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G.R. No. 168056 - ABAKADA Guro Party List Officer Samson S. Alcantara, et al. v. The Hon. Executive Secretary Eduardo R. Ermita.

G.R. No. 168056 - ABAKADA Guro Party List Officer Samson S. Alcantara, et al. v. The Hon. Executive Secretary Eduardo R. Ermita.



[G.R. NO. 168056 October 18, 2005]

Agenda for Item No. 45

[G.R. NO. 168056]

(ABAKADA Guro Party List Officer Samson S. Alcantara, et al. v. The Hon. Executive Secretary Eduardo R. Ermita); G.R. No. 168207 (Aquilino Q. Pimentel, Jr., et al. v. Executive Secretary Eduardo R. Ermita, et al.); G.R. No. 168461 (Association of Pilipinas Shell Dealers, Inc., et al. v. Cesar V. Purisima, et al.); G.R. No. 168463 (Francis Joseph G. Escudero v. Cesar V. Purisima, et al); and G.R. No. 168730 (Bataan Governor Enrique T. Garcia, Jr. v. Hon. Eduardo R. Ermita, et al.)


For resolution are the following motions for reconsideration of the Court's Decision dated September 1, 2005 upholding the constitutionality of Republic Act No. 9337 or the VAT Reform Act1 :

1) Motion for Reconsideration filed by petitioners in G.R. No. 168463, Escudero, et al., on the following grounds:




2) Motion for Reconsideration of petitioner in G.R. No. 168730, Bataan Governor Enrique T. Garcia, Jr., with the argument that burdening the consumers with significantly higher prices under a VAT regime vis - à-vis a 3% gross tax renders the law unconstitutional for being arbitrary, oppressive and inequitable.


3) Motion for Reconsideration by petitioners Association of Pilipinas Shell Dealers, Inc. in G.R. No. 168461, on the grounds that:

I. This Honorable Court erred in upholding the constitutionality of Section 110(A)(2) and Section 110(B) of the NIRC, as amended by the EVAT Law, imposing limitations on the amount of input VAT that may be claimed as a credit against output VAT, as well as Section 114(C) of the NIRC, as amended by the EVAT Law, requiring the government or any of its instrumentalities to withhold a 5% final withholding VAT on their gross payments on purchases of goods and services, and finding that the questioned provisions:

A. are not arbitrary, oppressive and consfiscatory as to amount to a deprivation of property without due process of law in violation of Article III, Section 1 of the 1987 Philippine Constitution;

B. do not violate the equal protection clause prescribed under Article III, Section 1 of the 1987 Philippine Constitution; andcralawlibrary

C. apply uniformly to all those belonging to the same class and do not violate Article VI, Section 28(1) of the 1987 Philippine Constitution.

II. This Honorable Court erred in upholding the constitutionality of Section 110(B) of the NIRC, as amended by the EVAT Law, imposing a limitation on the amount of input VAT that may be claimed as a credit against output VAT notwithstanding the finding that the tax is not progressive as exhorted by Article VI, Section 28(1) of the 1987 Philippine Constitution.

Respondents filed their Consolidated Comment. Petitioner Garcia filed his Reply.

Petitioners Escudero, et al., insist that the bicameral conference committee should not even have acted on the no pass-on provisions since there is no disagreement between House Bill Nos. 3705 and 3555 on the one hand, and Senate Bill No. 1950 on the other, with regard to the no pass-on provision for the sale of service for power generation because both the Senate and the House were in agreement that the VAT burden for the sale of such service shall not be passed on to the end-consumer. As to the no pass-on provision for sale of petroleum products, petitioners argue that the fact that the presence of such a no pass-on provision in the House version and the absence thereof in the Senate Bill means there is no conflict because "a House provision cannot be in conflict with something that does not exist."

Such argument is flawed. Note that the rules of both houses of Congress provide that a conference committee shall settle the "differences" in the respective bills of each house. Verily, the fact that a no pass-on provision is present in one version but absent in the other, and one version intends two industries, i.e., power generation companies and petroleum sellers, to bear the burden of the tax, while the other version intended only the industry of power generation, transmission and distribution to be saddled with such burden, clearly shows that there are indeed differences between the bills coming from each house, which differences should be acted upon by the bicameral conference committee. It is incorrect to conclude that there is no clash between two opposing forces with regard to the no pass-on provision for VAT on the sale of petroleum products merely because such provision exists in the House version while it is absent in the Senate version. It is precisely the absence of such provision in the Senate bill and the presence thereof in the House bills that causes the conflict. The absence of the provision in the Senate bill shows the Senate's disagreement to the intention of the House of Representatives make the sellers of petroleum bear the burden of the VAT. Thus, there are indeed two opposing forces: on one side, the House of Representatives which wants petroleum dealers to be saddled with the burden of paying VAT and on the other, the Senate which does not see it proper to make that particular industry bear said burden. Clearly, such conflicts and differences between the no pass-on provisions in the Senate and House bills had to be acted upon by the bicameral conference committee as mandated by the rules of both houses of Congress.

Moreover, the deletion of the no pass-on provision made the present VAT law more in consonance with the very nature of VAT which, as stated in the Decision promulgated on September 1, 2005, is a tax on spending or consumption, thus, the burden thereof is ultimately borne by the end-consumer.

Escudero, et al., then claim that there had been changes introduced in the Rules of the House of Representatives regarding the conduct of the House panel in a bicameral conference committee, since the time of Tolentino v. Secretary of Finance2 to act as safeguards against possible abuse of authority by the House members of the bicameral conference committee. Even assuming that the rule requiring the House panel to report back to the House if there are substantial differences in the House and Senate bills had indeed been introduced after Tolentino, the Court stands by its ruling that the issue of whether or not the House panel in the bicameral conference committee complied with said internal rule cannot be inquired into by the Court. To reiterate, "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."3

Escudero, et. al., also contend that Republic Act No. 9337 grossly violates the constitutional imperative on exclusive origination of revenue bills under Section 24 of Article VI of the Constitution when the Senate introduced amendments not connected with VAT.

The Court is not persuaded.

Article VI, Section 24 of the Constitution provides:

Sec. 24 All appropriation, revenue or tariff bills, bills authorizing increase of the public debt, bills of local application, and private bills shall originate exclusively in the House of Representatives, but the Senate may propose or concur with amendments.

Section 24 speaks of origination of certain bills from the House of Representatives which has been interpreted in the Tolentino case as follows:

'To begin with, it is not the law - but the revenue bill - which is required by the Constitution to "originate exclusively" in the House of Representatives. It is important to emphasize this, because a bill originating in the House may undergo such extensive changes in the Senate that the result may be a rewriting of the whole - At this point, what is important to note is that, as a result of the Senate action, a distinct bill may be produced. To insist that a revenue statute - and not only the bill which initiated the legislative process culminating in the enactment of the law - must substantially be the same as the House bill would be to deny the 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.

'Given, then, the power of the Senate to propose amendments, the Senate can propose its own version even with respect to bills which are required by the Constitution to originate in the House.

. . .

Indeed, what the Constitution simply means is that the initiative for filing revenue, tariff, or tax bills, bills authorizing an increase of the public debt, private bills and bills of local application must come from the House of Representatives on the theory that, elected as they are from the districts, the members of the House can be expected to be more sensitive to the local needs and problems. On the other hand, the senators, who are elected at large, are expected to approach the same problems from the national perspective. Both views are thereby made to bear on the enactment of such laws.4

Clearly, after the House bills as approved on third reading are duly transmitted to the Senate, the Constitution states that the latter can propose or concur with amendments. The Court finds that the subject provisions found in the Senate bill are within the purview of such constitutional provision as declared in the Tolentino case.

The intent of the House of Representatives in initiating House Bill Nos. 3555 and 3705 was to solve the country's serious financial problems. It was stated in the respective explanatory notes that there is a need for the government to make significant expenditure savings and a credible package of revenue measures. These measures include improvement of tax administration and control and leakages in revenues from income taxes and value added tax. It is also stated that one opportunity that could be beneficial to the overall status of our economy is to review existing tax rates, evaluating the relevance given our present conditions. Thus, with these purposes in mind and to accomplish these purposes for which the house bills were filed, i.e., to raise revenues for the government, the Senate introduced amendments on income taxes, which as admitted by Senator Ralph Recto, would yield about P10.5 billion a year.

Moreover, since the objective of these house bills is to raise revenues, the increase in corporate income taxes would be a great help and would also soften the impact of VAT measure on the consumers by distributing the burden across all sectors instead of putting it entirely on the shoulders of the consumers.

As to the other National Internal Revenue Code (NIRC) provisions found in Senate Bill No. 1950, i.e., percentage taxes, franchise taxes, amusement and excise taxes, these provisions are needed so as to cushion the effects of VAT on consumers. As we said in our decision, certain goods and services which were subject to percentage tax and excise tax would no longer be VAT exempt, thus, the consumer would be burdened more as they would be paying the VAT in addition to these taxes. Thus, there is a need to amend these sections to soften the impact of VAT. The Court finds no reason to reverse the earlier ruling that the Senate introduced amendments that are germane to the subject matter and purposes of the house bills.

Petitioners Escudero, et al., also reiterate that R.A. No. 9337's stand - by authority to the Executive to increase the VAT rate, especially on account of the recommendatory power granted to the Secretary of Finance, constitutes undue delegation of legislative power. They submit that the recommendatory power given to the Secretary of Finance in regard to the occurrence of either of two events using the Gross Domestic Product (GDP) as a benchmark necessarily and inherently required extended analysis and evaluation, as well as policy making.

There is no merit in this contention. The Court reiterates that in making his recommendation to the President on the existence of either of the two conditions, the Secretary of Finance is not acting as the alter ego of the President or even her subordinate. He is acting as the agent of the legislative department, to determine and declare the event upon which its expressed will is to take effect. The Secretary of Finance becomes the means or tool by which legislative policy is determined and implemented, considering that he possesses all the facilities to gather data and information and has a much broader perspective to properly evaluate them. His function is to gather and collate statistical data and other pertinent information and verify if any of the two conditions laid out by Congress is present. Congress granted the Secretary of Finance the authority to ascertain the existence of a fact, namely, whether by December 31, 2005, the value-added tax collection as a percentage of GDP of the previous year exceeds two and four-fifth percent (24/5%) or the national government deficit as a percentage of GDP of the previous year exceeds one and one-half percent (1' %). If either of these two instances has occurred, the Secretary of Finance, by legislative mandate, must submit such information to the President. Then the 12% VAT rate must be imposed by the President effective January 1, 2006. Congress does not abdicate its functions or unduly delegate power when it describes what job must be done, who must do it, and what is the scope of his authority; in our complex economy that is frequently the only way in which the legislative process can go forward.There is no undue delegation of legislative power but only of the discretion as to the execution of a law. This is constitutionally permissible. Congress did not delegate the power to tax but the mere implementation of the law. The intent and will to increase the VAT rate to 12% came from Congress and the task of the President is to simply execute the legislative policy. That Congress chose to use the GDP as a benchmark to determine economic growth is not within the province of the Court to inquire into, its task being to interpret the law.

With regard to petitioner Garcia's arguments, the Court also finds the same to be without merit. As stated in the assailed Decision, the Court recognizes the burden that the consumers will be bearing with the passage of R.A. No. 9337. But as was also stated by the Court, it cannot strike down the law as unconstitutional simply because of its yokes. The legislature has spoken and the only role that the Court plays in the picture is to determine whether the law was passed with due regard to the mandates of the Constitution. Inasmuch as the Court finds that there are no constitutional infirmities with its passage, the validity of the law must therefore be upheld.

Finally, petitioners Association of Pilipinas Shell Dealers, Inc. reiterated their arguments in the petition, citing this time, the dissertation of Associate Justice Dante O. Tinga in his Dissenting Opinion.

The glitch in petitioners' arguments is that it presents figures based on an event that is yet to happen. Their illustration of the possible effects of the 70% limitation, while seemingly concrete, still remains theoretical. Theories have no place in this case as the Court must only deal with an existing case or controversy that is appropriate or ripe for judicial determination, not one that is conjectural or merely anticipatory.5 The Court will not intervene absent an actual and substantial controversy admitting of specific relief through a decree conclusive in nature, as distinguished from an opinion advising what the law would be upon a hypothetical state of facts.6

The impact of the 70% limitation on the creditable input tax will ultimately depend on how one manages and operates its business. Market forces, strategy and acumen will dictate their moves. With or without these VAT provisions, an entrepreneur who does not have the ken to adapt to economic variables will surely perish in the competition. The arguments posed are within the realm of business, and the solution lies also in business.

Petitioners also reiterate their argument that the input tax is a property or a property right. In the same breath, the Court reiterates its finding that it is not a property or a property right, and a VAT-registered person's entitlement to the creditable input tax is a mere statutory privilege.

Petitioners also contend that even if the right to credit the input VAT is merely a statutory privilege, it has already evolved into a vested right that the State cannot remove.

As the Court stated in its Decision, the right to credit the input tax is a mere creation of law. Prior to the enactment of multi-stage sales taxation, the sales taxes paid at every level of distribution are not recoverable from the taxes payable. With the advent of Executive Order No. 273 imposing a 10% multi-stage tax on all sales, it was only then that the crediting of the input tax paid on purchase or importation of goods and services by VAT-registered persons against the output tax was established. This continued with the Expanded VAT Law (R.A. No. 7716), and The Tax Reform Act of 1997 (R.A. No. 8424). The right to credit input tax as against the output tax is clearly a privilege created by law, a privilege that also the law can limit. It should be stressed that a person has no vested right in statutory privileges.7

The concept of "vested right" is a consequence of the constitutional guaranty of due process that expresses a present fixed interest which in right reason and natural justice is protected against arbitrary state action; it includes not only legal or equitable title to the enforcement of a demand but also exemptions from new obligations created after the right has become vested. Rights are considered vested when the right to enjoyment is a present interest, absolute, unconditional, and perfect or fixed and irrefutable.8 As adeptly stated by Associate Justice Minita V. Chico-Nazario in her Concurring Opinion, which the Court adopts, petitioners' right to the input VAT credits has not yet vested, thus'

It should be remembered that prior to Rep. Act No. 9337, the petroleum dealers' input VAT credits were inexistent - they were unrecognized and disallowed by law. The petroleum dealers had no such property called input VAT credits. It is only rational, therefore, that they cannot acquire vested rights to the use of such input VAT credits when they were never entitled to such credits in the first place, at least, not until Rep. Act No. 9337.

My view, at this point, when Rep. Act No. 9337 has not yet even been implemented, is that petroleum dealers' right to use their input VAT as credit against their output VAT unlimitedly has not vested, being a mere expectancy of a future benefit and being contingent on the continuance of Section 110 of the National Internal Revenue Code of 1997, prior to its amendment by Rep. Act No. 9337.

The elucidation of Associate Justice Artemio V. Panganiban is likewise worthy of note, to wit:

Moreover, there is no vested right in generally accepted accounting principles. 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. 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.

More importantly, the assailed provisions of R.A. No. 9337 already involve legislative policy and wisdom. So long as there is a public end for which R.A. No. 9337 was passed, the means through which such end shall be accomplished is for the legislature to choose so long as it is within constitutional bounds. As stated in Carmichael v. Southern Coal & Coke Co.:

If the question were ours to decide, we could not say that the legislature, in adopting the present scheme rather than another, had no basis for its choice, or was arbitrary or unreasonable in its action. But, as the state is free to distribute the burden of a tax without regard to the particular purpose for which it is to be used, there is no warrant in the Constitution for setting the tax aside because a court thinks that it could have distributed the burden more wisely. Those are functions reserved for the legislature.9

WHEREFORE, the Motions for Reconsideration are hereby DENIED WITH FINALITY. The temporary restraining order issued by the Court is LIFTED.


(The Justices who filed their respective concurring and dissenting opinions maintain their respective positions. Justice Dante O. Tinga filed a dissenting opinion to the present Resolution; while Justice Consuelo Ynares - Santiago joins him in his dissenting opinion.)


1 Also referred to as the EVAT Law.

2 G.R. NOS. 115455, 115525, 115543, 115544, 115754, 115781, 115852, 115873 and 115931, August 25, 1994, 235 SCRA 630.

3 Fariñas v. The Executive Secretary, G.R. No. 147387, December 10, 2003, 417 SCRA 503, 530.

4 Supra, note no. 2, pp. 661-663.

5 Velarde v. Social Justice Society, G.R. No. 159357, April 28, 2004, 428 SCRA 283.

6 Information Technology Foundation of the Phils. v. COMELEC, G.R. No. 159139, June 15, 2005.

7 Lahom v. Sibulo, G.R. No. 143989, July 14, 2003, 406 SCRA 135.

8 Ibid.

9 301 U.S. 495.



GR No. 168461 - ASSOCIATION OF PILIPINAS SHELL DEALERS, INC. represented by its President, ROSARIO ANTONIO, ET AL. v. CESAR V. PURISIMA, in his capacity as Secretary of the Department of Finance and GUILLERMO L. PARAYNO, JR., in his capacity as Commissioner of Internal Revenue.

GR No. 168463 - FRANCIS JOSEPH G. ESCUDERO, ET AL. v. CESAR V. PURISIMA, in his capacity as Secretary of Finance, GUILLERMO L. PARAYNO, JR., in his capacity as Commissioner of Internal Revenue, and EDUARDO R. ERMITA, in his capacity as Executive Secretary.

GR. No. 168730 - BATAAN GOVERNOR ENRIQUE T. GARCIA, JR. v. HON. EDUARDO R. ERMITA, in his capacity as the Executive Secretary; HON. MARGARITO TEVES, in his capacity as Secretary of Finance; HON. JOSE MARIO BUNAG, in his capacity as the OIC Commissioner of the Bureau of Customs.



Once again, the majority has refused to engage and refute in any meaningful fashion the arguments raised by the petitioners in G.R. No. 168461. The de minimis appreciation exhibited by the majority of the issues of 70% cap, the 60-month amortization period, and 5% withholding VAT on transactions made with the national government is regrettable, with ruinous consequences for the nation. I see no reason to turn back from any of the views expressed in my Dissenting Opinion, and I accordingly dissent from the denial of the Motion for Reconsideration filed by the petitioners in G.R. No. 168461.1

The reasons for my vote have been comprehensively discussed in my previous Dissenting Opinion, and I do not see the need to replicate them herein. However, I wish to stress a few points.

Tax Statutes May Be Invalidated

If They Pose a Clear and Present Danger

To the Deprivation of Life, Liberty and

Property Without Due Process of Law

The majority again dismisses the arguments of the petitioners as "theoretical", "conjectural" or merely "anticipatory," notwithstanding that the injury to the taxpayers resulting from Section 8 and 12 of the E-VAT Law is ascertainable with mathematical certainty. In support of this view, the majority cites the Court's Resolution dated 15 June 2005 in Information Technology Foundation v. COMELEC,2 one of the rulings issued in that case subsequent to the main Decision rendered on 13 January 2004. The reference is grievously ironic, considering that in the 13 January 2004 Decision, the Court, over vigorous dissents, chose anyway to intervene and grant the petition despite the fact that the petitioners therein did not allege any violation of any constitutional provision or letter of statute.3 In this case, the petitioners have squarely invoked the violation of the Bill of Rights of the Constitution, and yet the majority is suddenly timid, unlike in Infotech.

Still, the formulation of the majority unfortunately leaves the impression that any statute, taxing or otherwise, is beyond judicial attack prior to its implementation. If the tax measure in question provided that the taxpayer shall remit all income earned to the government beginning 1 January 2008, would this mean that the Court can take cognizance of the legal challenge only starting 2 January 2008?cralawlibrary

I do not share the majority's penchant for awaiting the blood spurts before taking action even when the knife's edge already dangles. As I maintained in my Dissenting Opinion, a tax measure may be validly challenged and stricken down even before its implementation if it poses a clear and present danger to the deprivation of life, liberty or property of the taxpayer without due process of law. This is the expectation of every citizen who wishes to maintain trust in all the branches of government. In the enforcement of the constitutional rights of all persons, the commonsense expectation is that the Court, as guardian of these rights, is empowered to step in even before the prospective violation takes place. Hence, the evolution of the "clear and present danger" doctrine and other analogous principles, without which, the Court would be seen as inutile in the face of constitutional violation.

Of course, not every anticipatory threat to constitutional liberties can be assailed prior to implementation, hence the employment of the "clear and present danger" standard to separate the wheat from the chaff. Still, the Court should not be so readily dismissive of the petitioners' posture herein merely because it is anticipatory. There should have been a meaningful engagement by the majority of the facts and formulae presented by the petitioners before the reasonable conclusion could have been reached on the maturity of the claim. That the majority has not bothered to do so is ultimately of tragic consequence.

70% Input VAT Credit

An Impaired Asset

The ponencia, joined by Justices Panganiban and Chico-Nazario, express the belief that no property rights attach to the input VAT paid by the taxpayer. This is a bizarre view that assumes that all income earned by private persons preternaturally belongs to the government, and whatever is retained by the person after taxes is acquired as a matter of privilege. This is the sort of thinking that has fermented revolutions throughout history, such as the American Revolution of 1776.

I pointed out in my Dissenting Opinion that under current accepted international accounting standards, the 30% prepaid input VAT would be recorded as a loss in the accounting books, since the possibility of its recovery is improbable, considering that the E-VAT Law allows its recovery only after the business has ceased to exist. Even the Bureau of Internal Revenue itself has long recognized the unutilized input VAT as an asset.

The majority fails to realize that even under the new E-VAT Law, the State recognizes that the persons who pre-pay that input VAT, usually the dealers or retailers, are not the persons who are liable to pay for the tax. The VAT system, as implemented through the previous VAT law and the new E-VAT Law, squarely holds the end consumer as the taxpayer liable to shoulder the input VAT. Nonetheless, under the mechanism foisted in the new E-VAT Law, the dealer or retailer who pre-pays the input VAT is virtually precluded from recovering the pre-paid input VAT, since the law only allows such recovery upon the cessation of the business. Indeed, the only way said class of taxpayers can recover this pre-paid input VAT was if it were to cease operations at the end of every quarter.

The illusion that blinds the majority to this state of affairs is the claim that the pre-paid input VAT may anyway be carried over into the succeeding quarter, a chimera enhanced by the grossly misleading presentation of the Office of the Solicitor General. What this deception fosters, and what the majority fails to realize, is that since the taxpayer is perpetually obliged to remit the 30% input VAT every quarter, there would be a continuous accumulation of excess input VAT. It is not true then that the input VAT prepaid for the first quarter can be recovered in the second, third or fourth quarter of that year, or at any time in the next year for that matter since the amount of prepaid input VAT accumulates with every succeeding prepayment of input VAT. Moreover, the accumulation of the prepaid input VAT diminishes the actual value of the refundable amounts, considering the established principle of "time-value of money", as explained in my Dissenting Opinion.

Thus, the pre-paid input VAT, for which the petitioners and other similarly situated taxpayers are not even ultimately liable in the first place, represents in tangible terms an actual loss. To put it more succinctly, when the taxpayer prepays the 30% input VAT, there is no chance for its recovery except until after the taxpayer ceases to be such. This point is crucial, as it goes in the heart of the constitutional challenge raised by the petitioners. A recognition that the input VAT is a property asset places it squarely in the ambit of the due process clause.

The majority now stresses that prior to Executive Order No. 273 sales taxes paid by the retailer or dealers were not recoverable. The nature of a sales tax precisely is that it is shouldered by the seller, not the consumer. In that case, the clear legislative intent is to encumber the retailer with the end tax. Under the VAT system, as enshrined under Rep. Act No. 9337, the new E-VAT Law, there is precisely a legislative recognition that it is the end user, not the seller, who shoulders the E-VAT. The problem with the new E-VAT law is that it correspondingly imposes a defeatist mechanism that obviates this entitlement of the seller by forcibly withholding in perpetua this pre-paid input VAT.

The majority cites with approval Justice Chico-Nazario's argument, as expressed in her concurring opinion, that prior to the new E-VAT Law, the petroleum dealers in particular had no input VAT credits to speak of, and therefore, could not assert any property rights to the input VAT credits under the new law. Of course the petroleum dealers had no input VAT credits prior to the E-VAT Law because precisely they were not covered by the VAT system in the first place. What would now be classified as "input VAT credits" was, in real terms, profit obtainable by the petroleum dealers prior to the new E-VAT Law. The E-VAT Law stands to diminish such profit, not by outright taking perhaps, but by ad infinitum confiscation with the illusory promise of eventual return. Obviously, there is a deprivation of property in such case; yet is it seriously contended that such deprivation is ipso facto sheltered if it is not classified as a taking, but instead reclassified as a "credit"?cralawlibrary

It is highly distressful that the Court, in its haste to decree petitioners as bereft of any vested property rights, rejects the notion that a person has a vested right to the earnings and profits incurred in business. Before, no legal basis could be found to prop up such a palpably outlandish claim; but the Decision, as affirmed by the majority's Resolution, now enshrines a temerarious proposition with doctrinal status.

In the Decision, and also in Justice Panganiban's Separate Opinion therein, the case of United Paracale Mining Co. v. De la Rosa4 was cited in support of the proposition that there is no vested right to the input VAT credit. Justice Panganiban went as far as to cite that case to support the contention that "[t]here is no vested right in a deferred input tax account; it is a mere statutory privilege." Reliance on the case is quite misplaced. First, as pointed out in my Dissenting Opinion, it does not even pertain to tax credits involving as it does, questions on the jurisdiction of the Bureau of Mines.5 Second, the putative vested rights therein pertained to mining claims, yet all mineral resources indisputably belong to the State. Herein, the rights pertain to profit incurred by private enterprise, and certainly the majority cannot contend that such profits actually belong to the State.

As stated in my Dissenting Opinion, the Constitution itself recognizes a right to income and profit when it recognizes "the right of enterprises to reasonable returns on investments, and to expansion and growth."6 Section 20, Article II of the Constitution further mandates that the State recognize the indispensable role of the private sector, the encouragement of private enterprise, and the provision of incentives to needed investments.7 Indeed, there is a fundamental recognition in any form of democratic government that recognizes a capitalist economy that the enterprise has a right to its profits. Today, the Court instead affirms that there is no such right. Should capital flight ensue, the phenomenom should not be blamed on investors in view of our judicial system's rejection of capitalism's fundamental precept.

Mainstream Denunciation of 70% Cap

The fact that petitioners are dealers of petroleum products may have left the impression that the 70% cap singularly affects the petroleum industry; or that other classes of dealers or retailers do not pose the same objections to these "innovations" in the E-VAT law. This is far from the truth.

In fact, the clamor against the 70% cap has been widespread among the players and components in the financial mainstream. Denunciations have been registered by the Philippine Chamber of Commerce and Industry8, the Joint Foreign Chambers of the Philippines (comprising of the American Chamber of Commerce in the Philippines, the Australian-New Zealand Chamber Commerce of the Philippines, Inc., the Canadian Chamber of Commerce of the Philippines, Inc., the European Chamber of Commerce of the Philippines, Inc., the Japanese Chamber of Commerce of the Philippines, Inc., the Korean Chamber of Commerce and Industry of the Philippines, and the Philippine Association of Multinational Companies Regional Headquarters, Inc.),9 the Filipino-Chinese Chamber of Commerce and Industry,10 the Federation of Philippine Industries,11 the Consumer and Oil Price Watch,12 the Association of Certified Public Accountants in Public Practice,13 the Philippine Tobacco Institute,14 and the auditing firm of PricewaterhouseCooper.15

Even newly installed Finance Secretary Margarito Teves has expressed concern that the 70% input VAT "may not work across all industries because of varying profit margins".16 Other experts who have voiced concerns on the 70% input VAT are former NEDA Directors Cielito Habito17 and Solita Monsod,18 Peter Wallace of the Wallace Business Forum,19 and Paul R. Cooper, director of PricewaterhouseCooper.

In fact, Mr. Cooper published in the Philippine Daily Inquirer a lengthy disquisition on the problems surrounding the 70% cap, portions of which I replicate below:

Policy concerns on the cap

When the idea of putting a cap was originally introduced on the floor of the Senate. The idea was to address to some extent the under-reporting of output VAT by non-complaint taxpayers. The original suggestion was a 90 percent cap, or effectively a 1-percent minimum VAT. At that level, the rule should not impact adversely on complaint taxpayers, but would result in non-complaint taxpayers having to account for closer to their true tax liability.

As a general policy consideration, one should question why our legislators are penalizing complaint taxpayers when the fundamental issue is at the apparent inability of the Bureau of Internal Revenue (BIR) to implement tax law effectively.

At a 90-percent cap, the measure might still have been defensible as a rough proxy for VAT. However, somewhere in the bicameral process, the rule has become even more punitive with a 70-percent cap. As with most amendments introduced at the bicameral stage, there is no public indication about what lawmakers were thinking when they put the travesty in place.


One of the arguments in Senate debates for taxing the power and petroleum sectors was that if it was good enough for mom-and-pop stores to have to account for the VAT, it was good enough for the biggest companies in the country to do the same. A similar argument here is that if small businesses have to pay a minimum 3-percent tax, why should larger VAT-registered persons get away with paying less?cralawlibrary

The problem with this thinking is threefold:

'The percentage tax applies to small businesses in the hard-to-tax sector and a few believe the BIR collects close to what it should from this. Nor should we be overly concerned if this is the case the revenues are small, and the BIR's efforts would be a lot better focused on larger taxpayers where more significant revenues will be at issue.

'VAT-registered persons incur compliance costs. The 3-percent tax might be better conceived as a slightly more expensive option to allow taxpayers to opt out of the VAT, rather than a punitive rule for small businesses. (If the percentage tax is considered unduly punitive, why is it not just repealed?)

'Ironically, one of the new measures in the Senate bill was to allow taxpayers with turnovers below, the registration threshold to register voluntarily for VAT if they believe the 3-percent tax imposition to be excessive. Without the minimum VAT, smaller taxpayers might have been encouraged to enter the more formalized VAT sector.

Potential consequences of the cap

The minimum VAT will distort the way taxpayers conduct business. A 3-percent minimum VAT is more likely to impact on sellers of goods than on sellers of services, as their proportion of taxable inputs are lower (there is no VAT paid when using labor, but there is VAT on the purchase of goods). Consequently, there will be a bias toward consuming services over goods. Businesses may have an incentive to obtain goods from the informal (and potentially tax-evading) sector as there will be no input tax paid for the purchase in other words, the bill may actively encourage less tax complaint behavior. Business structures may change; expect buy-sell distributors to convent into commission agents, as this reduces the risk that they will need to pay more than should be paid under a VAT system to cover the 3-percent minimum VAT.20

These objections are voiced by members of the sensible center, and not those reflexively against VAT or any tax imposition of the current administration. These objections are raised by the people who stand to be directly affected on a daily punitive basis by the imposition of the 70% cap, the 60-month amortization period and the 5% withholding VAT. Indeed, Justice Chico-Nazario has expressed her disbelief over, or at least has asserted as unproven, the claimed impact of the input VAT on the petroleum dealers.21 Of course there can be no tangible gauge as of yet on the impact of these changes in the VAT law, since they have yet to be implemented. However, the prevalent adverse reaction within the business sector should be sufficiently expressive of the actual fears of the people who should know better. It is sad that the majority, by maintaining a blithely naïve view of the input VAT, perpetuates the disconnect between the Court and the business sector, unnecessarily considering that in this instance, the concerns of the financial community can be translated into a viable constitutional challenge.

Reliance on Legislative Amendments

An Abdication of the Court's Constitutional Duty

Justice Panganiban has already expressed the view that the remedy to the inequities caused by the new input VAT system would be amending the law, and not an outright declaration of unconstitutionality. I can only hazard a guess on how many members of the Court or the legal community are similarly reliant on that remedy as a means of assuaging their fears on the impact of the input VAT innovations.

As I stated in my Dissenting Opinion, it is this Court, and not the legislature, which has the duty to strike down unconstitutional laws. Congress may amend unconstitutional laws to remedy such legal infirmities, but it is under no constitutional or legal obligation to do so. The same does not hold true with this Court. The essence of judicial review mandates that the Court strike down unconstitutional laws.

Another corollary prospect has also arisen, that the Executive Department itself will mitigate the implementation of the 70% cap by not fully implementing the law.

This prospect of course is speculative, the sort of speculation that is wholly dependent on the whim of the officials of the executive branch and one that cannot be quantified by mathematical formula. This cannot be the basis for any judicial action or vote. Moreover, such resort may actually be illegal.

For one, Article 239 of the Revised Penal Code imposes the penalty of prision correccional on public officers "who shall encroach upon the powers of the legislative branch of the Government, either by making general rules or regulations beyond the scope of his authority, or by attempting to repeal a law or suspending the execution thereof." Certainly, the remedy to the inequities of the E-VAT Law cannot be left to administrative pussy-footing, considering that these officials may be jailed for refusing to implement the law, or obfuscating the legislative will.

Second, it is a cardinal rule that an administrative agency such as the Bureau of Internal Revenue or even the Department of Finance cannot amend an act of Congress. Whatever administrative regulations they may adopt under legislative authority must be in harmony with the provisions of the law they are intended to carry into effect. They cannot widen or diminish its scope.22

Finally, it must be remembered that one of the central doctrines enforced in the disposition of the joint petitions is that the power to tax belongs solely to the legislative branch of government. If the legislative will were to be frustrated by haphazard implementation by the executive branch, all our disquisitions on this matter, as well as the key constitutional principle on the inherent, non-delegable nature of the legislative power of taxation, will be for naught.

Indeed, I truly fear the scenario when, after the deluge, the executive branch of government suspends the implementation of the 70% cap, or increases the cap to a higher amount such as 90%. Any taxpayer will have standing to attack such remedial measure, considering that the net effect would be to diminish the government's collection of cash at hand. Following the law, the proper judicial action would be to uphold the clear legislative intent over the reengineering of the taxing provisions by the executive branch of government. Yet if the courts instead uphold the power of the executive branch of government to reinvent the tax statute, then the end concession would be that the power to enact tax laws ultimately belongs to the executive branch of government.

I hesitate to say this, but there will be confusion, instability, and multiple fatalities within the business sector with the enforcement of the amendments of Section 8 and 12 of the E-VAT Law. It could have been stopped through the allowance of the petition in G.R. No. 168461, but regrettably the Court did not act.

I respectfully dissent.

Associate Justice


1 I similarly maintain my earlier vote, explained in my previous Dissenting Opinion, that Section 21 of the E-VAT law, assailed by the petitioners in G.R. No. 168463, is likewise unconstitutional.

2 G.R. No. 159139.

3 See J. Tinga, dissenting, Information Technology Foundation of the Phils. V. COMELEC, G.R. No. 159139, 13 January 2004.

4 G.R. NOS. 63786-87, 7 April 1993, 221 SCRA 108.

5 Id. at 115.

6 See Section 3, Article XII, Constitution.

7 See Section 20, Article II, Constitution.

8 See Manila Bulletin, 7 July 2005, pp. B-1 and B-2.

9 See Philippine Star, 23 June 2005, pp. B-1 and B-5.

10 See BusinessWorld, 28 July 2005, p. 2/S1.

11 See Philippine Star, 28 June 2005.

12 See Malaya, 21 September 2005, p. B-10.

13 See Manila Standard Today, 7 October 2005, p. B3.

14 Ibid.

15 Ibid.

16 See BusinessWorld, 14 July 2005, p. S1/9.

17 See Philippine Daily Inquirer, 11 July 2005, p. B6.

18 See Philippine Daily Inquirer, 16 July 2005.

19 Supra note 8.

20 See Philippine Daily Inquirer, 7 June 2005.

21 Indeed, it is rather curious that while Justice Chico-Nazario would belittle the factual presentation of the petroleum dealers as "unsubstantiated", she would seem to accept the counter-presentation made by the Solicitor-General which is outright misleading, as pointed out in my Dissenting Opinion.

22 See Boie-Takeda Chemicals Inc. v. De la Serna, G.R. No. 92174. December 10, 1993.

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