EN BANC

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

ABAKADA GURO PARTY LIST OFFICER SAMSON S. ALCANTARA, ET

AL. , petitioners, vs . THE HON. EXECUTIVE SECRETARY EDUARDO R.
ERMITA , ET AL ., respondents.

[G.R. No. 168207. October 18, 2005.]

AQUILINO Q. PIMENTEL, JR., ET AL. , petitioners, vs . EXECUTIVE

SECRETARY EDUARDO R. ERMITA, ET AL. , respondents.

[G.R. No. 168461. October 18, 2005.]

ASSOCIATION OF PILIPINAS SHELL DEALERS, INC., ET AL. ,

petitioners, vs . CESAR V. PURISIMA, ET AL. , respondents.

[G.R. No. 168463. October 18, 2005.]

FRANCIS JOSEPH G. ESCUDERO, ET AL. , petitioners, vs . CESAR V.

PURISIMA, ET AL. , respondents.

[G.R. No. 168730. October 18, 2005.]

BATAAN GOVERNOR ENRIQUE T. GARCIA, JR. , petitioner, vs . HON.

SECRETARY EDUARDO R. ERMITA, ET AL. , respondents.

RESOLUTION

Sirs/Mesdames:

Quoted hereunder, for your information, is a resolution of the Court of En Banc

dated 18 October 2005
G.R. No. 168056 (ABAKADA Guro Party List Officer Samson S. Alcantara, et al. vs.
The Hon. Executive Secretary Eduardo R. Ermita); G.R. No. 168207 (Aquilino Q.
Pimentel, Jr., et al. vs. Executive Secretary Eduardo R. Ermita, et al.); G.R. No. 168461
(Association of Pilipinas Shell Dealers, Inc., et al. vs. Cesar V. Purisima, et al.); G.R. No.
168463 (Francis Joseph G. Escudero vs. Cesar V. Purisima, et al); and G.R. No. 168730
(Bataan Governor Enrique T. Garcia, Jr. vs. 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 Act 1 :
1) Motion for Reconsideration led by petitioners in G.R. No. 168463,
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 Escudero, et al., on the following grounds:

A. THE DELETION OF THE "NO PASS ON PROVISIONS" FOR THE SALE

OF PETROLEUM PRODUCTS AND POWER GENERATION SERVICES
CONSTITUTED GRAVE ABUSE OF DISCRETION AMOUNTING TO
LACK OR EXCESS OF JURISDICTION ON THE PART OF THE
BICAMERAL CONFERENCE COMMITTEE.
B. REPUBLIC ACT NO. 9337 GROSSLY VIOLATES THE
CONSTITUTIONAL IMPERATIVE ON EXCLUSIVE ORIGINATION OF
REVENUE BILLS UNDER §24, ARTICLE VI, 1987 PHILIPPINE
CONSTITUTION.
C. REPUBLIC ACT NO. 9337'S STAND-BY AUTHORITY TO THE
EXECUTIVE TO INCREASE THE VAT RATE, ESPECIALLY ON
ACCOUNT OF THE EFFECTIVE RECOMMENDATORY POWER
GRANTED TO THE SECRETARY OF FINANCE, CONSTITUTES
UNDUE DELEGATION OF LEGISLATIVE AUTHORITY.

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 signi cantly higher prices under a VAT regime vis-Ã -vis a
3% gross tax renders the law unconstitutional for being arbitrary,
oppressive and inequitable.

and

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% nal
withholding VAT on their gross payments on purchases of goods
and services, and finding that the questioned provisions:

A. are not arbitrary, oppressive and cons scatory 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;DSAacC

B. do not violate the equal protection clause prescribed under

Article III, Section 1 of the 1987 Philippine Constitution; and

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 nding that the tax is
not progressive as exhorted by Article VI, Section 28(1) of the 1987
Philippine Constitution.
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 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-onprovisions 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 con ict because "a House provision cannot
be in conflict with something that does not exist."
Such argument is awed. 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 con ict. 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 con icts 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 vs. Secretary of Finance 2
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
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 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.
xxx xxx xxx

Indeed, what the Constitution simply means is that the initiative for ling
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 nds 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 nancial problems. It was stated in the
respective explanatory notes that there is a need for the government to make
signi cant 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 bene cial to the overall status of our economy is to review existing tax
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 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 led, 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 nds 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. SACHcD

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- fth percent (2 4/5%) or the national government
de cit as a percentage of GDP of the previous year exceeds one and one-half percent
(1 1/2%). 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
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 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 nds 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 nds that there are no constitutional in rmities
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 gures 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
a s 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 speci c 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 nding 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 xed interest which in right reason and natural
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 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 xed 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.
CAIHaE

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 bene t 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 nancial statements, and are not
rooted in laws of nature, as are the laws of physical science, for these are merely
developed and continually modi ed 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 vs. 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.
SO ORDERED.
(The Justices who led their respective concurring and dissenting opinions
maintain their respective positions. Justice Dante O. Tinga led a dissenting opinion to
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 the present Resolution; while Justice Consuelo Ynares-Santiago joins him in his
dissenting opinion.)

Separate Opinions
TINGA , J., dissenting :

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 led 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? CacTSI

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"
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 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 O ce 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 rst 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 rst place, represents in tangible
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 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 rst place. What would now be classi ed as
"input VAT credits" was, in real terms, pro t obtainable by the petroleum dealers prior
to the new E-VAT Law. The E-VAT Law stands to diminish such pro t, not by outright
taking perhaps, but by ad in nitum con scation 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 classi ed as a taking,
but instead reclassified as a "credit"? aATHES

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 pro ts incurred in business. Before, no legal basis could be found to prop
up such a palpably outlandish claim; but the Decision, as a rmed 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 Rosa 4 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 pro t incurred
by private enterprise, and certainly the majority cannot contend that such pro ts
actually belong to the State.
As stated in my Dissenting Opinion, the Constitution itself recognizes a right to
income and pro t 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
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 pro ts. Today, the Court instead a rms that there is no such right. Should capital ight
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 nancial mainstream. Denunciations have been registered by
the Philippine Chamber of Commerce and Industry 8 , 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, 1 0 the Federation of Philippine Industries,
1 1 the Consumer and Oil Price Watch, 1 2 the Association of Certi ed Public Accountants
in Public Practice, 1 3 the Philippine Tobacco Institute, 1 4 and the auditing rm of
PricewaterhouseCooper. 1 5
Even newly installed Finance Secretary Margarito Teves has expressed concern
that the 70% input VAT "may not work across all industries because of varying pro t
margins". 1 6 Other experts who have voiced concerns on the 70% input VAT are former
NEDA Directors Cielito Habito 1 7 and Solita Monsod, 1 8 Peter Wallace of the Wallace
Business Forum, 1 9 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 oor of the
Senate. The idea was to address to some extent the under-reporting of output
VAT by non-compliant 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-compliant 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.

xxx xxx xxx

One of the arguments in Senate debates for taxing the power and
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 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?
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 signi cant 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?) aSTcCE

—¢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. 2 0

These objections are voiced by members of the sensible center, and not those
re exively 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. 2 1 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 su ciently 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 nancial community can be translated into a viable
constitutional challenge.
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 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 in rmities, 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 o cials of the executive branch and one that cannot be
quanti ed 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 o cers "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 o cials 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. 2 2
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. cITAaD

I hesitate to say this, but there will be confusion, instability, and multiple fatalities
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 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."
Footnotes
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 vs. The Executive Secretary , G.R. No. 147387, December 10, 2003, 417 SCRA 503,
530.

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

5.Velarde vs. Social Justice Society , G.R. No. 159357, April 28, 2004, 428 SCRA 283.
6.Information Technology Foundation of the Phils. vs. COMELEC, G.R. No. 159139, June 15,
2005.

7.Lahom vs. Sibulo, G.R. No. 143989, July 14, 2003, 406 SCRA 135.
8.Ibid.

9.301 U.S. 495.

TINGA, J., dissenting:

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.

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 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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