584 Phil. 489
YNARES-SATIAGO, J.:
SEC. 145. Cigars and cigarettes. -As such, new brands of cigarettes shall be taxed according to their current net retail price while existing or "old" brands shall be taxed based on their net retail price as of October 1, 1996.
x x x x
(c) Cigarettes packed by machine. - There shall be levied, assessed and collected on cigarettes packed by machine a tax at the rates prescribed below:(1) If the net retail price (excluding the excise tax and the value-added tax) is above Ten pesos (P10.00) per pack, the tax shall be Thirteen pesos and forty-four centavos (P13.44) per pack;Variants of existing brands of cigarettes which are introduced in the domestic market after the effectivity of this Act shall be taxed under the highest classification of any variant of that brand.
(2) If the net retail price (excluding the excise tax and the value-added tax) exceeds Six pesos and fifty centavos (P6.50) but does not exceed Ten pesos (10.00) per pack, the tax shall be Eight pesos and ninety-six centavos (P8.96) per pack;
(3) If the net retail price (excluding the excise tax and the value-added tax) is Five pesos (P5.00) but does not exceed Six pesos and fifty centavos (P6.50) per pack, the tax shall be Five pesos and sixty centavos (P5.60) per pack;
(4) If the net retail price (excluding the excise tax and the value-added tax) is below Five pesos (P5.00) per pack, the tax shall be One peso and twelve centavos (P1.12) per pack.
x x x x
New brands shall be classified according to their current net retail price.
For the above purpose, net retail price shall mean the price at which the cigarette is sold on retail in 20 major supermarkets in Metro Manila (for brands of cigarettes marketed nationally), excluding the amount intended to cover the applicable excise tax and the value-added tax. For brands which are marketed only outside Metro Manila, the net retail price shall mean the price at which the cigarette is sold in five major supermarkets in the region excluding the amount intended to cover the applicable excise tax and the value-added tax.
The classification of each brand of cigarettes based on its average net retail price as of October 1, 1996, as set forth in Annex "D" of this Act, shall remain in force until revised by Congress. (Emphasis supplied)
SECTION 2. Definition of Terms.In June 2001, petitioner British American Tobacco introduced into the market Lucky Strike Filter, Lucky Strike Lights and Lucky Strike Menthol Lights cigarettes, with a suggested retail price of P9.90 per pack.[3] Pursuant to Sec. 145 (c) quoted above, the Lucky Strike brands were initially assessed the excise tax at P8.96 per pack.
x x x xx x x x
- Duly registered or existing brand of cigarettes - shall include duly registered, existing or active brands of cigarettes, prior to January 1, 1997.
Section 4. Classification and Manner of Taxation of Existing Brands, New Brands and Variant of Existing Brands.
- New Brands - shall mean brands duly registered after January 1, 1997 and shall include duly registered, inactive brands of cigarette not sold in commercial quantity before January 1, 1997.
x x x x
B. New Brand
New brands shall be classified according to their current net retail price. In the meantime that the current net retail price has not yet been established, the suggested net retail price shall be used to determine the specific tax classification. Thereafter, a survey shall be conducted in 20 major supermarkets or retail outlets in Metro Manila (for brands of cigarette marketed nationally) or in five (5) major supermarkets or retail outlets in the region (for brands which are marketed only outside Metro Manila) at which the cigarette is sold on retail in reams/cartons, three (3) months after the initial removal of the new brand to determine the actual net retail price excluding the excise tax and value added tax which shall then be the basis in determining the specific tax classification. In case the current net retail price is higher than the suggested net retail price, the former shall prevail. Any difference in specific tax due shall be assessed and collected inclusive of increments as provided for by the National Internal Revenue Code, as amended.
For the purpose of establishing or updating the tax classification of new brands and variant(s) thereof, their current net retail price shall be reviewed periodically through the conduct of survey or any other appropriate activity, as mentioned above, every two (2) years unless earlier ordered by the Commissioner. However, notwithstanding any increase in the current net retail price, the tax classification of such new brands shall remain in force until the same is altered or changed through the issuance of an appropriate Revenue Regulations.Pursuant thereto, Revenue Memorandum Order No. 6-2003[5] was issued on March 11, 2003, prescribing the guidelines and procedures in establishing current net retail prices of new brands of cigarettes and alcohol products.
WHEREFORE, premises considered, the instant Petition is hereby DISMISSED for lack of merit. The Writ of Preliminary Injunction previously issued is hereby lifted and dissolved.Petitioner brought the instant petition for review directly with this Court on a pure question of law.
SO ORDERED.[16]
(1) increased the excise tax rates provided in paragraph (c) of Section 145;Under RA 9334, the excise tax due on petitioner's products was increased to P25.00 per pack. In the implementation thereof, respondent Commissioner assessed petitioner's importation of 911,000 packs of Lucky Strike cigarettes at the increased tax rate of P25.00 per pack, rendering it liable for taxes in the total sum of P22,775,000.00.[18]
(2) mandated that new brands of cigarettes shall initially be classified according to their suggested net retail price, until such time that their correct tax bracket is finally determined under a specified period and, after which, their classification shall remain in force until revised by Congress;
(3) retained Annex "D" as tax base of those surveyed as of October 1, 1996 including the classification of brands for the same products which, although not set forth in said Annex "D," were registered on or before January 1, 1997 and were being commercially produced and marketed on or after October 1, 1996, and which continue to be commercially produced and marketed after the effectivity of this Act. Said classification shall remain in force until revised by Congress; and
(4) provided a legislative freeze on brands of cigarettes introduced between the period January 2, 1997[17] to December 31, 2003, such that said cigarettes shall remain in the classification under which the BIR has determined them to belong as of December 31, 2003, until revised by Congress.
Pertinent portions, of RA 9334, provides:
SEC. 145. Cigars and Cigarettes. -
x x x x
(C) Cigarettes Packed by Machine. - There shall be levied, assessed and collected on cigarettes packed by machine a tax at the rates prescribed below:
(1) If the net retail price (excluding the excise tax and the value-added tax) is below Five pesos (P5.00) per pack, the tax shall be:Effective on January 1, 2005, Two pesos (P2.00) per pack;(2) If the net retail price (excluding the excise tax and the value-added tax) is Five pesos (P5.00) but does not exceed Six pesos and fifty centavos (P6.50) per pack, the tax shall be:
Effective on January 1, 2007, Two pesos and twenty-three centavos (P2.23) per pack;
Effective on January 1, 2009, Two pesos and forty-seven centavos (P2.47) per pack; and
Effective on January 1, 2011, Two pesos and seventy-two centavos (P2.72) per pack.Effective on January 1, 2005, Six pesos and thirty-five centavos (P6.35) per pack;(3) If the net retail price (excluding the excise tax and the value-added tax) exceeds Six pesos and fifty centavos (P6.50) but does not exceed Ten pesos (P10.00) per pack, the tax shall be:
Effective on January 1, 2007, Six pesos and seventy-four centavos (P6.74) per pack;
Effective on January 1, 2009, Seven pesos and fourteen centavos (P7.14) per pack; and
Effective on January 1, 2011, Seven pesos and fifty-six centavos (P7.56) per pack.Effective on January 1, 2005, Ten pesos and thirty-five centavos (10.35) per pack;(4) If the net retail price (excluding the excise tax and the value-added tax) is above Ten pesos (P10.00) per pack, the tax shall be:
Effective on January 1, 2007, Ten pesos and eighty-eight centavos (P10.88) per pack;
Effective on January 1, 2009, Eleven pesos and forty-three centavos (P11.43) per pack; and
Effective on January 1, 2011, Twelve pesos (P12.00) per pack.Effective on January 1, 2005, Twenty-five pesos (P25.00) per pack;x x x x
Effective on January 1, 2007, Twenty-six pesos and six centavos (P26.06) per pack;
Effective on January 1, 2009, Twenty-seven pesos and sixteen centavos (P27.16) per pack; and
Effective on January 1, 2011, Twenty-eight pesos and thirty centavos (P28.30) per pack.
New brands, as defined in the immediately following paragraph, shall initially be classified according to their suggested net retail price.
New brands shall mean a brand registered after the date of effectivity of R.A. No. 8240.
Suggested net retail price shall mean the net retail price at which new brands, as defined above, of locally manufactured or imported cigarettes are intended by the manufacturer or importer to be sold on retail in major supermarkets or retail outlets in Metro Manila for those marketed nationwide, and in other regions, for those with regional markets. At the end of three (3) months from the product launch, the Bureau of Internal Revenue shall validate the suggested net retail price of the new brand against the net retail price as defined herein and determine the correct tax bracket under which a particular new brand of cigarette, as defined above, shall be classified. After the end of eighteen (18) months from such validation, the Bureau of Internal Revenue shall revalidate the initially validated net retail price against the net retail price as of the time of revalidation in order to finally determine the correct tax bracket under which a particular new brand of cigarettes shall be classified; Provided however, That brands of cigarettes introduced in the domestic market between January 1, 1997 [should be January 2, 1997] and December 31, 2003 shall remain in the classification under which the Bureau of Internal Revenue has determined them to belong as of December 31, 2003. Such classification of new brands and brands introduced between January 1, 1997 and December 31, 2003 shall not be revised except by an act of Congress.
Net retail price, as determined by the Bureau of Internal Revenue through a price survey to be conducted by the Bureau of Internal Revenue itself, or the National Statistics Office when deputized for the purpose by the Bureau of Internal Revenue, shall mean the price at which the cigarette is sold in retail in at least twenty (20) major supermarkets in Metro Manila (for brands of cigarettes marketed nationally), excluding the amount intended to cover the applicable excise tax and the value-added tax. For brands which are marketed only outside Metro Manila, the "net retail price" shall mean the price at which the cigarette is sold in at least five (5) major supermarkets in the region excluding the amount intended to cover the applicable excise tax and value-added tax.
The classification of each brand of cigarettes based on its average net retail price as of October 1, 1996, as set forth in Annex "D", including the classification of brands for the same products which, although not set forth in said Annex "D", were registered and were being commercially produced and marketed on or after October 1, 1996, and which continue to be commercially produced and marketed after the effectivity of this Act, shall remain in force until revised by Congress. (Emphasis added)
Sec. 7. Jurisdiction. -- The CTA shall exercise:While the above statute confers on the CTA jurisdiction to resolve tax disputes in general, this does not include cases where the constitutionality of a law or rule is challenged. Where what is assailed is the validity or constitutionality of a law, or a rule or regulation issued by the administrative agency in the performance of its quasi-legislative function, the regular courts have jurisdiction to pass upon the same. The determination of whether a specific rule or set of rules issued by an administrative agency contravenes the law or the constitution is within the jurisdiction of the regular courts. Indeed, the Constitution vests the power of judicial review or the power to declare a law, treaty, international or executive agreement, presidential decree, order, instruction, ordinance, or regulation in the courts, including the regional trial courts. This is within the scope of judicial power, which includes the authority of the courts to determine in an appropriate action the validity of the acts of the political departments. Judicial power includes the duty of the courts of justice to settle actual controversies involving rights which are legally demandable and enforceable, and 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.[26]
- Exclusive appellate jurisdiction to review by appeal, as herein provided:
- Decisions of the Commissioner of Internal Revenue in cases involving disputed assessments, refunds of internal revenue taxes, fees or other charges, penalties in relation thereto, or other matters arising under the National Internal Revenue or other laws administered by the Bureau of Internal Revenue;
- Inaction by the Commissioner of Internal Revenue in cases involving disputed assessments, refunds of internal revenue taxes, fees or other charges, penalties in relations thereto, or other matters arising under the National Internal Revenue Code or other laws administered by the Bureau of Internal Revenue, where the National Internal Revenue Code provides a specific period of action, in which case the inaction shall be deemed a denial; xxx.[25]
We stress at the outset that the lower court had jurisdiction to consider the constitutionality of Section 187, this authority being embraced in the general definition of the judicial power to determine what are the valid and binding laws by the criterion of their conformity to the fundamental law. Specifically, B.P. 129 vests in the regional trial courts jurisdiction over all civil cases in which the subject of the litigation is incapable of pecuniary estimation, even as the accused in a criminal action has the right to question in his defense the constitutionality of a law he is charged with violating and of the proceedings taken against him, particularly as they contravene the Bill of Rights. Moreover, Article X, Section 5(2), of the Constitution vests in the Supreme Court appellate jurisdiction over final judgments and orders of lower courts in all cases in which the constitutionality or validity of any treaty, international or executive agreement, law, presidential decree, proclamation, order, instruction, ordinance, or regulation is in question.The petition for injunction filed by petitioner before the RTC is a direct attack on the constitutionality of Section 145(C) of the NIRC, as amended, and the validity of its implementing rules and regulations. In fact, the RTC limited the resolution of the subject case to the issue of the constitutionality of the assailed provisions. The determination of whether the assailed law and its implementing rules and regulations contravene the Constitution is within the jurisdiction of regular courts. The Constitution vests the power of judicial review or the power to declare a law, treaty, international or executive agreement, presidential decree, order, instruction, ordinance, or regulation in the courts, including the regional trial courts.[28] Petitioner, therefore, properly filed the subject case before the RTC.
Through estoppel, an admission or representation is rendered conclusive upon the person making it and cannot be denied or disproved as against the person relying thereon.Estoppel can also be found in Rule 131, Section 2 (a) of the Rules of Court, viz:
Sec. 2. Conclusive presumptions. -- The following are instances of conclusive presumptions:The elements of estoppel are: first, the actor who usually must have knowledge, notice or suspicion of the true facts, communicates something to another in a misleading way, either by words, conduct or silence; second, the other in fact relies, and relies reasonably or justifiably, upon that communication; third, the other would be harmed materially if the actor is later permitted to assert any claim inconsistent with his earlier conduct; and fourth, the actor knows, expects or foresees that the other would act upon the information given or that a reasonable person in the actor's position would expect or foresee such action.[30]
(a) Whenever a party has by his own declaration, act or omission, intentionally and deliberately led another to believe a particular thing true, and to act upon such belief, he cannot, in any litigation arising out of such declaration, act or omission be permitted to falsify it.
SEC. 145. Cigars and Cigarettes. -As can be seen, the law creates a four-tiered system which we may refer to as the low-priced,[33] medium-priced,[34] high-priced,[35] and premium-priced[36] tax brackets. When a brand is introduced in the market, the current net retail price is determined through the aforequoted specified procedure. The current net retail price is then used to classify under which tax bracket the brand belongs in order to finally determine the corresponding excise tax rate on a per pack basis. The assailed feature of this law pertains to the mechanism where, after a brand is classified based on its current net retail price, the classification is frozen and only Congress can thereafter reclassify the same. From a practical point of view, Annex "D" is merely a by-product of the whole mechanism and philosophy of the assailed law. That is, the brands under Annex "D" were also classified based on their current net retail price, the only difference being that they were the first ones so classified since they were the only brands surveyed as of October 1, 1996, or prior to the effectivity of RA 8240 on January 1, 1997.[37]
x x x x
(C) Cigarettes Packed by Machine. - There shall be levied, assessed and collected on cigarettes packed by machine a tax at the rates prescribed below:
(1) If the net retail price (excluding the excise tax and the value-added tax) is below Five pesos (P5.00) per pack, the tax shall be:Effective on January 1, 2005, Two pesos (P2.00) per pack;(2) If the net retail price (excluding the excise tax and the value-added tax) is Five pesos (P5.00) but does not exceed Six pesos and fifty centavos (P6.50) per pack, the tax shall be:
Effective on January 1, 2007, Two pesos and twenty-three centavos (P2.23) per pack;
Effective on January 1, 2009, Two pesos and forty-seven centavos (P2.47) per pack; and
Effective on January 1, 2011, Two pesos and seventy-two centavos (P2.72) per pack.Effective on January 1, 2005, Six pesos and thirty-five centavos (P6.35) per pack;(3) If the net retail price (excluding the excise tax and the value-added tax) exceeds Six pesos and fifty centavos (P6.50) but does not exceed Ten pesos (P10.00) per pack, the tax shall be:
Effective on January 1, 2007, Six pesos and seventy-four centavos (P6.74) per pack;
Effective on January 1, 2009, Seven pesos and fourteen centavos (P7.14) per pack; and
Effective on January 1, 2011, Seven pesos and fifty-six centavos (P7.56) per pack.Effective on January 1, 2005, Ten pesos and thirty-five centavos (10.35) per pack;(4) If the net retail price (excluding the excise tax and the value-added tax) is above Ten pesos (P10.00) per pack, the tax shall be:
Effective on January 1, 2007, Ten pesos and eighty-eight centavos (P10.88) per pack;
Effective on January 1, 2009, Eleven pesos and forty-three centavos (P11.43) per pack; and
Effective on January 1, 2011, Twelve pesos (P12.00) per pack.Effective on January 1, 2005, Twenty-five pesos (P25.00) per pack;x x x x
Effective on January 1, 2007, Twenty-six pesos and six centavos (P26.06) per pack;
Effective on January 1, 2009, Twenty-seven pesos and sixteen centavos (P27.16) per pack; and
Effective on January 1, 2011, Twenty-eight pesos and thirty centavos (P28.30) per pack.
New brands, as defined in the immediately following paragraph, shall initially be classified according to their suggested net retail price.
New brands shall mean a brand registered after the date of effectivity of R.A. No. 8240.
Suggested net retail price shall mean the net retail price at which new brands, as defined above, of locally manufactured or imported cigarettes are intended by the manufacturer or importer to be sold on retail in major supermarkets or retail outlets in Metro Manila for those marketed nationwide, and in other regions, for those with regional markets. At the end of three (3) months from the product launch, the Bureau of Internal Revenue shall validate the suggested net retail price of the new brand against the net retail price as defined herein and determine the correct tax bracket under which a particular new brand of cigarette, as defined above, shall be classified. After the end of eighteen (18) months from such validation, the Bureau of Internal Revenue shall revalidate the initially validated net retail price against the net retail price as of the time of revalidation in order to finally determine the correct tax bracket under which a particular new brand of cigarettes shall be classified; Provided however, That brands of cigarettes introduced in the domestic market between January 1, 1997 [should be January 2, 1997] and December 31, 2003 shall remain in the classification under which the Bureau of Internal Revenue has determined them to belong as of December 31, 2003. Such classification of new brands and brands introduced between January 1, 1997 and December 31, 2003 shall not be revised except by an act of Congress.
Net retail price, as determined by the Bureau of Internal Revenue through a price survey to be conducted by the Bureau of Internal Revenue itself, or the National Statistics Office when deputized for the purpose by the Bureau of Internal Revenue, shall mean the price at which the cigarette is sold in retail in at least twenty (20) major supermarkets in Metro Manila (for brands of cigarettes marketed nationally), excluding the amount intended to cover the applicable excise tax and the value-added tax. For brands which are marketed only outside Metro Manila, the "net retail price" shall mean the price at which the cigarette is sold in at least five (5) major supermarkets in the region excluding the amount intended to cover the applicable excise tax and value-added tax.
The classification of each brand of cigarettes based on its average net retail price as of October 1, 1996, as set forth in Annex "D", including the classification of brands for the same products which, although not set forth in said Annex "D", were registered and were being commercially produced and marketed on or after October 1, 1996, and which continue to be commercially produced and marketed after the effectivity of this Act, shall remain in force until revised by Congress.
Now for equal protection. The applicable standard to avoid the charge that there is a denial of this constitutional mandate whether the assailed act is in the exercise of the police power or the power of eminent domain is to demonstrate "that the governmental act assailed, far from being inspired by the attainment of the common weal was prompted by the spirit of hostility, or at the very least, discrimination that finds no support in reason. It suffices then that the laws operate equally and uniformly on all persons under similar circumstances or that all persons must be treated in the same manner, the conditions not being different, both in the privileges conferred and the liabilities imposed. Favoritism and undue preference cannot be allowed. For the principle is that equal protection and security shall be given to every person under circumstances, which if not identical are analogous. If law be looks upon in terms of burden or charges, those that fall within a class should be treated in the same fashion, whatever restrictions cast on some in the group equally binding on the rest." That same formulation applies as well to taxation measures. The equal protection clause is, of course, inspired by the noble concept of approximating the ideal of the laws's benefits being available to all and the affairs of men being governed by that serene and impartial uniformity, which is of the very essence of the idea of law. There is, however, wisdom, as well as realism, in these words of Justice Frankfurter: "The equality at which the 'equal protection' clause aims is not a disembodied equality. The Fourteenth Amendment enjoins 'the equal protection of the laws,' and laws are not abstract propositions. They do not relate to abstract units A, B and C, but are expressions of policy arising out of specific difficulties, addressed to the attainment of specific ends by the use of specific remedies. The Constitution does not require things which are different in fact or opinion to be treated in law as though they were the same." Hence the constant reiteration of the view that classification if rational in character is allowable. As a matter of fact, in a leading case of Lutz v. Araneta, this Court, through Justice J.B.L. Reyes, went so far as to hold "at any rate, it is inherent in the power to tax that a state be free to select the subjects of taxation, and it has been repeatedly held that 'inequalities which result from a singling out of one particular class for taxation, or exemption infringe no constitutional limitation.'"In consonance thereto, we have held that "in our jurisdiction, the standard and analysis of equal protection challenges in the main have followed the `rational basis' test, coupled with a deferential attitude to legislative classifications and a reluctance to invalidate a law unless there is a showing of a clear and unequivocal breach of the Constitution."[47] Within the present context of tax legislation on sin products which neither contains a suspect classification nor impinges on a fundamental right, the rational-basis test thus finds application. Under this test, a legislative classification, to survive an equal protection challenge, must be shown to rationally further a legitimate state interest.[48] The classifications must be reasonable and rest upon some ground of difference having a fair and substantial relation to the object of the legislation.[49] Since every law has in its favor the presumption of constitutionality, the burden of proof is on the one attacking the constitutionality of the law to prove beyond reasonable doubt that the legislative classification is without rational basis.[50] The presumption of constitutionality can be overcome only by the most explicit demonstration that a classification is a hostile and oppressive discrimination against particular persons and classes, and that there is no conceivable basis which might support it.[51]
Petitioner likewise invoked the kindred concept of uniformity. According to the Constitution: "The rule of taxation shall be uniform and equitable." This requirement is met according to Justice Laurel in Philippine Trust Company v. Yatco, decided in 1940, when the tax "operates with the same force and effect in every place where the subject may be found." He likewise added: "The rule of uniformity does not call for perfect uniformity or perfect equality, because this is hardly attainable." The problem of classification did not present itself in that case. It did not arise until nine years later, when the Supreme Court held: "Equality and uniformity in taxation means that all taxable articles or kinds of property of the same class shall be taxed at the same rate. The taxing power has the authority to make reasonable and natural classifications for purposes of taxation, . . . As clarified by Justice Tuason, where "the differentiation" complained of "conforms to the practical dictates of justice and equity" it "is not discriminatory within the meaning of this clause and is therefore uniform." There is quite a similarity then to the standard of equal protection for all that is required is that the tax "applies equally to all persons, firms and corporations placed in similar situation."[46] (Emphasis supplied)
First, to evolve a tax structure which will promote fair competition among the players in the industries concerned and generate buoyant and stable revenue for the government.In the initial stages of the crafting of the assailed law, the Department of Finance (DOF) recommended to Congress a shift from the then existing ad valorem taxation system to a specific taxation system with respect to sin products, including cigarettes. The DOF noted that the ad valorem taxation system was a source of massive tax leakages because the taxpayer was able to evade paying the correct amount of taxes through the undervaluation of the price of cigarettes using various marketing arms and dummy corporations. In order to address this problem, the DOF proposed a specific taxation system where the cigarettes would be taxed based on volume or on a per pack basis which was believed to be less susceptible to price manipulation. The reason was that the BIR would only need to monitor the sales volume of cigarettes, from which it could easily compute the corresponding tax liability of cigarette manufacturers. Thus, the DOF suggested the use of a three-tiered system which operates in substantially the same manner as the four-tiered system under RA 8240 as earlier discussed. The proposal of the DOF was embodied in House Bill (H.B.) No. 6060, the pertinent portions of which states--
Second, to ensure that the tax burden is equitably distributed not only amongst the industries affected but equally amongst the various levels of our society that are involved in various markets that are going to be affected by the excise tax on distilled spirits, fermented liquor, cigars and cigarettes.
In the case of firms engaged in the industries producing the products that we are about to tax, this means relating the tax burden to their market share, not only in terms of quantity, Mr. President, but in terms of value.
In case of consumers, this will mean evolving a multi-tiered rate structure so that low-priced products are subject to lower tax rates and higher-priced products are subject to higher tax rates.
Third, to simplify the tax administration and compliance with the tax laws that are about to unfold in order to minimize losses arising from inefficiencies and tax avoidance scheme, if not outright tax evasion.[54]
SEC. 142. Cigars and cigarettes.--What is of particular interest with respect to the proposal of the DOF is that it contained a provision for the periodic adjustment of the excise tax rates and tax brackets, and a corresponding periodic resurvey and reclassification of cigarette brands based on the increase in the consumer price index as determined by the Commissioner of Internal Revenue subject to certain guidelines. The evident intent was to prevent inflation from eroding the value of the excise taxes that would be collected from cigarettes over time by adjusting the tax rate and tax brackets based on the increase in the consumer price index. Further, under this proposal, old brands as well as new brands introduced thereafter would be subjected to a resurvey and reclassification based on their respective values at the end of every two years in order to align them with the adjustment of the excise tax rate and tax brackets due to the movement in the consumer price index.[55]
(c) Cigarettes packed by machine.-- There shall be levied, assessed and collected on cigarettes packed by machine a tax at the rates prescribed below:
(1) If the manufacturer's or importer's wholesale price (net of excise tax and value-added tax) per pack exceeds four pesos and twenty centavos (P4.20), the tax shall be seven pesos and fifty centavos (P7.50);
(2) If the manufacturer's or importer's wholesale price (net of excise tax and value-added tax) per pack exceeds three pesos and ninety centavos (P3.90) but does not exceed four pesos and twenty centavos (P4.20), the tax shall be five pesos and fifty centavos (P5.50): provided, that after two (2) years from the effectivity of this Act, cigarettes otherwise subject to tax under this subparagraph shall be taxed under subparagraph (1) above.
(3) If the manufacturer's or importer's wholesale price (net of excise tax and value-added tax) per pack does not exceeds three pesos and ninety centavos (P3.90), the tax rate shall be one peso (P1.00).
Variants of existing brands and new brands of cigarettes packed by machine to be introduced in the domestic market after the effectivity of this Act, shall be taxed under paragraph (c)(1) hereof.
The rates of specific tax on cigars and cigarettes under paragraphs (a), (b), and (c) hereof, including the price levels for purposes of classifying cigarettes packed by machine, shall be revised upward two (2) years after the effectivity of this Act and every two years thereafter by the Commissioner of Internal Revenue, subject to the approval of the Secretary of Finance, taking into account the movement of the consumer price index for cigars and cigarettes as established by the National Statistics Office: provided, that the increase in taxes and/or price levels shall be equal to the present change in such consumer price index for the two-year period: provided, further, that the President, upon the recommendation of the Secretary of Finance, may suspend or defer the adjustment in price levels and tax rates when the interest of the national economy and general welfare so require, such as the need to obviate unemployment, and economic and social dislocation: provided, finally, that the revised price levels and tax rates authorized herein shall in all cases be rounded off to the nearest centavo and shall be in force and effect on the date of publication thereof in a newspaper of general circulation. x x x (Emphasis supplied)
The rigidity of the specific tax system calls for the need for frequent congressional intervention to adjust the tax rates to inflation and to keep pace with the expanding needs of government for more revenues. The DOF admits this flaw inherent in the tax system it proposed. Hence, to obviate the need for remedial legislation, the DOF is asking Congress to grant to the Commissioner the power to revise, one, the specific tax rates: and two, the price levels of beer and cigarettes. What the DOF is asking, Mr. Speaker, is for Congress to delegate to the Commissioner of Internal Revenue the power to fix the tax rates and classify the subjects of taxation based on their price levels for purposes of fixing the tax rates. While we sympathize with the predicament of the DOF, it is not for Congress to abdicate such power. The power sought to be delegated to be exercised by the Commissioner of Internal Revenue is a legislative power vested by the Constitution in Congress pursuant to Section 1, Article VI of the Constitution. Where the power is vested, there it must remain-- in Congress, a body of representatives elected by the people. Congress may not delegate such power, much less abdicate it.For its part, the Senate's Committee on Ways and Means, then chaired by Senator Juan Ponce Enrile (Senator Enrile), developed its own version of the excise tax system on cigarettes. The Senate Version consisted of a four-tiered system and, interestingly enough, contained a periodic excise tax rate and tax bracket adjustment as well as a periodic resurvey and reclassification of brands provision ("periodic adjustment and reclassification provision," for brevity) to be conducted by the DOF in coordination with the BIR and the National Statistics Office based on the increase in the consumer price index-- similar to the one proposed by the DOF, viz:
x x x x
Moreover, the grant of such power, if at all constitutionally permissible, to the Commissioner of Internal Revenue is fraught with ethical implications. The debates on how much revenue will be raised, how much money will be taken from the pockets of taxpayers, will inexorably shift from the democratic Halls of Congress to the secret and non-transparent corridors of unelected agencies of government, the Department of Finance and the Bureau of Internal Revenue, which are not accountable to our people. We cannot countenance the shift for ethical reasons, lest we be accused of betraying the trust reposed on this Chamber by the people. x x x
A final point on this proposal, Mr. Speaker, is the exercise of the taxing power of the Commissioner of Internal Revenue which will be triggered by inflation rates based on the consumer price index. Simply stated, Mr. Speaker, the specific tax rates will be fixed by the Commissioner depending on the price levels of beers and cigarettes as determined by the consumers' price index. This is a novel idea, if not necessarily weird in the field of taxation. What if the brewer or the cigarette manufacturer sells at a price below the consumers' price index? Will it be taxed on the basis of the consumer's price index which is over and above its wholesale or retail price as the case may be? This is a weird form of exaction where the tax is based not on what the brewer or manufacturer actually realized but on an imaginary wholesale or retail price. This amounts to a taxation based on presumptive price levels and renders the specific tax a presumptive tax. We hope, the DOF and the BIR will also honor a presumptive tax payment.
Moreover, specific tax rates based on price levels tied to consumer's price index as proposed by the DOF engenders anti-trust concerns. The proposal if enacted into law will serve as a barrier to the entry of new players in the beer and cigarette industries which are presently dominated by shared monopolies. A new player in these industries will be denied business flexibility to fix its price levels to promote its product and penetrate the market as the price levels are dictated by the consumer price index. The proposed tax regime, Mr. Speaker, will merely enhance the stranglehold of the oligopolies in the beer and cigarette industries, thus, reversing the government's policy of dismantling monopolies and combinations in restraint of trade.[56]
SEC. 4 Section 142 of the National Internal Revenue Code, as amended, is hereby further amended to read as follows:During the period of interpellations, the late Senator Raul S. Roco (Senator Roco) expressed doubts as to the legality and wisdom of putting a periodic adjustment and reclassification provision:
"SEC. 142. Cigars and cigarettes. -
x x x x
(c) Cigarettes packed by machine. - There shall be levied, assessed and collected on cigarettes packed by machine a tax at the rates prescribed below:(1) If the net retail price (excluding the excise tax and the value-added tax) is above Ten pesos (P10.00) per pack, the tax shall be Twelve pesos (P12.00) per pack;Variants of existing brands of cigarettes which are introduced in the domestic market after the effectivity of this Act shall be taxed under the highest classification of any variant of that brand.
(2) If the net retail price (excluding the excise tax and the value-added tax) exceeds Six pesos and fifty centavos (P6.50) per pack, the tax shall be Eight pesos (P8.00) per pack;
(3) If the net retail price (excluding the excise tax and the value-added tax) is Five pesos (P5.00) up to Six pesos and fifty centavos (P6.50) per pack, the tax shall be Five pesos (P5.00) per pack;
(4) If the net retail price (excluding the excise tax and the value-added tax) is below Five pesos (P5.00) per pack, the tax shall be One peso (P1.00) per pack.
x x x
The rates of specific tax on cigars and cigarettes under subparagraph (a), (b) and (c) hereof, including the net retail prices for purposes of classification, shall be adjusted on the sixth of January three years after the effectivity of this Act and every three years thereafter. The adjustment shall be in accordance with the inflation rate measured by the average increase in the consumer price index over the three-year period. The adjusted tax rates and net price levels shall be in force on the eighth of January.
Within the period hereinabove mentioned, the Secretary of Finance shall direct the conduct of a survey of retail prices of each brand of cigarettes in coordination with the Bureau of Internal Revenue and the National Statistics Office.
For purposes of this Section, net retail price shall mean the price at which the cigarette is sold on retail in 20 major supermarkets in Metro Manila (for brands of cigarettes marketed nationally), excluding the amount intended to cover the applicable excise tax and the value-added tax. For brands which are marketed only outside Metro Manila, the net retail price shall mean the price at which the cigarette is sold in five major supermarkets in the region excluding the amount intended to cover the applicable excise tax and the value-added tax.
The classification of each brand of cigarettes in the initial year of implementation of this Act shall be based on its average net retail price as of October 1, 1996. The said classification by brand shall remain in force until January 7, 2000.
New brands shall be classified according to their current net retail price.[57] (Emphasis supplied)
Senator Enrile: This will be the first time that a tax burden will be allowed to be automatically adjusted upwards based on a system of indexing tied up with the Consumers Price Index (CPI). Although I must add that we have adopted a similar system in adjusting the personal tax exemption from income tax of our individual taxpayers.Apart from his doubts as to the legality of the delegation of taxing power to the DOF and BIR, Senator Roco also voiced out his concern about the possible abuse and corruption that will arise from the periodic adjustment and reclassification provision. Continuing--
Senator Roco: They are not exactly the same, Mr. President. But even then, we do note that this the first time we are trying to put an automatic adjustment. My concern is, why do we propose now this automatic adjustment? What is the reason that impels the committee? Maybe we can be enlightened and maybe we shall embrace it forthwith. But what is the reason?
Senator Enrile: Mr. President, we will recall that in the House of Representatives, it has adopted a tax proposal on these products based on a specific tax as a basic tax with an ad valorem comparator. The Committee on Ways and Means of the Senate has not seen it fit to adopt this system, but it recognized the possibility that there may be an occasion where the price movement in the country might unwarrantedly move upwards, in which case, if we peg the government to a specific tax rate of P6.30, P9.30 and P12.30 for beer, since we are talking of beer, [58] the government might lose in the process.
In order to consider the interest of the government in this, Mr. President, and in order to obviate the possibility that some of these products categorized under the different tiers with different specific tax rates from moving upwards and piercing their own tiers and thereby expose themselves to an incremental tax of higher magnitude, it was felt that we should adopt a system where, in spite of any escalation in the price of these products in the future, the tax rates could be adjusted upwards so that none of these products would leave their own tier. That was the basic principle under which we crafted this portion of the tax proposal.
Senator Roco: Mr. President, we certainly share the judgment of the distinguished gentleman as regards the comparator provision in the House of Representatives and we appreciate the reasons given. But we are under the impression that the House also, aside from the comparator, has an adjustment clause that is fixed. It has fixed rates for the adjustment. So that one of the basic differences between the Senate proposed version now and the House version is that, the House of Representatives has manifested its will and judgment as regards the tax to which we will adjust, whereas the Senate version relegates fundamentally that judgment to the Department of Finance.
Senator Enrile: That is correct, Mr. President, because we felt that in imposing a fixed adjustment, we might be fixing an amount that is either too high or too low. We cannot foresee the economic trends in this country over a period of two years, three years, let alone ten years. So we felt that a mechanism ought to be adopted in order to serve the interest of the government, the interest of the producers, and the interest of the consuming public.
Senator Roco: This is where, Mr. President, my policy difficulties start. Under the Constitution-- I think it is Article VI, Section 24, and it was the distinguished chairman of the Committee on Ways and Means who made this Chamber very conscious of this provision-- revenue measures and tariff measures shall originate exclusively from the House of Representatives.
The reason for this, Mr. President, is, there is a long history why the House of Representatives must originate judgments on tax. The House members represent specific districts. They represent specific constituencies, and the whole history of parliamentarism, the whole history of Congress as an institution is founded on the proposition that the direct representatives of the people must speak about taxes.
Mr. President, while the Senate can concur and can introduce amendments, the proposed change here is radical. This is the policy difficulty that I wish to clarify with the gentleman because the judgment call now on the amount of tax to be imposed is not coming from Congress. It is shifted to the Department of Finance. True, the Secretary of Finance may have been the best finance officer two years ago and now the best finance officer in Asia, but that does not make him qualified to replace the judgment call of the House of Representatives. That is my first difficulty.
Senator Enrile: Mr. President, precisely the law, in effect, authorizes this rate beforehand. The computation of the rate is the only thing that was left to the Department of Finance as a tax implementor of Congress. This is not unusual because we have already, as I said, adopted a system similar to this. If we adjust the personal exemption of an individual taxpayer, we are in effect adjusting the applicable tax rate to him.
Senator Roco: But the point I was trying to demonstrate, Mr. President, is that we depart precisely from the mandate of the Constitution that judgment on revenue must emanate from Congress. Here, it is shifted to the Department of Finance for no visible or patent reason insofar as I could understand. The only difference is, who will make the judgment? Should it be Congress?
Senator Enrile: Mr. President, forgive me for answering sooner than I should. My understanding of the Constitution is that all revenue measures must emanate from the House. That is all the Constitution says.
Now, it does not say that the judgment call must belong to the House. The judgment call can belong both to the House and to the Senate. We can change whatever proposal the House did. Precisely, we are now crafting a measure, and we are saying that this is the rate subject to an adjustment which we also provide. We are not giving any unusual power to the Secretary of Finance because we tell him, "This is the formula that you must adopt in arriving at the adjustment so that you do not have to come back to us."[59]
Senator Roco: Mr. President, if that is the argument, that the distinguished gentleman has a different legal interpretation, we will then now examine the choice. Because his legal interpretation is different from mine, then the issues becomes: Is it more advantageous that this judgment be exercised by the House? Should we not concur or modify in terms of the exercise by the House of its power or are we better off giving this judgment call to the Department of Finance?Pressing this point, Senator Roco continued his query:
Let me now submit, Mr. President, that in so doing, it is more advantageous to fix the rate so that even if we modify the rates identified by Congress, it is better and less susceptible to abuse.
For instance, Mr. President, would the gentlemen wish to demonstrate to us how this will be done? On page 8, lines 5 to 9, there is a provision here as to when the Secretary of Finance shall direct the conduct of survey of retail prices of each brand of fermented liquor in coordination with the Bureau of Internal Revenue and the National Statistics Office.
These offices are not exactly noted, Mr. President, for having been sanctified by the Holy Spirit in their noble intentions. x x x[60] (Emphasis supplied)
Senator Roco: x x x [On page 8, lines 5 to 9] it says that during the two-year period, the Secretary of Finance shall direct the conduct of the survey. How? When? Which retail prices and what brand shall he consider? When he coordinates with the Bureau of Internal Revenue, what is the Bureau of Internal Revenue supposed to be doing? What is the National Statistics Office supposed to be doing, and under what guides and standards?After these lengthy exchanges, it appears that the views of Senator Enrile were sustained by the Senate Body because the Senate Version was passed on Third Reading without substantially altering the periodic adjustment and reclassification provision.
May the gentleman wish to demonstrate how this will be done? My point, Mr. President, is, by giving the Secretary of Finance, the BIR and the National Statistics Office discretion over a two-year period will invite corruption and arbitrariness, which is more dangerous than letting the House of Representatives and this Chamber set the adjustment rate. Why not set the adjustment rate? Why should Congress not exercise that judgment now? x x x
Senator Enrile: x x x
Senator Roco: x x x We respectfully submit that the Chairman consider choosing the judgment of this Chamber and the House of Representatives over a delegated judgment of the Department of Finance.
Again, it is not to say that I do not trust the Department of Finance. It has won awards, and I also trust the undersecretary. But that is beside the point. Tomorrow, they may not be there.[61] (Emphasis supplied)
This point was further dissected by the two senators. There was a genuine difference of opinion as to which system-- one with a fixed excise tax rate and classification or the other with a periodic adjustment of excise tax rate and reclassification-- was less susceptible to abuse, as the following exchanges show:
Senator Enrile: Mr. President, considering the sensitivity of these products from the viewpoint of exerted pressures because of the understandable impact of this measure on the pockets of the major players producing these products, the committee felt that perhaps to lessen such pressures, it is best that we now establish a norm where the tax will be adjusted without incurring too much political controversy as has happened in the case of this proposal.
Senator Roco: But that is exactly the same reason we say we must rely upon Congress because Congress, if it is subjected to pressure, at least balances off because of political factors.
When the Secretary of Finance is now subjected to pressure, are we saying that the Secretary of Finance and the Department of Finance is better-suited to withstand the pressure? Or are we saying "Let the Finance Secretary decide whom to yield"?
I am saying that the temptation and the pressure on the Secretary of Finance is more dangerous and more corruption-friendly than ascertaining for ourselves now a fixed rate of increase for a fixed period.
Senator Enrile: Mr. President, perhaps the gentleman may not agree with this representation, but in my humble opinion, this formulation is less susceptible to pressure because there is a definite point of reference which is the consumer price index, and that consumer price index is not going to be used only for this purpose. The CPI is used for a national purpose, and there is less possibility of tinkering with it.[62]
Further, Senator Roco, like Congressman Javier, expressed the view that the periodic adjustment and reclassification provision would create an anti-competitive atmosphere. Again, Senators Roco and Enrile had genuine divergence of opinions on this matter, to wit:
Senator Roco: x x x On the marketing level, an adjustment clause may, in fact, be disadvantageous to both companies, whether it is the Lucio Tan companies or the San Miguel companies. If we have to adjust our marketing position every two years based on the adjustment clause, the established company may survive, but the new ones will have tremendous difficulty. Therefore, this provision tends to indicate an anticompetitive bias.
It is good for San Miguel and the Lucio Tan companies, but the new companies-- assuming there may be new companies and we want to encourage them because of the old point of liberalization-- will be at a disadvantage under this situation. If this observation will find receptivity in the policy consideration of the distinguished Gentleman, maybe we can also further, later on, seek amendments to this automatic adjustment clause in some manner.
Senator Enrile: Mr. President, I cannot foresee any anti-competitiveness of this provision with respect to a new entrant, because a new entrant will not just come in without studying the market. He is a lousy businessman if he will just come in without studying the market. If he comes in, he will determine at what retail price level he will market his product, and he will be coming under any of the tiers depending upon his net retail price. Therefore, I do not see how this particular provision will affect a new entrant.
Senator Roco: Be that as it may, Mr. President, we obviously will not resort to debate until this evening, and we will have to look for other ways of resolving the policy options.
Let me just close that particular area of my interpellation, by summarizing the points we were hoping could be clarified.
- That the automatic adjustment clause is at best questionable in law.
- It is corruption-friendly in the sense that it shifts the discretion from the House of Representatives and this Chamber to the Secretary of Finance, no matter how saintly he may be.
- There is,-- although the judgment call of the gentleman disagrees-- to our view, an anticompetitive situation that is geared at...[63]
Finally, this twin feature, Mr. Speaker, fixed specific tax rates and frozen classification, rejects the Senate version which seeks to abdicate the power of Congress to tax by pegging the rates as well as the classification of sin products to consumer price index which practically vests in the Secretary of Finance the power to fix the rates and to classify the products for tax purposes.[65] (Emphasis supplied)Congressman Javier later added that the frozen classification was intended to give stability to the industry as the BIR would be prevented from tinkering with the classification since it would remain unchanged despite the increase in the net retail prices of the previously classified brands.[66] This would also assure the industry players that there would be no new impositions as long as the law is unchanged.[67]
The Constitution presumes that, absent some reason to infer antipathy, even improvident decisions will eventually be rectified by the democratic process, and that judicial intervention is generally unwarranted no matter how unwisely we may think a political branch has acted. Thus, we will not overturn such a statute unless the varying treatment of different groups or persons is so unrelated to the achievement of any combination of legitimate purposes that we can only conclude that the legislature's actions were irrational.[78]We now tackle the second issue.
(1) Section 4(B)(e)(c), 2nd paragraph of Revenue Regulations No. 1-97, as amended by Section 2 of Revenue Regulations 9-2003, viz:There is merit to the contention.
For the purpose of establishing or updating the tax classification of new brands and variant(s) thereof, their current net retail price shall be reviewed periodically through the conduct of survey or any other appropriate activity, as mentioned above, every two (2) years unless earlier ordered by the Commissioner. However, notwithstanding any increase in the current net retail price, the tax classification of such new brands shall remain in force until the same is altered or changed through the issuance of an appropriate Revenue Regulations.
(2) Sections II(1)(b), II(4)(b), II(6), II(7), III (Large Tax Payers Assistance Division II) II(b) of Revenue Memorandum Order No. 6-2003, insofar as pertinent to cigarettes packed by machine, viz:
II. POLICIES AND GUIDELINES
- The conduct of survey covered by this Order, for purposes of determining the current retail prices of new brands of cigarettes and alcohol products introduced in the market on or after January 1, 1997, shall be undertaken in the following instances:
x x x xb. For reclassification of new brands of said excisable products that were introduced in the market after January 1, 1997.x x x x
- The determination of the current retail prices of new brands of the aforesaid excisable products shall be initiated as follows:
x x x x
b. After the lapse of the prescribed two-year period or as the Commissioner may otherwise direct, the appropriate tax reclassification of these brands based on the current net retail prices thereof shall be determined by a survey to be conducted upon a written directive by the Commissioner.For this purpose, a memorandum order to the Assistant Commissioner, Large Taxpayers Service, Heads, Excise Tax Areas, and Regional Directors of all Revenue Regions, except Revenue Region Nos. 4, 5, 6, 7, 8 and 9, shall be issued by the Commissioner for the submission of the list of major supermarkets/retail outlets where the above excisable products are being sold, as well as the list of selected revenue officers who shall be designated to conduct the said activity(ies).
x x x x
- The results of the survey conducted in Revenue Region Nos. 4 to 9 shall be submitted directly to the Chief, LT Assistance Division II (LTAD II), National Office for consolidation. On the other hand, the results of the survey conducted in Revenue Regions other than Revenue Region Nos. 4 to 9, shall be submitted to the Office of the Regional Director for regional consolidation. The consolidated regional survey, together with the accomplished survey forms shall be transmitted to the Chief, LTAD II for national consolidation within three (3) days from date of actual receipt from the survey teams. The LTAD II shall be responsible for the evaluation and analysis of the submitted survey forms and the preparation of the recommendation for the updating/revision of the tax classification of each brand of cigarettes and alcohol products. The said recommendation, duly validated by the ACIR, LTS, shall be submitted to the Commissioner for final review within ten (10) days from the date of actual receipt of complete reports from all the surveying Offices.
- Upon final review by the Commissioner of the revised tax classification of the different new brands of cigarettes and alcohol products, the appropriate revenue regulations shall be prepared and submitted for approval by the Secretary of Finance.
x x x x
III. PROCEDURES
x x x x
Large Taxpayers Assistance Division II
x x x x
- Perform the following preparatory procedures on the identification of brands to be surveyed, supermarkets/retail outlets where the survey shall be conducted, and the personnel selected to conduct the survey.
x x x xb. On the tax reclassification of new brands
- Submit a master list of registered brands covered by the survey pursuant to the provisions of Item II.2 of this Order containing the complete description of each brand, existing net retail price and the corresponding tax rate thereof.
- Submit to the ACIR, LTS, a list of major supermarkets/retail outlets within the territorial jurisdiction of the concerned revenue regions where the survey will be conducted to be used as basis in the issuance of Mission Orders. Ensure that the minimum number of establishments to be surveyed, as prescribed under existing revenue laws and regulations, is complied with. In addition, the names and designations of revenue officers selected to conduct the survey shall be clearly indicated opposite the names of the establishments to be surveyed.
Senator Recto: Because, like I said, when Congress agreed to adopt a specific tax system [under R.A. 8240], when Congress did not index the brackets, and Congress did not index the rates but only provided for a one rate increase in the year 2000, we shifted from ad valorem which was based on value to a system of specific which is based on volume. Congress then, in effect, determined the classification based on the prices at that particular period of time and classified these products accordingly.For these reasons, the amendments introduced by RA 9334 to RA 8240, insofar as the freezing mechanism is concerned, must be seen merely as underscoring the legislative intent already in place then, i.e. new brands as being covered by the freezing mechanism after their classification based on their current net retail prices.
Of course, Congress then decided on what will happen to the new brands or variants of existing brands. To favor government, a variant would be classified as the highest rate of tax for that particular brand. In case of a new brand, Mr. President, then the BIR should classify them. But I do not think it was the intention of Congress then to give the BIR the authority to reclassify them every so often. I do not think it was the intention of Congress to allow the BIR to classify a new brand every two years, for example, because it will be arbitrary for the BIR to do so. x x x[80] (Emphasis supplied)
New brands, as defined in the immediately following paragraph, shall initially be classified according to their suggested net retail price.Thus, Revenue Regulations No. 9-2003 and Revenue Memorandum Order No. 6-2003 should be deemed modified by the above provisions from the date of effectivity of RA 9334 on January 1, 2005.
New brands shall mean a brand registered after the date of effectivity of R.A. No. 8240 [on January 1, 1997].
Suggested net retail price shall mean the net retail price at which new brands, as defined above, of locally manufactured or imported cigarettes are intended by the manufacture or importer to be sold on retail in major supermarkets or retail outlets in Metro Manila for those marketed nationwide, and in other regions, for those with regional markets. At the end of three (3) months from the product launch, the Bureau of Internal Revenue shall validate the suggested net retail price of the new brand against the net retail price as defined herein and determine the correct tax bracket under which a particular new brand of cigarette, as defined above, shall be classified. After the end of eighteen (18) months from such validation, the Bureau of Internal Revenue shall revalidate the initially validated net retail price against the net retail price as of the time of revalidation in order to finally determine the correct tax bracket under which a particular new brand of cigarettes shall be classified; Provided however, That brands of cigarettes introduced in the domestic market between January 1, 1997 and December 31, 2003 shall remain in the classification under which the Bureau of Internal Revenue has determined them to belong as of December 31, 2003. Such classification of new brands and brands introduced between January 1, 1997 and December 31, 2003 shall not be revised except by an act of Congress. (Emphasis supplied)
It claims that it is the duty of this Court to correct, in favor of the GATT, whatever inconsistency exists between the assailed law and the GATT in order to prevent triggering the international dispute settlement mechanism under the GATT-WTO Agreement.
- The products of the territory of any contracting party imported into the territory of any other contracting party shall not be subject, directly or indirectly, to internal taxes or other internal charges of any kind in excess of those applied, directly or indirectly, to like domestic products. Moreover, no contracting party shall otherwise apply internal taxes or other internal charges to imported or domestic products in a manner contrary to the principles set forth in paragraph 1.
Petitioners premise their arguments on the assumption that the Tripoli Agreement is part of the law of the land, being a binding international agreement. The Solicitor General asserts that the Tripoli Agreement is neither a binding treaty, not having been entered into by the Republic of the Philippines with a sovereign state and ratified according to the provisions of the 1973 or 1987 Constitutions, nor a binding international agreement.WHEREFORE, the petition is PARTIALLY GRANTED and the decision of the Regional Trial Court of Makati, Branch 61, in Civil Case No. 03-1032, is AFFIRMED with MODIFICATION.As modified, this Court declares that:
We find it neither necessary nor determinative of the case to rule on the nature of the Tripoli Agreement and its binding effect on the Philippine Government whether under public international or internal Philippine law. In the first place, it is now the Constitution itself that provides for the creation of an autonomous region in Muslim Mindanao. The standard for any inquiry into the validity of R.A. No. 6734 would therefore be what is so provided in the Constitution. Thus, any conflict between the provisions of R.A. No. 6734 and the provisions of the Tripoli Agreement will not have the effect of enjoining the implementation of the Organic Act. Assuming for the sake of argument that the Tripoli Agreement is a binding treaty or international agreement, it would then constitute part of the law of the land. But as internal law it would not be superior to R.A. No. 6734, an enactment of the Congress of the Philippines, rather it would be in the same class as the latter [SALONGA, PUBLIC INTERNATIONAL LAW 320 (4th ed., 1974), citing Head Money Cases, 112 U.S. 580 (1884) and Foster v. Nelson, 2 Pet. 253 (1829)]. Thus, if at all, R.A. No. 6734 would be amendatory of the Tripoli Agreement, being a subsequent law. Only a determination by this Court that R.A. No. 6734 contravenes the Constitution would result in the granting of the reliefs sought. (Emphasis supplied)
(c) Cigarettes packed by machine. - There shall be levied, assessed and collected on cigarettes packed by machine a tax at the rates prescribed below: x x x(2) If the net retail price (excluding the excise tax and the value-added tax) exceeds Six pesos and fifty centavos (P6.50) but does not exceed Ten pesos (10.00) per pack, the tax shall be Eight pesos and ninety-six centavos (P8.96) per pack; x x x
(c) Cigarettes packed by machine. - There shall be levied, assessed and collected on cigarettes packed by machine a tax at the rates prescribed below: x x x[42] Annex "A," Revenue Regulations No. 22-2003.
(1) If the net retail price (excluding the excise tax and the value-added tax) is above Ten pesos (P10.00) per pack, the tax shall be Thirteen pesos and forty-four centavos (P13.44) per pack;
This result is in accordance with the ruling case law on the matter:[44] The practical effect of the operation of the classification freeze provision may be visualized as a timeline starting with brands in Annex "D" which were classified based on their net retail prices as of October 1, 1996. As new brands were introduced in the market, new classes of brands were likewise created depending on the time they were introduced and the time their classifications were finally fixed by the BIR pursuant to the relevant revenue regulations. The characterization of petitioner that the classification freeze provision merely created two classes of brands, i.e., old brands under Annex "D" and new brands introduced after the effectivity of R.A. 8240 is thus, inaccurate.
The general rule is that where part of a statute is void as repugnant to the Constitution, while another part is valid, the valid portion, if separable from the invalid, may stand and be enforced. The presence of a separability clause in a statute creates the presumption that the legislature intended separability, rather than complete nullity of the statute. To justify this result, the valid portion must be so far independent of the invalid portion that it is fair to presume that the legislature would have enacted it by itself if it had supposed that it could not constitutionally enact the other. Enough must remain to make a complete, intelligible and valid statute, which carries out the legislative intent. x x x
The exception to the general rule is that when the parts of a statute are so mutually dependent and connected, as conditions, considerations, inducements, or compensations for each other, as to warrant a belief that the legislature intended them as a whole, the nullity of one part will vitiate the rest. In making the parts of the statute dependent, conditional, or connected with one another, the legislature intended the statute to be carried out as a whole and would not have enacted it if one part is void, in which case if some parts are unconstitutional, all the other provisions thus dependent, conditional, or connected must fall with them. (Agpalo, Statutory Construction, 1986 ed., pp. 28-29)
Suggested net retail price shall mean the net retail price at which new brands, as defined above, of locally manufactured or imported cigarettes are intended by the manufacturer or importer to be sold on retail in major supermarkets or retail outlets in Metro Manila for those marketed nationwide, and in other regions, for those with regional markets. At the end of three (3) months from the product launch, the Bureau of Internal Revenue shall validate the suggested net retail price of the new brand against the net retail price as defined herein and determine the correct tax bracket under which a particular new brand of cigarette, as defined above, shall be classified. After the end of eighteen (18) months from such validation, the Bureau of Internal Revenue shall revalidate the initially validated net retail price against the net retail price as of the time of revalidation in order to finally determine the correct tax bracket under which a particular new brand of cigarettes shall be classified; Provided however, That brands of cigarettes introduced in the domestic market between January 1, 1997 and December 31, 2003 shall remain in the classification under which the Bureau of Internal Revenue has determined them to belong as of December 31, 2003. Such classification of new brands and brands introduced between January 1, 1997 and December 31, 2003 shall not be revised except by an act of Congress.[54] II RECORD, SENATE 10TH CONGRESS (October 15, 1996).
x x x x
The classification of each brand of cigarettes based on its average net retail price as of October 1, 1996, as set forth in Annex "D", including the classification of brands for the same products which, although not set forth in said Annex "D", were registered and were being commercially produced and marketed on or after October 1, 1996, and which continue to be commercially produced and marketed after the effectivity of this Act, shall remain in force until revised by Congress. (Emphasis supplied)
Since 1996 is the year during which we are adopting this law-- and it will take effect January of next year-- the two-year period covered will be 1997 and 1998. So in order to find out the rate of adjustment both of the cutoff point price (tax bracket), retail price and the corresponding specific tax rate, we divide the CPI of 1998 by the CPI of 1996 and then we get a factor or a quotient which is 1.1272. The figure "one(1)" before the decimal point represents the CPI of 1996 and the numbers after the decimal point would represent the rate of increase.[58] The discussion is in reference to the periodic adjustment and reclassification provision of beer. However, under the Senate Version, the same periodic adjustment and reclassification provision is applied to cigarettes so that the same reasoning is applicable to cigarettes.
So, in effect, what I am saying is, if we take 100% out of 1.1272 which is the quotient of dividing 257, the CPI of 1998 by 228, the CPI of 1996, then, we end up with .1272 or 12%, a little less than 13%.
If we multiply the net retail price now, which is the cut off point (of the tax brackets) established by law as of the time we enact this law, by approximately 13%, that will be the cutoff point price, and we increase the net retail price used as a base when we adopted this law by 13%. It increases the corresponding specific tax by 13% and this will be the adjusted cutoff point and adjusted specific tax as of 1999.
Section 4. Classification and Manner of Taxation of Existing Brands, New Brands and Variant of Existing Brands.[80] RECORD, SENATE 13TH CONGRESS (December 6, 2004).
x x x
B. New Brand
New brands shall be classified according to their current net retail price. In the meantime that the current net retail price has not yet been established, the suggested net retail price shall be used to determine the specific tax classification. Thereafter, a survey shall be conducted in 20 major supermarkets or retail outlets in Metro Manila (for brands of cigarette marketed nationally) or in five (5) major supermarkets or retail outlets in the region (for brands which are marketed only outside Metro Manila) at which the cigarette is sold on retail in reams/carton, three (3) months after the initial removal of the new brand to determine the actual net retail price excluding the excise tax and value added tax which shall then be the basis in determining the specific tax classification. In case the current net retail price is higher than the suggested net retail price, the former shall prevail. Otherwise, the suggested net retail price shall prevail. Any difference in the specific tax due shall be assessed and collected inclusive of increments as provided for by the National Internal Revenue Code, as amended.
The survey contemplated herein to establish the current net retail price on locally manufactured and imported cigarettes shall be conducted by the duly authorized representatives of the Commissioner of Internal Revenue together with a representative of the Regional Director from each Regional Office having jurisdiction over the retail outlet within the Region being surveyed, and who shall submit, without delay, their consolidated written report to the Commissioner of Internal Revenue.