offer these observations since they lie at the very heart of the noxiousness of the assailed provisions of 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 government’s finances will be the death of local business, and correspondingly, the demise of our society. It is a measure just as draconian as the standard issue taxes of medieval tyrants.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. |
[1] Republic Act No. 9337. Referred to intext as “E-VAT Law.”
[2] Except insofar as it prays that Section 21 of the E-VAT Law be declared unconstitutional.
Infra.[3] J. Vitug and E. Acosta, Tax Law and Jurisprudence (2nd ed., 2000), at 7-8.
[4] See National Power Corporation v. Province of Albay, G.R. No. 87479, 4 June 1990, 186 SCRA 198, 203.
[5] See Section 24, Article VI, Constitution.
[6] The recognized exceptions, both expressly provided by the Constitution, being the tariff clause under Section 28(2), Article VI, and the powers of taxation of local government units under Section 5, Article X.
[7] G.R. No. 158540, 8 July 2005, 434 SCRA 65.
[8] See People v. Vera, 65 Phil. 56, 117 (1937).
[9] Decision, infra.
[10] Carpio v. Executive Secretary, GR No. 96409 February 14,1992, 206 SCRA 290, 298;
citing In re Guarina, 24 Phil. 37.
[11] People v. Vera,
supra note 8.
[12] See Section 2, National Internal Revenue Code.
[13] There are two eminent tests for valid delegation, the “completeness test” and the “sufficient standard test”. The law must be complete in its essential terms and conditions when it leaves the legislature so that there will be nothing left for the delegate to do when it reaches him except enforce it. U.S. v. Ang Tang Ho, 43 Phil. 1, 6-7 (1922). On the other hand, a sufficient standard is intended to map out the boundaries of the delegate’s authority by defining legislative policy and indicating the circumstances under which it is to be pursued and effected; intended to prevent a total transference of legislative power from the legislature to the delegate.
[14] Decision, infra, citing Alunan v. Mirasol, G.R. No. 108399, 31 July 1997, 276 SCRA 501, 513-514.
[15] Notwithstanding, the Court in Southern Cross did rule that Section 5 of the Safeguard Measures Act, which required a positive final determination by the Tariff Commission before the DTI or Agriculture Secretaries could impose general safeguard measures, operated as a valid restriction and limitation on the exercise by the executive branch of government of its tariff powers.
[16] G.R. No. 115455, 25 August 1994, 235 SCRA 630.
[17] M. Evans, ‘A SOURCE OF FREQUENT AND OBSTINATE ALTERCATIONS’: THE HISTORY AND APPLICATION OF THE ORIGINATION CLAUSE.
[18] 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.
[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.
[25] See Section 1, Article III, CONSTITUTION. Private corporations and partnerships are persons within the scope of the guaranty insofar as their property is concerned. Smith Bell & Co. v. Natividad, 40 Phil. 136, 145 (1919).
[26] 16 C.J.S., at 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.
[31] Justice Isagani Cruz offers the following examples of taxes that contravene the due process clause: “A tax, for example, that would claim 80 percent of a person’s 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.
[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.[35] Art. 2, European Commission First Council Directive 67/227 of 11 April 1967 on the Harmonization of Legislation of Member States Concerning Turnover Taxes, 1971 O.J. (L 71) 1301.
[36] Liam & Ebrill, THE MODERN VAT.
[37] “The most basic law in finance!”
Understand the Time Value of Money. http://www.free-financial-advice.net/time-value-of-money.html. Last visited, 30 August 2005.
[38] Time Value of Money. http://www.jetobjects.com/components/finance/ TVM/concepts.html. Last visited, 30 August 2005.
[39] There is also the option for the business to go underground and avoid VAT registration, and consequently avoid remitting VAT payments to the government. It would be facetious though for a Justice of the Supreme Court to characterize this illegal option as “viable.”
[40] In Joseph Heller’s
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.