Republic of the Philippines

SUPREME COURT
EN BANC
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. 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.)
R E S O L U T I O N
For resolution are the following motions for reconsideration of the Courts Decision dated September 1, 2005
upholding the constitutionality of Republic Act No. 9337 or the VAT Reform Act
1
:
1) Motion for Reconsideration filed by petitioners in G.R. No. 168463, 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. 9337S 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 significantly higher prices under a VAT regime vis--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% 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; 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 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 Senates 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 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 afterTolentino,
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 countrys
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. 9337s 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 (2
4
/
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 Garcias 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 persons 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 companys 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
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 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.)


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
Farias 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.

The Lawphil Project - Arellano Law Foundation



GR No. 168056 - (ABAKADA GURO PARTY LIST (Formerly AASJAS) OFFICERS SAMSON S. ALCANTARA and
ED VINCENT S. ALBANO v. THE HON. EXECUTIVE SECRETARY EDUARDO ERMITA, ET AL.)
GR No. 168207 (AQUILINO Q. PIMENTEL, JR., ET. AL. v. EXECUTIVE SECRETARY EDUARDO R. ERMITA,
ET. AL.)
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.
x-------------------------------------------------------------------x
DISSENTING OPINION
Tinga, J.:
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 Courts 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?
I do not share the majoritys penchant for awaiting the blood spurts before taking action even when the knifes 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-Nazarios 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 isipso facto sheltered if it is not classified
as a taking, but instead reclassified as a "credit"?
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
majoritys Resolution, now enshrines a temerarious proposition with doctrinal status.
In the Decision, and also in Justice Panganibans 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 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 systems rejection of capitalisms
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 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,
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 Habito
17
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.
xxx
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?
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 casethe revenues are small, and the
BIRs 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 purchasein 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 nave 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 Courts 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 governments
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.
DANTE O. TINGA
Associate Justice


Footnotes
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.