G.R. No.

168056 September 1, 2005

ABAKADA GURO PARTY LIST (Formerly AASJAS) OFFICERS SAMSON S. ALCANTARA

and ED VINCENT S. ALBANO, Petitioners,

vs.

THE HONORABLE EXECUTIVE SECRETARY EDUARDO ERMITA; HONORABLE SECRETARY

OF THE DEPARTMENT OF FINANCE CESAR PURISIMA; and HONORABLE
COMMISSIONER OF INTERNAL REVENUE GUILLERMO PARAYNO, JR., Respondent.

FACTS: (SIMPLIFIED FORM)

RA 9337, an act amending certain sections of the National Internal Revenue Code of 1997, is
questioned by petitioners for being unconstitutional. Procedural issues raised by petitioners are
the legality of the bicameral proceedings, exclusive origination of revenue measures and the
power of the Senate concomitant thereto.

Also, Substantive issue was raised with regard to the undue delegation of legislative power to
the President to increase the rate of value-added tax to 12%.

Petitioners also argue that the increase to 12%, as well as the 70% limitation on the creditable
input tax, the 60- month amortization on the purchase or importation of capital goods exceeding
P1,000,000.00, and the 5% final withholding tax by government agencies, is arbitrary,
oppressive, and confiscatory, and that it violates the constitutional principle on progressive
taxation, among others.

G.R. No. 168056

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

. . . That the President, upon the recommendation of the Secretary of Finance, shall, effective
January 1, 2006, raise the rate of value-added tax to twelve percent (12%), after any of the
following conditions has been satisfied:

(i) Value-added tax collection as a percentage of Gross Domestic Product (GDP) of the previous
year exceeds two and four-fifth percent (2 4/5%); or

(ii) National government deficit as a percentage of GDP of the previous year exceeds one and
one-half percent (1 ½%).

Petitioners argue that the law is unconstitutional, as it constitutes abandonment by Congress of

its exclusive authority to fix the rate of taxes under Article VI, Section 28(2) of the 1987
Philippine Constitution.

G.R. No. 168207

On June 9, 2005, Sen. Aquilino Q. Pimentel, Jr., et al., filed a petition for certiorari likewise
assailing the constitutionality of Sections 4, 5 and 6 of R.A. No. 9337.

Aside from questioning the so-called stand-by authority of the President to increase the VAT rate
to 12%, on the ground that it amounts to an undue delegation of legislative power, petitioners
also contend that the increase in the VAT rate to 12% contingent on any of the two conditions
being satisfied violates the due process clause embodied in Article III, Section 1 of the
Constitution, as it imposes an unfair and additional tax burden on the people, in that: (1) the
12% increase is ambiguous because it does not state if the rate would be returned to the
original 10% if the conditions are no longer satisfied; (2) the rate is unfair and unreasonable, as
the people are unsure of the applicable VAT rate from year to year; and (3) the increase in the
VAT rate, which is supposed to be an incentive to the President to raise the VAT collection to at
least 2 4/5 of the GDP of the previous year, should only be based on fiscal adequacy.

Petitioners further claim that the inclusion of a stand-by authority granted to the President by
the Bicameral Conference Committee is a violation of the "no-amendment rule" upon last
reading of a bill laid down in Article VI, Section 26(2) of the Constitution.
G.R. No. 168461

Thereafter, a petition for prohibition was filed on June 29, 2005, by the Association of Pilipinas
Shell Dealers, Inc., et al., assailing the following provisions of R.A. No. 9337:

1) Section 8, amending Section 110 (A)(2) of the NIRC, requiring that the input tax on
depreciable goods shall be amortized over a 60-month period, if the acquisition, excluding the
VAT components, exceeds One Million Pesos (₱1, 000,000.00);

2) Section 8, amending Section 110 (B) of the NIRC, imposing a 70% limit on the amount of
input tax to be credited against the output tax; and

3) Section 12, amending Section 114 (c) of the NIRC, authorizing the Government or any of its
political subdivisions, instrumentalities or agencies, including GOCCs, to deduct a 5% final
withholding tax on gross payments of goods and services, which are subject to 10% VAT under
Sections 106 (sale of goods and properties) and 108 (sale of services and use or lease of
properties) of the NIRC.

Petitioners contend that these provisions are unconstitutional for being arbitrary, oppressive,
excessive, and confiscatory.

Petitioners’ argument is premised on the constitutional right of non-deprivation of life, liberty or

property without due process of law under Article III, Section 1 of the Constitution. According to
petitioners, the contested sections impose limitations on the amount of input tax that may be
claimed. Petitioners also argue that the input tax partakes the nature of a property that may not
be confiscated, appropriated, or limited without due process of law. Petitioners further contend
that like any other property or property right, the input tax credit may be transferred or
disposed of, and that by limiting the same, the government gets to tax a profit or value-added
even if there is no profit or value-added.

Petitioners also believe that these provisions violate the constitutional guarantee of equal
protection of the law under Article III, Section 1 of the Constitution, as the limitation on the
creditable input tax if: (1) the entity has a high ratio of input tax; or (2) invests in capital
equipment; or (3) has several transactions with the government, is not based on real and
substantial differences to meet a valid classification.

Lastly, petitioners contend that the 70% limit is anything but progressive, violative of Article VI,
Section 28(1) of the Constitution, and that it is the smaller businesses with higher input tax to
output tax ratio that will suffer the consequences thereof for it wipes out whatever meager
margins the petitioners make.

G.R. No. 168463

Several members of the House of Representatives led by Rep. Francis Joseph G. Escudero filed
this petition for certiorari on June 30, 2005. They question the constitutionality of R.A. No. 9337
on the following grounds:

1) Sections 4, 5, and 6 of R.A. No. 9337 constitute an undue delegation of legislative power, in
violation of Article VI, Section 28(2) of the Constitution;

2) The Bicameral Conference Committee acted without jurisdiction in deleting the no pass on
provisions present in Senate Bill No. 1950 and House Bill No. 3705; and

3) Insertion by the Bicameral Conference Committee of Sections 27, 28, 34, 116, 117, 119, 121,
125,7 148, 151, 236, 237 and 288, which were present in Senate Bill No. 1950, violates Article
VI, Section 24(1) of the Constitution, which provides that all appropriation, revenue or tariff bills
shall originate exclusively in the House of Representatives

G.R. No. 168730

On the eleventh hour, Governor Enrique T. Garcia filed a petition for certiorari and prohibition on
July 20, 2005, alleging unconstitutionality of the law on the ground that the limitation on the
creditable input tax in effect allows VAT-registered establishments to retain a portion of the
taxes they collect, thus violating the principle that tax collection and revenue should be solely
allocated for public purposes and expenditures. Petitioner Garcia further claims that allowing
these establishments to pass on the tax to the consumers is inequitable, in violation of Article
VI, Section 28(1) of the Constitution.

RESPONDENTS’ COMMENT
The Office of the Solicitor General (OSG) filed a Comment in behalf of respondents. Preliminarily,
respondents contend that R.A. No. 9337 enjoys the presumption of constitutionality and
petitioners failed to cast doubt on its validity.

Relying on the case of Tolentino vs. Secretary of Finance, 235 SCRA

630 (1994), respondents argue that the procedural issues raised by petitioners, i.e., legality of
the bicameral proceedings, exclusive origination of revenue measures and the power of the
Senate concomitant thereto, have already been settled. With regard to the issue of undue
delegation of legislative power to the President, respondents contend that the law is complete
and leaves no discretion to the President but to increase the rate to 12% once any of the two
conditions provided therein arise.

Respondents also refute petitioners’ argument that the increase to 12%, as well as the 70%
limitation on the creditable input tax, the 60-month amortization on the purchase or importation
of capital goods exceeding ₱1,000,000.00, and the 5% final withholding tax by government
agencies, is arbitrary, oppressive, and confiscatory, and that it violates the constitutional
principle on progressive taxation, among others.

Finally, respondents manifest that R.A. No. 9337 is the anchor of the government’s fiscal reform
agenda. A reform in the value-added system of taxation is the core revenue measure that will
tilt the balance towards a sustainable macroeconomic environment necessary for economic
growth.

ISSUES

SUBSTANTIVE ISSUES

1. Whether Sections 4, 5 and 6 of R.A. No. 9337, amending Sections 106, 107 and 108 of the
NIRC, violate the following provisions of the Constitution:

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

b. Article VI, Section 28(2)

2. Whether Section 8 of R.A. No. 9337, amending Sections 110(A)(2) and 110(B) of the NIRC;
and Section 12 of R.A. No. 9337, amending Section 114(C) of the NIRC, violate the following
provisions of the Constitution:

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

b. Article III, Section 1

ISSUE: (SIMPLIFIED ISSUE/S)

WON Sections 4, 5 and 6 of R.A. No. 9337, amending Sections 106, 107 and 108, respectively,
of the NIRC giving the President the stand-by authority to raise the VAT rate from 10% to 12%
when a certain condition is met, constitutes undue delegation of the legislative power to tax.

RULING:

NO. The case before the Court is not a delegation of legislative power. It is simply a delegation
of ascertainment of facts upon which enforcement and administration of the increase rate under
the law is contingent. The legislature has made the operation of the 12% rate effective January
1, 2006, contingent upon a specified fact or condition. It leaves the entire operation or non-
operation of the 12% rate upon factual matters outside of the control of the executive.

No discretion would be exercised by the President. Highlighting the absence of discretion is the
fact that the word shall is used in the common proviso.

Thus, it is the ministerial duty of the President to immediately impose the 12% rate upon the
existence of any of the conditions specified by Congress.

This is a duty which cannot be evaded by the President. Inasmuch as the law specifically uses
the word shall, the exercise of discretion by the President does not come into play. It is a clear
directive to impose the 12% VAT rate when the specified conditions are present. The time of
taking into effect of the 12% VAT rate is based on the happening of a certain specified
contingency, or upon the ascertainment of certain facts or conditions by a person or body other
than the legislature itself.

The Court finds no merit to the contention of petitioners ABAKADA GURO Party List, et al. that
the law effectively nullified the Presidents power of control over the Secretary of Finance by
mandating the fixing of the tax rate by the President upon the recommendation of the Secretary
of Finance. The Court cannot also subscribe to the position of petitioners Pimentel, et al. that the
word shall should be interpreted to mean may in view of the phrase upon the recommendation
of the Secretary of Finance.

Furthermore, Congress simply granted the Secretary of Finance the authority to ascertain the
existence of a fact, namely, whether by December 31, 2005, the value-added tax collection as a
percentage of Gross Domestic Product (GDP) of the previous year exceeds two and four-fifth
percent (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. There is no
undue delegation of legislative power but only of the discretion as to the execution of a law. This
is constitutionally permissible. Congress does not abdicate its functions or unduly delegate power
when it describes what job must be done, who must do it, and what is the scope of his
authority; in our complex economy that is frequently the only way in which the legislative
process can go forward.

As to the argument of petitioners ABAKADA GURO Party List, et al. that delegating to the
President the legislative power to tax is contrary to the principle of republicanism, the same
deserves scant consideration. Congress did not delegate the power to tax but the mere
implementation of the law. The intent and will to increase the VAT rate to 12% came from
Congress and the task of the President is to simply execute the legislative policy. That Congress
chose to do so in such a manner is not within the province of the Court to inquire into, its task
being to interpret the law.