CESAR V. PURISIMA, in his capacity as Secretary of the Department of Finance and GUILLERMO L.
G.R. No. 168056 September 1, 2005
ABAKADA GURO PARTY LIST (Formerly AASJAS) OFFICERS SAMSON S. ALCANTARA and ED
VINCENT S. ALBANO, Petitioners,
vs.
THE HONORABLE EXECUTIVE SECRETARY EDUARDO ERMITA; HONORABLE SECRETARY OF THE
DEPARTMENT OF FINANCE CESAR PURISIMA; and HONORABLE COMMISSIONER OF INTERNAL
REVENUE GUILLERMO PARAYNO, JR., Respondent.
x-------------------------x
G.R. No. 168207
AQUILINO Q. PIMENTEL, JR., LUISA P. EJERCITO-ESTRADA, JINGGOY E. ESTRADA, PANFILO M.
LACSON, ALFREDO S. LIM, JAMBY A.S. MADRIGAL, AND SERGIO R. OSMEA III, Petitioners,
vs.
EXECUTIVE SECRETARY EDUARDO R. ERMITA, CESAR V. PURISIMA, SECRETARY OF FINANCE,
GUILLERMO L. PARAYNO, JR., COMMISSIONER OF THE BUREAU OF INTERNAL
REVENUE,Respondent.
x-------------------------x
G.R. No. 168461
ASSOCIATION OF PILIPINAS SHELL DEALERS, INC. represented by its President, ROSARIO ANTONIO;
PETRON DEALERS ASSOCIATION represented by its President, RUTH E. BARBIBI; ASSOCIATION OF
CALTEX DEALERS OF THE PHILIPPINES represented by its President, MERCEDITAS A. GARCIA;
ROSARIO ANTONIO doing business under the name and style of "ANB NORTH SHELL SERVICE STATION";
LOURDES MARTINEZ doing business under the name and style of "SHELL GATE N. DOMINGO";
BETHZAIDA TAN doing business under the name and style of "ADVANCE SHELL STATION"; REYNALDO P.
MONTOYA doing business under the name and style of "NEW LAMUAN SHELL SERVICE STATION"; EFREN
SOTTO doing business under the name and style of "RED FIELD SHELL SERVICE STATION"; DONICA
CORPORATION represented by its President, DESI TOMACRUZ; RUTH E. MARBIBI doing business under
the name and style of "R&R PETRON STATION"; PETER M. UNGSON doing business under the name and
style of "CLASSIC STAR GASOLINE SERVICE STATION"; MARIAN SHEILA A. LEE doing business under the
name and style of "NTE GASOLINE & SERVICE STATION"; JULIAN CESAR P. POSADAS doing business
under the name and style of "STARCARGA ENTERPRISES"; ADORACION MAEBO doing business under
the name and style of "CMA MOTORISTS CENTER"; SUSAN M. ENTRATA doing business under the name
and style of "LEONAS GASOLINE STATION and SERVICE CENTER"; CARMELITA BALDONADO doing
business under the name and style of "FIRST CHOICE SERVICE CENTER"; MERCEDITAS A. GARCIA doing
business under the name and style of "LORPED SERVICE CENTER"; RHEAMAR A. RAMOS doing business
under the name and style of "RJRAM PTT GAS STATION"; MA. ISABEL VIOLAGO doing business under the
name and style of "VIOLAGO-PTT SERVICE CENTER"; MOTORISTS HEART CORPORATION represented
by its Vice-President for Operations, JOSELITO F. FLORDELIZA; MOTORISTS HARVARD CORPORATION
represented by its Vice-President for Operations, JOSELITO F. FLORDELIZA; MOTORISTS HERITAGE
CORPORATION represented by its Vice-President for Operations, JOSELITO F. FLORDELIZA; PHILIPPINE
STANDARD OIL CORPORATION represented by its Vice-President for Operations, JOSELITO F.
FLORDELIZA; ROMEO MANUEL doing business under the name and style of "ROMMAN GASOLINE
STATION"; ANTHONY ALBERT CRUZ III doing business under the name and style of "TRUE SERVICE
STATION", Petitioners,
vs.
PARAYNO, JR., in his capacity as Commissioner of Internal Revenue, Respondent.
x-------------------------x
G.R. No. 168463
FRANCIS JOSEPH G. ESCUDERO, VINCENT CRISOLOGO, EMMANUEL JOEL J. VILLANUEVA, RODOLFO
G. PLAZA, DARLENE ANTONINO-CUSTODIO, OSCAR G. MALAPITAN, BENJAMIN C. AGARAO, JR. JUAN
EDGARDO M. ANGARA, JUSTIN MARC SB. CHIPECO, FLORENCIO G. NOEL, MUJIV S. HATAMAN,
RENATO B. MAGTUBO, JOSEPH A. SANTIAGO, TEOFISTO DL. GUINGONA III, RUY ELIAS C. LOPEZ,
RODOLFO Q. AGBAYANI and TEODORO A. CASIO, Petitioners,
vs.
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, Respondent.
x-------------------------x
G.R. No. 168730
BATAAN GOVERNOR ENRIQUE T. GARCIA, JR. Petitioner,
vs.
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 Internal Revenue; and HON. ALEXANDER AREVALO, in his capacity as the OIC Commissioner of
the Bureau of Customs, Respondent.
DECISION
AUSTRIA-MARTINEZ, J.:
The expenses of government, having for their object the interest of all, should be borne by everyone, and the
more man enjoys the advantages of society, the more he ought to hold himself honored in contributing to those
expenses.
-Anne Robert Jacques Turgot (1727-1781)
French statesman and economist
Mounting budget deficit, revenue generation, inadequate fiscal allocation for education, increased emoluments
for health workers, and wider coverage for full value-added tax benefits these are the reasons why Republic
Act No. 9337 (R.A. No. 9337)1 was enacted. Reasons, the wisdom of which, the Court even with its extensive
constitutional power of review, cannot probe. The petitioners in these cases, however, question not only the
wisdom of the law, but also perceived constitutional infirmities in its passage.
Every law enjoys in its favor the presumption of constitutionality. Their arguments notwithstanding, petitioners
failed to justify their call for the invalidity of the law. Hence, R.A. No. 9337 is not unconstitutional.
LEGISLATIVE HISTORY
R.A. No. 9337 is a consolidation of three legislative bills namely, House Bill Nos. 3555 and 3705, and Senate ATTY. BANIQUED : Its not, because, Your Honor, there is an Executive Order that granted the Petroleum
Bill No. 1950. companies some subsidy . . . interrupted

House Bill No. 35552 was introduced on first reading on January 7, 2005. The House Committee on Ways and J. PANGANIBAN : Thats correct . . .
Means approved the bill, in substitution of House Bill No. 1468, which Representative (Rep.) Eric D. Singson
introduced on August 8, 2004. The President certified the bill on January 7, 2005 for immediate enactment. On ATTY. BANIQUED : . . . and therefore that was meant to temper the impact . . . interrupted
January 27, 2005, the House of Representatives approved the bill on second and third reading.
J. PANGANIBAN : . . . mitigating measures . . .
House Bill No. 37053 on the other hand, substituted House Bill No. 3105 introduced by Rep. Salacnib F.
Baterina, and House Bill No. 3381 introduced by Rep. Jacinto V. Paras. Its "mother bill" is House Bill No. 3555. ATTY. BANIQUED : Yes, Your Honor.
The House Committee on Ways and Means approved the bill on February 2, 2005. The President also certified
it as urgent on February 8, 2005. The House of Representatives approved the bill on second and third reading
J. PANGANIBAN : As a matter of fact a part of the mitigating measures would be the elimination of the Excise
on February 28, 2005.
Tax and the import duties. That is why, it is not correct to say that the VAT as to petroleum dealers increased
prices by 10%.
Meanwhile, the Senate Committee on Ways and Means approved Senate Bill No. 19504 on March 7, 2005, "in
substitution of Senate Bill Nos. 1337, 1838 and 1873, taking into consideration House Bill Nos. 3555 and
ATTY. BANIQUED : Yes, Your Honor.
3705." Senator Ralph G. Recto sponsored Senate Bill No. 1337, while Senate Bill Nos. 1838 and 1873 were
both sponsored by Sens. Franklin M. Drilon, Juan M. Flavier and Francis N. Pangilinan. The President certified
the bill on March 11, 2005, and was approved by the Senate on second and third reading on April 13, 2005. J. PANGANIBAN : And therefore, there is no justification for increasing the retail price by 10% to cover the E-
Vat tax. If you consider the excise tax and the import duties, the Net Tax would probably be in the
neighborhood of 7%? We are not going into exact figures I am just trying to deliver a point that different
On the same date, April 13, 2005, the Senate agreed to the request of the House of Representatives for a
industries, different products, different services are hit differently. So its not correct to say that all prices must
committee conference on the disagreeing provisions of the proposed bills.
go up by 10%.
Before long, the Conference Committee on the Disagreeing Provisions of House Bill No. 3555, House Bill No.
ATTY. BANIQUED : Youre right, Your Honor.
3705, and Senate Bill No. 1950, "after having met and discussed in full free and conference," recommended
the approval of its report, which the Senate did on May 10, 2005, and with the House of Representatives
agreeing thereto the next day, May 11, 2005. J. PANGANIBAN : Now. For instance, Domestic Airline companies, Mr. Counsel, are at present imposed a
Sales Tax of 3%. When this E-Vat law took effect the Sales Tax was also removed as a mitigating measure.
So, therefore, there is no justification to increase the fares by 10% at best 7%, correct?
On May 23, 2005, the enrolled copy of the consolidated House and Senate version was transmitted to the
President, who signed the same into law on May 24, 2005. Thus, came R.A. No. 9337.
ATTY. BANIQUED : I guess so, Your Honor, yes.
July 1, 2005 is the effectivity date of R.A. No.
9337.5 When said date came, the Court issued a temporary
restraining order, effective immediately and continuing until further orders, enjoining respondents from J. PANGANIBAN : There are other products that the people were complaining on that first day, were being
enforcing and implementing the law. increased arbitrarily by 10%. And thats one reason among many others this Court had to issue TRO because
of the confusion in the implementation. Thats why we added as an issue in this case, even if its tangentially
taken up by the pleadings of the parties, the confusion in the implementation of the E-vat. Our people were
Oral arguments were held on July 14, 2005. Significantly, during the hearing, the Court speaking through Mr.
subjected to the mercy of that confusion of an across the board increase of 10%, which you yourself now admit
Justice Artemio V. Panganiban, voiced the rationale for its issuance of the temporary restraining order on July
and I think even the Government will admit is incorrect. In some cases, it should be 3% only, in some cases it
1, 2005, to wit:
should be 6% depending on these mitigating measures and the location and situation of each product, of each
service, of each company, isnt it?
J. PANGANIBAN : . . . But before I go into the details of your presentation, let me just tell you a little
background. You know when the law took effect on July 1, 2005, the Court issued a TRO at about 5 oclock in
ATTY. BANIQUED : Yes, Your Honor.
the afternoon. But before that, there was a lot of complaints aired on television and on radio. Some people in a
gas station were complaining that the gas prices went up by 10%. Some people were complaining that their
electric bill will go up by 10%. Other times people riding in domestic air carrier were complaining that the prices J. PANGANIBAN : Alright. So thats one reason why we had to issue a TRO pending the clarification of all
that theyll have to pay would have to go up by 10%. While all that was being aired, per your presentation and these and we wish the government will take time to clarify all these by means of a more detailed implementing
per our own understanding of the law, thats not true. Its not true that the e-vat law necessarily increased rules, in case the law is upheld by this Court. . . .6
prices by 10% uniformly isnt it?
The Court also directed the parties to file their respective Memoranda.
ATTY. BANIQUED : No, Your Honor.
G.R. No. 168056
J. PANGANIBAN : It is not?
Before R.A. No. 9337 took effect, petitioners ABAKADA GURO Party List, et al., filed a petition for prohibition
on May 27, 2005. They question the constitutionality of Sections 4, 5 and 6 of R.A. No. 9337, amending
Sections 106, 107 and 108, respectively, of the National Internal Revenue Code (NIRC). Section 4 imposes a
10% VAT on sale of goods and properties, Section 5 imposes a 10% VAT on importation of goods, and Section
6 imposes a 10% VAT on sale of services and use or lease of properties. These questioned provisions contain
a uniform proviso authorizing the President, upon recommendation of the Secretary of Finance, to raise the
VAT rate to 12%, effective January 1, 2006, after any of the following conditions have been satisfied, to wit:
. . . That the President, upon the recommendation of the Secretary of Finance, shall, effective January 1, 2006,
raise the rate of value-added tax to twelve percent (12%), after any of the following conditions has been
satisfied:
(i) Value-added tax collection as a percentage of Gross Domestic Product (GDP) of the previous year exceeds
two and four-fifth percent (2 4/5%); or
(ii) National government deficit as a percentage of GDP of the previous year exceeds one and one-half percent
(1 %).
Petitioners argue that the law is unconstitutional, as it constitutes abandonment by Congress of its exclusive
authority to fix the rate of taxes under Article VI, Section 28(2) of the 1987 Philippine Constitution.
G.R. No. 168207
On June 9, 2005, Sen. Aquilino Q. Pimentel, Jr., et al., filed a petition for certiorari likewise assailing the
constitutionality of Sections 4, 5 and 6 of R.A. No. 9337.
Aside from questioning the so-called stand-by authority of the President to increase the VAT rate to 12%, on
the ground that it amounts to an undue delegation of legislative power, petitioners also contend that the
increase in the VAT rate to 12% contingent on any of the two conditions being satisfied violates the due
process clause embodied in Article III, Section 1 of the Constitution, as it imposes an unfair and additional tax
burden on the people, in that: (1) the 12% increase is ambiguous because it does not state if the rate would be
returned to the original 10% if the conditions are no longer satisfied; (2) the rate is unfair and unreasonable, as
the people are unsure of the applicable VAT rate from year to year; and (3) the increase in the VAT rate, which
is supposed to be an incentive to the President to raise the VAT collection to at least 2 4/5 of the GDP of the
previous year, should only be based on fiscal adequacy.
Petitioners further claim that the inclusion of a stand-by authority granted to the President by the Bicameral
Conference Committee is a violation of the "no-amendment rule" upon last reading of a bill laid down in Article
VI, Section 26(2) of the Constitution.
G.R. No. 168461
Thereafter, a petition for prohibition was filed on June 29, 2005, by the Association of Pilipinas Shell Dealers,
Inc., et al., assailing the following provisions of R.A. No. 9337:
1) Section 8, amending Section 110 (A)(2) of the NIRC, requiring that the input tax on depreciable goods shall
be amortized over a 60-month period, if the acquisition, excluding the VAT components, exceeds One Million
Pesos (P1, 000,000.00);
2) Section 8, amending Section 110 (B) of the NIRC, imposing a 70% limit on the amount of input tax to be
credited against the output tax; and
3) Section 12, amending Section 114 (c) of the NIRC, authorizing the Government or any of its political
subdivisions, instrumentalities or agencies, including GOCCs, to deduct a 5% final withholding tax on gross
payments of goods and services, which are subject to 10% VAT under Sections 106 (sale of goods and
properties) and 108 (sale of services and use or lease of properties) of the NIRC.
Petitioners contend that these provisions are unconstitutional for being arbitrary, oppressive, excessive, and
confiscatory.
Petitioners argument is premised on the constitutional right of non-deprivation of life, liberty or property without
due process of law under Article III, Section 1 of the Constitution. According to petitioners, the contested
sections impose limitations on the amount of input tax that may be claimed. Petitioners also argue that the input
tax partakes the nature of a property that may not be confiscated, appropriated, or limited without due process
of law. Petitioners further contend that like any other property or property right, the input tax credit may be
transferred or disposed of, and that by limiting the same, the government gets to tax a profit or value-added
even if there is no profit or value-added.
Petitioners also believe that these provisions violate the constitutional guarantee of equal protection of the law
under Article III, Section 1 of the Constitution, as the limitation on the creditable input tax if: (1) the entity has a
high ratio of input tax; or (2) invests in capital equipment; or (3) has several transactions with the government,
is not based on real and substantial differences to meet a valid classification.
Lastly, petitioners contend that the 70% limit is anything but progressive, violative of Article VI, Section 28(1) of
the Constitution, and that it is the smaller businesses with higher input tax to output tax ratio that will suffer the
consequences thereof for it wipes out whatever meager margins the petitioners make.
G.R. No. 168463
Several members of the House of Representatives led by Rep. Francis Joseph G. Escudero filed this petition
for certiorari on June 30, 2005. They question the constitutionality of R.A. No. 9337 on the following grounds:
1) Sections 4, 5, and 6 of R.A. No. 9337 constitute an undue delegation of legislative power, in violation of
Article VI, Section 28(2) of the Constitution;
2) The Bicameral Conference Committee acted without jurisdiction in deleting the no pass on provisions
present in Senate Bill No. 1950 and House Bill No. 3705; and
3) Insertion by the Bicameral Conference Committee of Sections 27, 28, 34, 116, 117, 119, 121, 125,7148, 151,
236, 237 and 288, which were present in Senate Bill No. 1950, violates Article VI, Section 24(1) of the
Constitution, which provides that all appropriation, revenue or tariff bills shall originate exclusively in the House
of Representatives
G.R. No. 168730
On the eleventh hour, Governor Enrique T. Garcia filed a petition for certiorari and prohibition on July 20, 2005,
alleging unconstitutionality of the law on the ground that the limitation on the creditable input tax in effect allows
VAT-registered establishments to retain a portion of the taxes they collect, thus violating the principle that tax
collection and revenue should be solely allocated for public purposes and expenditures. Petitioner Garcia
further claims that allowing these establishments to pass on the tax to the consumers is inequitable, in violation
of Article VI, Section 28(1) of the Constitution.
RESPONDENTS COMMENT
The Office of the Solicitor General (OSG) filed a Comment in behalf of respondents. Preliminarily, respondents
contend that R.A. No. 9337 enjoys the presumption of constitutionality and petitioners failed to cast doubt on its
validity.
Relying on the case of Tolentino vs. Secretary of Finance, 235 SCRA
630 (1994), respondents argue that the procedural issues raised by petitioners, i.e., legality of the bicameral
proceedings, exclusive origination of revenue measures and the power of the Senate concomitant thereto,
have already been settled. With regard to the issue of undue delegation of legislative power to the President,
respondents contend that the law is complete and leaves no discretion to the President but to increase the rate
to 12% once any of the two conditions provided therein arise.
Respondents also refute petitioners argument that the increase to 12%, as well as the 70% limitation on the
creditable input tax, the 60-month amortization on the purchase or importation of capital goods
exceeding P1,000,000.00, and the 5% final withholding tax by government agencies, is arbitrary, oppressive,
and confiscatory, and that it violates the constitutional principle on progressive taxation, among others.
Finally, respondents manifest that R.A. No. 9337 is the anchor of the governments fiscal reform agenda. A
reform in the value-added system of taxation is the core revenue measure that will tilt the balance towards a
sustainable macroeconomic environment necessary for economic growth.
ISSUES
The Court defined the issues, as follows:
PROCEDURAL ISSUE
Whether R.A. No. 9337 violates the following provisions of the Constitution:
a. Article VI, Section 24, and
b. Article VI, Section 26(2)
SUBSTANTIVE ISSUES
1. Whether Sections 4, 5 and 6 of R.A. No. 9337, amending Sections 106, 107 and 108 of the NIRC, violate the
following provisions of the Constitution:
a. Article VI, Section 28(1), and
b. Article VI, Section 28(2)
2. Whether Section 8 of R.A. No. 9337, amending Sections 110(A)(2) and 110(B) of the NIRC; and Section 12
of R.A. No. 9337, amending Section 114(C) of the NIRC, violate the following provisions of the Constitution:
a. Article VI, Section 28(1), and
b. Article III, Section 1
RULING OF THE COURT
As a prelude, the Court deems it apt to restate the general principles and concepts of value-added tax (VAT),
as the confusion and inevitably, litigation, breeds from a fallacious notion of its nature.
The VAT is a tax on spending or consumption. It is levied on the sale, barter, exchange or lease of goods or
properties and services.8 Being an indirect tax on expenditure, the seller of goods or services may pass on the
amount of tax paid to the buyer,9 with the seller acting merely as a tax collector.10 The burden of VAT is
intended to fall on the immediate buyers and ultimately, the end-consumers.
In contrast, a direct tax is a tax for which a taxpayer is directly liable on the transaction or business it engages
in, without transferring the burden to someone else.11 Examples are individual and corporate income taxes,
transfer taxes, and residence taxes.12
In the Philippines, the value-added system of sales taxation has long been in existence, albeit in a different
mode. Prior to 1978, the system was a single-stage tax computed under the "cost deduction method" and was
payable only by the original sellers. The single-stage system was subsequently modified, and a mixture of the
"cost deduction method" and "tax credit method" was used to determine the value-added tax payable.13 Under
the "tax credit method," an entity can credit against or subtract from the VAT charged on its sales or outputs the
VAT paid on its purchases, inputs and imports.14
It was only in 1987, when President Corazon C. Aquino issued Executive Order No. 273, that the VAT system
was rationalized by imposing a multi-stage tax rate of 0% or 10% on all sales using the "tax credit method."15
E.O. No. 273 was followed by R.A. No. 7716 or the Expanded VAT Law,16 R.A. No. 8241 or the Improved VAT
Law,17 R.A. No. 8424 or the Tax Reform Act of 1997,18 and finally, the presently beleaguered R.A. No. 9337,
also referred to by respondents as the VAT Reform Act.
The Court will now discuss the issues in logical sequence.
PROCEDURAL ISSUE
I.
Whether R.A. No. 9337 violates the following provisions of the Constitution:
a. Article VI, Section 24, and
b. Article VI, Section 26(2)
A. The Bicameral Conference Committee
Petitioners Escudero, et al., and Pimentel, et al., allege that the Bicameral Conference Committee exceeded its
authority by:
1) Inserting the stand-by authority in favor of the President in Sections 4, 5, and 6 of R.A. No. 9337;
2) Deleting entirely the no pass-on provisions found in both the House and Senate bills;
3) Inserting the provision imposing a 70% limit on the amount of input tax to be credited against the output tax;
and
4) Including the amendments introduced only by Senate Bill No. 1950 regarding other kinds of taxes in addition
to the value-added tax.
Petitioners now beseech the Court to define the powers of the Bicameral Conference Committee.
It should be borne in mind that the power of internal regulation and discipline are intrinsic in any legislative body
for, as unerringly elucidated by Justice Story, "[i]f the power did not exist, it would be utterly impracticable
to transact the business of the nation, either at all, or at least with decency, deliberation, and
order."19 Thus, Article VI, Section 16 (3) of the Constitution provides that "each House may determine the rules
of its proceedings." Pursuant to this inherent constitutional power to promulgate and implement its own rules of
procedure, the respective rules of each house of Congress provided for the creation of a Bicameral Conference
Committee.
Thus, Rule XIV, Sections 88 and 89 of the Rules of House of Representatives provides as follows:
Sec. 88. Conference Committee. In the event that the House does not agree with the Senate on the
amendment to any bill or joint resolution, the differences may be settled by the conference committees of both
chambers.
In resolving the differences with the Senate, the House panel shall, as much as possible, adhere to and support
the House Bill. If the differences with the Senate are so substantial that they materially impair the House Bill,
the panel shall report such fact to the House for the latters appropriate action.
Sec. 89. Conference Committee Reports. . . . Each report shall contain a detailed, sufficiently explicit
statement of the changes in or amendments to the subject measure.
...
The Chairman of the House panel may be interpellated on the Conference Committee Report prior to the voting
thereon. The House shall vote on the Conference Committee Report in the same manner and procedure as it
votes on a bill on third and final reading.
Rule XII, Section 35 of the Rules of the Senate states:
Sec. 35. In the event that the Senate does not agree with the House of Representatives on the provision of any
bill or joint resolution, the differences shall be settled by a conference committee of both Houses which shall
meet within ten (10) days after their composition. The President shall designate the members of the Senate
Panel in the conference committee with the approval of the Senate.
Each Conference Committee Report shall contain a detailed and sufficiently explicit statement of the changes
in, or amendments to the subject measure, and shall be signed by a majority of the members of each House
panel, voting separately.
A comparative presentation of the conflicting House and Senate provisions and a reconciled version thereof
with the explanatory statement of the conference committee shall be attached to the report.
...
The creation of such conference committee was apparently in response to a problem, not addressed by any
constitutional provision, where the two houses of Congress find themselves in disagreement over changes or
amendments introduced by the other house in a legislative bill. Given that one of the most basic powers of the
legislative branch is to formulate and implement its own rules of proceedings and to discipline its members,
may the Court then delve into the details of how Congress complies with its internal rules or how it conducts its
business of passing legislation? Note that in the present petitions, the issue is not whether provisions of the
rules of both houses creating the bicameral conference committee are unconstitutional,but whether the
bicameral conference committee has strictly complied with the rules of both houses, thereby remaining
within the jurisdiction conferred upon it by Congress.
In the recent case of Farias vs. The Executive Secretary,20 the Court En Banc, unanimously reiterated and
emphasized its adherence to the "enrolled bill doctrine," thus, declining therein petitioners plea for the Court to
go behind the enrolled copy of the bill. Assailed in said case was Congresss creation of two sets of bicameral
conference committees, the lack of records of said committees proceedings, the alleged violation of said
committees of the rules of both houses, and the disappearance or deletion of one of the provisions in the
compromise bill submitted by the bicameral conference committee. It was argued that such irregularities in the
passage of the law nullified R.A. No. 9006, or the Fair Election Act.
Striking down such argument, the Court held thus:
Under the "enrolled bill doctrine," the signing of a bill by the Speaker of the House and the Senate President
and the certification of the Secretaries of both Houses of Congress that it was passed are conclusive of its due
enactment. A review of cases reveals the Courts consistent adherence to the rule. The Court finds no reason
to deviate from the salutary rule in this case where the irregularities alleged by the petitioners mostly
involved the internal rules of Congress, e.g., creation of the 2nd or 3rdBicameral Conference Committee
by the House. This Court is not the proper forum for the enforcement of these internal rules of
Congress, whether House or Senate. Parliamentary rules are merely procedural and with their
observance the courts have no concern. Whatever doubts there may be as to the formal validity of Rep.
Act No. 9006 must be resolved in its favor. The Court reiterates its ruling inArroyo vs. De Venecia, viz.:
But the cases, both here and abroad, in varying forms of expression, all deny to the courts the power to
inquire into allegations that, in enacting a law, a House of Congress failed to comply with its own rules,
in the absence of showing that there was a violation of a constitutional provision or the rights of
private individuals. In Osmea v. Pendatun, it was held: "At any rate, courts have declared that the rules
adopted by deliberative bodies are subject to revocation, modification or waiver at the pleasure of the body
adopting them. And it has been said that "Parliamentary rules are merely procedural, and with their
observance, the courts have no concern. They may be waived or disregarded by the legislative body."
Consequently, "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."21 (Emphasis supplied)
The foregoing declaration is exactly in point with the present cases, where petitioners allege irregularities
committed by the conference committee in introducing changes or deleting provisions in the House and Senate
bills. Akin to the Farias case,22 the present petitions also raise an issue regarding the actions taken by the
conference committee on matters regarding Congress compliance with its own internal rules. As stated earlier,
one of the most basic and inherent power of the legislature is the power to formulate rules for its proceedings
and the discipline of its members. Congress is the best judge of how it should conduct its own business
expeditiously and in the most orderly manner. It is also the sole
concern of Congress to instill discipline among the members of its conference committee if it believes that said
members violated any of its rules of proceedings. Even the expanded jurisdiction of this Court cannot apply to
questions regarding only the internal operation of Congress, thus, the Court is wont to deny a review of the
internal proceedings of a co-equal branch of government.
Moreover, as far back as 1994 or more than ten years ago, in the case of Tolentino vs. Secretary of
Finance,23 the Court already made the pronouncement that "[i]f a change is desired in the practice [of the
Bicameral Conference Committee] it must be sought in Congress since this question is not covered by
any constitutional provision but is only an internal rule of each house." 24 To date, Congress has not seen
it fit to make such changes adverted to by the Court. It seems, therefore, that Congress finds the practices of
the bicameral conference committee to be very useful for purposes of prompt and efficient legislative action.
Nevertheless, just to put minds at ease that no blatant irregularities tainted the proceedings of the bicameral
conference committees, the Court deems it necessary to dwell on the issue. The Court observes that there was
a necessity for a conference committee because a comparison of the provisions of House Bill Nos. 3555 and
3705 on one hand, and Senate Bill No. 1950 on the other, reveals that there were indeed disagreements. As
pointed out in the petitions, said disagreements were as follows:
House Bill No. 3555 House Bill No.3705
With regard to "Stand-By Authority" in favor of President
Provides for 12% VAT on every Provides for 12% VAT in general on
sale of goods or properties sales of goods or properties and
(amending Sec. 106 of NIRC); reduced rates for sale of certain
12% VAT on importation of locally manufactured goods and
goods (amending Sec. 107 of petroleum products and raw
NIRC); and 12% VAT on sale of materials to be used in the
services and use or lease of manufacture thereof (amending
properties (amending Sec. 108 Sec. 106 of NIRC); 12% VAT on
of NIRC) importation of goods and reduced
rates for certain imported products
including petroleum products
(amending Sec. 107 of NIRC); and
12% VAT on sale of services and
use or lease of properties and a
reduced rate for certain services
including power generation
(amending Sec. 108 of NIRC)
With regard to the "no pass-on" provision
No similar provision Provides that the VAT imposed on
power generation and on the sale of
petroleum products shall be
absorbed by generation companies
or sellers, respectively, and shall not
be passed on to consumers
With regard to 70% limit on input tax credit
Provides that the input tax No similar provision
credit for capital goods on
which a VAT has been paid
shall be equally distributed over
5 years or the depreciable life
Senate Bill No. 1950
Provides for a single rate of
10% VAT on sale of goods or
properties (amending Sec. 106
of NIRC), 10% VAT on sale of
services including sale of
electricity by generation
companies, transmission and
distribution companies, and
use or lease of properties
(amending Sec. 108 of NIRC)
Provides that the VAT imposed
on sales of electricity by
generation companies and
services of transmission
companies and distribution
companies, as well as those of
franchise grantees of electric
utilities shall not apply to
residential
end-users. VAT shall be
absorbed by generation,
transmission, and distribution
companies.
Provides that the input tax
credit for capital goods on
which a VAT has been paid
shall be equally distributed over
5 years or the depreciable life
of such capital goods; the input of such capital goods; the input
tax credit for goods and tax credit for goods and
services other than capital services other than capital
goods shall not exceed 5% of goods shall not exceed 90% of
the total amount of such goods the output VAT.
and services; and for persons
engaged in retail trading of
goods, the allowable input tax
credit shall not exceed 11% of
the total amount of goods
purchased.
With regard to amendments to be made to NIRC provisions regarding income and excise taxes
No similar provision No similar provision Provided for amendments to several
NIRC provisions regarding corporate
income, percentage, franchise and excise
taxes
The disagreements between the provisions in the House bills and the Senate bill were with regard to (1) what
rate of VAT is to be imposed; (2) whether only the VAT imposed on electricity generation, transmission and
distribution companies should not be passed on to consumers, as proposed in the Senate bill, or both the VAT
imposed on electricity generation, transmission and distribution companies and the VAT imposed on sale of
petroleum products should not be passed on to consumers, as proposed in the House bill; (3) in what manner
input tax credits should be limited; (4) and whether the NIRC provisions on corporate income taxes,
percentage, franchise and excise taxes should be amended.
There being differences and/or disagreements on the foregoing provisions of the House and Senate bills, the
Bicameral Conference Committee was mandated by the rules of both houses of Congress to act on the same
by settling said differences and/or disagreements. The Bicameral Conference Committee acted on the
disagreeing provisions by making the following changes:
1. With regard to the disagreement on the rate of VAT to be imposed, it would appear from the Conference
Committee Report that the Bicameral Conference Committee tried to bridge the gap in the difference between
the 10% VAT rate proposed by the Senate, and the various rates with 12% as the highest VAT rate proposed
by the House, by striking a compromise whereby the present 10% VAT rate would be retained until certain
conditions arise, i.e., the value-added tax collection as a percentage of gross domestic product (GDP) of the
previous year exceeds 2 4/5%, or National Government deficit as a percentage of GDP of the previous year
exceeds 1%, when the President, upon recommendation of the Secretary of Finance shall raise the rate of
VAT to 12% effective January 1, 2006.
2. With regard to the disagreement on whether only the VAT imposed on electricity generation, transmission
and distribution companies should not be passed on to consumers or whether both the VAT imposed on
electricity generation, transmission and distribution companies and the VAT imposed on sale of petroleum
products may be passed on to consumers, the Bicameral Conference Committee chose to settle such
disagreement by altogether deleting from its Report any no pass-on provision.
3. With regard to the disagreement on whether input tax credits should be limited or not, the Bicameral
Conference Committee decided to adopt the position of the House by putting a limitation on the amount of input
tax that may be credited against the output tax, although it crafted its own language as to the amount of the
limitation on input tax credits and the manner of computing the same by providing thus:
(A) Creditable Input Tax. . . .
...
Provided, The input tax on goods purchased or imported in a calendar month for use in trade or business for
which deduction for depreciation is allowed under this Code, shall be spread evenly over the month of
acquisition and the fifty-nine (59) succeeding months if the aggregate acquisition cost for such goods,
excluding the VAT component thereof, exceeds one million Pesos (P1,000,000.00): PROVIDED, however, that
if the estimated useful life of the capital good is less than five (5) years, as used for depreciation purposes, then
the input VAT shall be spread over such shorter period: . . .
(B) Excess Output or Input Tax. If at the end of any taxable quarter the output tax exceeds the input tax, the
excess shall be paid by the VAT-registered person. If the input tax exceeds the output tax, the excess shall be
carried over to the succeeding quarter or quarters: PROVIDED that the input tax inclusive of input VAT carried
over from the previous quarter that may be credited in every quarter shall not exceed seventy percent (70%) of
the output VAT: PROVIDED, HOWEVER, THAT any input tax attributable to zero-rated sales by a VAT-
registered person may at his option be refunded or credited against other internal revenue taxes, . . .
4. With regard to the amendments to other provisions of the NIRC on corporate income tax, franchise,
percentage and excise taxes, the conference committee decided to include such amendments and basically
adopted the provisions found in Senate Bill No. 1950, with some changes as to the rate of the tax to be
imposed.
Under the provisions of both the Rules of the House of Representatives and Senate Rules, the Bicameral
Conference Committee is mandated to settle the differences between the disagreeing provisions in the House
bill and the Senate bill. The term "settle" is synonymous to "reconcile" and "harmonize."25 To reconcile or
harmonize disagreeing provisions, the Bicameral Conference Committee may then (a) adopt the specific
provisions of either the House bill or Senate bill, (b) decide that neither provisions in the House bill or the
provisions in the Senate bill would
be carried into the final form of the bill, and/or (c) try to arrive at a compromise between the disagreeing
provisions.
In the present case, the changes introduced by the Bicameral Conference Committee on disagreeing
provisions were meant only to reconcile and harmonize the disagreeing provisions for it did not inject any idea
or intent that is wholly foreign to the subject embraced by the original provisions.
The so-called stand-by authority in favor of the President, whereby the rate of 10% VAT wanted by the Senate
is retained until such time that certain conditions arise when the 12% VAT wanted by the House shall be
imposed, appears to be a compromise to try to bridge the difference in the rate of VAT proposed by the two
houses of Congress. Nevertheless, such compromise is still totally within the subject of what rate of VAT
should be imposed on taxpayers.
The no pass-on provision was deleted altogether. In the transcripts of the proceedings of the Bicameral
Conference Committee held on May 10, 2005, Sen. Ralph Recto, Chairman of the Senate Panel, explained the
reason for deleting the no pass-on provision in this wise:
. . . the thinking was just to keep the VAT law or the VAT bill simple. And we were thinking that no sector should
be a beneficiary of legislative grace, neither should any sector be discriminated on. The VAT is an indirect
tax. It is a pass on-tax. And lets keep it plain and simple. Lets not confuse the bill and put a no pass-on
provision. Two-thirds of the world have a VAT system and in this two-thirds of the globe, I have yet to see a
VAT with a no pass-though provision. So, the thinking of the Senate is basically simple, lets keep the VAT
simple.26 (Emphasis supplied)
Rep. Teodoro Locsin further made the manifestation that the no pass-on provision "never really enjoyed the
support of either House."27
With regard to the amount of input tax to be credited against output tax, the Bicameral Conference Committee
came to a compromise on the percentage rate of the limitation or cap on such input tax credit, but again, the
change introduced by the Bicameral Conference Committee was totally within the intent of both houses to put a
cap on input tax that may be
credited against the output tax. From the inception of the subject revenue bill in the House of Representatives,
one of the major objectives was to "plug a glaring loophole in the tax policy and administration by creating vital
restrictions on the claiming of input VAT tax credits . . ." and "[b]y introducing limitations on the claiming of tax
credit, we are capping a major leakage that has placed our collection efforts at an apparent disadvantage."28
As to the amendments to NIRC provisions on taxes other than the value-added tax proposed in Senate Bill No.
1950, since said provisions were among those referred to it, the conference committee had to act on the same
and it basically adopted the version of the Senate.
Thus, all the changes or modifications made by the Bicameral Conference Committee were germane to
subjects of the provisions referred
to it for reconciliation. Such being the case, the Court does not see any grave abuse of discretion amounting to
lack or excess of jurisdiction committed by the Bicameral Conference Committee. In the earlier cases
of Philippine Judges Association vs. Prado29 and Tolentino vs. Secretary of Finance,30 the Court recognized the
long-standing legislative practice of giving said conference committee ample latitude for compromising
differences between the Senate and the House. Thus, in the Tolentino case, it was held that:
. . . it is within the power of a conference committee to include in its report an entirely new provision that is not
found either in the House bill or in the Senate bill. If the committee can propose an amendment consisting of
one or two provisions, there is no reason why it cannot propose several provisions, collectively considered as
an "amendment in the nature of a substitute," so long as such amendment is germane to the subject of the bills
before the committee. After all, its report was not final but needed the approval of both houses of Congress to
become valid as an act of the legislative department. The charge that in this case the Conference
Committee acted as a third legislative chamber is thus without any basis.31 (Emphasis supplied)
B. R.A. No. 9337 Does Not Violate Article VI, Section 26(2) of the Constitution on the "No-Amendment Rule"
Article VI, Sec. 26 (2) of the Constitution, states:
No bill passed by either House shall become a law unless it has passed three readings on separate days, and
printed copies thereof in its final form have been distributed to its Members three days before its passage,
except when the President certifies to the necessity of its immediate enactment to meet a public calamity or
emergency. Upon the last reading of a bill, no amendment thereto shall be allowed, and the vote thereon shall
be taken immediately thereafter, and the yeas and nays entered in the Journal.
Petitioners argument that the practice where a bicameral conference committee is allowed to add or delete
provisions in the House bill and the Senate bill after these had passed three readings is in effect a
circumvention of the "no amendment rule" (Sec. 26 (2), Art. VI of the 1987 Constitution), fails to convince the
Court to deviate from its ruling in the Tolentino case that:
Nor is there any reason for requiring that the Committees Report in these cases must have undergone three
readings in each of the two houses. If that be the case, there would be no end to negotiation since each house
may seek modification of the compromise bill. . . .
Art. VI. 26 (2) must, therefore, be construed as referring only to bills introduced for the first time in argue that since the proposed amendments did not originate from the House, such amendments are a violation
either house of Congress, not to the conference committee report.32 (Emphasis supplied) of Article VI, Section 24 of the Constitution.

The Court reiterates here that the "no-amendment rule" refers only to the procedure to be followed by The argument does not hold water.
each house of Congress with regard to bills initiated in each of said respective houses, before said bill
is transmitted to the other house for its concurrence or amendment. Verily, to construe said provision in a Article VI, Section 24 of the Constitution reads:
way as to proscribe any further changes to a bill after one house has voted on it would lead to absurdity as this
would mean that the other house of Congress would be deprived of its constitutional power to amend or Sec. 24. All appropriation, revenue or tariff bills, bills authorizing increase of the public debt, bills of local
introduce changes to said bill. Thus, Art. VI, Sec. 26 (2) of the Constitution cannot be taken to mean that the application, and private bills shall originate exclusively in the House of Representatives but the Senate may
introduction by the Bicameral Conference Committee of amendments and modifications to disagreeing propose or concur with amendments.
provisions in bills that have been acted upon by both houses of Congress is prohibited.
In the present cases, petitioners admit that it was indeed House Bill Nos. 3555 and 3705 that initiated the move
C. R.A. No. 9337 Does Not Violate Article VI, Section 24 of the Constitution on Exclusive Origination of for amending provisions of the NIRC dealing mainly with the value-added tax. Upon transmittal of said House
Revenue Bills bills to the Senate, the Senate came out with Senate Bill No. 1950 proposing amendments not only to NIRC
provisions on the value-added tax but also amendments to NIRC provisions on other kinds of taxes. Is the
Coming to the issue of the validity of the amendments made regarding the NIRC provisions on corporate introduction by the Senate of provisions not dealing directly with the value- added tax, which is the only kind of
income taxes and percentage, excise taxes. Petitioners refer to the following provisions, to wit: tax being amended in the House bills, still within the purview of the constitutional provision authorizing the
Senate to propose or concur with amendments to a revenue bill that originated from the House?
Section 27 Rates of Income Tax on Domestic Corporation
The foregoing question had been squarely answered in the Tolentino case, wherein the Court held, thus:
28(A)(1) Tax on Resident Foreign Corporation
. . . To begin with, it is not the law but the revenue bill which is required by the Constitution to "originate
28(B)(1) Inter-corporate Dividends 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
34(B)(1) Inter-corporate Dividends 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
116 Tax on Persons Exempt from VAT deny the Senates 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
117 Percentage Tax on domestic carriers and keepers of Garage House superior to the Senate.

119 Tax on franchises

Given, then, the power of the Senate to propose amendments, the Senate can propose its own
121 Tax on banks and Non-Bank Financial Intermediaries version even with respect to bills which are required by the Constitution to originate in the House.

148 Excise Tax on manufactured oils and other fuels ...

151 Excise Tax on mineral products 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
236 Registration requirements 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.
237 Issuance of receipts or sales or commercial invoices
Both views are thereby made to bear on the enactment of such laws.33 (Emphasis supplied)

288 Disposition of Incremental Revenue
Petitioners claim that the amendments to these provisions of the NIRC did not at all originate from the House.
They aver that House Bill No. 3555 proposed amendments only regarding Sections 106, 107, 108, 110 and 114
of the NIRC, while House Bill No. 3705 proposed amendments only to Sections 106, 107,108, 109, 110 and
111 of the NIRC; thus, the other sections of the NIRC which the Senate amended but which amendments were
not found in the House bills are not intended to be amended by the House of Representatives. Hence, they
Since there is no question that the revenue bill exclusively originated in the House of Representatives, the
Senate was acting within its
constitutional power to introduce amendments to the House bill when it included provisions in Senate Bill No.
1950 amending corporate income taxes, percentage, excise and franchise taxes. Verily, Article VI, Section 24
of the Constitution does not contain any prohibition or limitation on the extent of the amendments that may be
introduced by the Senate to the House revenue bill.
Furthermore, the amendments introduced by the Senate to the NIRC provisions that had not been touched in
the House bills are still in furtherance of the intent of the House in initiating the subject revenue bills. The
Explanatory Note of House Bill No. 1468, the very first House bill introduced on the floor, which was later
substituted by House Bill No. 3555, stated:
One of the challenges faced by the present administration is the urgent and daunting task of solving the
countrys serious financial problems. To do this, government expenditures must be strictly monitored and
controlled and revenues must be significantly increased. This may be easier said than done, but our fiscal
authorities are still optimistic the government will be operating on a balanced budget by the year 2009. In fact,
several measures that will result to significant expenditure savings have been identified by the administration. It
is supported with a credible package of revenue measures that include measures to improve tax
administration and control the leakages in revenues from income taxes and the value-added tax (VAT).
(Emphasis supplied)
Rep. Eric D. Singson, in his sponsorship speech for House Bill No. 3555, declared that:
In the budget message of our President in the year 2005, she reiterated that we all acknowledged that on top of
our agenda must be the restoration of the health of our fiscal system.
In order to considerably lower the consolidated public sector deficit and eventually achieve a balanced budget
by the year 2009, we need to seize windows of opportunities which might seem poignant in the
beginning, but in the long run prove effective and beneficial to the overall status of our economy. One
such opportunity is a review of existing tax rates, evaluating the relevance given our present
conditions.34 (Emphasis supplied)
Notably therefore, the main purpose of the bills emanating from the House of Representatives is to bring in
sizeable revenues for the government
to supplement our countrys serious financial problems, and improve tax administration and control of the
leakages in revenues from income taxes and value-added taxes. As these house bills were transmitted to the
Senate, the latter, approaching the measures from the point of national perspective, can introduce
amendments within the purposes of those bills. It can provide for ways that would soften the impact of the VAT
measure on the consumer, i.e., by distributing the burden across all sectors instead of putting it entirely on the
shoulders of the consumers. The sponsorship speech of Sen. Ralph Recto on why the provisions on income
tax on corporation were included is worth quoting:
All in all, the proposal of the Senate Committee on Ways and Means will raise P64.3 billion in additional
revenues annually even while by mitigating prices of power, services and petroleum products.
However, not all of this will be wrung out of VAT. In fact, only P48.7 billion amount is from the VAT on twelve
goods and services. The rest of the tab P10.5 billion- will be picked by corporations.
What we therefore prescribe is a burden sharing between corporate Philippines and the consumer. Why should
the latter bear all the pain? Why should the fiscal salvation be only on the burden of the consumer?
The corporate worlds equity is in form of the increase in the corporate income tax from 32 to 35 percent, but up
to 2008 only. This will raise P10.5 billion a year. After that, the rate will slide back, not to its old rate of 32
percent, but two notches lower, to 30 percent.
Clearly, we are telling those with the capacity to pay, corporations, to bear with this emergency provision that
will be in effect for 1,200 days, while we put our fiscal house in order. This fiscal medicine will have an expiry
date.
For their assistance, a reward of tax reduction awaits them. We intend to keep the length of their sacrifice brief.
We would like to assure them that not because there is a light at the end of the tunnel, this government will
keep on making the tunnel long.
The responsibility will not rest solely on the weary shoulders of the small man. Big business will be there to
share the burden.35
As the Court has said, the Senate can propose amendments and in fact, the amendments made on provisions
in the tax on income of corporations are germane to the purpose of the house bills which is to raise revenues
for the government.
Likewise, the Court finds the sections referring to other percentage and excise taxes germane to the reforms to
the VAT system, as these sections would cushion the effects of VAT on consumers. Considering that certain
goods and services which were subject to percentage tax and excise tax would no longer be VAT-exempt, 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. Again, in his sponsorship speech, Sen. Recto
said:
However, for power plants that run on oil, we will reduce to zero the present excise tax on bunker fuel, to
lessen the effect of a VAT on this product.
For electric utilities like Meralco, we will wipe out the franchise tax in exchange for a VAT.
And in the case of petroleum, while we will levy the VAT on oil products, so as not to destroy the VAT chain, we
will however bring down the excise tax on socially sensitive products such as diesel, bunker, fuel and kerosene.
...
What do all these exercises point to? These are not contortions of giving to the left hand what was taken from
the right. Rather, these sprang from our concern of softening the impact of VAT, so that the people can cushion
the blow of higher prices they will have to pay as a result of VAT.36
The other sections amended by the Senate pertained to matters of tax administration which are necessary for
the implementation of the changes in the VAT system.
To reiterate, the sections introduced by the Senate are germane to the subject matter and purposes of the
house bills, which is to supplement our countrys fiscal deficit, among others. Thus, the Senate acted within its
power to propose those amendments.
SUBSTANTIVE ISSUES
I.
Whether Sections 4, 5 and 6 of R.A. No. 9337, amending Sections 106, 107 and 108 of the NIRC, violate the
following provisions of the Constitution:
a. Article VI, Section 28(1), and
b. Article VI, Section 28(2)
A. No Undue Delegation of Legislative Power
Petitioners ABAKADA GURO Party List, et al., Pimentel, Jr., et al., and Escudero, et al. contend in common
that Sections 4, 5 and 6 of R.A. No. 9337, amending Sections 106, 107 and 108, respectively, of the NIRC
giving the President the stand-by authority to raise the VAT rate from 10% to 12% when a certain condition is
met, constitutes undue delegation of the legislative power to tax.
The assailed provisions read as follows:
SEC. 4. Sec. 106 of the same Code, as amended, is hereby further amended to read as follows:
SEC. 106. Value-Added Tax on Sale of Goods or Properties.
(A) Rate and Base of Tax. There shall be levied, assessed and collected on every sale, barter or exchange of
goods or properties, a value-added tax equivalent to ten percent (10%) of the gross selling price or gross value
in money of the goods or properties sold, bartered or exchanged, such tax to be paid by the seller or
transferor: provided, that the President, upon the recommendation of the Secretary of Finance, shall,
effective January 1, 2006, raise the rate of value-added tax to twelve percent (12%), after any of the
following conditions has been satisfied.
(i) value-added tax collection as a percentage of Gross Domestic Product (GDP) of the previous year
exceeds two and four-fifth percent (2 4/5%) or
(ii) national government deficit as a percentage of GDP of the previous year exceeds one and one-half
percent (1 %).
SEC. 5. Section 107 of the same Code, as amended, is hereby further amended to read as follows:
SEC. 107. Value-Added Tax on Importation of Goods.
(A) In General. There shall be levied, assessed and collected on every importation of goods a value-added
tax equivalent to ten percent (10%) based on the total value used by the Bureau of Customs in determining
tariff and customs duties, plus customs duties, excise taxes, if any, and other charges, such tax to be paid by
the importer prior to the release of such goods from customs custody: Provided, That where the customs duties
are determined on the basis of the quantity or volume of the goods, the value-added tax shall be based on the
landed cost plus excise taxes, if any: provided, further, that the President, upon the recommendation of
the Secretary of Finance, shall, effective January 1, 2006, raise the rate of value-added tax to twelve
percent (12%) after any of the following conditions has been satisfied.
(i) value-added tax collection as a percentage of Gross Domestic Product (GDP) of the previous year
exceeds two and four-fifth percent (2 4/5%) or
(ii) national government deficit as a percentage of GDP of the previous year exceeds one and one-half
percent (1 %).
SEC. 6. Section 108 of the same Code, as amended, is hereby further amended to read as follows:
SEC. 108. Value-added Tax on Sale of Services and Use or Lease of Properties
(A) Rate and Base of Tax. There shall be levied, assessed and collected, a value-added tax equivalent to ten
percent (10%) of gross receipts derived from the sale or exchange of services: provided, that the President,
upon the recommendation of the Secretary of Finance, shall, effective January 1, 2006, raise the rate of
value-added tax to twelve percent (12%), after any of the following conditions has been satisfied.
(i) value-added tax collection as a percentage of Gross Domestic Product (GDP) of the previous year
exceeds two and four-fifth percent (2 4/5%) or
(ii) national government deficit as a percentage of GDP of the previous year exceeds one and one-half
percent (1 %). (Emphasis supplied)
Petitioners allege that the grant of the stand-by authority to the President to increase the VAT rate is a virtual
abdication by Congress of its exclusive power to tax because such delegation is not within the purview of
Section 28 (2), Article VI of the Constitution, which provides:
The Congress may, by law, authorize the President to fix within specified limits, and may impose, tariff rates,
import and export quotas, tonnage and wharfage dues, and other duties or imposts within the framework of the
national development program of the government.
They argue that the VAT is a tax levied on the sale, barter or exchange of goods and properties as well as on
the sale or exchange of services, which cannot be included within the purview of tariffs under the exempted
delegation as the latter refers to customs duties, tolls or tribute payable upon merchandise to the government
and usually imposed on goods or merchandise imported or exported.
Petitioners ABAKADA GURO Party List, et al., further contend that delegating to the President the legislative
power to tax is contrary to republicanism. They insist that accountability, responsibility and transparency should
dictate the actions of Congress and they should not pass to the President the decision to impose taxes. They
also argue that the law also effectively nullified the Presidents power of control, which includes the authority to
set aside and nullify the acts of her subordinates like the Secretary of Finance, by mandating the fixing of the
tax rate by the President upon the recommendation of the Secretary of Finance.
Petitioners Pimentel, et al. aver that the President has ample powers to cause, influence or create the
conditions provided by the law to bring about either or both the conditions precedent.
On the other hand, petitioners Escudero, et al. find bizarre and revolting the situation that the imposition of the
12% rate would be subject to the whim of the Secretary of Finance, an unelected bureaucrat, contrary to the
principle of no taxation without representation. They submit that the Secretary of Finance is not mandated to
give a favorable recommendation and he may not even give his recommendation. Moreover, they allege that
no guiding standards are provided in the law on what basis and as to how he will make his recommendation.
They claim, nonetheless, that any recommendation of the Secretary of Finance can easily be brushed aside by
the President since the former is a mere alter ego of the latter, such that, ultimately, it is the President who
decides whether to impose the increased tax rate or not.
A brief discourse on the principle of non-delegation of powers is instructive.
The principle of separation of powers ordains that each of the three great branches of government has
exclusive cognizance of and is supreme in matters falling within its own constitutionally allocated sphere.37A
logical
corollary to the doctrine of separation of powers is the principle of non-delegation of powers, as expressed in
the Latin maxim: potestas delegata non delegari potest which means "what has been delegated, cannot be
delegated."38 This doctrine is based on the ethical principle that such as delegated power constitutes not only a
right but a duty to be performed by the delegate through the instrumentality of his own judgment and not
through the intervening mind of another.39
With respect to the Legislature, Section 1 of Article VI of the Constitution provides that "the Legislative power
shall be vested in the Congress of the Philippines which shall consist of a Senate and a House of
Representatives." The powers which Congress is prohibited from delegating are those which are strictly, or
inherently and exclusively, legislative. Purely legislative power, which can never be delegated, has been
described as the authority to make a complete law complete as to the time when it shall take effect and
as to whom it shall be applicable and to determine the expediency of its enactment.40 Thus, the rule is
that in order that a court may be justified in holding a statute unconstitutional as a delegation of legislative
power, it must appear that the power involved is purely legislative in nature that is, one appertaining
exclusively to the legislative department. It is the nature of the power, and not the liability of its use or the
manner of its exercise, which determines the validity of its delegation.
Nonetheless, the general rule barring delegation of legislative powers is subject to the following recognized
limitations or exceptions:
(1) Delegation of tariff powers to the President under Section 28 (2) of Article VI of the Constitution;
(2) Delegation of emergency powers to the President under Section 23 (2) of Article VI of the Constitution;
(3) Delegation to the people at large;
(4) Delegation to local governments; and
(5) Delegation to administrative bodies.
In every case of permissible delegation, there must be a showing that the delegation itself is valid. It is valid
only if the law (a) is complete in itself, setting forth therein the policy to be executed, carried out, or
implemented by the delegate;41 and (b) fixes a standard the limits of which are sufficiently determinate and
determinable to which the delegate must conform in the performance of his functions.42 A sufficient standard
is one which defines legislative policy, marks its limits, maps out its boundaries and specifies the public agency
to apply it. It indicates the circumstances under which the legislative command is to be effected.43 Both tests
are intended to prevent a total transference of legislative authority to the delegate, who is not allowed to step
into the shoes of the legislature and exercise a power essentially legislative.44
In People vs. Vera,45 the Court, through eminent Justice Jose P. Laurel, expounded on the concept and extent
of delegation of power in this wise:
In testing whether a statute constitutes an undue delegation of legislative power or not, it is usual to inquire
whether the statute was complete in all its terms and provisions when it left the hands of the legislature so that
nothing was left to the judgment of any other appointee or delegate of the legislature.
...
The true distinction, says Judge Ranney, is between the delegation of power to make the law, which
necessarily involves a discretion as to what it shall be, and conferring an authority or discretion as to
its execution, to be exercised under and in pursuance of the law. The first cannot be done; to the latter
no valid objection can be made.
...
It is contended, however, that a legislative act may be made to the effect as law after it leaves the hands of the
legislature. It is true that laws may be made effective on certain contingencies, as by proclamation of the
executive or the adoption by the people of a particular community. In Wayman vs. Southard, the Supreme
Court of the United States ruled that the legislature may delegate a power not legislative which it may itself
rightfully exercise. The power to ascertain facts is such a power which may be delegated. There is
nothing essentially legislative in ascertaining the existence of facts or conditions as the basis of the
taking into effect of a law. That is a mental process common to all branches of the
government. Notwithstanding the apparent tendency, however, to relax the rule prohibiting delegation of
legislative authority on account of the complexity arising from social and economic forces at work in this
modern industrial age, the orthodox pronouncement of Judge Cooley in his work on Constitutional Limitations
finds restatement in Prof. Willoughby's treatise on the Constitution of the United States in the following
language speaking of declaration of legislative power to administrative agencies: The principle which
permits the legislature to provide that the administrative agent may determine when the circumstances
are such as require the application of a law is defended upon the ground that at the time this authority
is granted, the rule of public policy, which is the essence of the legislative act, is determined by the
legislature. In other words, the legislature, as it is its duty to do, determines that, under given
circumstances, certain executive or administrative action is to be taken, and that, under other
circumstances, different or no action at all is to be taken. What is thus left to the administrative official
is not the legislative determination of what public policy demands, but simply the ascertainment of
what the facts of the case require to be done according to the terms of the law by which he is
governed. The efficiency of an Act as a declaration of legislative will must, of course, come from
Congress, but the ascertainment of the contingency upon which the Act shall take effect may be left to
such agencies as it may designate. The legislature, then, may provide that a law shall take effect upon
the happening of future specified contingencies leaving to some other person or body the power to
determine when the specified contingency has arisen. (Emphasis supplied).46
In Edu vs. Ericta,47 the Court reiterated:
What cannot be delegated is the authority under the Constitution to make laws and to alter and repeal them;
the test is the completeness of the statute in all its terms and provisions when it leaves the hands of the
legislature. To determine whether or not there is an undue delegation of legislative power, the inquiry must be
directed to the scope and definiteness of the measure enacted. The legislative does not abdicate its
functions when it describes what job must be done, who is to do it, and what is the scope of his
authority. For a complex economy, that may be the only way in which the legislative process can go
forward. A distinction has rightfully been made between delegation of power to make the laws which
necessarily involves a discretion as to what it shall be, which constitutionally may not be done, and
delegation of authority or discretion as to its execution to be exercised under and in pursuance of the
law, to which no valid objection can be made. The Constitution is thus not to be regarded as denying the
legislature the necessary resources of flexibility and practicability. (Emphasis supplied).48
Clearly, the legislature may delegate to executive officers or bodies the power to determine certain facts or
conditions, or the happening of contingencies, on which the operation of a statute is, by its terms, made to
depend, but the legislature must prescribe sufficient standards, policies or limitations on their authority.49While
the power to tax cannot be delegated to executive agencies, details as to the enforcement and administration
of an exercise of such power may be left to them, including the power to determine the existence of facts on
which its operation depends.50
The rationale for this is that the preliminary ascertainment of facts as basis for the enactment of legislation is
not of itself a legislative function, but is simply ancillary to legislation. Thus, the duty of correlating information
and making recommendations is the kind of subsidiary activity which the legislature may perform through its
members, or which it may delegate to others to perform. Intelligent legislation on the complicated problems of
modern society is impossible in the absence of accurate information on the part of the legislators, and any
reasonable method of securing such information is proper.51 The Constitution as a continuously operative
charter of government does not require that Congress find for itself
every fact upon which it desires to base legislative action or that it make for itself detailed determinations which
it has declared to be prerequisite to application of legislative policy to particular facts and circumstances
impossible for Congress itself properly to investigate.52
In the present case, the challenged section of R.A. No. 9337 is the common proviso in Sections 4, 5 and 6
which reads as follows:
That the President, upon the recommendation of the Secretary of Finance, shall, effective January 1, 2006,
raise the rate of value-added tax to twelve percent (12%), after any of the following conditions has been
satisfied:
(i) Value-added tax collection as a percentage of Gross Domestic Product (GDP) of the previous year exceeds
two and four-fifth percent (2 4/5%); or
(ii) National government deficit as a percentage of GDP of the previous year exceeds one and one-half percent
(1 %).
The case before the Court is not a delegation of legislative power. It is simply a delegation of ascertainment of
facts upon which enforcement and administration of the increase rate under the law is contingent. The
legislature has made the operation of the 12% rate effective January 1, 2006, contingent upon a specified fact
or condition. It leaves the entire operation or non-operation of the 12% rate upon factual matters outside of the
control of the executive.
No discretion would be exercised by the President. Highlighting the absence of discretion is the fact that the
word shall is used in the common proviso. The use of the word shall connotes a mandatory order. Its use in a
statute denotes an imperative obligation and is inconsistent with the idea of discretion.53 Where the law is clear
and unambiguous, it must be taken to mean exactly what it says, and courts have no choice but to see to it that
the mandate is obeyed.54
Thus, it is the ministerial duty of the President to immediately impose the 12% rate upon the existence of any of
the conditions specified by Congress. This is a duty which cannot be evaded by the President. Inasmuch as the
law specifically uses the word shall, the exercise of discretion by the President does not come into play. It is a
clear directive to impose the 12% VAT rate when the specified conditions are present. The time of taking into
effect of the 12% VAT rate is based on the happening of a certain specified contingency, or upon the
ascertainment of certain facts or conditions by a person or body other than the legislature itself.
The Court finds no merit to the contention of petitioners ABAKADA GURO Party List, et al. that the law
effectively nullified the Presidents power of control over the Secretary of Finance by mandating the fixing of the
tax rate by the President upon the recommendation of the Secretary of Finance. The Court cannot also
subscribe to the position of petitioners
Pimentel, et al. that the word shall should be interpreted to mean may in view of the phrase "upon the
recommendation of the Secretary of Finance." Neither does the Court find persuasive the submission of
petitioners Escudero, et al. that any recommendation by the Secretary of Finance can easily be brushed aside
by the President since the former is a mere alter ego of the latter.
When one speaks of the Secretary of Finance as the alter ego of the President, it simply means that as head of
the Department of Finance he is the assistant and agent of the Chief Executive. The multifarious executive and
administrative functions of the Chief Executive are performed by and through the executive departments, and
the acts of the secretaries of such departments, such as the Department of Finance, performed and
promulgated in the regular course of business, are, unless disapproved or reprobated by the Chief Executive,
presumptively the acts of the Chief Executive. The Secretary of Finance, as such, occupies a political position
and holds office in an advisory capacity, and, in the language of Thomas Jefferson, "should be of the
President's bosom confidence" and, in the language of Attorney-General Cushing, is "subject to the direction of
the President."55
In the present case, 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. In
such instance, he is not subject to the power of control and direction of the President. 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.56 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. His personality in
such instance is in reality but a projection of that of Congress. Thus, being the agent of Congress and not of the
President, the President cannot alter or modify or nullify, or set aside the findings of the Secretary of Finance
and to substitute the judgment of the former for that of the latter.
Congress simply granted the Secretary of Finance the authority to ascertain the existence of a fact, namely,
whether by December 31, 2005, the value-added tax collection as a percentage of Gross Domestic Product
(GDP) of the previous year exceeds two and four-fifth percent (24/5%) or the national government deficit as a
percentage of GDP of the previous year exceeds one and one-half percent (1%). If either of these two
instances has occurred, the Secretary of Finance, by legislative mandate, must submit such information to the
President. Then the 12% VAT rate must be imposed by the President effective January 1, 2006. There is no
undue delegation of legislative power but only of the discretion as to the execution of a law. This is
constitutionally permissible.57 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.58
As to the argument of petitioners ABAKADA GURO Party List, et al. that delegating to the President the
legislative power to tax is contrary to the principle of republicanism, the same deserves scant consideration.
Congress did not delegate the power to tax but the mere implementation of the law. The intent and will to
increase the VAT rate to 12% came from Congress and the task of the President is to simply execute the
legislative policy. That Congress chose to do so in such a manner is not within the province of the Court to
inquire into, its task being to interpret the law.59
The insinuation by petitioners Pimentel, et al. that the President has ample powers to cause, influence or create
the conditions to bring about either or both the conditions precedent does not deserve any merit as this
argument is highly speculative. The Court does not rule on allegations which are manifestly conjectural, as
these may not exist at all. The Court deals with facts, not fancies; on realities, not appearances. When the
Court acts on appearances instead of realities, justice and law will be short-lived.
B. The 12% Increase VAT Rate Does Not Impose an Unfair and Unnecessary Additional Tax Burden
Petitioners Pimentel, et al. argue that the 12% increase in the VAT rate imposes an unfair and additional tax
burden on the people. Petitioners also argue that the 12% increase, dependent on any of the 2 conditions set
forth in the contested provisions, is ambiguous because it does not state if the VAT rate would be returned to
the original 10% if the rates are no longer satisfied. Petitioners also argue that such rate is unfair and
unreasonable, as the people are unsure of the applicable VAT rate from year to year.
Under the common provisos of Sections 4, 5 and 6 of R.A. No. 9337, if any of the two conditions set forth
therein are satisfied, the President shall increase the VAT rate to 12%. The provisions of the law are clear. It
does not provide for a return to the 10% rate nor does it empower the President to so revert if, after the rate is
increased to 12%, the VAT collection goes below the 24/5 of the GDP of the previous year or that the national
government deficit as a percentage of GDP of the previous year does not exceed 1%.
Therefore, no statutory construction or interpretation is needed. Neither can conditions or limitations be
introduced where none is provided for. Rewriting the law is a forbidden ground that only Congress may tread
upon.60
Thus, in the absence of any provision providing for a return to the 10% rate, which in this case the Court finds
none, petitioners argument is, at best, purely speculative. There is no basis for petitioners fear of a fluctuating
VAT rate because the law itself does not provide that the rate should go back to 10% if the conditions provided
in Sections 4, 5 and 6 are no longer present. The rule is that where the provision of the law is clear and
unambiguous, so that there is no occasion for the court's seeking the legislative intent, the law must be taken
as it is, devoid of judicial addition or subtraction.61
Petitioners also contend that the increase in the VAT rate, which was allegedly an incentive to the President to
raise the VAT collection to at least 2 4/5 of the GDP of the previous year, should be based on fiscal adequacy.
Petitioners obviously overlooked that increase in VAT collection is not the only condition. There is another
condition, i.e., the national government deficit as a percentage of GDP of the previous year exceeds one and
one-half percent (1 %).
Respondents explained the philosophy behind these alternative conditions:
1. VAT/GDP Ratio > 2.8%
The condition set for increasing VAT rate to 12% have economic or fiscal meaning. If VAT/GDP is less than
2.8%, it means that government has weak or no capability of implementing the VAT or that VAT is not effective
in the function of the tax collection. Therefore, there is no value to increase it to 12% because such action will
also be ineffectual.
2. Natl Govt Deficit/GDP >1.5%
The condition set for increasing VAT when deficit/GDP is 1.5% or less means the fiscal condition of
government has reached a relatively sound position or is towards the direction of a balanced budget position.
Therefore, there is no need to increase the VAT rate since the fiscal house is in a relatively healthy position.
Otherwise stated, if the ratio is more than 1.5%, there is indeed a need to increase the VAT rate.62
That the first condition amounts to an incentive to the President to increase the VAT collection does not render
it unconstitutional so long as there is a public purpose for which the law was passed, which in this case, is
mainly to raise revenue. In fact, fiscal adequacy dictated the need for a raise in revenue.
The principle of fiscal adequacy as a characteristic of a sound tax system was originally stated by Adam Smith
in his Canons of Taxation (1776), as:
IV. Every tax ought to be so contrived as both to take out and to keep out of the pockets of the people as little
as possible over and above what it brings into the public treasury of the state.63
It simply means that sources of revenues must be adequate to meet government expenditures and their
variations.64
The dire need for revenue cannot be ignored. Our country is in a quagmire of financial woe. During the
Bicameral Conference Committee hearing, then Finance Secretary Purisima bluntly depicted the countrys
gloomy state of economic affairs, thus:
First, let me explain the position that the Philippines finds itself in right now. We are in a position where 90
percent of our revenue is used for debt service. So, for every peso of revenue that we currently raise, 90 goes
to debt service. Thats interest plus amortization of our debt. So clearly, this is not a sustainable situation.
Thats the first fact.
The second fact is that our debt to GDP level is way out of line compared to other peer countries that borrow
money from that international financial markets. Our debt to GDP is approximately equal to our GDP. Again,
that shows you that this is not a sustainable situation.
The third thing that Id like to point out is the environment that we are presently operating in is not as benign as
what it used to be the past five years.
What do I mean by that?
In the past five years, weve been lucky because we were operating in a period of basically global growth and
low interest rates. The past few months, we have seen an inching up, in fact, a rapid increase in the interest
rates in the leading economies of the world. And, therefore, our ability to borrow at reasonable prices is going
to be challenged. In fact, ultimately, the question is our ability to access the financial markets.
When the President made her speech in July last year, the environment was not as bad as it is now, at least
based on the forecast of most financial institutions. So, we were assuming that raising 80 billion would put us in
a position where we can then convince them to improve our ability to borrow at lower rates. But conditions have
changed on us because the interest rates have gone up. In fact, just within this room, we tried to access the
market for a billion dollars because for this year alone, the Philippines will have to borrow 4 billion dollars. Of
that amount, we have borrowed 1.5 billion. We issued last January a 25-year bond at 9.7 percent cost. We
were trying to access last week and the market was not as favorable and up to now we have not accessed and
we might pull back because the conditions are not very good.
So given this situation, we at the Department of Finance believe that we really need to front-end our deficit
reduction. Because it is deficit that is causing the increase of the debt and we are in what we call a debt spiral.
The more debt you have, the more deficit you have because interest and debt service eats and eats more of
your revenue. We need to get out of this debt spiral. And the only way, I think, we can get out of this debt spiral
is really have a front-end adjustment in our revenue base.65
The image portrayed is chilling. Congress passed the law hoping for rescue from an inevitable catastrophe.
Whether the law is indeed sufficient to answer the states economic dilemma is not for the Court to judge. In
the Farias case, the Court refused to consider the various arguments raised therein that dwelt on the wisdom
of Section 14 of R.A. No. 9006 (The Fair Election Act), pronouncing that:
. . . policy matters are not the concern of the Court. Government policy is within the exclusive dominion of the
political branches of the government. It is not for this Court to look into the wisdom or propriety of legislative
determination. Indeed, whether an enactment is wise or unwise, whether it is based on sound economic theory,
whether it is the best means to achieve the desired results, whether, in short, the legislative discretion within its
prescribed limits should be exercised in a particular manner are matters for the judgment of the legislature, and
the serious conflict of opinions does not suffice to bring them within the range of judicial cognizance.66
In the same vein, the Court in this case will not dawdle on the purpose of Congress or the executive policy,
given that it is not for the judiciary to "pass upon questions of wisdom, justice or expediency of legislation." 67
II.
Whether Section 8 of R.A. No. 9337, amending Sections 110(A)(2) and 110(B) of the NIRC; and Section 12 of
R.A. No. 9337, amending Section 114(C) of the NIRC, violate the following provisions of the Constitution:
a. Article VI, Section 28(1), and
b. Article III, Section 1
A. Due Process and Equal Protection Clauses
Petitioners Association of Pilipinas Shell Dealers, Inc., et al. argue that Section 8 of R.A. No. 9337, amending
Sections 110 (A)(2), 110 (B), and Section 12 of R.A. No. 9337, amending Section 114 (C) of the NIRC are
arbitrary, oppressive, excessive and confiscatory. Their argument is premised on the constitutional right against
deprivation of life, liberty of property without due process of law, as embodied in Article III, Section 1 of the
Constitution.
Petitioners also contend that these provisions violate the constitutional guarantee of equal protection of the law.
The doctrine is that where the due process and equal protection clauses are invoked, considering that they are
not fixed rules but rather broad standards, there is a need for proof of such persuasive character as would lead
to such a conclusion. Absent such a showing, the presumption of validity must prevail.68
Section 8 of R.A. No. 9337, amending Section 110(B) of the NIRC imposes a limitation on the amount of input
tax that may be credited against the output tax. It states, in part: "[P]rovided, that the input tax inclusive of the
input VAT carried over from the previous quarter that may be credited in every quarter shall not exceed seventy
percent (70%) of the output VAT: "
Input Tax is defined under Section 110(A) of the NIRC, as amended, as the value-added tax
due from orpaid by a VAT-registered person on the importation of goods or local purchase of good and
services, including lease or use of property, in the course of trade or business, from a VAT-registered person,
andOutput Tax is the value-added tax due on the sale or lease of taxable goods or properties or services by
any person registered or required to register under the law.
Petitioners claim that the contested sections impose limitations on the amount of input tax that may be claimed.
In effect, a portion of the input tax that has already been paid cannot now be credited against the output tax.
Petitioners argument is not absolute. It assumes that the input tax exceeds 70% of the output tax, and
therefore, the input tax in excess of 70% remains uncredited. However, to the extent that the input tax is less
than 70% of the output tax, then 100% of such input tax is still creditable.
More importantly, the excess input tax, if any, is retained in a businesss books of accounts and remains
creditable in the succeeding quarter/s. This is explicitly allowed by Section 110(B), which provides that "if the
input tax exceeds the output tax, the excess shall be carried over to the succeeding quarter or quarters." In
addition, Section 112(B) allows a VAT-registered person to apply for the issuance of a tax credit certificate or
refund for any unused input taxes, to the extent that such input taxes have not been applied against the output
taxes. Such unused input tax may be used in payment of his other internal revenue taxes.
The non-application of the unutilized input tax in a given quarter is not ad infinitum, as petitioners exaggeratedly
contend. Their analysis of the effect of the 70% limitation is incomplete and one-sided. It ends at the net effect
that there will be unapplied/unutilized inputs VAT for a given quarter. It does not proceed further to the fact that
such unapplied/unutilized input tax may be credited in the subsequent periods as allowed by the carry-over
provision of Section 110(B) or that it may later on be refunded through a tax credit certificate under Section
112(B).
Therefore, petitioners argument must be rejected.
On the other hand, it appears that petitioner Garcia failed to comprehend the operation of the 70% limitation on
the input tax. According to petitioner, the limitation on the creditable input tax in effect allows VAT-registered
establishments to retain a portion of the taxes they collect, which violates the principle that tax collection and
revenue should be for public purposes and expenditures
As earlier stated, the input tax is the tax paid by a person, passed on to him by the seller, when he buys goods.
Output tax meanwhile is the tax due to the person when he sells goods. In computing the VAT payable, three
possible scenarios may arise:
First, if at the end of a taxable quarter the output taxes charged by the seller are equal to the input taxes that he
paid and passed on by the suppliers, then no payment is required;
Second, when the output taxes exceed the input taxes, the person shall be liable for the excess, which has to
be paid to the Bureau of Internal Revenue (BIR);69 and
Third, if the input taxes exceed the output taxes, the excess shall be carried over to the succeeding quarter or
quarters. Should the input taxes result from zero-rated or effectively zero-rated transactions, any excess over
the output taxes shall instead be refunded to the taxpayer or credited against other internal revenue taxes, at
the taxpayers option.70
Section 8 of R.A. No. 9337 however, imposed a 70% limitation on the input tax. Thus, a person can credit his
input tax only up to the extent of 70% of the output tax. In laymans term, the value-added taxes that a
person/taxpayer paid and passed on to him by a seller can only be credited up to 70% of the value-added taxes
that is due to him on a taxable transaction. There is no retention of any tax collection because the
person/taxpayer has already previously paid the input tax to a seller, and the seller will subsequently remit such
input tax to the BIR. The party directly liable for the payment of the tax is the seller.71 What only needs to be
done is for the person/taxpayer to apply or credit these input taxes, as evidenced by receipts, against his output
taxes.
Petitioners Association of Pilipinas Shell Dealers, Inc., et al. also argue that the input tax partakes the nature of
a property that may not be confiscated, appropriated, or limited without due process of law.
The input tax is not a property or a property right within the constitutional purview of the due process clause. A
VAT-registered persons entitlement to the creditable input tax is a mere statutory privilege.
The distinction between statutory privileges and vested rights must be borne in mind for persons have no
vested rights in statutory privileges. The state may change or take away rights, which were created by the law
of the state, although it may not take away property, which was vested by virtue of such rights.72
Under the previous system of single-stage taxation, taxes paid at every level of distribution are not recoverable
from the taxes payable, although it becomes part of the cost, which is deductible from the gross revenue. When
Pres. Aquino issued E.O. No. 273 imposing a 10% multi-stage tax on all sales, it was 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 introduced.73 This was adopted by the Expanded VAT Law (R.A. No. 7716),74 and The Tax
Reform Act of 1997 (R.A. No. 8424).75 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 remove, or in this case, limit.
Petitioners also contest as arbitrary, oppressive, excessive and confiscatory, Section 8 of R.A. No. 9337,
amending Section 110(A) of the NIRC, which provides:
SEC. 110. Tax Credits.
(A) Creditable Input Tax.
Provided, That the input tax on goods purchased or imported in a calendar month for use in trade or business
for which deduction for depreciation is allowed under this Code, shall be spread evenly over the month of
acquisition and the fifty-nine (59) succeeding months if the aggregate acquisition cost for such goods,
excluding the VAT component thereof, exceeds One million pesos (P1,000,000.00): Provided, however, That if
the estimated useful life of the capital goods is less than five (5) years, as used for depreciation purposes, then
the input VAT shall be spread over such a shorter period: Provided, finally, That in the case of purchase of
services, lease or use of properties, the input tax shall be creditable to the purchaser, lessee or license upon
payment of the compensation, rental, royalty or fee.
The foregoing section imposes a 60-month period within which to amortize the creditable input tax on purchase
or importation of capital goods with acquisition cost of P1 Million pesos, exclusive of the VAT component. Such
spread out only poses a delay in the crediting of the input tax. Petitioners argument is without basis because
the taxpayer is not permanently deprived of his privilege to credit the input tax.
It is worth mentioning that Congress admitted that the spread-out of the creditable input tax in this case
amounts to a 4-year interest-free loan to the government.76 In the same breath, Congress also justified its
move by saying that the provision was designed to raise an annual revenue of 22.6 billion.77 The legislature
also dispelled the fear that the provision will fend off foreign investments, saying that foreign investors have
other tax incentives provided by law, and citing the case of China, where despite a 17.5% non-creditable VAT,
foreign investments were not deterred.78 Again, for whatever is the purpose of the 60-month amortization, this
involves executive economic policy and legislative wisdom in which the Court cannot intervene.
With regard to the 5% creditable withholding tax imposed on payments made by the government for taxable
transactions, Section 12 of R.A. No. 9337, which amended Section 114 of the NIRC, reads:
SEC. 114. Return and Payment of Value-added Tax.
(C) Withholding of Value-added Tax. The Government or any of its political subdivisions, instrumentalities or
agencies, including government-owned or controlled corporations (GOCCs) shall, before making payment on
account of each purchase of goods and services which are subject to the value-added tax imposed in Sections
106 and 108 of this Code, deduct and withhold a final value-added tax at the rate of five percent (5%) of the
gross payment thereof: Provided, That the payment for lease or use of properties or property rights to
nonresident owners shall be subject to ten percent (10%) withholding tax at the time of payment. For purposes
of this Section, the payor or person in control of the payment shall be considered as the withholding agent.
The value-added tax withheld under this Section shall be remitted within ten (10) days following the end of the
month the withholding was made.
Section 114(C) merely provides a method of collection, or as stated by respondents, a more simplified VAT
withholding system. The government in this case is constituted as a withholding agent with respect to their
payments for goods and services.
Prior to its amendment, Section 114(C) provided for different rates of value-added taxes to be withheld -- 3%
on gross payments for purchases of goods; 6% on gross payments for services supplied by contractors other
than by public works contractors; 8.5% on gross payments for services supplied by public work contractors; or
10% on payment for the lease or use of properties or property rights to nonresident owners. Under the present
Section 114(C), these different rates, except for the 10% on lease or property rights payment to nonresidents,
were deleted, and a uniform rate of 5% is applied.
The Court observes, however, that the law the used the word final. In tax usage, final, as opposed to creditable,
means full. Thus, it is provided in Section 114(C): "final value-added tax at the rate of five percent (5%)."
In Revenue Regulations No. 02-98, implementing R.A. No. 8424 (The Tax Reform Act of 1997), the concept of
final withholding tax on income was explained, to wit:
SECTION 2.57. Withholding of Tax at Source
(A) Final Withholding Tax. Under the final withholding tax system the amount of income tax withheld by the
withholding agent is constituted as full and final payment of the income tax due from the payee on the said
income. The liability for payment of the tax rests primarily on the payor as a withholding agent. Thus, in case of
his failure to withhold the tax or in case of underwithholding, the deficiency tax shall be collected from the
payor/withholding agent.
(B) Creditable Withholding Tax. Under the creditable withholding tax system, taxes withheld on certain
income payments are intended to equal or at least approximate the tax due of the payee on said income.
Taxes withheld on income payments covered by the expanded withholding tax (referred to in Sec. 2.57.2 of
these regulations) and compensation income (referred to in Sec. 2.78 also of these regulations) are creditable
in nature.
As applied to value-added tax, this means that taxable transactions with the government are subject to a 5%
rate, which constitutes as full payment of the tax payable on the transaction. This represents the net VAT
payable of the seller. The other 5% effectively accounts for the standard input VAT (deemed input VAT), in lieu
of the actual input VAT directly or attributable to the taxable transaction.79
The Court need not explore the rationale behind the provision. It is clear that Congress intended to treat
differently taxable transactions with the government.80 This is supported by the fact that under the old provision,
the 5% tax withheld by the government remains creditable against the tax liability of the seller or contractor, to
wit:
SEC. 114. Return and Payment of Value-added Tax.
(C) Withholding of Creditable Value-added Tax. The Government or any of its political subdivisions,
instrumentalities or agencies, including government-owned or controlled corporations (GOCCs) shall, before
making payment on account of each purchase of goods from sellers and services rendered by contractors
which are subject to the value-added tax imposed in Sections 106 and 108 of this Code, deduct and withhold
the value-added tax due at the rate of three percent (3%) of the gross payment for the purchase of goods and
six percent (6%) on gross receipts for services rendered by contractors on every sale or installment payment
which shall be creditable against the value-added tax liability of the seller or contractor: Provided,
however, That in the case of government public works contractors, the withholding rate shall be eight and one-
half percent (8.5%): Provided, further, That the payment for lease or use of properties or property rights to
nonresident owners shall be subject to ten percent (10%) withholding tax at the time of payment. For this
purpose, the payor or person in control of the payment shall be considered as the withholding agent.
The valued-added tax withheld under this Section shall be remitted within ten (10) days following the end of the
month the withholding was made. (Emphasis supplied)
As amended, the use of the word final and the deletion of the word creditable exhibits Congresss intention to
treat transactions with the government differently. Since it has not been shown that the class subject to the 5%
final withholding tax has been unreasonably narrowed, there is no reason to invalidate the provision.
Petitioners, as petroleum dealers, are not the only ones subjected to the 5% final withholding tax. It applies to
all those who deal with the government.
Moreover, the actual input tax is not totally lost or uncreditable, as petitioners believe. Revenue Regulations
No. 14-2005 or the Consolidated Value-Added Tax Regulations 2005 issued by the BIR, provides that should
the actual input tax exceed 5% of gross payments, the excess may form part of the cost. Equally, should the
actual input tax be less than 5%, the difference is treated as income.81
Petitioners also argue that by imposing a limitation on the creditable input tax, the government gets to tax a
profit or value-added even if there is no profit or value-added.
Petitioners stance is purely hypothetical, argumentative, and again, one-sided. The Court will not engage in a
legal joust where premises are what ifs, arguments, theoretical and facts, uncertain. Any disquisition by the
Court on this point will only be, as Shakespeare describes life in Macbeth,82 "full of sound and fury, signifying
nothing."
Whats more, petitioners contention assumes the proposition that there is no profit or value-added. It need not
take an astute businessman to know that it is a matter of exception that a business will sell goods or services
without profit or value-added. It cannot be overstressed that a business is created precisely for profit.
The equal protection clause under the Constitution means that "no person or class of persons shall be deprived
of the same protection of laws which is enjoyed by other persons or other classes in the same place and in like
circumstances."83
The power of the State to make reasonable and natural classifications for the purposes of taxation has long
been established. Whether it relates to the subject of taxation, the kind of property, the rates to be levied, or the
amounts to be raised, the methods of assessment, valuation and collection, the States power is entitled to
presumption of validity. As a rule, the judiciary will not interfere with such power absent a clear showing of
unreasonableness, discrimination, or arbitrariness.84
Petitioners point out that the limitation on the creditable input tax if the entity has a high ratio of input tax, or
invests in capital equipment, or has several transactions with the government, is not based on real and
substantial differences to meet a valid classification.
The argument is pedantic, if not outright baseless. The law does not make any classification in the subject of
taxation, the kind of property, the rates to be levied or the amounts to be raised, the methods of assessment,
valuation and collection. Petitioners alleged distinctions are based on variables that bear different
consequences. While the implementation of the law may yield varying end results depending on ones profit
margin and value-added, the Court cannot go beyond what the legislature has laid down and interfere with the
affairs of business.
The equal protection clause does not require the universal application of the laws on all persons or things
without distinction. This might in fact sometimes result in unequal protection. What the clause requires is
equality among equals as determined according to a valid classification. By classification is meant the grouping
of persons or things similar to each other in certain particulars and different from all others in these same
particulars.85
Petitioners brought to the Courts attention the introduction of Senate Bill No. 2038 by Sens. S.R. Osmea III
and Ma. Ana Consuelo A.S. Madrigal on June 6, 2005, and House Bill No. 4493 by Rep. Eric D. Singson. The
proposed legislation seeks to amend the 70% limitation by increasing the same to 90%. This, according to
petitioners, supports their stance that the 70% limitation is arbitrary and confiscatory. On this score, suffice it to
say that these are still proposed legislations. Until Congress amends the law, and absent any unequivocal
basis for its unconstitutionality, the 70% limitation stays.
B. Uniformity and Equitability of Taxation
Article VI, Section 28(1) of the Constitution reads:
The rule of taxation shall be uniform and equitable. The Congress shall evolve a progressive system of
taxation.
Uniformity in taxation means that all taxable articles or kinds of property of the same class shall be taxed at the
same rate. Different articles may be taxed at different amounts provided that the rate is uniform on the same
class everywhere with all people at all times.86
In this case, the tax law is uniform as it provides a standard rate of 0% or 10% (or 12%) on all goods and
services. Sections 4, 5 and 6 of R.A. No. 9337, amending Sections 106, 107 and 108, respectively, of the
NIRC, provide for a rate of 10% (or 12%) on sale of goods and properties, importation of goods, and sale of
services and use or lease of properties. These same sections also provide for a 0% rate on certain sales and
transaction.
Neither does the law make any distinction as to the type of industry or trade that will bear the 70% limitation on
the creditable input tax, 5-year amortization of input tax paid on purchase of capital goods or the 5% final
withholding tax by the government. It must be stressed that the rule of uniform taxation does not deprive
Congress of the power to classify subjects of taxation, and only demands uniformity within the particular
class.87
R.A. No. 9337 is also equitable. The law is equipped with a threshold margin. The VAT rate of 0% or 10% (or
12%) does not apply to sales of goods or services with gross annual sales or receipts not
exceedingP1,500,000.00.88 Also, basic marine and agricultural food products in their original state are still not
subject to the tax,89 thus ensuring that prices at the grassroots level will remain accessible. As was stated
inKapatiran ng mga Naglilingkod sa Pamahalaan ng Pilipinas, Inc. vs. Tan:90
The disputed sales tax is also equitable. It is imposed only on sales of goods or services by persons engaged
in business with an aggregate gross annual sales exceeding P200,000.00. Small corner sari-saristores are
consequently exempt from its application. Likewise exempt from the tax are sales of farm and marine products,
so that the costs of basic food and other necessities, spared as they are from the incidence of the VAT, are
expected to be relatively lower and within the reach of the general public.
It is admitted that R.A. No. 9337 puts a premium on businesses with low profit margins, and unduly favors
those with high profit margins. Congress was not oblivious to this. Thus, to equalize the weighty burden the law
entails, the law, under Section 116, imposed a 3% percentage tax on VAT-exempt persons under Section
109(v), i.e., transactions with gross annual sales and/or receipts not exceeding P1.5 Million. This acts as a
equalizer because in effect, bigger businesses that qualify for VAT coverage and VAT-exempt taxpayers stand
on equal-footing.
Moreover, Congress provided mitigating measures to cushion the impact of the imposition of the tax on those
previously exempt. Excise taxes on petroleum products91 and natural gas92 were reduced. Percentage tax on
domestic carriers was removed.93 Power producers are now exempt from paying franchise tax.94
Aside from these, Congress also increased the income tax rates of corporations, in order to distribute the
burden of taxation. Domestic, foreign, and non-resident corporations are now subject to a 35% income tax rate,
from a previous 32%.95 Intercorporate dividends of non-resident foreign corporations are still subject to 15%
final withholding tax but the tax credit allowed on the corporations domicile was increased to 20%.96The
Philippine Amusement and Gaming Corporation (PAGCOR) is not exempt from income taxes anymore.97 Even
the sale by an artist of his works or services performed for the production of such works was not spared.
All these were designed to ease, as well as spread out, the burden of taxation, which would otherwise rest
largely on the consumers. It cannot therefore be gainsaid that R.A. No. 9337 is equitable.
C. Progressivity of Taxation
Lastly, petitioners contend that the limitation on the creditable input tax is anything but regressive. It is the
smaller business with higher input tax-output tax ratio that will suffer the consequences.
Progressive taxation is built on the principle of the taxpayers ability to pay. This principle was also lifted from
Adam Smiths Canons of Taxation, and it states:
I. The subjects of every state ought to contribute towards the support of the government, as nearly as possible,
in proportion to their respective abilities; that is, in proportion to the revenue which they respectively enjoy
under the protection of the state.
Taxation is progressive when its rate goes up depending on the resources of the person affected.98
The words of the Court in Vera vs. Avelino101 holds true then, as it still holds true now. All things considered,
there is no raison d'tre for the unconstitutionality of R.A. No. 9337.
WHEREFORE, Republic Act No. 9337 not being unconstitutional, the petitions in G.R. Nos. 168056, 168207,
168461, 168463, and 168730, are hereby DISMISSED.

The VAT is an antithesis of progressive taxation. By its very nature, it is regressive. The principle of progressive There being no constitutional impediment to the full enforcement and implementation of R.A. No. 9337, the
taxation has no relation with the VAT system inasmuch as the VAT paid by the consumer or business for every temporary restraining order issued by the Court on July 1, 2005 is LIFTED upon finality of herein decision.
goods bought or services enjoyed is the same regardless of income. In
SO ORDERED.
other words, the VAT paid eats the same portion of an income, whether big or small. The disparity lies in the
income earned by a person or profit margin marked by a business, such that the higher the income or profit
margin, the smaller the portion of the income or profit that is eaten by VAT. A converso, the lower the income or
profit margin, the bigger the part that the VAT eats away. At the end of the day, it is really the lower income
group or businesses with low-profit margins that is always hardest hit.

Nevertheless, the Constitution does not really prohibit the imposition of indirect taxes, like the VAT. What it
simply provides is that Congress shall "evolve a progressive system of taxation." The Court stated in
theTolentino case, thus:

The Constitution does not really prohibit the imposition of indirect taxes which, like the VAT, are regressive.
What it simply provides is that Congress shall evolve a progressive system of taxation. The constitutional
provision has been interpreted to mean simply that direct taxes are . . . to be preferred [and] as much as
possible, indirect taxes should be minimized. (E. FERNANDO, THE CONSTITUTION OF THE PHILIPPINES
221 (Second ed. 1977)) Indeed, the mandate to Congress is not to prescribe, but to evolve, a progressive tax
system. Otherwise, sales taxes, which perhaps are the oldest form of indirect taxes, would have been
prohibited with the proclamation of Art. VIII, 17 (1) of the 1973 Constitution from which the present Art. VI, 28
(1) was taken. Sales taxes are also regressive.

Resort to indirect taxes should be minimized but not avoided entirely because it is difficult, if not impossible, to
avoid them by imposing such taxes according to the taxpayers' ability to pay. In the case of the VAT, the law
minimizes the regressive effects of this imposition by providing for zero rating of certain transactions (R.A. No.
7716, 3, amending 102 (b) of the NIRC), while granting exemptions to other transactions. (R.A. No. 7716, 4
amending 103 of the NIRC)99

CONCLUSION

It has been said that taxes are the lifeblood of the government. In this case, it is just an enema, a first-aid
measure to resuscitate an economy in distress. The Court is neither blind nor is it turning a deaf ear on the
plight of the masses. But it does not have the panacea for the malady that the law seeks to remedy. As in other
cases, the Court cannot strike down a law as unconstitutional simply because of its yokes.

Let us not be overly influenced by the plea that for every wrong there is a remedy, and that the judiciary should
stand ready to afford relief. There are undoubtedly many wrongs the judicature may not correct, for instance,
those involving political questions. . . .

Let us likewise disabuse our minds from the notion that the judiciary is the repository of remedies for all political
or social ills; We should not forget that the Constitution has judiciously allocated the powers of government to
three distinct and separate compartments; and that judicial interpretation has tended to the preservation of the
independence of the three, and a zealous regard of the prerogatives of each, knowing full well that one is not
the guardian of the others and that, for official wrong-doing, each may be brought to account, either by
impeachment, trial or by the ballot box.100
G.R. No. 115455 October 30, 1995
ARTURO M. TOLENTINO, petitioner,
vs.
THE SECRETARY OF FINANCE and THE COMMISSIONER OF INTERNAL REVENUE, respondents.
G.R. No. 115525 October 30, 1995
JUAN T. DAVID, petitioner,
vs.
TEOFISTO T. GUINGONA, JR., as Executive Secretary; ROBERTO DE OCAMPO, as Secretary of
Finance; LIWAYWAY VINZONS-CHATO, as Commissioner of Internal Revenue; and their AUTHORIZED
AGENTS OR REPRESENTATIVES, respondents.
G.R. No. 115543 October 30, 1995
RAUL S. ROCO and the INTEGRATED BAR OF THE PHILIPPINES, petitioners,
vs.
THE SECRETARY OF THE DEPARTMENT OF FINANCE; THE COMMISSIONERS OF THE BUREAU OF
INTERNAL REVENUE AND BUREAU OF CUSTOMS, respondents.
G.R. No. 115544 October 30, 1995
PHILIPPINE PRESS INSTITUTE, INC.; EGP PUBLISHING CO., INC.; KAMAHALAN PUBLISHING
CORPORATION; PHILIPPINE JOURNALISTS, INC.; JOSE L. PAVIA; and OFELIA L.
DIMALANTA,petitioners,
vs.
HON. LIWAYWAY V. CHATO, in her capacity as Commissioner of Internal Revenue; HON. TEOFISTO T.
GUINGONA, JR., in his capacity as Executive Secretary; and HON. ROBERTO B. DE OCAMPO, in his
capacity as Secretary of Finance, respondents.
G.R. No. 115754 October 30, 1995
CHAMBER OF REAL ESTATE AND BUILDERS ASSOCIATIONS, INC., (CREBA), petitioner,
vs.
THE COMMISSIONER OF INTERNAL REVENUE, respondent.
G.R. No. 115781 October 30, 1995
KILOSBAYAN, INC., JOVITO R. SALONGA, CIRILO A. RIGOS, ERME CAMBA, EMILIO C. CAPULONG,
JR., JOSE T. APOLO, EPHRAIM TENDERO, FERNANDO SANTIAGO, JOSE ABCEDE, CHRISTINE TAN,
FELIPE L. GOZON, RAFAEL G. FERNANDO, RAOUL V. VICTORINO, JOSE CUNANAN, QUINTIN S.
DOROMAL, MOVEMENT OF ATTORNEYS FOR BROTHERHOOD, INTEGRITY AND NATIONALISM, INC.
("MABINI"), FREEDOM FROM DEBT COALITION, INC., and PHILIPPINE BIBLE SOCIETY, INC. and
WIGBERTO TAADA, petitioners,
vs.
THE EXECUTIVE SECRETARY, THE SECRETARY OF FINANCE, THE COMMISSIONER OF INTERNAL
REVENUE and THE COMMISSIONER OF CUSTOMS, respondents.
G.R. No. 115852 October 30, 1995
PHILIPPINE AIRLINES, INC., petitioner,
vs.
THE SECRETARY OF FINANCE and COMMISSIONER OF INTERNAL REVENUE, respondents.
G.R. No. 115873 October 30, 1995
COOPERATIVE UNION OF THE PHILIPPINES, petitioner,
vs.
HON. LIWAYWAY V. CHATO, in her capacity as the Commissioner of Internal Revenue, HON. TEOFISTO
T. GUINGONA, JR., in his capacity as Executive Secretary, and HON. ROBERTO B. DE OCAMPO, in his
capacity as Secretary of Finance, respondents.
G.R. No. 115931 October 30, 1995
PHILIPPINE EDUCATIONAL PUBLISHERS ASSOCIATION, INC. and ASSOCIATION OF PHILIPPINE
BOOK SELLERS, petitioners,
vs.
HON. ROBERTO B. DE OCAMPO, as the Secretary of Finance; HON. LIWAYWAY V. CHATO, as the
Commissioner of Internal Revenue; and HON. GUILLERMO PARAYNO, JR., in his capacity as the
Commissioner of Customs, respondents.
RESOLUTION
MENDOZA, J.:
These are motions seeking reconsideration of our decision dismissing the petitions filed in these cases for the
declaration of unconstitutionality of R.A. No. 7716, otherwise known as the Expanded Value-Added Tax Law.
The motions, of which there are 10 in all, have been filed by the several petitioners in these cases, with the
exception of the Philippine Educational Publishers Association, Inc. and the Association of Philippine
Booksellers, petitioners in G.R. No. 115931.
The Solicitor General, representing the respondents, filed a consolidated comment, to which the Philippine
Airlines, Inc., petitioner in G.R. No. 115852, and the Philippine Press Institute, Inc., petitioner in G.R. No.
115544, and Juan T. David, petitioner in G.R. No. 115525, each filed a reply. In turn the Solicitor General filed
on June 1, 1995 a rejoinder to the PPI's reply.
On June 27, 1995 the matter was submitted for resolution.
I. Power of the Senate to propose amendments to revenue bills. Some of the petitioners (Tolentino, Kilosbayan,
Inc., Philippine Airlines (PAL), Roco, and Chamber of Real Estate and Builders Association (CREBA)) reiterate
previous claims made by them that R.A. No. 7716 did not "originate exclusively" in the House of
Representatives as required by Art. VI, 24 of the Constitution. Although they admit that H. No. 11197 was filed
in the House of Representatives where it passed three readings and that afterward it was sent to the Senate
where after first reading it was referred to the Senate Ways and Means Committee, they complain that the
Senate did not pass it on second and third readings. Instead what the Senate did was to pass its own version
(S. No. 1630) which it approved on May 24, 1994. Petitioner Tolentino adds that what the Senate committee
should have done was to amend H. No. 11197 by striking out the text of the bill and substituting it with the text
of S. No. 1630. That way, it is said, "the bill remains a House bill and the Senate version just becomes the text
(only the text) of the House bill."
The contention has no merit.
The enactment of S. No. 1630 is not the only instance in which the Senate proposed an amendment to a
House revenue bill by enacting its own version of a revenue bill. On at least two occasions during theEighth
Congress, the Senate passed its own version of revenue bills, which, in consolidation with House bills earlier
passed, became the enrolled bills. These were:
R.A. No. 7369 (AN ACT TO AMEND THE OMNIBUS INVESTMENTS CODE OF 1987 BY EXTENDING FROM
FIVE (5) YEARS TO TEN YEARS THE PERIOD FOR TAX AND DUTY EXEMPTION AND TAX CREDIT ON
CAPITAL EQUIPMENT) which was approved by the President on April 10, 1992. This Act is actually a
consolidation of H. No. 34254, which was approved by the House on January 29, 1992, and S. No. 1920, which
was approved by the Senate on February 3, 1992.
R.A. No. 7549 (AN ACT GRANTING TAX EXEMPTIONS TO WHOEVER SHALL GIVE REWARD TO ANY
FILIPINO ATHLETE WINNING A MEDAL IN OLYMPIC GAMES) which was approved by the President on May
22, 1992. This Act is a consolidation of H. No. 22232, which was approved by the House of Representatives on
August 2, 1989, and S. No. 807, which was approved by the Senate on October 21, 1991.
On the other hand, the Ninth Congress passed revenue laws which were also the result of the consolidation of
House and Senate bills. These are the following, with indications of the dates on which the laws were approved
by the President and dates the separate bills of the two chambers of Congress were respectively passed:
1. R.A. NO. 7642
AN ACT INCREASING THE PENALTIES FOR TAX EVASION, AMENDING FOR THIS
PURPOSE THE PERTINENT SECTIONS OF THE NATIONAL INTERNAL REVENUE
CODE (December 28, 1992).
House Bill No. 2165, October 5, 1992
Senate Bill No. 32, December 7, 1992
2. R.A. NO. 7643
AN ACT TO EMPOWER THE COMMISSIONER OF INTERNAL REVENUE TO
REQUIRE THE PAYMENT OF THE VALUE-ADDED TAX EVERY MONTH AND TO
ALLOW LOCAL GOVERNMENT UNITS TO SHARE IN VAT REVENUE, AMENDING
FOR THIS PURPOSE CERTAIN SECTIONS OF THE NATIONAL INTERNAL REVENUE
CODE (December 28, 1992)
House Bill No. 1503, September 3, 1992
Senate Bill No. 968, December 7, 1992
3. R.A. NO. 7646
AN ACT AUTHORIZING THE COMMISSIONER OF INTERNAL REVENUE TO
PRESCRIBE THE PLACE FOR PAYMENT OF INTERNAL REVENUE TAXES BY
LARGE TAXPAYERS, AMENDING FOR THIS PURPOSE CERTAIN PROVISIONS OF
THE NATIONAL INTERNAL REVENUE CODE, AS AMENDED (February 24, 1993)
House Bill No. 1470, October 20, 1992
Senate Bill No. 35, November 19, 1992
4. R.A. NO. 7649
AN ACT REQUIRING THE GOVERNMENT OR ANY OF ITS POLITICAL
SUBDIVISIONS, INSTRUMENTALITIES OR AGENCIES INCLUDING GOVERNMENT-
OWNED OR CONTROLLED CORPORATIONS (GOCCS) TO DEDUCT AND
WITHHOLD THE VALUE-ADDED TAX DUE AT THE RATE OF THREE PERCENT (3%)
ON GROSS PAYMENT FOR THE PURCHASE OF GOODS AND SIX PERCENT (6%)
ON GROSS RECEIPTS FOR SERVICES RENDERED BY CONTRACTORS (April 6,
1993)
House Bill No. 5260, January 26, 1993
Senate Bill No. 1141, March 30, 1993
5. R.A. NO. 7656
AN ACT REQUIRING GOVERNMENT-OWNED OR CONTROLLED CORPORATIONS
TO DECLARE DIVIDENDS UNDER CERTAIN CONDITIONS TO THE NATIONAL
GOVERNMENT, AND FOR OTHER PURPOSES (November 9, 1993)
House Bill No. 11024, November 3, 1993
Senate Bill No. 1168, November 3, 1993
6. R.A. NO. 7660
AN ACT RATIONALIZING FURTHER THE STRUCTURE AND ADMINISTRATION OF
THE DOCUMENTARY STAMP TAX, AMENDING FOR THE PURPOSE CERTAIN
PROVISIONS OF THE NATIONAL INTERNAL REVENUE CODE, AS AMENDED,
ALLOCATING FUNDS FOR SPECIFIC PROGRAMS, AND FOR OTHER PURPOSES
(December 23, 1993)
House Bill No. 7789, May 31, 1993
Senate Bill No. 1330, November 18, 1993
7. R.A. NO. 7717
AN ACT IMPOSING A TAX ON THE SALE, BARTER OR EXCHANGE OF SHARES OF
STOCK LISTED AND TRADED THROUGH THE LOCAL STOCK EXCHANGE OR
THROUGH INITIAL PUBLIC OFFERING, AMENDING FOR THE PURPOSE THE
NATIONAL INTERNAL REVENUE CODE, AS AMENDED, BY INSERTING A NEW
SECTION AND REPEALING CERTAIN SUBSECTIONS THEREOF (May 5, 1994)
House Bill No. 9187, November 3, 1993
Senate Bill No. 1127, March 23, 1994
Thus, the enactment of S. No. 1630 is not the only instance in which the Senate, in the exercise of its power to
propose amendments to bills required to originate in the House, passed its own version of a House revenue
measure. It is noteworthy that, in the particular case of S. No. 1630, petitioners Tolentino and Roco, as
members of the Senate, voted to approve it on second and third readings.
On the other hand, amendment by substitution, in the manner urged by petitioner Tolentino, concerns a mere
matter of form. Petitioner has not shown what substantial difference it would make if, as the Senate actually did
in this case, a separate bill like S. No. 1630 is instead enacted as a substitute measure, "taking into
Consideration . . . H.B. 11197."
Indeed, so far as pertinent, the Rules of the Senate only provide:
RULE XXIX
AMENDMENTS
xxx xxx xxx
68. Not more than one amendment to the original amendment shall be considered.
No amendment by substitution shall be entertained unless the text thereof is submitted in
writing.
Any of said amendments may be withdrawn before a vote is taken thereon.
69. No amendment which seeks the inclusion of a legislative provision foreign to the
subject matter of a bill (rider) shall be entertained.
xxx xxx xxx
70-A. A bill or resolution shall not be amended by substituting it with another which
covers a subject distinct from that proposed in the original bill or resolution. (emphasis
added).
Nor is there merit in petitioners' contention that, with regard to revenue bills, the Philippine Senate possesses
less power than the U.S. Senate because of textual differences between constitutional provisions giving them
the power to propose or concur with amendments.
Art. I, 7, cl. 1 of the U.S. Constitution reads:
All Bills for raising Revenue shall originate in the House of Representatives; but the
Senate may propose or concur with amendments as on other Bills.
Art. VI, 24 of our Constitution reads:
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.
The addition of the word "exclusively" in the Philippine Constitution and the decision to drop the phrase "as on
other Bills" in the American version, according to petitioners, shows the intention of the framers of our
Constitution to restrict the Senate's power to propose amendments to revenue bills. Petitioner Tolentino
contends that the word "exclusively" was inserted to modify "originate" and "the words 'as in anyother bills' (sic)
were eliminated so as to show that these bills were not to be like other bills but must be treated as a special
kind."
The history of this provision does not support this contention. The supposed indicia of constitutional intent are
nothing but the relics of an unsuccessful attempt to limit the power of the Senate. It will be recalled that the
1935 Constitution originally provided for a unicameral National Assembly. When it was decided in 1939 to
change to a bicameral legislature, it became necessary to provide for the procedure for lawmaking by the
Senate and the House of Representatives. The work of proposing amendments to the Constitution was done
by the National Assembly, acting as a constituent assembly, some of whose members, jealous of preserving
the Assembly's lawmaking powers, sought to curtail the powers of the proposed Senate. Accordingly they
proposed the following provision:
All bills appropriating public funds, revenue or tariff bills, bills of local application, and
private bills shall originate exclusively in the Assembly, but the Senate may propose or
concur with amendments. In case of disapproval by the Senate of any such bills, the
Assembly may repass the same by a two-thirds vote of all its members, and thereupon,
the bill so repassed shall be deemed enacted and may be submitted to the President for
corresponding action. In the event that the Senate should fail to finally act on any such
bills, the Assembly may, after thirty days from the opening of the next regular session of
the same legislative term, reapprove the same with a vote of two-thirds of all the
members of the Assembly. And upon such reapproval, the bill shall be deemed enacted
and may be submitted to the President for corresponding action.
The special committee on the revision of laws of the Second National Assembly vetoed the proposal. It deleted
everything after the first sentence. As rewritten, the proposal was approved by the National Assembly and
embodied in Resolution No. 38, as amended by Resolution No. 73. (J. ARUEGO, KNOW YOUR
CONSTITUTION 65-66 (1950)). The proposed amendment was submitted to the people and ratified by them in
the elections held on June 18, 1940.
This is the history of Art. VI, 18 (2) of the 1935 Constitution, from which Art. VI, 24 of the present Constitution
was derived. It explains why the word "exclusively" was added to the American text from which the framers of
the Philippine Constitution borrowed and why the phrase "as on other Bills" was not copied. Considering the
defeat of the proposal, the power of the Senate to propose amendments must be understood to be full, plenary
and complete "as on other Bills." Thus, because revenue bills are required to originate exclusively in the House
of Representatives, the Senate cannot enact revenue measures of its own without such bills. After a revenue
bill is passed and sent over to it by the House, however, the Senate certainly can pass its own version on the
same subject matter. This follows from the coequality of the two chambers of Congress.
That this is also the understanding of book authors of the scope of the Senate's power to concur is clear from
the following commentaries:
The power of the Senate to propose or concur with amendments is apparently without
restriction. It would seem that by virtue of this power, the Senate can practically re-write a
bill required to come from the House and leave only a trace of the original bill. For
example, a general revenue bill passed by the lower house of the United States
Congress contained provisions for the imposition of an inheritance tax . This was
changed by the Senate into a corporation tax. The amending authority of the Senate was
declared by the United States Supreme Court to be sufficiently broad to enable it to make
the alteration. [Flint v. Stone Tracy Company, 220 U.S. 107, 55 L. ed. 389].
(L. TAADA AND F. CARREON, POLITICAL LAW OF THE PHILIPPINES 247 (1961))
The above-mentioned bills are supposed to be initiated by the House of Representatives
because it is more numerous in membership and therefore also more representative of
the people. Moreover, its members are presumed to be more familiar with the needs of
the country in regard to the enactment of the legislation involved.
 The Senate is, however, allowed much leeway in the exercise of its power to propose or
concur with amendments to the bills initiated by the House of Representatives. Thus, in
one case, a bill introduced in the U.S. House of Representatives was changed by the
Senate to make a proposed inheritance tax a corporation tax. It is also accepted practice
for the Senate to introduce what is known as an amendment by substitution, which may
entirely replace the bill initiated in the House of Representatives.
(I. CRUZ, PHILIPPINE POLITICAL LAW 144-145 (1993)).
In sum, while Art. VI, 24 provides that all appropriation, revenue or tariff bills, bills authorizing increase of the
public debt, bills of local application, and private bills must "originate exclusively in the House of
Representatives," it also adds, "but the Senate may propose or concur with amendments." In the exercise of
this power, the Senate may propose an entirely new bill as a substitute measure. As petitioner Tolentino states
in a high school text, a committee to which a bill is referred may do any of the following:
(1) to endorse the bill without changes; (2) to make changes in the bill omitting or adding
sections or altering its language; (3) to make and endorse an entirely new bill as a
substitute, in which case it will be known as a committee bill; or (4) to make no report at
all.
(A. TOLENTINO, THE GOVERNMENT OF THE PHILIPPINES 258 (1950))
To except from this procedure the amendment of bills which are required to originate in the House by
prescribing that the number of the House bill and its other parts up to the enacting clause must be preserved
although the text of the Senate amendment may be incorporated in place of the original body of the bill is to
insist on a mere technicality. At any rate there is no rule prescribing this form. S. No. 1630, as a substitute
measure, is therefore as much an amendment of H. No. 11197 as any which the Senate could have made.
II. S. No. 1630 a mere amendment of H. No. 11197. Petitioners' basic error is that they assume that S. No.
1630 is an independent and distinct bill. Hence their repeated references to its certification that it was passed
by the Senate "in substitution of S.B. No. 1129, taking into consideration P.S. Res. No. 734
andH.B. No. 11197," implying that there is something substantially different between the reference to S. No.
1129 and the reference to H. No. 11197. From this premise, they conclude that R.A. No. 7716 originated both
in the House and in the Senate and that it is the product of two "half-baked bills because neither H. No. 11197
nor S. No. 1630 was passed by both houses of Congress."
In point of fact, in several instances the provisions of S. No. 1630, clearly appear to be mere amendments of
the corresponding provisions of H. No. 11197. The very tabular comparison of the provisions of H. No. 11197
and S. No. 1630 attached as Supplement A to the basic petition of petitioner Tolentino, while showing
differences between the two bills, at the same time indicates that the provisions of the Senate bill were
precisely intended to be amendments to the House bill.
Without H. No. 11197, the Senate could not have enacted S. No. 1630. Because the Senate bill was a mere
amendment of the House bill, H. No. 11197 in its original form did not have to pass the Senate on second and
three readings. It was enough that after it was passed on first reading it was referred to the Senate Committee
on Ways and Means. Neither was it required that S. No. 1630 be passed by the House of Representatives
before the two bills could be referred to the Conference Committee.
There is legislative precedent for what was done in the case of H. No. 11197 and S. No. 1630. When the
House bill and Senate bill, which became R.A. No. 1405 (Act prohibiting the disclosure of bank deposits), were
referred to a conference committee, the question was raised whether the two bills could be the subject of such
conference, considering that the bill from one house had not been passed by the other and vice versa. As
Congressman Duran put the question:
MR. DURAN. Therefore, I raise this question of order as to procedure: If a House bill is
passed by the House but not passed by the Senate, and a Senate bill of a similar nature
is passed in the Senate but never passed in the House, can the two bills be the subject
of a conference, and can a law be enacted from these two bills? I understand that the
Senate bill in this particular instance does not refer to investments in government
securities, whereas the bill in the House, which was introduced by the Speaker, covers
two subject matters: not only investigation of deposits in banks but also investigation of
investments in government securities. Now, since the two bills differ in their subject
matter, I believe that no law can be enacted.
Ruling on the point of order raised, the chair (Speaker Jose B. Laurel, Jr.) said:
THE SPEAKER. The report of the conference committee is in order. It is precisely in
cases like this where a conference should be had. If the House bill had been approved
by the Senate, there would have been no need of a conference; but precisely because
the Senate passed another bill on the same subject matter, the conference committee
had to be created, and we are now considering the report of that committee.
(2 CONG. REC. NO. 13, July 27, 1955, pp. 3841-42 (emphasis added))
III. The President's certification. The fallacy in thinking that H. No. 11197 and S. No. 1630 are distinct and
unrelated measures also accounts for the petitioners' (Kilosbayan's and PAL's) contention that because the
President separately certified to the need for the immediate enactment of these measures, his certification was
ineffectual and void. The certification had to be made of the version of the same revenue bill which at the
moment was being considered. Otherwise, to follow petitioners' theory, it would be necessary for the President
to certify as many bills as are presented in a house of Congress even though the bills are merely versions of
the bill he has already certified. It is enough that he certifies the bill which, at the time he makes the
certification, is under consideration. Since on March 22, 1994 the Senate was considering S. No. 1630, it was
that bill which had to be certified. For that matter on June 1, 1993 the President had earlier certified H. No.
9210 for immediate enactment because it was the one which at that time was being considered by the House.
This bill was later substituted, together with other bills, by H. No. 11197.
As to what Presidential certification can accomplish, we have already explained in the main decision that the
phrase "except when the President certifies to the necessity of its immediate enactment, etc." in Art. VI, 26 (2)
qualifies not only the requirement that "printed copies [of a bill] in its final form [must be] distributed to the
members three days before its passage" but also the requirement that before a bill can become a law it must
have passed "three readings on separate days." There is not only textual support for such construction but
historical basis as well.
Art. VI, 21 (2) of the 1935 Constitution originally provided:
(2) No bill shall be passed by either House unless it shall have been printed and copies
thereof in its final form furnished its Members at least three calendar days prior to its
passage, except when the President shall have certified to the necessity of its immediate
enactment. Upon the last reading of a bill, no amendment thereof shall be allowed and
the question upon its passage shall be taken immediately thereafter, and
the yeas and nays entered on the Journal.
When the 1973 Constitution was adopted, it was provided in Art. VIII, 19 (2):
(2) No bill shall become a law unless it has passed three readings on separate days, and
printed copies thereof in its final form have been distributed to the Members three days
before its passage, except when the Prime Minister certifies to the necessity of its
 immediate enactment to meet a public calamity or emergency. Upon the last reading of a
bill, no amendment thereto shall be allowed, and the vote thereon shall be taken
immediately thereafter, and the yeas andnays entered in the Journal.
This provision of the 1973 document, with slight modification, was adopted in Art. VI, 26 (2) of the present
Constitution, thus:
(2) No bill passed by either House shall become a law unless it has passed three
readings on separate days, and printed copies thereof in its final form have been
distributed to its Members three days before its passage, except when the President
certifies to the necessity of its immediate enactment to meet a public calamity or
emergency. Upon the last reading of a bill, no amendment thereto shall be allowed, and
the vote thereon shall be taken immediately thereafter, and the yeas and nays entered in
the Journal.
The exception is based on the prudential consideration that if in all cases three readings on separate days are
required and a bill has to be printed in final form before it can be passed, the need for a law may be rendered
academic by the occurrence of the very emergency or public calamity which it is meant to address.
Petitioners further contend that a "growing budget deficit" is not an emergency, especially in a country like the
Philippines where budget deficit is a chronic condition. Even if this were the case, an enormous budget deficit
does not make the need for R.A. No. 7716 any less urgent or the situation calling for its enactment any less an
emergency.
Apparently, the members of the Senate (including some of the petitioners in these cases) believed that there
was an urgent need for consideration of S. No. 1630, because they responded to the call of the President by
voting on the bill on second and third readings on the same day. While the judicial department is not bound by
the Senate's acceptance of the President's certification, the respect due coequal departments of the
government in matters committed to them by the Constitution and the absence of a clear showing of grave
abuse of discretion caution a stay of the judicial hand.
At any rate, we are satisfied that S. No. 1630 received thorough consideration in the Senate where it was
discussed for six days. Only its distribution in advance in its final printed form was actually dispensed with by
holding the voting on second and third readings on the same day (March 24, 1994). Otherwise, sufficient time
between the submission of the bill on February 8, 1994 on second reading and its approval on March 24, 1994
elapsed before it was finally voted on by the Senate on third reading.
The purpose for which three readings on separate days is required is said to be two-fold: (1) to inform the
members of Congress of what they must vote on and (2) to give them notice that a measure is progressing
through the enacting process, thus enabling them and others interested in the measure to prepare their
positions with reference to it. (1 J. G. SUTHERLAND, STATUTES AND STATUTORY CONSTRUCTION
10.04, p. 282 (1972)). These purposes were substantially achieved in the case of R.A. No. 7716.
IV. Power of Conference Committee. It is contended (principally by Kilosbayan, Inc. and the Movement of
Attorneys for Brotherhood, Integrity and Nationalism, Inc. (MABINI)) that in violation of the constitutional policy
of full public disclosure and the people's right to know (Art. II, 28 and Art. III, 7) the Conference Committee
met for two days in executive session with only the conferees present.
As pointed out in our main decision, even in the United States it was customary to hold such sessions with only
the conferees and their staffs in attendance and it was only in 1975 when a new rule was adopted requiring
open sessions. Unlike its American counterpart, the Philippine Congress has not adopted a rule prescribing
open hearings for conference committees.
It is nevertheless claimed that in the United States, before the adoption of the rule in 1975, at least staff
members were present. These were staff members of the Senators and Congressmen, however, who may be
presumed to be their confidential men, not stenographers as in this case who on the last two days of the
conference were excluded. There is no showing that the conferees themselves did not take notes of their
proceedings so as to give petitioner Kilosbayan basis for claiming that even in secret diplomatic negotiations
involving state interests, conferees keep notes of their meetings. Above all, the public's right to know was fully
served because the Conference Committee in this case submitted a report showing the changes made on the
differing versions of the House and the Senate.
Petitioners cite the rules of both houses which provide that conference committee reports must contain "a
detailed, sufficiently explicit statement of the changes in or other amendments." These changes are shown in
the bill attached to the Conference Committee Report. The members of both houses could thus ascertain what
changes had been made in the original bills without the need of a statement detailing the changes.
The same question now presented was raised when the bill which became R.A. No. 1400 (Land Reform Act of
1955) was reported by the Conference Committee. Congressman Bengzon raised a point of order. He said:
MR. BENGZON. My point of order is that it is out of order to consider the report of the
conference committee regarding House Bill No. 2557 by reason of the provision of
Section 11, Article XII, of the Rules of this House which provides specifically that the
conference report must be accompanied by a detailed statement of the effects of the
amendment on the bill of the House. This conference committee report is not
accompanied by that detailed statement, Mr. Speaker. Therefore it is out of order to
consider it.
Petitioner Tolentino, then the Majority Floor Leader, answered:
MR. TOLENTINO. Mr. Speaker, I should just like to say a few words in connection with
the point of order raised by the gentleman from Pangasinan.
There is no question about the provision of the Rule cited by the gentleman from
Pangasinan, but this provision applies to those cases where only portions of the bill have
been amended. In this case before us an entire bill is presented; therefore, it can be
easily seen from the reading of the bill what the provisions are. Besides, this procedure
has been an established practice.
After some interruption, he continued:
MR. TOLENTINO. As I was saying, Mr. Speaker, we have to look into the reason for the
provisions of the Rules, and the reason for the requirement in the provision cited by the
gentleman from Pangasinan is when there are only certain words or phrases inserted in
or deleted from the provisions of the bill included in the conference report, and we cannot
understand what those words and phrases mean and their relation to the bill. In that
case, it is necessary to make a detailed statement on how those words and phrases will
affect the bill as a whole; but when the entire bill itself is copied verbatim in the
conference report, that is not necessary. So when the reason for the Rule does not exist,
the Rule does not exist.
(2 CONG. REC. NO. 2, p. 4056. (emphasis added))
Congressman Tolentino was sustained by the chair. The record shows that when the ruling was appealed, it
was upheld by viva voce and when a division of the House was called, it was sustained by a vote of 48 to 5.
(Id.,
p. 4058)
Nor is there any doubt about the power of a conference committee to insert new provisions as long as these
are germane to the subject of the conference. As this Court held in Philippine Judges Association v.Prado, 227
SCRA 703 (1993), in an opinion written by then Justice Cruz, the jurisdiction of the conference committee is not
limited to resolving differences between the Senate and the House. It may propose an entirely new provision.
What is important is that its report is subsequently approved by the respective houses of Congress. This Court
ruled that it would not entertain allegations that, because new provisions had been added by the conference
committee, there was thereby a violation of the constitutional injunction that "upon the last reading of a bill, no
amendment thereto shall be allowed."
Applying these principles, we shall decline to look into the petitioners' charges that an
amendment was made upon the last reading of the bill that eventually became R.A. No.
7354 and that copies thereof in its final form were not distributed among the members of
each House. Both the enrolled bill and the legislative journals certify that the measure
was duly enacted i.e., in accordance with Article VI, Sec. 26 (2) of the Constitution. We
are bound by such official assurances from a coordinate department of the government,
to which we owe, at the very least, a becoming courtesy.
(Id. at 710. (emphasis added))
It is interesting to note the following description of conference committees in the Philippines in a 1979 study:
Conference committees may be of two types: free or instructed. These committees may
be given instructions by their parent bodies or they may be left without instructions.
Normally the conference committees are without instructions, and this is why they are
often critically referred to as "the little legislatures." Once bills have been sent to them,
the conferees have almost unlimited authority to change the clauses of the bills and in
fact sometimes introduce new measures that were not in the original legislation. No
minutes are kept, and members' activities on conference committees are difficult to
determine. One congressman known for his idealism put it this way: "I killed a bill on
export incentives for my interest group [copra] in the conference committee but I could
not have done so anywhere else." The conference committee submits a report to both
houses, and usually it is accepted. If the report is not accepted, then the committee is
discharged and new members are appointed.
(R. Jackson, Committees in the Philippine Congress, in COMMITTEES AND
LEGISLATURES: A COMPARATIVE ANALYSIS 163 (J. D. LEES AND M. SHAW, eds.)).
In citing this study, we pass no judgment on the methods of conference committees. We cite it only to say that
conference committees here are no different from their counterparts in the United States whose vast powers
we noted in Philippine Judges Association v. Prado, supra. At all events, under Art. VI, 16(3) each house has
the power "to determine the rules of its proceedings," including those of its committees. Any meaningful change
in the method and procedures of Congress or its committees must therefore be sought in that body itself.
V. The titles of S. No. 1630 and H. No. 11197. PAL maintains that R.A. No. 7716 violates Art. VI, 26 (1) of the
Constitution which provides that "Every bill passed by Congress shall embrace only one subject which shall be
expressed in the title thereof." PAL contends that the amendment of its franchise by the withdrawal of its
exemption from the VAT is not expressed in the title of the law.
Pursuant to 13 of P.D. No. 1590, PAL pays a franchise tax of 2% on its gross revenue "in lieu of all other
taxes, duties, royalties, registration, license and other fees and charges of any kind, nature, or description,
imposed, levied, established, assessed or collected by any municipal, city, provincial or national authority or
government agency, now or in the future."
PAL was exempted from the payment of the VAT along with other entities by 103 of the National Internal
Revenue Code, which provides as follows:
103. Exempt transactions. The following shall be exempt from the value-added tax:
xxx xxx xxx
(q) Transactions which are exempt under special laws or international agreements to
which the Philippines is a signatory.
R.A. No. 7716 seeks to withdraw certain exemptions, including that granted to PAL, by amending 103, as
follows:
103. Exempt transactions. The following shall be exempt from the value-added tax:
xxx xxx xxx
(q) Transactions which are exempt under special laws, except those granted under
Presidential Decree Nos. 66, 529, 972, 1491, 1590. . . .
The amendment of 103 is expressed in the title of R.A. No. 7716 which reads:
AN ACT RESTRUCTURING THE VALUE-ADDED TAX (VAT) SYSTEM, WIDENING ITS
TAX BASE AND ENHANCING ITS ADMINISTRATION, AND FOR THESE PURPOSES
AMENDING AND REPEALING THE RELEVANT PROVISIONS OF THE NATIONAL
INTERNAL REVENUE CODE, AS AMENDED, AND FOR OTHER PURPOSES.
By stating that R.A. No. 7716 seeks to "[RESTRUCTURE] THE VALUE-ADDED TAX (VAT) SYSTEM [BY]
WIDENING ITS TAX BASE AND ENHANCING ITS ADMINISTRATION, AND FOR THESE PURPOSES
AMENDING AND REPEALING THE RELEVANT PROVISIONS OF THE NATIONAL INTERNAL REVENUE
CODE, AS AMENDED AND FOR OTHER PURPOSES," Congress thereby clearly expresses its intention to
amend any provision of the NIRC which stands in the way of accomplishing the purpose of the law.
PAL asserts that the amendment of its franchise must be reflected in the title of the law by specific reference to
P.D. No. 1590. It is unnecessary to do this in order to comply with the constitutional requirement, since it is
already stated in the title that the law seeks to amend the pertinent provisions of the NIRC, among which is
103(q), in order to widen the base of the VAT. Actually, it is the bill which becomes a law that is required to
express in its title the subject of legislation. The titles of H. No. 11197 and S. No. 1630 in fact specifically
referred to 103 of the NIRC as among the provisions sought to be amended. We are satisfied that sufficient
notice had been given of the pendency of these bills in Congress before they were enacted into what is now
R.A.
No. 7716.
In Philippine Judges Association v. Prado, supra, a similar argument as that now made by PAL was rejected.
R.A. No. 7354 is entitled AN ACT CREATING THE PHILIPPINE POSTAL CORPORATION, DEFINING ITS
POWERS, FUNCTIONS AND RESPONSIBILITIES, PROVIDING FOR REGULATION OF THE INDUSTRY
AND FOR OTHER PURPOSES CONNECTED THEREWITH. It contained a provision repealing all franking
privileges. It was contended that the withdrawal of franking privileges was not expressed in the title of the law.
In holding that there was sufficient description of the subject of the law in its title, including the repeal of
franking privileges, this Court held:
To require every end and means necessary for the accomplishment of the general
objectives of the statute to be expressed in its title would not only be unreasonable but
would actually render legislation impossible. [Cooley, Constitutional Limitations, 8th Ed.,
p. 297] As has been correctly explained:
The details of a legislative act need not be specifically stated in its
title, but matter germane to the subject as expressed in the title,
and adopted to the accomplishment of the object in view, may
properly be included in the act. Thus, it is proper to create in the
same act the machinery by which the act is to be enforced, to
prescribe the penalties for its infraction, and to remove obstacles in
the way of its execution. If such matters are properly connected
with the subject as expressed in the title, it is unnecessary that
they should also have special mention in the title. (Southern Pac.
Co. v. Bartine, 170 Fed. 725)
(227 SCRA at 707-708)
VI. Claims of press freedom and religious liberty. We have held that, as a general proposition, the press is not
exempt from the taxing power of the State and that what the constitutional guarantee of free press prohibits are
laws which single out the press or target a group belonging to the press for special treatment or which in any
way discriminate against the press on the basis of the content of the publication, and R.A. No. 7716 is none of
these.
Now it is contended by the PPI that by removing the exemption of the press from the VAT while maintaining
those granted to others, the law discriminates against the press. At any rate, it is averred, "even
nondiscriminatory taxation of constitutionally guaranteed freedom is unconstitutional."
With respect to the first contention, it would suffice to say that since the law granted the press a privilege, the
law could take back the privilege anytime without offense to the Constitution. The reason is simple: by granting
exemptions, the State does not forever waive the exercise of its sovereign prerogative.
Indeed, in withdrawing the exemption, the law merely subjects the press to the same tax burden to which other
businesses have long ago been subject. It is thus different from the tax involved in the cases invoked by the
PPI. The license tax in Grosjean v. American Press Co., 297 U.S. 233, 80 L. Ed. 660 (1936) was found to be
discriminatory because it was laid on the gross advertising receipts only of newspapers whose weekly
circulation was over 20,000, with the result that the tax applied only to 13 out of 124 publishers in Louisiana.
These large papers were critical of Senator Huey Long who controlled the state legislature which enacted the
license tax. The censorial motivation for the law was thus evident.
On the other hand, in Minneapolis Star & Tribune Co. v. Minnesota Comm'r of Revenue, 460 U.S. 575, 75 L.
Ed. 2d 295 (1983), the tax was found to be discriminatory because although it could have been made liable for
the sales tax or, in lieu thereof, for the use tax on the privilege of using, storing or consuming tangible goods,
the press was not. Instead, the press was exempted from both taxes. It was, however, later made to pay
a special use tax on the cost of paper and ink which made these items "the only items subject to the use tax
that were component of goods to be sold at retail." The U.S. Supreme Court held that the differential treatment
of the press "suggests that the goal of regulation is not related to suppression of expression, and such goal is
presumptively unconstitutional." It would therefore appear that even a law that favors the press is
constitutionally suspect. (See the dissent of Rehnquist, J. in that case)
Nor is it true that only two exemptions previously granted by E.O. No. 273 are withdrawn "absolutely and
unqualifiedly" by R.A. No. 7716. Other exemptions from the VAT, such as those previously granted to PAL,
petroleum concessionaires, enterprises registered with the Export Processing Zone Authority, and many more
are likewise totally withdrawn, in addition to exemptions which are partially withdrawn, in an effort to broaden
the base of the tax.
The PPI says that the discriminatory treatment of the press is highlighted by the fact that transactions, which
are profit oriented, continue to enjoy exemption under R.A. No. 7716. An enumeration of some of these
transactions will suffice to show that by and large this is not so and that the exemptions are granted for a
purpose. As the Solicitor General says, such exemptions are granted, in some cases, to encourage agricultural
production and, in other cases, for the personal benefit of the end-user rather than for profit. The exempt
transactions are:
(a) Goods for consumption or use which are in their original state (agricultural, marine
and forest products, cotton seeds in their original state, fertilizers, seeds, seedlings,
fingerlings, fish, prawn livestock and poultry feeds) and goods or services to enhance
agriculture (milling of palay, corn, sugar cane and raw sugar, livestock, poultry feeds,
fertilizer, ingredients used for the manufacture of feeds).
(b) Goods used for personal consumption or use (household and personal effects of
citizens returning to the Philippines) or for professional use, like professional instruments
and implements, by persons coming to the Philippines to settle here.
(c) Goods subject to excise tax such as petroleum products or to be used for
manufacture of petroleum products subject to excise tax and services subject to
percentage tax.
(d) Educational services, medical, dental, hospital and veterinary services, and services
rendered under employer-employee relationship.
(e) Works of art and similar creations sold by the artist himself.
(f) Transactions exempted under special laws, or international agreements.
(g) Export-sales by persons not VAT-registered.
(h) Goods or services with gross annual sale or receipt not exceeding P500,000.00.
(Respondents' Consolidated Comment on the Motions for Reconsideration, pp. 58-60)
The PPI asserts that it does not really matter that the law does not discriminate against the press because
"even nondiscriminatory taxation on constitutionally guaranteed freedom is unconstitutional." PPI cites in
support of this assertion the following statement in Murdock v. Pennsylvania, 319 U.S. 105, 87 L. Ed. 1292
(1943):
The fact that the ordinance is "nondiscriminatory" is immaterial. The protection afforded
by the First Amendment is not so restricted. A license tax certainly does not acquire
constitutional validity because it classifies the privileges protected by the First
Amendment along with the wares and merchandise of hucksters and peddlers and treats
them all alike. Such equality in treatment does not save the ordinance. Freedom of press,
freedom of speech, freedom of religion are in preferred position.
The Court was speaking in that case of a license tax, which, unlike an ordinary tax, is mainly for regulation. Its
imposition on the press is unconstitutional because it lays a prior restraint on the exercise of its right. Hence,
although its application to others, such those selling goods, is valid, its application to the press or to religious
groups, such as the Jehovah's Witnesses, in connection with the latter's sale of religious books and pamphlets,
is unconstitutional. As the U.S. Supreme Court put it, "it is one thing to impose a tax on income or property of a
preacher. It is quite another thing to exact a tax on him for delivering a sermon."
A similar ruling was made by this Court in American Bible Society v. City of Manila, 101 Phil. 386 (1957) which
invalidated a city ordinance requiring a business license fee on those engaged in the sale of general
merchandise. It was held that the tax could not be imposed on the sale of bibles by the American Bible Society
without restraining the free exercise of its right to propagate.
The VAT is, however, different. It is not a license tax. It is not a tax on the exercise of a privilege, much less a
constitutional right. It is imposed on the sale, barter, lease or exchange of goods or properties or the sale or
exchange of services and the lease of properties purely for revenue purposes. To subject the press to its
payment is not to burden the exercise of its right any more than to make the press pay income tax or subject it
to general regulation is not to violate its freedom under the Constitution.
Additionally, the Philippine Bible Society, Inc. claims that although it sells bibles, the proceeds derived from the
sales are used to subsidize the cost of printing copies which are given free to those who cannot afford to pay
so that to tax the sales would be to increase the price, while reducing the volume of sale. Granting that to be
the case, the resulting burden on the exercise of religious freedom is so incidental as to make it difficult to
differentiate it from any other economic imposition that might make the right to disseminate religious doctrines
costly. Otherwise, to follow the petitioner's argument, to increase the tax on the sale of vestments would be to
lay an impermissible burden on the right of the preacher to make a sermon.
On the other hand the registration fee of P1,000.00 imposed by 107 of the NIRC, as amended by 7 of R.A.
No. 7716, although fixed in amount, is really just to pay for the expenses of registration and enforcement of
provisions such as those relating to accounting in 108 of the NIRC. That the PBS distributes free bibles and
therefore is not liable to pay the VAT does not excuse it from the payment of this fee because it also sells some
copies. At any rate whether the PBS is liable for the VAT must be decided in concrete cases, in the event it is
assessed this tax by the Commissioner of Internal Revenue.
VII. Alleged violations of the due process, equal protection and contract clauses and the rule on taxation.
CREBA asserts that R.A. No. 7716 (1) impairs the obligations of contracts, (2) classifies transactions as
covered or exempt without reasonable basis and (3) violates the rule that taxes should be uniform and
equitable and that Congress shall "evolve a progressive system of taxation."
With respect to the first contention, it is claimed that the application of the tax to existing contracts of the sale of
real property by installment or on deferred payment basis would result in substantial increases in the monthly
amortizations to be paid because of the 10% VAT. The additional amount, it is pointed out, is something that
the buyer did not anticipate at the time he entered into the contract.
The short answer to this is the one given by this Court in an early case: "Authorities from numerous sources
are cited by the plaintiffs, but none of them show that a lawful tax on a new subject, or an increased tax on an
old one, interferes with a contract or impairs its obligation, within the meaning of the Constitution. Even though
such taxation may affect particular contracts, as it may increase the debt of one person and lessen the security
of another, or may impose additional burdens upon one class and release the burdens of another, still the tax
must be paid unless prohibited by the Constitution, nor can it be said that it impairs the obligation of any
existing contract in its true legal sense." (La Insular v. Machuca Go-Tauco and Nubla Co-Siong, 39 Phil. 567,
574 (1919)). Indeed not only existing laws but also "the reservation of the essential attributes of sovereignty, is
. . . read into contracts as a postulate of the legal order." (Philippine-American Life Ins. Co. v. Auditor General,
22 SCRA 135, 147 (1968)) Contracts must be understood as having been made in reference to the possible
exercise of the rightful authority of the government and no obligation of contract can extend to the defeat of that
authority. (Norman v. Baltimore and Ohio R.R., 79 L. Ed. 885 (1935)).
It is next pointed out that while 4 of R.A. No. 7716 exempts such transactions as the sale of agricultural
products, food items, petroleum, and medical and veterinary services, it grants no exemption on the sale of real
property which is equally essential. The sale of real property for socialized and low-cost housing is exempted
from the tax, but CREBA claims that real estate transactions of "the less poor," i.e., the middle class, who are
equally homeless, should likewise be exempted.
The sale of food items, petroleum, medical and veterinary services, etc., which are essential goods and
services was already exempt under 103, pars. (b) (d) (1) of the NIRC before the enactment of R.A. No. 7716.
Petitioner is in error in claiming that R.A. No. 7716 granted exemption to these transactions, while subjecting
those of petitioner to the payment of the VAT. Moreover, there is a difference between the "homeless poor" and
the "homeless less poor" in the example given by petitioner, because the second group or middle class can
afford to rent houses in the meantime that they cannot yet buy their own homes. The two social classes are
thus differently situated in life. "It is inherent in the power to tax that the State be free to select the subjects of
taxation, and it has been repeatedly held that 'inequalities which result from a singling out of one particular
class for taxation, or exemption infringe no constitutional limitation.'" (Lutz v. Araneta, 98 Phil. 148, 153
(1955). Accord, City of Baguio v. De Leon, 134 Phil. 912 (1968); Sison, Jr. v. Ancheta, 130 SCRA 654, 663
(1984); Kapatiran ng mga Naglilingkod sa Pamahalaan ng Pilipinas, Inc. v. Tan, 163 SCRA 371 (1988)).
Finally, it is contended, for the reasons already noted, that R.A. No. 7716 also violates Art. VI, 28(1) which
provides that "The rule of taxation shall be uniform and equitable. The Congress shall evolve a progressive
system of taxation."
Equality and uniformity of taxation means that all taxable articles or kinds of property of the same class be
taxed at the same rate. The taxing power has the authority to make reasonable and natural classifications for
purposes of taxation. To satisfy this requirement it is enough that the statute or ordinance applies equally to all
persons, forms and corporations placed in similar situation. (City of Baguio v. De Leon, supra; Sison, Jr. v.
Ancheta, supra)
Indeed, the VAT was already provided in E.O. No. 273 long before R.A. No. 7716 was enacted. R.A. No. 7716
merely expands the base of the tax. The validity of the original VAT Law was questioned inKapatiran ng
Naglilingkod sa Pamahalaan ng Pilipinas, Inc. v. Tan, 163 SCRA 383 (1988) on grounds similar to those made
in these cases, namely, that the law was "oppressive, discriminatory, unjust and regressive in violation of Art.
VI, 28(1) of the Constitution." (At 382) Rejecting the challenge to the law, this Court held:
As the Court sees it, EO 273 satisfies all the requirements of a valid tax. It is uniform. . . .
The sales tax adopted in EO 273 is applied similarly on all goods and services sold to the
public, which are not exempt, at the constant rate of 0% or 10%.
The disputed sales tax is also equitable. It is imposed only on sales of goods or services
by persons engaged in business with an aggregate gross annual sales exceeding
P200,000.00. Small corner sari-sari stores are consequently exempt from its application.
Likewise exempt from the tax are sales of farm and marine products, so that the costs of
basic food and other necessities, spared as they are from the incidence of the VAT, are
expected to be relatively lower and within the reach of the general public.
(At 382-383)
The CREBA claims that the VAT is regressive. A similar claim is made by the Cooperative Union of the
Philippines, Inc. (CUP), while petitioner Juan T. David argues that the law contravenes the mandate of
Congress to provide for a progressive system of taxation because the law imposes a flat rate of 10% and thus
places the tax burden on all taxpayers without regard to their ability to pay.
The Constitution does not really prohibit the imposition of indirect taxes which, like the VAT, are regressive.
What it simply provides is that Congress shall "evolve a progressive system of taxation." The constitutional
provision has been interpreted to mean simply that "direct taxes are . . . to be preferred [and] as much as
possible, indirect taxes should be minimized." (E. FERNANDO, THE CONSTITUTION OF THE PHILIPPINES
221 (Second ed. (1977)). Indeed, the mandate to Congress is not to prescribe, but to evolve, a progressive tax
system. Otherwise, sales taxes, which perhaps are the oldest form of indirect taxes, would have been
prohibited with the proclamation of Art. VIII, 17(1) of the 1973 Constitution from which the present Art. VI,
28(1) was taken. Sales taxes are also regressive.
Resort to indirect taxes should be minimized but not avoided entirely because it is difficult, if not impossible, to
avoid them by imposing such taxes according to the taxpayers' ability to pay. In the case of the VAT, the law
minimizes the regressive effects of this imposition by providing for zero rating of certain transactions (R.A. No.
7716, 3, amending 102 (b) of the NIRC), while granting exemptions to other transactions. (R.A. No. 7716, 4,
amending 103 of the NIRC).
Thus, the following transactions involving basic and essential goods and services are exempted from the VAT:
(a) Goods for consumption or use which are in their original state (agricultural, marine
and forest products, cotton seeds in their original state, fertilizers, seeds, seedlings,
fingerlings, fish, prawn livestock and poultry feeds) and goods or services to enhance
agriculture (milling of palay, corn sugar cane and raw sugar, livestock, poultry feeds,
fertilizer, ingredients used for the manufacture of feeds).
(b) Goods used for personal consumption or use (household and personal effects of
citizens returning to the Philippines) and or professional use, like professional
instruments and implements, by persons coming to the Philippines to settle here.
(c) Goods subject to excise tax such as petroleum products or to be used for
manufacture of petroleum products subject to excise tax and services subject to
percentage tax.
(d) Educational services, medical, dental, hospital and veterinary services, and services
rendered under employer-employee relationship.
(e) Works of art and similar creations sold by the artist himself.
(f) Transactions exempted under special laws, or international agreements.
(g) Export-sales by persons not VAT-registered.
(h) Goods or services with gross annual sale or receipt not exceeding P500,000.00.
(Respondents' Consolidated Comment on the Motions for Reconsideration, pp. 58-60)
On the other hand, the transactions which are subject to the VAT are those which involve goods and services
which are used or availed of mainly by higher income groups. These include real properties held primarily for
sale to customers or for lease in the ordinary course of trade or business, the right or privilege to use patent,
copyright, and other similar property or right, the right or privilege to use industrial, commercial or scientific
equipment, motion picture films, tapes and discs, radio, television, satellite transmission and cable television
time, hotels, restaurants and similar places, securities, lending investments, taxicabs, utility cars for rent, tourist
buses, and other common carriers, services of franchise grantees of telephone and telegraph.
The problem with CREBA's petition is that it presents broad claims of constitutional violations by tendering
issues not at retail but at wholesale and in the abstract. There is no fully developed record which can impart to
adjudication the impact of actuality. There is no factual foundation to show in the concrete the application of the
law to actual contracts and exemplify its effect on property rights. For the fact is that petitioner's members have
not even been assessed the VAT. Petitioner's case is not made concrete by a series of hypothetical questions
asked which are no different from those dealt with in advisory opinions.
The difficulty confronting petitioner is thus apparent. He alleges arbitrariness. A mere
allegation, as here, does not suffice. There must be a factual foundation of such
unconstitutional taint. Considering that petitioner here would condemn such a provision
as void on its face, he has not made out a case. This is merely to adhere to the
authoritative doctrine that where the due process and equal protection clauses are
invoked, considering that they are not fixed rules but rather broad standards, there is a
need for proof of such persuasive character as would lead to such a conclusion. Absent
such a showing, the presumption of validity must prevail.
(Sison, Jr. v. Ancheta, 130 SCRA at 661)
Adjudication of these broad claims must await the development of a concrete case. It may be that
postponement of adjudication would result in a multiplicity of suits. This need not be the case, however.
Enforcement of the law may give rise to such a case. A test case, provided it is an actual case and not an
abstract or hypothetical one, may thus be presented.
Nor is hardship to taxpayers alone an adequate justification for adjudicating abstract issues. Otherwise,
adjudication would be no different from the giving of advisory opinion that does not really settle legal issues.
We are told that it is our duty under Art. VIII, 1, 2 to decide whenever a claim is made that "there has been a
grave abuse of discretion amounting to lack or excess of jurisdiction on the part of any branch or instrumentality
of the government." This duty can only arise if an actual case or controversy is before us. Under Art . VIII, 5
our jurisdiction is defined in terms of "cases" and all that Art. VIII, 1, 2 can plausibly mean is that in the
exercise of that jurisdiction we have the judicial power to determine questions of grave abuse of discretion by
any branch or instrumentality of the government.
Put in another way, what is granted in Art. VIII, 1, 2 is "judicial power," which is "the power of a court to hear
and decide cases pending between parties who have the right to sue and be sued in the courts of law and
equity" (Lamb v. Phipps, 22 Phil. 456, 559 (1912)), as distinguished from legislative and executive power. This
power cannot be directly appropriated until it is apportioned among several courts either by the Constitution, as
in the case of Art. VIII, 5, or by statute, as in the case of the Judiciary Act of 1948 (R.A. No. 296) and the
Judiciary Reorganization Act of 1980 (B.P. Blg. 129). The power thus apportioned constitutes the court's
"jurisdiction," defined as "the power conferred by law upon a court or judge to take cognizance of a case, to the
exclusion of all others." (United States v. Arceo, 6 Phil. 29 (1906)) Without an actual case coming within its
jurisdiction, this Court cannot inquire into any allegation of grave abuse of discretion by the other departments
of the government.
VIII. Alleged violation of policy towards cooperatives. On the other hand, the Cooperative Union of the
Philippines (CUP), after briefly surveying the course of legislation, argues that it was to adopt a definite policy
of granting tax exemption to cooperatives that the present Constitution embodies provisions on cooperatives.
To subject cooperatives to the VAT would therefore be to infringe a constitutional policy. Petitioner claims that
in 1973, P.D. No. 175 was promulgated exempting cooperatives from the payment of income taxes and sales
taxes but in 1984, because of the crisis which menaced the national economy, this exemption was withdrawn
by P.D. No. 1955; that in 1986, P.D. No. 2008 again granted cooperatives exemption from income and sales
taxes until December 31, 1991, but, in the same year, E.O. No. 93 revoked the exemption; and that finally in
1987 the framers of the Constitution "repudiated the previous actions of the government adverse to the
interests of the cooperatives, that is, the repeated revocation of the tax exemption to cooperatives and instead
upheld the policy of strengthening the cooperatives by way of the grant of tax exemptions," by providing the
following in Art. XII:
1. The goals of the national economy are a more equitable distribution of opportunities,
income, and wealth; a sustained increase in the amount of goods and services produced
by the nation for the benefit of the people; and an expanding productivity as the key to
raising the quality of life for all, especially the underprivileged.
The State shall promote industrialization and full employment based on sound
agricultural development and agrarian reform, through industries that make full and
efficient use of human and natural resources, and which are competitive in both domestic
and foreign markets. However, the State shall protect Filipino enterprises against unfair
foreign competition and trade practices.
We have carefully read the various arguments raised against the constitutional validity of R.A. No. 7716. We
have in fact taken the extraordinary step of enjoining its enforcement pending resolution of these cases. We
have now come to the conclusion that the law suffers from none of the infirmities attributed to it by petitioners
and that its enactment by the other branches of the government does not constitute a grave abuse of
discretion. Any question as to its necessity, desirability or expediency must be addressed to Congress as the
body which is electorally responsible, remembering that, as Justice Holmes has said, "legislators are the
ultimate guardians of the liberties and welfare of the people in quite as great a degree as are the courts."
(Missouri, Kansas & Texas Ry. Co. v. May, 194 U.S. 267, 270, 48 L. Ed. 971, 973 (1904)). It is not right, as
petitioner in G.R. No. 115543 does in arguing that we should enforce the public accountability of legislators,
that those who took part in passing the law in question by voting for it in Congress should later thrust to the
courts the burden of reviewing measures in the flush of enactment. This Court does not sit as a third branch of
the legislature, much less exercise a veto power over legislation.
WHEREFORE, the motions for reconsideration are denied with finality and the temporary restraining order
previously issued is hereby lifted.
SO ORDERED.

In the pursuit of these goals, all sectors of the economy and all regions of the country
shall be given optimum opportunity to develop. Private enterprises, including
corporations, cooperatives, and similar collective organizations, shall be encouraged to
broaden the base of their ownership.

15. The Congress shall create an agency to promote the viability and growth of
cooperatives as instruments for social justice and economic development.

Petitioner's contention has no merit. In the first place, it is not true that P.D. No. 1955 singled out cooperatives
by withdrawing their exemption from income and sales taxes under P.D. No. 175, 5. What P.D. No. 1955, 1
did was to withdraw the exemptions and preferential treatments theretofore granted to private business
enterprises in general, in view of the economic crisis which then beset the nation. It is true that after P.D. No.
2008, 2 had restored the tax exemptions of cooperatives in 1986, the exemption was again repealed by E.O.
No. 93, 1, but then again cooperatives were not the only ones whose exemptions were withdrawn. The
withdrawal of tax incentives applied to all, including government and private entities. In the second place, the
Constitution does not really require that cooperatives be granted tax exemptions in order to promote their
growth and viability. Hence, there is no basis for petitioner's assertion that the government's policy toward
cooperatives had been one of vacillation, as far as the grant of tax privileges was concerned, and that it was to
put an end to this indecision that the constitutional provisions cited were adopted. Perhaps as a matter of policy
cooperatives should be granted tax exemptions, but that is left to the discretion of Congress. If Congress does
not grant exemption and there is no discrimination to cooperatives, no violation of any constitutional policy can
be charged.

Indeed, petitioner's theory amounts to saying that under the Constitution cooperatives are exempt from
taxation. Such theory is contrary to the Constitution under which only the following are exempt from taxation:
charitable institutions, churches and parsonages, by reason of Art. VI, 28 (3), and non-stock, non-profit
educational institutions by reason of Art. XIV, 4 (3).

CUP's further ground for seeking the invalidation of R.A. No. 7716 is that it denies cooperatives the equal
protection of the law because electric cooperatives are exempted from the VAT. The classification between
electric and other cooperatives (farmers cooperatives, producers cooperatives, marketing cooperatives, etc.)
apparently rests on a congressional determination that there is greater need to provide cheaper electric power
to as many people as possible, especially those living in the rural areas, than there is to provide them with
other necessities in life. We cannot say that such classification is unreasonable.
G.R. No. 195909 September 26, 2012
COMMISSIONER OF INTERNAL REVENUE, PETITIONER,
vs.
ST. LUKE'S MEDICAL CENTER, INC., RESPONDENT.
x-----------------------x
G.R. No. 195960
ST. LUKE'S MEDICAL CENTER, INC., PETITIONER,
vs.
COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.
DECISION
CARPIO, J.:
The Case
These are consolidated petitions for review on certiorari under Rule 45 of the Rules of Court assailing the
1
Decision of 19 November 2010 of the Court of Tax Appeals (CTA) En Banc and its Resolution 2 of 1 March
2011 in CTA Case No. 6746. This Court resolves this case on a pure question of law, which involves the
interpretation of Section 27(B) vis--vis Section 30(E) and (G) of the National Internal Revenue Code of the
Philippines (NIRC), on the income tax treatment of proprietary non-profit hospitals.
The Facts
St. Luke's Medical Center, Inc. (St. Luke's) is a hospital organized as a non-stock and non-profit corporation.
Under its articles of incorporation, among its corporate purposes are:
(a) To establish, equip, operate and maintain a non-stock, non-profit Christian, benevolent,
charitable and scientific hospital which shall give curative, rehabilitative and spiritual care to the sick,
diseased and disabled persons; provided that purely medical and surgical services shall be
performed by duly licensed physicians and surgeons who may be freely and individually contracted
by patients;
(b) To provide a career of health science education and provide medical services to the community
through organized clinics in such specialties as the facilities and resources of the corporation make
possible;
(c) To carry on educational activities related to the maintenance and promotion of health as well as
provide facilities for scientific and medical researches which, in the opinion of the Board of Trustees,
may be justified by the facilities, personnel, funds, or other requirements that are available;
(d) To cooperate with organized medical societies, agencies of both government and private sector;
establish rules and regulations consistent with the highest professional ethics;
xxxx3
On 16 December 2002, the Bureau of Internal Revenue (BIR) assessed St. Luke's deficiency taxes amounting
to P76,063,116.06 for 1998, comprised of deficiency income tax, value-added tax, withholding tax on
compensation and expanded withholding tax. The BIR reduced the amount to P63,935,351.57 during trial in the
First Division of the CTA. 4
On 14 January 2003, St. Luke's filed an administrative protest with the BIR against the deficiency tax
assessments. The BIR did not act on the protest within the 180-day period under Section 228 of the NIRC.
Thus, St. Luke's appealed to the CTA.
The BIR argued before the CTA that Section 27(B) of the NIRC, which imposes a 10% preferential tax rate on
the income of proprietary non-profit hospitals, should be applicable to St. Luke's. According to the BIR, Section
27(B), introduced in 1997, "is a new provision intended to amend the exemption on non-profit hospitals that
were previously categorized as non-stock, non-profit corporations under Section 26 of the 1997 Tax Code x x
x." 5 It is a specific provision which prevails over the general exemption on income tax granted under Section
30(E) and (G) for non-stock, non-profit charitable institutions and civic organizations promoting social welfare. 6
The BIR claimed that St. Luke's was actually operating for profit in 1998 because only 13% of its revenues
came from charitable purposes. Moreover, the hospital's board of trustees, officers and employees directly
benefit from its profits and assets. St. Luke's had total revenues of P1,730,367,965 or approximately P1.73
billion from patient services in 1998. 7
St. Luke's contended that the BIR should not consider its total revenues, because its free services to patients
was P218,187,498 or 65.20% of its 1998 operating income (i.e., total revenues less operating expenses)
of P334,642,615. 8 St. Luke's also claimed that its income does not inure to the benefit of any individual.
St. Luke's maintained that it is a non-stock and non-profit institution for charitable and social welfare purposes
under Section 30(E) and (G) of the NIRC. It argued that the making of profit per se does not destroy its income
tax exemption.
The petition of the BIR before this Court in G.R. No. 195909 reiterates its arguments before the CTA that
Section 27(B) applies to St. Luke's. The petition raises the sole issue of whether the enactment of Section
27(B) takes proprietary non-profit hospitals out of the income tax exemption under Section 30 of the NIRC and
instead, imposes a preferential rate of 10% on their taxable income. The BIR prays that St. Luke's be ordered
to pay P57,659,981.19 as deficiency income and expanded withholding tax for 1998 with surcharges and
interest for late payment.
The petition of St. Luke's in G.R. No. 195960 raises factual matters on the treatment and withholding of a part
of its income, 9 as well as the payment of surcharge and delinquency interest. There is no ground for this Court
to undertake such a factual review. Under the Constitution 10 and the Rules of Court, 11 this Court's review
power is generally limited to "cases in which only an error or question of law is involved." 12This Court cannot
depart from this limitation if a party fails to invoke a recognized exception.
The Ruling of the Court of Tax Appeals
The CTA En Banc Decision on 19 November 2010 affirmed in toto the CTA First Division Decision dated 23
February 2009 which held:
WHEREFORE, the Amended Petition for Review [by St. Luke's] is hereby PARTIALLY GRANTED.
Accordingly, the 1998 deficiency VAT assessment issued by respondent against petitioner in the amount
ofP110,000.00 is hereby CANCELLED and WITHDRAWN. However, petitioner is hereby ORDERED to PAY
deficiency income tax and deficiency expanded withholding tax for the taxable year 1998 in the respective
amounts of P5,496,963.54 and P778,406.84 or in the sum of P6,275,370.38, x x x.
xxxx
In addition, petitioner is hereby ORDERED to PAY twenty percent (20%) delinquency interest on the total
amount of P6,275,370.38 counted from October 15, 2003 until full payment thereof, pursuant to Section
249(C)(3) of the NIRC of 1997.
SO ORDERED. 13
The deficiency income tax of P5,496,963.54, ordered by the CTA En Banc to be paid, arose from the failure of
St. Luke's to prove that part of its income in 1998 (declared as "Other Income-Net") 14 came from charitable
activities. The CTA cancelled the remainder of the P63,113,952.79 deficiency assessed by the BIR based on
the 10% tax rate under Section 27(B) of the NIRC, which the CTA En Banc held was not applicable to St.
Luke's. 15
The CTA ruled that St. Luke's is a non-stock and non-profit charitable institution covered by Section 30(E) and
(G) of the NIRC. This ruling would exempt all income derived by St. Luke's from services to its patients,
whether paying or non-paying. The CTA reiterated its earlier decision in St. Luke's Medical Center, Inc. v.
Commissioner of Internal Revenue, 16 which examined the primary purposes of St. Luke's under its articles of
incorporation and various documents 17 identifying St. Luke's as a charitable institution.
The CTA adopted the test in Hospital de San Juan de Dios, Inc. v. Pasay City, 18 which states that "a charitable
institution does not lose its charitable character and its consequent exemption from taxation merely because
recipients of its benefits who are able to pay are required to do so, where funds derived in this manner are
devoted to the charitable purposes of the institution x x x." 19 The generation of income from paying patients
does not per se destroy the charitable nature of St. Luke's.
Hospital de San Juan cited Jesus Sacred Heart College v. Collector of Internal Revenue, 20 which ruled that the
old NIRC (Commonwealth Act No. 466, as amended) 21 "positively exempts from taxation those corporations or
associations which, otherwise, would be subject thereto, because of the existence of x x x net income." 22 The
NIRC of 1997 substantially reproduces the provision on charitable institutions of the old NIRC. Thus, in
rejecting the argument that tax exemption is lost whenever there is net income, the Court in Jesus Sacred
Heart College declared: "[E]very responsible organization must be run to at least insure its existence, by
operating within the limits of its own resources, especially its regular income. In other words, it should always
strive, whenever possible, to have a surplus." 23
The CTA held that Section 27(B) of the present NIRC does not apply to St. Luke's. 24 The CTA explained that
to apply the 10% preferential rate, Section 27(B) requires a hospital to be "non-profit." On the other hand,
Congress specifically used the word "non-stock" to qualify a charitable "corporation or association" in Section
30(E) of the NIRC. According to the CTA, this is unique in the present tax code, indicating an intent to exempt
this type of charitable organization from income tax. Section 27(B) does not require that the hospital be "non-
stock." The CTA stated, "it is clear that non-stock, non-profit hospitals operated exclusively for charitable
purpose are exempt from income tax on income received by them as such, applying the provision of Section
30(E) of the NIRC of 1997, as amended." 25
The Issue
The sole issue is whether St. Luke's is liable for deficiency income tax in 1998 under Section 27(B) of the
NIRC, which imposes a preferential tax rate of 10% on the income of proprietary non-profit hospitals.
The Ruling of the Court
St. Luke's Petition in G.R. No. 195960
As a preliminary matter, this Court denies the petition of St. Luke's in G.R. No. 195960 because the petition
raises factual issues. Under Section 1, Rule 45 of the Rules of Court, "[t]he petition shall raise only questions of
law which must be distinctly set forth." St. Luke's cites Martinez v. Court of Appeals 26 which permits factual
review "when the Court of Appeals [in this case, the CTA] manifestly overlooked certain relevant facts not
disputed by the parties and which, if properly considered, would justify a different conclusion." 27
This Court does not see how the CTA overlooked relevant facts. St. Luke's itself stated that the CTA
"disregarded the testimony of [its] witness, Romeo B. Mary, being allegedly self-serving, to show the nature of
the 'Other Income-Net' x x x." 28 This is not a case of overlooking or failing to consider relevant evidence. The
CTA obviously considered the evidence and concluded that it is self-serving. The CTA declared that it has
"gone through the records of this case and found no other evidence aside from the self-serving affidavit
executed by [the] witnesses [of St. Luke's] x x x." 29
The deficiency tax on "Other Income-Net" stands. Thus, St. Luke's is liable to pay the 25% surcharge under
Section 248(A)(3) of the NIRC. There is "[f]ailure to pay the deficiency tax within the time prescribed for its
payment in the notice of assessment[.]" 30 St. Luke's is also liable to pay 20% delinquency interest under
Section 249(C)(3) of the NIRC. 31 As explained by the CTA En Banc, the amount of P6,275,370.38 in the
dispositive portion of the CTA First Division Decision includes only deficiency interest under Section 249(A) and
(B) of the NIRC and not delinquency interest. 32
The Main Issue
The issue raised by the BIR is a purely legal one. It involves the effect of the introduction of Section 27(B) in the
NIRC of 1997 vis--vis Section 30(E) and (G) on the income tax exemption of charitable and social welfare
institutions. The 10% income tax rate under Section 27(B) specifically pertains to proprietary educational
institutions and proprietary non-profit hospitals. The BIR argues that Congress intended to remove the
exemption that non-profit hospitals previously enjoyed under Section 27(E) of the NIRC of 1977, which is now
substantially reproduced in Section 30(E) of the NIRC of 1997. 33 Section 27(B) of the present NIRC provides:
SEC. 27. Rates of Income Tax on Domestic Corporations. -
xxxx
(B) Proprietary Educational Institutions and Hospitals. - Proprietary educational institutions and hospitals which
are non-profit shall pay a tax of ten percent (10%) on their taxable income except those covered by Subsection
(D) hereof: Provided, That if the gross income from unrelated trade, business or other activity exceeds fifty
percent (50%) of the total gross income derived by such educational institutions or hospitals from all sources,
the tax prescribed in Subsection (A) hereof shall be imposed on the entire taxable income. For purposes of this
Subsection, the term 'unrelated trade, business or other activity' means any trade, business or other activity,
the conduct of which is not substantially related to the exercise or performance by such educational institution
or hospital of its primary purpose or function. A 'proprietary educational institution' is any private school
maintained and administered by private individuals or groups with an issued permit to operate from the
Department of Education, Culture and Sports (DECS), or the Commission on Higher Education (CHED), or the
Technical Education and Skills Development Authority (TESDA), as the case may be, in accordance with
existing laws and regulations. (Emphasis supplied)
St. Luke's claims tax exemption under Section 30(E) and (G) of the NIRC. It contends that it is a charitable
institution and an organization promoting social welfare. The arguments of St. Luke's focus on the wording of
Section 30(E) exempting from income tax non-stock, non-profit charitable institutions. 34 St. Luke's asserts that
the legislative intent of introducing Section 27(B) was only to remove the exemption for "proprietary non-profit"
hospitals. 35 The relevant provisions of Section 30 state:
SEC. 30. Exemptions from Tax on Corporations. - The following organizations shall not be taxed under this
Title in respect to income received by them as such:
 xxxx which lessens the burden of government. In other words, charitable institutions provide for free goods and
services to the public which would otherwise fall on the shoulders of government. Thus, as a matter of
(E) Nonstock corporation or association organized and operated exclusively for religious, charitable, scientific, efficiency, the government forgoes taxes which should have been spent to address public needs, because
athletic, or cultural purposes, or for the rehabilitation of veterans, no part of its net income or asset shall belong certain private entities already assume a part of the burden. This is the rationale for the tax exemption of
to or inure to the benefit of any member, organizer, officer or any specific person; charitable institutions. The loss of taxes by the government is compensated by its relief from doing public works
which would have been funded by appropriations from the Treasury. 42
xxxx
Charitable institutions, however, are not ipso facto entitled to a tax exemption. The requirements for a tax
(G) Civic league or organization not organized for profit but operated exclusively for the promotion of social exemption are specified by the law granting it. The power of Congress to tax implies the power to exempt from
welfare; tax. Congress can create tax exemptions, subject to the constitutional provision that "[n]o law granting any tax
exemption shall be passed without the concurrence of a majority of all the Members of Congress."43 The
requirements for a tax exemption are strictly construed against the taxpayer 44 because an exemption restricts
xxxx
the collection of taxes necessary for the existence of the government.
Notwithstanding the provisions in the preceding paragraphs, the income of whatever kind and character of the
The Court in Lung Center declared that the Lung Center of the Philippines is a charitable institution for the
foregoing organizations from any of their properties, real or personal, or from any of their activities conducted
purpose of exemption from real property taxes. This ruling uses the same premise as Hospital de San
for profit regardless of the disposition made of such income, shall be subject to tax imposed under this Code.
Juan45 and Jesus Sacred Heart College 46 which says that receiving income from paying patients does not
(Emphasis supplied)
destroy the charitable nature of a hospital.
The Court partly grants the petition of the BIR but on a different ground. We hold that Section 27(B) of the
As a general principle, a charitable institution does not lose its character as such and its exemption from taxes
NIRC does not remove the income tax exemption of proprietary non-profit hospitals under Section 30(E) and
simply because it derives income from paying patients, whether out-patient, or confined in the hospital, or
(G). Section 27(B) on one hand, and Section 30(E) and (G) on the other hand, can be construed together
receives subsidies from the government, so long as the money received is devoted or used altogether to the
without the removal of such tax exemption. The effect of the introduction of Section 27(B) is to subject the
charitable object which it is intended to achieve; and no money inures to the private benefit of the persons
taxable income of two specific institutions, namely, proprietary non-profit educational institutions 36 and
managing or operating the institution. 47
proprietary non-profit hospitals, among the institutions covered by Section 30, to the 10% preferential rate
under Section 27(B) instead of the ordinary 30% corporate rate under the last paragraph of Section 30 in
relation to Section 27(A)(1). For real property taxes, the incidental generation of income is permissible because the test of exemption is the
use of the property. The Constitution provides that "[c]haritable institutions, churches and personages or
convents appurtenant thereto, mosques, non-profit cemeteries, and all lands, buildings, and improvements,
Section 27(B) of the NIRC imposes a 10% preferential tax rate on the income of (1) proprietary non-profit
actually, directly, and exclusively used for religious, charitable, or educational purposes shall be exempt from
educational institutions and (2) proprietary non-profit hospitals. The only qualifications for hospitals are that
taxation." 48 The test of exemption is not strictly a requirement on the intrinsic nature or character of the
they must be proprietary and non-profit. "Proprietary" means private, following the definition of a "proprietary
institution. The test requires that the institution use the property in a certain way, i.e. for a charitable purpose.
educational institution" as "any private school maintained and administered by private individuals or groups"
Thus, the Court held that the Lung Center of the Philippines did not lose its charitable character when it used a
with a government permit. "Non-profit" means no net income or asset accrues to or benefits any member or
portion of its lot for commercial purposes. The effect of failing to meet the use requirement is simply to remove
specific person, with all the net income or asset devoted to the institution's purposes and all its activities
from the tax exemption that portion of the property not devoted to charity.
conducted not for profit.
The Constitution exempts charitable institutions only from real property taxes. In the NIRC, Congress decided
"Non-profit" does not necessarily mean "charitable." In Collector of Internal Revenue v. Club Filipino Inc. de
to extend the exemption to income taxes. However, the way Congress crafted Section 30(E) of the NIRC is
Cebu, 37 this Court considered as non-profit a sports club organized for recreation and entertainment of its
materially different from Section 28(3), Article VI of the Constitution. Section 30(E) of the NIRC defines the
stockholders and members. The club was primarily funded by membership fees and dues. If it had profits, they
corporation or association that is exempt from income tax. On the other hand, Section 28(3), Article VI of the
were used for overhead expenses and improving its golf course. 38 The club was non-profit because of its
Constitution does not define a charitable institution, but requires that the institution "actually, directly and
purpose and there was no evidence that it was engaged in a profit-making enterprise. 39
exclusively" use the property for a charitable purpose.
The sports club in Club Filipino Inc. de Cebu may be non-profit, but it was not charitable. The Court defined
Section 30(E) of the NIRC provides that a charitable institution must be:
"charity" in Lung Center of the Philippines v. Quezon City 40 as "a gift, to be applied consistently with existing
laws, for the benefit of an indefinite number of persons, either by bringing their minds and hearts under the
influence of education or religion, by assisting them to establish themselves in life or [by] otherwise lessening (1) A non-stock corporation or association;
the burden of government." 41 A non-profit club for the benefit of its members fails this test. An organization
may be considered as non-profit if it does not distribute any part of its income to stockholders or members. (2) Organized exclusively for charitable purposes;
However, despite its being a tax exempt institution, any income such institution earns from activities conducted
for profit is taxable, as expressly provided in the last paragraph of Section 30. (3) Operated exclusively for charitable purposes; and

To be a charitable institution, however, an organization must meet the substantive test of charity in Lung (4) No part of its net income or asset shall belong to or inure to the benefit of any member,
Center. The issue in Lung Center concerns exemption from real property tax and not income tax. However, it organizer, officer or any specific person.
provides for the test of charity in our jurisdiction. Charity is essentially a gift to an indefinite number of persons
Thus, both the organization and operations of the charitable institution must be devoted "exclusively" for to support its claim that 65.20% of its "income after expenses was allocated to free or charitable services" in
charitable purposes. The organization of the institution refers to its corporate form, as shown by its articles of 1998. 53
incorporation, by-laws and other constitutive documents. Section 30(E) of the NIRC specifically requires that
the corporation or association be non-stock, which is defined by the Corporation Code as "one where no part of
its income is distributable as dividends to its members, trustees, or officers" 49 and that any profit "obtain[ed] as REVENUES FROM SERVICES TO PATIENTS P1,730,367,965.00
an incident to its operations shall, whenever necessary or proper, be used for the furtherance of the purpose or
purposes for which the corporation was organized." 50 However, under Lung Center, any profit by a charitable
institution must not only be plowed back "whenever necessary or proper," but must be "devoted or used
altogether to the charitable object which it is intended to achieve." 51 OPERATING EXPENSES

The operations of the charitable institution generally refer to its regular activities. Section 30(E) of the NIRC
Professional care of patients P1,016,608,394.00
requires that these operations be exclusive to charity. There is also a specific requirement that "no part of [the]
net income or asset shall belong to or inure to the benefit of any member, organizer, officer or any specific
person." The use of lands, buildings and improvements of the institution is but a part of its operations.
Administrative 287,319,334.00
There is no dispute that St. Luke's is organized as a non-stock and non-profit charitable institution. However,
this does not automatically exempt St. Luke's from paying taxes. This only refers to the organization of St. Household and Property 91,797,622.00
Luke's. Even if St. Luke's meets the test of charity, a charitable institution is not ipso facto tax exempt. To be
exempt from real property taxes, Section 28(3), Article VI of the Constitution requires that a charitable
institution use the property "actually, directly and exclusively" for charitable purposes. To be exempt from
P1,395,725,350.00
income taxes, Section 30(E) of the NIRC requires that a charitable institution must be "organized and operated
exclusively" for charitable purposes. Likewise, to be exempt from income taxes, Section 30(G) of the NIRC
requires that the institution be "operated exclusively" for social welfare.
INCOME FROM OPERATIONS P334,642,615.00 100%
However, the last paragraph of Section 30 of the NIRC qualifies the words "organized and operated
exclusively" by providing that:
Free Services -218,187,498.00 -65.20%
Notwithstanding the provisions in the preceding paragraphs, the income of whatever kind and character of the
foregoing organizations from any of their properties, real or personal, or from any of their activities conducted
for profit regardless of the disposition made of such income, shall be subject to tax imposed under this Code. INCOME FROM OPERATIONS, Net of FREE SERVICES P116,455,117.00 34.80%
(Emphasis supplied)

In short, the last paragraph of Section 30 provides that if a tax exempt charitable institution conducts "any"
activity for profit, such activity is not tax exempt even as its not-for-profit activities remain tax exempt. This OTHER INCOME 17,482,304.00
paragraph qualifies the requirements in Section 30(E) that the "[n]on-stock corporation or association [must be]
organized and operated exclusively for x x x charitable x x x purposes x x x." It likewise qualifies the
requirement in Section 30(G) that the civic organization must be "operated exclusively" for the promotion of
social welfare. EXCESS OF REVENUES OVER EXPENSES P133,937,421.00

Thus, even if the charitable institution must be "organized and operated exclusively" for charitable purposes, it
is nevertheless allowed to engage in "activities conducted for profit" without losing its tax exempt status for its
not-for-profit activities. The only consequence is that the "income of whatever kind and character" of a
In Lung Center, this Court declared:
charitable institution "from any of its activities conducted for profit, regardless of the disposition made of such
income, shall be subject to tax." Prior to the introduction of Section 27(B), the tax rate on such income from for-
profit activities was the ordinary corporate rate under Section 27(A). With the introduction of Section 27(B), the "[e]xclusive" is defined as possessed and enjoyed to the exclusion of others; debarred from participation or
tax rate is now 10%. enjoyment; and "exclusively" is defined, "in a manner to exclude; as enjoying a privilege exclusively." x x x The
words "dominant use" or "principal use" cannot be substituted for the words "used exclusively" without doing
violence to the Constitution and the law. Solely is synonymous with exclusively. 54
In 1998, St. Luke's had total revenues of P1,730,367,965 from services to paying patients. It cannot be
disputed that a hospital which receives approximately P1.73 billion from paying patients is not an institution
"operated exclusively" for charitable purposes. Clearly, revenues from paying patients are income received The Court cannot expand the meaning of the words "operated exclusively" without violating the NIRC. Services
from "activities conducted for profit." 52 Indeed, St. Luke's admits that it derived profits from its paying patients. to paying patients are activities conducted for profit. They cannot be considered any other way. There is a
St. Luke's declared P1,730,367,965 as "Revenues from Services to Patients" in contrast to its "Free Services" "purpose to make profit over and above the cost" of services. 55 The P1.73 billion total revenues from paying
expenditure of P218,187,498. In its Comment in G.R. No. 195909, St. Luke's showed the following "calculation" patients is not even incidental to St. Luke's charity expenditure of P218,187,498 for non-paying patients.
St. Luke's claims that its charity expenditure of P218,187,498 is 65.20% of its operating income in 1998.
However, if a part of the remaining 34.80% of the operating income is reinvested in property, equipment or
facilities used for services to paying and non-paying patients, then it cannot be said that the income is "devoted
or used altogether to the charitable object which it is intended to achieve." 56 The income is plowed back to the
corporation not entirely for charitable purposes, but for profit as well. In any case, the last paragraph of Section
30 of the NIRC expressly qualifies that income from activities for profit is taxable "regardless of the disposition
made of such income."
Jesus Sacred Heart College declared that there is no official legislative record explaining the phrase "any
activity conducted for profit." However, it quoted a deposition of Senator Mariano Jesus Cuenco, who was a
member of the Committee of Conference for the Senate, which introduced the phrase "or from any activity
conducted for profit."
P. Cuando ha hablado de la Universidad de Santo Toms que tiene un hospital, no cree Vd. que es una
actividad esencial dicho hospital para el funcionamiento del colegio de medicina de dicha universidad?
xxxx
corporate purposes. St. Luke's, as a proprietary non-profit hospital, is entitled to the preferential tax rate of 10%
on its net income from its for-profit activities.
St. Luke's is therefore liable for deficiency income tax in 1998 under Section 27(B) of the NIRC. However, St.
Luke's has good reasons to rely on the letter dated 6 June 1990 by the BIR, which opined that St. Luke's is "a
corporation for purely charitable and social welfare purposes"59 and thus exempt from income tax. 60In Michael
J. Lhuillier, Inc. v. Commissioner of Internal Revenue, 61 the Court said that "good faith and honest belief that
one is not subject to tax on the basis of previous interpretation of government agencies tasked to implement
the tax law, are sufficient justification to delete the imposition of surcharges and interest." 62
WHEREFORE, the petition of the Commissioner of Internal Revenue in G.R. No. 195909 is PARTLY
GRANTED. The Decision of the Court of Tax Appeals En Banc dated 19 November 2010 and its Resolution
dated 1 March 2011 in CTA Case No. 6746 are MODIFIED. St. Luke's Medical Center, Inc. is ORDERED TO
PAY the deficiency income tax in 1998 based on the 10% preferential income tax rate under Section 27(B) of
the National Internal Revenue Code. However, it is not liable for surcharges and interest on such deficiency
income tax under Sections 248 and 249 of the National Internal Revenue Code. All other parts of the Decision
and Resolution of the Court of Tax Appeals are AFFIRMED.

R. Si el hospital se limita a recibir enformos pobres, mi contestacin seria afirmativa; pero considerando que el The petition of St. Luke's Medical Center, Inc. in G.R. No. 195960 is DENIED for violating Section 1, Rule 45 of
hospital tiene cuartos de pago, y a los mismos generalmente van enfermos de buena posicin social the Rules of Court.
econmica, lo que se paga por estos enfermos debe estar sujeto a 'income tax', y es una de las razones que
hemos tenido para insertar las palabras o frase 'or from any activity conducted for profit.' 57 SO ORDERED.

The question was whether having a hospital is essential to an educational institution like the College of
Medicine of the University of Santo Tomas. Senator Cuenco answered that if the hospital has paid rooms
generally occupied by people of good economic standing, then it should be subject to income tax. He said that
this was one of the reasons Congress inserted the phrase "or any activity conducted for profit."

The question in Jesus Sacred Heart College involves an educational institution. 58 However, it is applicable to
charitable institutions because Senator Cuenco's response shows an intent to focus on the activities of
charitable institutions. Activities for profit should not escape the reach of taxation. Being a non-stock and non-
profit corporation does not, by this reason alone, completely exempt an institution from tax. An institution
cannot use its corporate form to prevent its profitable activities from being taxed.

The Court finds that St. Luke's is a corporation that is not "operated exclusively" for charitable or social welfare
purposes insofar as its revenues from paying patients are concerned. This ruling is based not only on a strict
interpretation of a provision granting tax exemption, but also on the clear and plain text of Section 30(E) and
(G). Section 30(E) and (G) of the NIRC requires that an institution be "operated exclusively" for charitable or
social welfare purposes to be completely exempt from income tax. An institution under Section 30(E) or (G)
does not lose its tax exemption if it earns income from its for-profit activities. Such income from for-profit
activities, under the last paragraph of Section 30, is merely subject to income tax, previously at the ordinary
corporate rate but now at the preferential 10% rate pursuant to Section 27(B).

A tax exemption is effectively a social subsidy granted by the State because an exempt institution is spared
from sharing in the expenses of government and yet benefits from them. Tax exemptions for charitable
institutions should therefore be limited to institutions beneficial to the public and those which improve social
welfare. A profit-making entity should not be allowed to exploit this subsidy to the detriment of the government
and other taxpayers.1wphi1

St. Luke's fails to meet the requirements under Section 30(E) and (G) of the NIRC to be completely tax exempt
from all its income. However, it remains a proprietary non-profit hospital under Section 27(B) of the NIRC as
long as it does not distribute any of its profits to its members and such profits are reinvested pursuant to its
G.R. No. L-31156 February 27, 1976
PEPSI-COLA BOTTLING COMPANY OF THE PHILIPPINES, INC., plaintiff-appellant,
vs.
MUNICIPALITY OF TANAUAN, LEYTE, THE MUNICIPAL MAYOR, ET AL., defendant appellees.
Sabido, Sabido & Associates for appellant.
Provincial Fiscal Zoila M. Redona & Assistant Provincial Fiscal Bonifacio R Matol and Assistant Solicitor
General Conrado T. Limcaoco & Solicitor Enrique M. Reyes for appellees.
MARTIN, J.:
This is an appeal from the decision of the Court of First Instance of Leyte in its Civil Case No. 3294, which was
certified to Us by the Court of Appeals on October 6, 1969, as involving only pure questions of law, challenging
the power of taxation delegated to municipalities under the Local Autonomy Act (Republic Act No. 2264, as
amended, June 19, 1959).
On February 14, 1963, the plaintiff-appellant, Pepsi-Cola Bottling Company of the Philippines, Inc., commenced
a complaint with preliminary injunction before the Court of First Instance of Leyte for that court to declare
Section 2 of Republic Act No. 2264. 1 otherwise known as the Local Autonomy Act, unconstitutional as an
undue delegation of taxing authority as well as to declare Ordinances Nos. 23 and 27, series of 1962, of the
municipality of Tanauan, Leyte, null and void.
On July 23, 1963, the parties entered into a Stipulation of Facts, the material portions of which state that,first,
both Ordinances Nos. 23 and 27 embrace or cover the same subject matter and the production tax rates
imposed therein are practically the same, and second, that on January 17, 1963, the acting Municipal
Treasurer of Tanauan, Leyte, as per his letter addressed to the Manager of the Pepsi-Cola Bottling Plant in
said municipality, sought to enforce compliance by the latter of the provisions of said Ordinance No. 27, series
of 1962.
Municipal Ordinance No. 23, of Tanauan, Leyte, which was approved on September 25, 1962, levies and
collects "from soft drinks producers and manufacturers a tai of one-sixteenth (1/16) of a centavo for every bottle
of soft drink corked." 2 For the purpose of computing the taxes due, the person, firm, company or corporation
producing soft drinks shall submit to the Municipal Treasurer a monthly report, of the total number of bottles
produced and corked during the month. 3
On the other hand, Municipal Ordinance No. 27, which was approved on October 28, 1962, levies and collects
"on soft drinks produced or manufactured within the territorial jurisdiction of this municipality a tax of ONE
CENTAVO (P0.01) on each gallon (128 fluid ounces, U.S.) of volume capacity." 4 For the purpose of computing
the taxes due, the person, fun company, partnership, corporation or plant producing soft drinks shall submit to
the Municipal Treasurer a monthly report of the total number of gallons produced or manufactured during the
month.5
The tax imposed in both Ordinances Nos. 23 and 27 is denominated as "municipal production tax.'
On October 7, 1963, the Court of First Instance of Leyte rendered judgment "dismissing the complaint and
upholding the constitutionality of [Section 2, Republic Act No. 2264] declaring Ordinance Nos. 23 and 27 legal
and constitutional; ordering the plaintiff to pay the taxes due under the oft the said Ordinances; and to pay the
costs."
From this judgment, the plaintiff Pepsi-Cola Bottling Company appealed to the Court of Appeals, which, in turn,
elevated the case to Us pursuant to Section 31 of the Judiciary Act of 1948, as amended.
There are three capital questions raised in this appeal:
1. Is Section 2, Republic Act No. 2264 an undue delegation of power, confiscatory and
oppressive?
2. Do Ordinances Nos. 23 and 27 constitute double taxation and impose percentage
or specific taxes?
3. Are Ordinances Nos. 23 and 27 unjust and unfair?
1. The power of taxation is an essential and inherent attribute of sovereignty, belonging as a matter of right to
every independent government, without being expressly conferred by the people. 6 It is a power that is purely
legislative and which the central legislative body cannot delegate either to the executive or judicial department
of the government without infringing upon the theory of separation of powers. The exception, however, lies in
the case of municipal corporations, to which, said theory does not apply. Legislative powers may be delegated
to local governments in respect of matters of local concern. 7 This is sanctioned by immemorial practice. 8 By
necessary implication, the legislative power to create political corporations for purposes of local self-
government carries with it the power to confer on such local governmental agencies the power to tax. 9 Under
the New Constitution, local governments are granted the autonomous authority to create their own sources of
revenue and to levy taxes. Section 5, Article XI provides: "Each local government unit shall have the power to
create its sources of revenue and to levy taxes, subject to such limitations as may be provided by law." Withal,
it cannot be said that Section 2 of Republic Act No. 2264 emanated from beyond the sphere of the legislative
power to enact and vest in local governments the power of local taxation.
The plenary nature of the taxing power thus delegated, contrary to plaintiff-appellant's pretense, would not
suffice to invalidate the said law as confiscatory and oppressive. In delegating the authority, the State is not
limited 6 the exact measure of that which is exercised by itself. When it is said that the taxing power may be
delegated to municipalities and the like, it is meant that there may be delegated such measure of power to
impose and collect taxes as the legislature may deem expedient. Thus, municipalities may be permitted to tax
subjects which for reasons of public policy the State has not deemed wise to tax for more general
purposes. 10 This is not to say though that the constitutional injunction against deprivation of property without
due process of law may be passed over under the guise of the taxing power, except when the taking of the
property is in the lawful exercise of the taxing power, as when (1) the tax is for a public purpose; (2) the rule on
uniformity of taxation is observed; (3) either the person or property taxed is within the jurisdiction of the
government levying the tax; and (4) in the assessment and collection of certain kinds of taxes notice and
opportunity for hearing are provided. 11Due process is usually violated where the tax imposed is for a private as
distinguished from a public purpose; a tax is imposed on property outside the State, i.e., extraterritorial taxation;
and arbitrary or oppressive methods are used in assessing and collecting taxes. But, a tax does not violate the
due process clause, as applied to a particular taxpayer, although the purpose of the tax will result in an injury
rather than a benefit to such taxpayer. Due process does not require that the property subject to the tax or the
amount of tax to be raised should be determined by judicial inquiry, and a notice and hearing as to the amount
of the tax and the manner in which it shall be apportioned are generally not necessary to due process of law. 12
There is no validity to the assertion that the delegated authority can be declared unconstitutional on the theory
of double taxation. It must be observed that the delegating authority specifies the limitations and enumerates
the taxes over which local taxation may not be exercised. 13 The reason is that the State has exclusively
reserved the same for its own prerogative. Moreover, double taxation, in general, is not forbidden by our
fundamental law, since We have not adopted as part thereof the injunction against double taxation found in the
Constitution of the United States and some states of the Union. 14 Double taxation becomes obnoxious only
where the taxpayer is taxed twice for the benefit of the same governmental entity 15 or by the same jurisdiction
for the same purpose, 16 but not in a case where one tax is imposed by the State and the other by the city or 27 Reluctance should not deter compliance with an ordinance such as Ordinance No. 27 if the purpose of the
municipality. 17 law to further strengthen local autonomy were to be realized. 28

2. The plaintiff-appellant submits that Ordinance No. 23 and 27 constitute double taxation, because these two
ordinances cover the same subject matter and impose practically the same tax rate. The thesis proceeds from
its assumption that both ordinances are valid and legally enforceable. This is not so. As earlier quoted,
Ordinance No. 23, which was approved on September 25, 1962, levies or collects from soft drinks producers or
manufacturers a tax of one-sixteen (1/16) of a centavo for .every bottle corked, irrespective of the volume
contents of the bottle used. When it was discovered that the producer or manufacturer could increase the
volume contents of the bottle and still pay the same tax rate, the Municipality of Tanauan enacted Ordinance
No. 27, approved on October 28, 1962, imposing a tax of one centavo (P0.01) on each gallon (128 fluid
ounces, U.S.) of volume capacity. The difference between the two ordinances clearly lies in the tax rate of the
soft drinks produced: in Ordinance No. 23, it was 1/16 of a centavo for every bottle corked; in Ordinance No.
27, it is one centavo (P0.01) on each gallon (128 fluid ounces, U.S.) of volume capacity. The intention of the
Municipal Council of Tanauan in enacting Ordinance No. 27 is thus clear: it was intended as a plain substitute
for the prior Ordinance No. 23, and operates as a repeal of the latter, even without words to that
effect. 18 Plaintiff-appellant in its brief admitted that defendants-appellees are only seeking to enforce
Ordinance No. 27, series of 1962. Even the stipulation of facts confirms the fact that the Acting Municipal
Treasurer of Tanauan, Leyte sought t6 compel compliance by the plaintiff-appellant of the provisions of said
Ordinance No. 27, series of 1962. The aforementioned admission shows that only Ordinance No. 27, series of
1962 is being enforced by defendants-appellees. Even the Provincial Fiscal, counsel for defendants-appellees
admits in his brief "that Section 7 of Ordinance No. 27, series of 1962 clearly repeals Ordinance No. 23 as the
provisions of the latter are inconsistent with the provisions of the former."
Finally, the municipal license tax of P1,000.00 per corking machine with five but not more than ten crowners or
P2,000.00 with ten but not more than twenty crowners imposed on manufacturers, producers, importers and
dealers of soft drinks and/or mineral waters under Ordinance No. 54, series of 1964, as amended by Ordinance
No. 41, series of 1968, of defendant Municipality, 29 appears not to affect the resolution of the validity of
Ordinance No. 27. Municipalities are empowered to impose, not only municipal license taxes upon persons
engaged in any business or occupation but also to levy for public purposes, just and uniform taxes. The
ordinance in question (Ordinance No. 27) comes within the second power of a municipality.
ACCORDINGLY, the constitutionality of Section 2 of Republic Act No. 2264, otherwise known as the Local
Autonomy Act, as amended, is hereby upheld and Municipal Ordinance No. 27 of the Municipality of Tanauan,
Leyte, series of 1962, re-pealing Municipal Ordinance No. 23, same series, is hereby declared of valid and
legal effect. Costs against petitioner-appellant.
SO ORDERED.

That brings Us to the question of whether the remaining Ordinance No. 27 imposes a percentage or a specific
tax. Undoubtedly, the taxing authority conferred on local governments under Section 2, Republic Act No. 2264,
is broad enough as to extend to almost "everything, accepting those which are mentioned therein." As long as
the text levied under the authority of a city or municipal ordinance is not within the exceptions and limitations in
the law, the same comes within the ambit of the general rule, pursuant to the rules of exclucion
attehus and exceptio firmat regulum in cabisus non excepti 19 The limitation applies, particularly, to the
prohibition against municipalities and municipal districts to impose "any percentage tax or other taxes in any
form based thereon nor impose taxes on articles subject to specific tax except gasoline, under the provisions of
the National Internal Revenue Code." For purposes of this particular limitation, a municipal ordinance which
prescribes a set ratio between the amount of the tax and the volume of sale of the taxpayer imposes a sales
tax and is null and void for being outside the power of the municipality to enact. 20 But, the imposition of "a tax
of one centavo (P0.01) on each gallon (128 fluid ounces, U.S.) of volume capacity" on all soft drinks produced
or manufactured under Ordinance No. 27 does not partake of the nature of a percentage tax on sales, or other
taxes in any form based thereon. The tax is levied on the produce (whether sold or not) and not on the sales.
The volume capacity of the taxpayer's production of soft drinks is considered solely for purposes of determining
the tax rate on the products, but there is not set ratio between the volume of sales and the amount of the tax. 21

Nor can the tax levied be treated as a specific tax. Specific taxes are those imposed on specified articles, such
as distilled spirits, wines, fermented liquors, products of tobacco other than cigars and cigarettes, matches
firecrackers, manufactured oils and other fuels, coal, bunker fuel oil, diesel fuel oil, cinematographic films,
playing cards, saccharine, opium and other habit-forming drugs. 22 Soft drink is not one of those specified.

3. The tax of one (P0.01) on each gallon (128 fluid ounces, U.S.) of volume capacity on all softdrinks, produced
or manufactured, or an equivalent of 1- centavos per case, 23 cannot be considered unjust and unfair. 24 an
increase in the tax alone would not support the claim that the tax is oppressive, unjust and confiscatory.
Municipal corporations are allowed much discretion in determining the reates of imposable taxes. 25 This is in
line with the constutional policy of according the widest possible autonomy to local governments in matters of
local taxation, an aspect that is given expression in the Local Tax Code (PD No. 231, July 1, 1973). 26 Unless
the amount is so excessive as to be prohibitive, courts will go slow in writing off an ordinance as unreasonable.
G. R. No. 119775 October 24, 2003
JOHN HAY PEOPLES ALTERNATIVE COALITION, MATEO CARIO FOUNDATION INC., CENTER FOR
ALTERNATIVE SYSTEMS FOUNDATION INC., REGINA VICTORIA A. BENAFIN REPRESENTED AND
JOINED BY HER MOTHER MRS. ELISA BENAFIN, IZABEL M. LUYK REPRESENTED AND JOINED BY
HER MOTHER MRS. REBECCA MOLINA LUYK, KATHERINE PE REPRESENTED AND JOINED BY HER
MOTHER ROSEMARIE G. PE, SOLEDAD S. CAMILO, ALICIA C. PACALSO ALIAS "KEVAB," BETTY I.
STRASSER, RUBY C. GIRON, URSULA C. PEREZ ALIAS "BA-YAY," EDILBERTO T. CLARAVALL,
CARMEN CAROMINA, LILIA G. YARANON, DIANE MONDOC, Petitioners,
vs.
VICTOR LIM, PRESIDENT, BASES CONVERSION DEVELOPMENT AUTHORITY; JOHN HAY PORO
POINT DEVELOPMENT CORPORATION, CITY OF BAGUIO, TUNTEX (B.V.I.) CO. LTD., ASIAWORLD
INTERNATIONALE GROUP, INC., DEPARTMENT OF ENVIRONMENT AND NATURAL
RESOURCES,Respondents.
DECISION
CARPIO MORALES, J.:
By the present petition for prohibition, mandamus and declaratory relief with prayer for a temporary restraining
order (TRO) and/or writ of preliminary injunction, petitioners assail, in the main, the constitutionality of
Presidential Proclamation No. 420, Series of 1994, "CREATING AND DESIGNATING a portion of the area
covered by the former Camp John [Hay] as THE JOHN HAY Special Economic Zone pursuant to R.A. No.
7227."
R.A. No. 7227, AN ACT ACCELERATING THE CONVERSION OF MILITARY RESERVATIONS INTO OTHER
PRODUCTIVE USES, CREATING THE BASES CONVERSION AND DEVELOPMENT AUTHORITY FOR
THIS PURPOSE, PROVIDING FUNDS THEREFOR AND FOR OTHER PURPOSES, otherwise known as the
"Bases Conversion and Development Act of 1992," which was enacted on March 13, 1992, set out the policy of
the government to accelerate the sound and balanced conversion into alternative productive uses of the former
military bases under the 1947 Philippines-United States of America Military Bases Agreement, namely, the
Clark and Subic military reservations as well as their extensions including the John Hay Station (Camp John
Hay or the camp) in the City of Baguio.1
As noted in its title, R.A. No. 7227 created public respondent Bases Conversion and Development
Authority2 (BCDA), vesting it with powers pertaining to the multifarious aspects of carrying out the ultimate
objective of utilizing the base areas in accordance with the declared government policy.
R.A. No. 7227 likewise created the Subic Special Economic [and Free Port] Zone (Subic SEZ) the metes and
bounds of which were to be delineated in a proclamation to be issued by the President of the Philippines.3
R.A. No. 7227 granted the Subic SEZ incentives ranging from tax and duty-free importations, exemption of
businesses therein from local and national taxes, to other hallmarks of a liberalized financial and business
climate.4
And R.A. No. 7227 expressly gave authority to the President to create through executive proclamation, subject
to the concurrence of the local government units directly affected, other Special Economic Zones (SEZ) in the
areas covered respectively by the Clark military reservation, the Wallace Air Station in San Fernando, La
Union, and Camp John Hay.5
On August 16, 1993, BCDA entered into a Memorandum of Agreement and Escrow Agreement with private
respondents Tuntex (B.V.I.) Co., Ltd (TUNTEX) and Asiaworld Internationale Group, Inc. (ASIAWORLD),
private corporations registered under the laws of the British Virgin Islands, preparatory to the formation of a
joint venture for the development of Poro Point in La Union and Camp John Hay as premier tourist destinations
and recreation centers. Four months later or on December 16, 1993, BCDA, TUNTEX and ASIAWORD
executed a Joint Venture Agreement6 whereby they bound themselves to put up a joint venture company
known as the Baguio International Development and Management Corporation which would lease areas within
Camp John Hay and Poro Point for the purpose of turning such places into principal tourist and recreation
spots, as originally envisioned by the parties under their Memorandum of Agreement.
The Baguio City government meanwhile passed a number of resolutions in response to the actions taken by
BCDA as owner and administrator of Camp John Hay.
By Resolution7 of September 29, 1993, the Sangguniang Panlungsod of Baguio City (the sanggunian) officially
asked BCDA to exclude all the barangays partly or totally located within Camp John Hay from the reach or
coverage of any plan or program for its development.
By a subsequent Resolution8 dated January 19, 1994, the sanggunian sought from BCDA an abdication,
waiver or quitclaim of its ownership over the home lots being occupied by residents of nine (9) barangays
surrounding the military reservation.
Still by another resolution passed on February 21, 1994, the sanggunian adopted and submitted to BCDA a 15-
point concept for the development of Camp John Hay.9 The sanggunian's vision expressed, among other
things, a kind of development that affords protection to the environment, the making of a family-oriented type of
tourist destination, priority in employment opportunities for Baguio residents and free access to the base area,
guaranteed participation of the city government in the management and operation of the camp, exclusion of the
previously named nine barangays from the area for development, and liability for local taxes of businesses to
be established within the camp.10
BCDA, Tuntex and AsiaWorld agreed to some, but rejected or modified the other proposals of
thesanggunian.11 They stressed the need to declare Camp John Hay a SEZ as a condition precedent to its full
development in accordance with the mandate of R.A. No. 7227.12
On May 11, 1994, the sanggunian passed a resolution requesting the Mayor to order the determination of realty
taxes which may otherwise be collected from real properties of Camp John Hay.13 The resolution was intended
to intelligently guide the sanggunian in determining its position on whether Camp John Hay be declared a SEZ,
it (the sanggunian) being of the view that such declaration would exempt the camp's property and the economic
activity therein from local or national taxation.
More than a month later, however, the sanggunian passed Resolution No. 255, (Series of 1994),14 seeking and
supporting, subject to its concurrence, the issuance by then President Ramos of a presidential proclamation
declaring an area of 288.1 hectares of the camp as a SEZ in accordance with the provisions of R.A. No. 7227.
Together with this resolution was submitted a draft of the proposed proclamation for consideration by the
President.15
On July 5, 1994 then President Ramos issued Proclamation No. 420,16 the title of which was earlier indicated,
which established a SEZ on a portion of Camp John Hay and which reads as follows:
xxx
Pursuant to the powers vested in me by the law and the resolution of concurrence by the City Council of
Baguio, I, FIDEL V. RAMOS, President of the Philippines, do hereby create and designate a portion of the area
covered by the former John Hay reservation as embraced, covered, and defined by the 1947 Military Bases
Agreement between the Philippines and the United States of America, as amended, as the John Hay Special
Economic Zone, and accordingly order:
SECTION 1. Coverage of John Hay Special Economic Zone. - The John Hay Special Economic Zone shall
cover the area consisting of Two Hundred Eighty Eight and one/tenth (288.1) hectares, more or less, of the
total of Six Hundred Seventy-Seven (677) hectares of the John Hay Reservation, more or less, which have
been surveyed and verified by the Department of Environment and Natural Resources (DENR) as defined by
the following technical description:
A parcel of land, situated in the City of Baguio, Province of Benguet, Island of Luzon, and particularly described
in survey plans Psd-131102-002639 and Ccs-131102-000030 as approved on 16 August 1993 and 26 August
1993, respectively, by the Department of Environment and Natural Resources, in detail containing:
Lot 1, Lot 2, Lot 3, Lot 4, Lot 5, Lot 6, Lot 7, Lot 13, Lot 14, Lot 15, and Lot 20 of Ccs-131102-000030
-and-
Lot 3, Lot 4, Lot 5, Lot 6, Lot 7, Lot 8, Lot 9, Lot 10, Lot 11, Lot 14, Lot 15, Lot 16, Lot 17, and Lot 18 of Psd-
131102-002639 being portions of TCT No. T-3812, LRC Rec. No. 87.
With a combined area of TWO HUNDRED EIGHTY EIGHT AND ONE/TENTH HECTARES (288.1 hectares);
Provided that the area consisting of approximately Six and two/tenth (6.2) hectares, more or less, presently
occupied by the VOA and the residence of the Ambassador of the United States, shall be considered as part of
the SEZ only upon turnover of the properties to the government of the Republic of the Philippines.
Sec. 2. Governing Body of the John Hay Special Economic Zone. - Pursuant to Section 15 of R.A. No. 7227,
the Bases Conversion and Development Authority is hereby established as the governing body of the John Hay
Special Economic Zone and, as such, authorized to determine the utilization and disposition of the lands
comprising it, subject to private rights, if any, and in consultation and coordination with the City Government of
Baguio after consultation with its inhabitants, and to promulgate the necessary policies, rules, and regulations
to govern and regulate the zone thru the John Hay Poro Point Development Corporation, which is its
implementing arm for its economic development and optimum utilization.
Sec. 3. Investment Climate in John Hay Special Economic Zone. - Pursuant to Section 5(m) and Section 15 of
R.A. No. 7227, the John Hay Poro Point Development Corporation shall implement all necessary policies,
rules, and regulations governing the zone, including investment incentives, in consultation with pertinent
government departments. Among others, the zone shall have all the applicable incentives of the Special
Economic Zone under Section 12 of R.A. No. 7227 and those applicable incentives granted in the Export
Processing Zones, the Omnibus Investment Code of 1987, the Foreign Investment Act of 1991, and new
investment laws that may hereinafter be enacted.
Sec. 4. Role of Departments, Bureaus, Offices, Agencies and Instrumentalities. - All Heads of departments,
bureaus, offices, agencies, and instrumentalities of the government are hereby directed to give full support to
Bases Conversion and Development Authority and/or its implementing subsidiary or joint venture to facilitate
the necessary approvals to expedite the implementation of various projects of the conversion program.
Sec. 5. Local Authority. - Except as herein provided, the affected local government units shall retain their basic
autonomy and identity.
Sec. 6. Repealing Clause. - All orders, rules, and regulations, or parts thereof, which are inconsistent with the
provisions of this Proclamation, are hereby repealed, amended, or modified accordingly.
Sec. 7. Effectivity. This proclamation shall take effect immediately.
Done in the City of Manila, this 5th day of July, in the year of Our Lord, nineteen hundred and ninety-four.
The issuance of Proclamation No. 420 spawned the present petition17 for prohibition, mandamus and
declaratory relief which was filed on April 25, 1995 challenging, in the main, its constitutionality or validity as
well as the legality of the Memorandum of Agreement and Joint Venture Agreement between public respondent
BCDA and private respondents Tuntex and AsiaWorld.
Petitioners allege as grounds for the allowance of the petition the following:
I. PRESIDENTIAL PROCLAMATION NO. 420, SERIES OF 1990 (sic) IN SO FAR AS IT GRANTS TAX
EXEMPTIONS IS INVALID AND ILLEGAL AS IT IS AN UNCONSTITUTIONAL EXERCISE BY THE
PRESIDENT OF A POWER GRANTED ONLY TO THE LEGISLATURE.
II .PRESIDENTIAL PROCLAMATION NO. 420, IN SO FAR AS IT LIMITS THE POWERS AND INTERFERES
WITH THE AUTONOMY OF THE CITY OF BAGUIO IS INVALID, ILLEGAL AND UNCONSTITUTIONAL.
III. PRESIDENTIAL PROCLAMATION NO. 420, SERIES OF 1994 IS UNCONSTITUTIONAL IN THAT IT
VIOLATES THE RULE THAT ALL TAXES SHOULD BE UNIFORM AND EQUITABLE.
IV. THE MEMORANDUM OF AGREEMENT ENTERED INTO BY AND BETWEEN PRIVATE AND PUBLIC
RESPONDENTS BASES CONVERSION DEVELOPMENT AUTHORITY HAVING BEEN ENTERED INTO
ONLY BY DIRECT NEGOTIATION IS ILLEGAL.
V. THE TERMS AND CONDITIONS OF THE MEMORANDUM OF AGREEMENT ENTERED INTO BY AND
BETWEEN PRIVATE AND PUBLIC RESPONDENT BASES CONVERSION DEVELOPMENT AUTHORITY IS
(sic) ILLEGAL.
VI. THE CONCEPTUAL DEVELOPMENT PLAN OF RESPONDENTS NOT HAVING UNDERGONE
ENVIRONMENTAL IMPACT ASSESSMENT IS BEING ILLEGALLY CONSIDERED WITHOUT A VALID
ENVIRONMENTAL IMPACT ASSESSMENT.
A temporary restraining order and/or writ of preliminary injunction was prayed for to enjoin BCDA, John Hay
Poro Point Development Corporation and the city government from implementing Proclamation No. 420, and
Tuntex and AsiaWorld from proceeding with their plan respecting Camp John Hay's development pursuant to
their Joint Venture Agreement with BCDA.18
Public respondents, by their separate Comments, allege as moot and academic the issues raised by the
petition, the questioned Memorandum of Agreement and Joint Venture Agreement having already been
deemed abandoned by the inaction of the parties thereto prior to the filing of the petition as in fact, by letter of
November 21, 1995, BCDA formally notified Tuntex and AsiaWorld of the revocation of their said agreements.19
In maintaining the validity of Proclamation No. 420, respondents contend that by extending to the John Hay
SEZ economic incentives similar to those enjoyed by the Subic SEZ which was established under R.A. No.
7227, the proclamation is merely implementing the legislative intent of said law to turn the US military bases
into hubs of business activity or investment. They underscore the point that the government's policy of bases
conversion can not be achieved without extending the same tax exemptions granted by R.A. No. 7227 to Subic
SEZ to other SEZs.
Denying that Proclamation No. 420 is in derogation of the local autonomy of Baguio City or that it is violative of
the constitutional guarantee of equal protection, respondents assail petitioners' lack of standing to bring the
present suit even as taxpayers and in the absence of any actual case or controversy to warrant this Court's
exercise of its power of judicial review over the proclamation.
Finally, respondents seek the outright dismissal of the petition for having been filed in disregard of the hierarchy
of courts and of the doctrine of exhaustion of administrative remedies.
Replying,20 petitioners aver that the doctrine of exhaustion of administrative remedies finds no application
herein since they are invoking the exclusive authority of this Court under Section 21 of R.A. No. 7227 to enjoin
or restrain implementation of projects for conversion of the base areas; that the established exceptions to the
aforesaid doctrine obtain in the present petition; and that they possess the standing to bring the petition which
is a taxpayer's suit.
Public respondents have filed their Rejoinder21 and the parties have filed their respective memoranda.
Before dwelling on the core issues, this Court shall first address the preliminary procedural questions
confronting the petition.
The judicial policy is and has always been that this Court will not entertain direct resort to it except when the
redress sought cannot be obtained in the proper courts, or when exceptional and compelling circumstances
warrant availment of a remedy within and calling for the exercise of this Court's primary jurisdiction.22 Neither
will it entertain an action for declaratory relief, which is partly the nature of this petition, over which it has no
original jurisdiction.
Nonetheless, as it is only this Court which has the power under Section 2123 of R.A. No. 7227 to enjoin
implementation of projects for the development of the former US military reservations, the issuance of which
injunction petitioners pray for, petitioners' direct filing of the present petition with it is allowed. Over and above
this procedural objection to the present suit, this Court retains full discretionary power to take cognizance of a
petition filed directly to it if compelling reasons, or the nature and importance of the issues raised,
warrant.24 Besides, remanding the case to the lower courts now would just unduly prolong adjudication of the
issues.
The transformation of a portion of the area covered by Camp John Hay into a SEZ is not simply a re-
classification of an area, a mere ascription of a status to a place. It involves turning the former US military
reservation into a focal point for investments by both local and foreign entities. It is to be made a site of
vigorous business activity, ultimately serving as a spur to the country's long awaited economic growth. For, as
R.A. No. 7227 unequivocally declares, it is the government's policy to enhance the benefits to be derived from
the base areas in order to promote the economic and social development of Central Luzon in particular and the
country in general.25 Like the Subic SEZ, the John Hay SEZ should also be turned into a "self-sustaining,
industrial, commercial, financial and investment center."26
More than the economic interests at stake, the development of Camp John Hay as well as of the other base
areas unquestionably has critical links to a host of environmental and social concerns. Whatever use to which
these lands will be devoted will set a chain of events that can affect one way or another the social and
economic way of life of the communities where the bases are located, and ultimately the nation in general.
Underscoring the fragility of Baguio City's ecology with its problem on the scarcity of its water supply,
petitioners point out that the local and national government are faced with the challenge of how to provide for
an ecologically sustainable, environmentally sound, equitable transition for the city in the wake of Camp John
Hay's reversion to the mass of government property.27 But that is why R.A. No. 7227 emphasizes the "sound
and balanced conversion of the Clark and Subic military reservations and their extensions consistent with
ecological and environmental standards."28 It cannot thus be gainsaid that the matter of conversion of the US
bases into SEZs, in this case Camp John Hay, assumes importance of a national magnitude.
Convinced then that the present petition embodies crucial issues, this Court assumes jurisdiction over the
petition.
As far as the questioned agreements between BCDA and Tuntex and AsiaWorld are concerned, the legal
questions being raised thereon by petitioners have indeed been rendered moot and academic by the
revocation of such agreements. There are, however, other issues posed by the petition, those which center on
(1) Whether the present petition complies with the requirements for this Court's exercise of jurisdiction over
constitutional issues;
(2) Whether Proclamation No. 420 is constitutional by providing for national and local tax exemption within
and granting other economic incentives to the John Hay Special Economic Zone; and
(3) Whether Proclamation No. 420 is constitutional for limiting or interfering with the local autonomy of
Baguio City;
the constitutionality of Proclamation No. 420, which have not been mooted by the said supervening event upon
application of the rules for the judicial scrutiny of constitutional cases. The issues boil down to:
It is settled that when questions of constitutional significance are raised, the court can exercise its power of
judicial review only if the following requisites are present: (1) the existence of an actual and appropriate case;
(2) a personal and substantial interest of the party raising the constitutional question; (3) the exercise of judicial
review is pleaded at the earliest opportunity; and (4) the constitutional question is the lis mota of the case.29
An actual case or controversy refers to an existing case or controversy that is appropriate or ripe for
determination, not conjectural or anticipatory.30 The controversy needs to be definite and concrete, bearing
upon the legal relations of parties who are pitted against each other due to their adverse legal
interests.31 There is in the present case a real clash of interests and rights between petitioners and
respondents arising from the issuance of a presidential proclamation that converts a portion of the area
covered by Camp John Hay into a SEZ, the former insisting that such proclamation contains unconstitutional
provisions, the latter claiming otherwise.
R.A. No. 7227 expressly requires the concurrence of the affected local government units to the creation of
SEZs out of all the base areas in the country.32 The grant by the law on local government units of the right of
concurrence on the bases' conversion is equivalent to vesting a legal standing on them, for it is in effect a
recognition of the real interests that communities nearby or surrounding a particular base area have in its
utilization. Thus, the interest of petitioners, being inhabitants of Baguio, in assailing the legality of Proclamation
No. 420, is personal and substantial such that they have sustained or will sustain direct injury as a result of the
government act being challenged.33 Theirs is a material interest, an interest in issue affected by the
proclamation and not merely an interest in the question involved or an incidental interest,34 for what is at stake
in the enforcement of Proclamation No. 420 is the very economic and social existence of the people of Baguio
City.
Petitioners' locus standi parallels that of the petitioner and other residents of Bataan, specially of the town of
Limay, in Garcia v. Board of Investments35 where this Court characterized their interest in the establishment of
a petrochemical plant in their place as actual, real, vital and legal, for it would affect not only their economic life
but even the air they breathe.
Moreover, petitioners Edilberto T. Claravall and Lilia G. Yaranon were duly elected councilors of Baguio at the
time, engaged in the local governance of Baguio City and whose duties included deciding for and on behalf of
their constituents the question of whether to concur with the declaration of a portion of the area covered by
Camp John Hay as a SEZ. Certainly then, petitioners Claravall and Yaranon, as city officials who voted
against36 the sanggunian Resolution No. 255 (Series of 1994) supporting the issuance of the now challenged
Proclamation No. 420, have legal standing to bring the present petition.
That there is herein a dispute on legal rights and interests is thus beyond doubt. The mootness of the issues
concerning the questioned agreements between public and private respondents is of no moment.
"By the mere enactment of the questioned law or the approval of the challenged act, the dispute is deemed to
have ripened into a judicial controversy even without any other overt act. Indeed, even a singular violation of
the Constitution and/or the law is enough to awaken judicial duty."37
As to the third and fourth requisites of a judicial inquiry, there is likewise no question that they have been
complied with in the case at bar. This is an action filed purposely to bring forth constitutional issues, ruling on
which this Court must take up. Besides, respondents never raised issues with respect to these requisites,
hence, they are deemed waived.
Having cleared the way for judicial review, the constitutionality of Proclamation No. 420, as framed in the
second and third issues above, must now be addressed squarely.
The second issue refers to petitioners' objection against the creation by Proclamation No. 420 of a regime of
tax exemption within the John Hay SEZ. Petitioners argue that nowhere in R. A. No. 7227 is there a grant of tax
exemption to SEZs yet to be established in base areas, unlike the grant under Section 12 thereof of tax
exemption and investment incentives to the therein established Subic SEZ. The grant of tax exemption to the
John Hay SEZ, petitioners conclude, thus contravenes Article VI, Section 28 (4) of the Constitution which
provides that "No law granting any tax exemption shall be passed without the concurrence of a majority of all
the members of Congress."
Section 3 of Proclamation No. 420, the challenged provision, reads:
Sec. 3. Investment Climate in John Hay Special Economic Zone. - Pursuant to Section 5(m) and Section 15 of
R.A. No. 7227, the John Hay Poro Point Development Corporation shall implement all necessary policies,
rules, and regulations governing the zone, including investment incentives, in consultation with pertinent
government departments. Among others, the zone shall have all the applicable incentives of the Special
Economic Zone under Section 12 of R.A. No. 7227 and those applicable incentives granted in the
Export Processing Zones, the Omnibus Investment Code of 1987, the Foreign Investment Act of 1991,
and new investment laws that may hereinafter be enacted. (Emphasis and underscoring supplied)
Upon the other hand, Section 12 of R.A. No. 7227 provides:
xxx
(a) Within the framework and subject to the mandate and limitations of the Constitution and the pertinent
provisions of the Local Government Code, the Subic Special Economic Zone shall be developed into a self-
sustaining, industrial, commercial, financial and investment center to generate employment opportunities in and
around the zone and to attract and promote productive foreign investments;
b) The Subic Special Economic Zone shall be operated and managed as a separate customs territory
ensuring free flow or movement of goods and capital within, into and exported out of the Subic Special
Economic Zone, as well as provide incentives such as tax and duty free importations of raw materials, capital
and equipment. However, exportation or removal of goods from the territory of the Subic Special Economic
Zone to the other parts of the Philippine territory shall be subject to customs duties and taxes under the
Customs and Tariff Code and other relevant tax laws of the Philippines;
(c) The provisions of existing laws, rules and regulations to the contrary notwithstanding, no taxes, local and
national, shall be imposed within the Subic Special Economic Zone. In lieu of paying taxes, three percent
(3%) of the gross income earned by all businesses and enterprises within the Subic Special Economic Zone
shall be remitted to the National Government, one percent (1%) each to the local government units affected by
the declaration of the zone in proportion to their population area, and other factors. In addition, there is hereby
established a development fund of one percent (1%) of the gross income earned by all businesses and
enterprises within the Subic Special Economic Zone to be utilized for the Municipality of Subic, and other
municipalities contiguous to be base areas. In case of conflict between national and local laws with respect to
tax exemption privileges in the Subic Special Economic Zone, the same shall be resolved in favor of the latter;
(d) No exchange control policy shall be applied and free markets for foreign exchange, gold, securities and
futures shall be allowed and maintained in the Subic Special Economic Zone;
(e) The Central Bank, through the Monetary Board, shall supervise and regulate the operations of banks and
other financial institutions within the Subic Special Economic Zone;
(f) Banking and Finance shall be liberalized with the establishment of foreign currency depository units of local
commercial banks and offshore banking units of foreign banks with minimum Central Bank regulation;
(g) Any investor within the Subic Special Economic Zone whose continuing investment shall not be less than
Two Hundred fifty thousand dollars ($250,000), his/her spouse and dependent children under twenty-one (21)
years of age, shall be granted permanent resident status within the Subic Special Economic Zone. They shall
have freedom of ingress and egress to and from the Subic Special Economic Zone without any need of special
authorization from the Bureau of Immigration and Deportation. The Subic Bay Metropolitan Authority referred to
in Section 13 of this Act may also issue working visas renewable every two (2) years to foreign executives and
other aliens possessing highly-technical skills which no Filipino within the Subic Special Economic Zone
possesses, as certified by the Department of Labor and Employment. The names of aliens granted permanent
residence status and working visas by the Subic Bay Metropolitan Authority shall be reported to the Bureau of
Immigration and Deportation within thirty (30) days after issuance thereof;
x x x (Emphasis supplied)
It is clear that under Section 12 of R.A. No. 7227 it is only the Subic SEZ which was granted by Congress with
tax exemption, investment incentives and the like. There is no express extension of the aforesaid benefits to
other SEZs still to be created at the time via presidential proclamation.
The deliberations of the Senate confirm the exclusivity to Subic SEZ of the tax and investment privileges
accorded it under the law, as the following exchanges between our lawmakers show during the second reading
of the precursor bill of R.A. No. 7227 with respect to the investment policies that would govern Subic SEZ
which are now embodied in the aforesaid Section 12 thereof:
xxx
Senator Maceda: This is what I was talking about. We get into problems here because all of these following
policies are centered around the concept of free port. And in the main paragraph above, we have declared both
Clark and Subic as special economic zones, subject to these policies which are, in effect, a free-port
arrangement.
Senator Angara: The Gentleman is absolutely correct, Mr. President. So we must confine these policies only
to Subic.
May I withdraw then my amendment, and instead provide that "THE SPECIAL ECONOMIC ZONE OF SUBIC
SHALL BE ESTABLISHED IN ACCORDANCE WITH THE FOLLOWING POLICIES." Subject to style, Mr.
President.
Thus, it is very clear that these principles and policies are applicable only to Subic as a free port.
Senator Paterno: Mr. President.
The President: Senator Paterno is recognized.
Senator Paterno: I take it that the amendment suggested by Senator Angara would then prevent the
establishment of other special economic zones observing these policies.
Senator Angara: No, Mr. President, because during our short caucus, Senator Laurel raised the point that if
we give this delegation to the President to establish other economic zones, that may be an unwarranted
delegation.
So we agreed that we will simply limit the definition of powers and description of the zone to Subic, but that
does not exclude the possibility of creating other economic zones within the baselands.
Senator Paterno: But if that amendment is followed, no other special economic zone may be created under
authority of this particular bill. Is that correct, Mr. President?
Senator Angara: Under this specific provision, yes, Mr. President. This provision now will be confined only to
Subic.38
x x x (Underscoring supplied).
As gathered from the earlier-quoted Section 12 of R.A. No. 7227, the privileges given to Subic SEZ consist
principally of exemption from tariff or customs duties, national and local taxes of business entities therein
(paragraphs (b) and (c)), free market and trade of specified goods or properties (paragraph d), liberalized
banking and finance (paragraph f), and relaxed immigration rules for foreign investors (paragraph g). Yet, apart
from these, Proclamation No. 420 also makes available to the John Hay SEZ benefits existing in other laws
such as the privilege of export processing zone-based businesses of importing capital equipment and raw
materials free from taxes, duties and other restrictions;39 tax and duty exemptions, tax holiday, tax credit, and
other incentives under the Omnibus Investments Code of 1987;40 and the applicability to the subject zone of
rules governing foreign investments in the Philippines.41
While the grant of economic incentives may be essential to the creation and success of SEZs, free trade zones
and the like, the grant thereof to the John Hay SEZ cannot be sustained. The incentives under R.A. No. 7227
are exclusive only to the Subic SEZ, hence, the extension of the same to the John Hay SEZ finds no support
therein. Neither does the same grant of privileges to the John Hay SEZ find support in the other laws specified
under Section 3 of Proclamation No. 420, which laws were already extant before the issuance of the
proclamation or the enactment of R.A. No. 7227.
More importantly, the nature of most of the assailed privileges is one of tax exemption. It is the legislature,
unless limited by a provision of the state constitution, that has full power to exempt any person or corporation or
class of property from taxation, its power to exempt being as broad as its power to tax.42Other than Congress,
the Constitution may itself provide for specific tax exemptions,43 or local governments may pass ordinances on
exemption only from local taxes.44
The challenged grant of tax exemption would circumvent the Constitution's imposition that a law granting any
tax exemption must have the concurrence of a majority of all the members of Congress.45 In the same vein, the
other kinds of privileges extended to the John Hay SEZ are by tradition and usage for Congress to legislate
upon.
Contrary to public respondents' suggestions, the claimed statutory exemption of the John Hay SEZ from
taxation should be manifest and unmistakable from the language of the law on which it is based; it must be
expressly granted in a statute stated in a language too clear to be mistaken.46 Tax exemption cannot be implied
as it must be categorically and unmistakably expressed.47
If it were the intent of the legislature to grant to the John Hay SEZ the same tax exemption and incentives given
to the Subic SEZ, it would have so expressly provided in the R.A. No. 7227.
This Court no doubt can void an act or policy of the political departments of the government on either of two
grounds-infringement of the Constitution or grave abuse of discretion.48
This Court then declares that the grant by Proclamation No. 420 of tax exemption and other privileges to the
John Hay SEZ is void for being violative of the Constitution. This renders it unnecessary to still dwell on
petitioners' claim that the same grant violates the equal protection guarantee.
With respect to the final issue raised by petitioners -- that Proclamation No. 420 is unconstitutional for being in
derogation of Baguio City's local autonomy, objection is specifically mounted against Section 2 thereof in which
BCDA is set up as the governing body of the John Hay SEZ.49
Petitioners argue that there is no authority of the President to subject the John Hay SEZ to the governance of
BCDA which has just oversight functions over SEZ; and that to do so is to diminish the city government's power
over an area within its jurisdiction, hence, Proclamation No. 420 unlawfully gives the President power of control
over the local government instead of just mere supervision.
Petitioners' arguments are bereft of merit. Under R.A. No. 7227, the BCDA is entrusted with, among other
things, the following purpose:50
xxx
(a) To own, hold and/or administer the military reservations of John Hay Air Station, Wallace Air Station,
O'Donnell Transmitter Station, San Miguel Naval Communications Station, Mt. Sta. Rita Station (Hermosa,
Bataan) and those portions of Metro Manila Camps which may be transferred to it by the President;
x x x (Underscoring supplied)
With such broad rights of ownership and administration vested in BCDA over Camp John Hay, BCDA virtually
has control over it, subject to certain limitations provided for by law. By designating BCDA as the governing
agency of the John Hay SEZ, the law merely emphasizes or reiterates the statutory role or functions it has
been granted.
The unconstitutionality of the grant of tax immunity and financial incentives as contained in the second
sentence of Section 3 of Proclamation No. 420 notwithstanding, the entire assailed proclamation cannot be
declared unconstitutional, the other parts thereof not being repugnant to law or the Constitution. The
delineation and declaration of a portion of the area covered by Camp John Hay as a SEZ was well within the
powers of the President to do so by means of a proclamation.51 The requisite prior concurrence by the Baguio
City government to such proclamation appears to have been given in the form of a duly enacted resolution by
the sanggunian. The other provisions of the proclamation had been proven to be consistent with R.A. No. 7227.
Where part of a statute is void as contrary to the Constitution, while another part is valid, the valid portion, if
separable from the invalid, may stand and be enforced.52 This Court finds that the other provisions in
Proclamation No. 420 converting a delineated portion of Camp John Hay into the John Hay SEZ are separable
from the invalid second sentence of Section 3 thereof, hence they stand.
WHEREFORE, the second sentence of Section 3 of Proclamation No. 420 is hereby declared NULL AND VOID
and is accordingly declared of no legal force and effect. Public respondents are hereby enjoined from
implementing the aforesaid void provision.
Proclamation No. 420, without the invalidated portion, remains valid and effective.
SO ORDERED.
G.R. No. 163583 August 20, 2008
BRITISH AMERICAN TOBACCO, petitioner,
vs.
JOSE ISIDRO N. CAMACHO, in his capacity as Secretary of the Department of Finance and
GUILLERMO L. PARAYNO, JR., in his capacity as Commissioner of the Bureau of Internal
Revenue, respondents.
Philip Morris Philippines Manufacturing, Inc., fortune tobacco, corp., MIGHTY CORPORATION, and JT
InTERNATIONAL, S.A., respondents-in-intervention.
DECISION
YNARES-SANTIAGO, J.:
This petition for review assails the validity of: (1) Section 145 of the National Internal Revenue Code (NIRC), as
recodified by Republic Act (RA) 8424; (2) RA 9334, which further amended Section 145 of the NIRC on
January 1, 2005; (3) Revenue Regulations Nos. 1-97, 9-2003, and 22-2003; and (4) Revenue Memorandum
Order No. 6-2003. Petitioner argues that the said provisions are violative of the equal protection and uniformity
clauses of the Constitution.
RA 8240, entitled "An Act Amending Sections 138, 139, 140, and 142 of the NIRC, as Amended and For Other
Purposes," took effect on January 1, 1997. In the same year, Congress passed RA 8424 or The Tax Reform
Act of 1997, re-codifying the NIRC. Section 142 was renumbered as Section 145 of the NIRC.
Paragraph (c) of Section 145 provides for four tiers of tax rates based on the net retail price per pack of
cigarettes. To determine the applicable tax rates of existing cigarette brands, a survey of the net retail prices
per pack of cigarettes was conducted as of October 1, 1996, the results of which were embodied in Annex
"D" of the NIRC as the duly registered, existing or active brands of cigarettes.
Paragraph (c) of Section 145, 1 states
SEC. 145. Cigars and cigarettes.
xxxx
(c) Cigarettes packed by machine. There shall be levied, assessed and collected on cigarettes
packed by machine a tax at the rates prescribed below:
(1) If the net retail price (excluding the excise tax and the value-added tax) is above Ten
pesos (P10.00) per pack, the tax shall be Thirteen pesos and forty-four centavos
(P13.44) per pack;
(2) If the net retail price (excluding the excise tax and the value-added tax) exceeds Six
pesos and fifty centavos (P6.50) but does not exceed Ten pesos (10.00) per pack, the
tax shall be Eight pesos and ninety-six centavos (P8.96) per pack;
(3) If the net retail price (excluding the excise tax and the value-added tax) is Five pesos
(P5.00) but does not exceed Six pesos and fifty centavos (P6.50) per pack, the tax shall
be Five pesos and sixty centavos (P5.60) per pack;
(4) If the net retail price (excluding the excise tax and the value-added tax) is below Five
pesos (P5.00) per pack, the tax shall be One peso and twelve centavos (P1.12) per
pack.
Variants of existing brands of cigarettes which are introduced in the domestic market after the
effectivity of this Act shall be taxed under the highest classification of any variant of that brand.
xxxx
New brands shall be classified according to their current net retail price.
For the above purpose, net retail price shall mean the price at which the cigarette is sold on retail in
20 major supermarkets in Metro Manila (for brands of cigarettes marketed nationally), excluding the
amount intended to cover the applicable excise tax and the value-added tax. For brands which are
marketed only outside Metro Manila, the net retail price shall mean the price at which the cigarette is
sold in five major supermarkets in the region excluding the amount intended to cover the applicable
excise tax and the value-added tax.
The classification of each brand of cigarettes based on its average net retail price as of
October 1, 1996, as set forth in Annex "D" of this Act, shall remain in force until revised by
Congress. (Emphasis supplied)
As such, new brands of cigarettes shall be taxed according to their current net retail price while existing or
"old" brands shall be taxed based on their net retail price as of October 1, 1996.
To implement RA 8240, the Bureau of Internal Revenue (BIR) issued Revenue Regulations No. 1-97,2which
classified the existing brands of cigarettes as those duly registered or active brands prior to January 1, 1997.
New brands, or those registered after January 1, 1997, shall be initially assessed at their suggested retail price
until such time that the appropriate survey to determine their current net retail price is conducted. Pertinent
portion of the regulations reads
SECTION 2. Definition of Terms.
xxxx
3. Duly registered or existing brand of cigarettes shall include duly registered, existing or active
brands of cigarettes, prior to January 1, 1997.
xxxx
6. New Brands shall mean brands duly registered after January 1, 1997 and shall include duly
registered, inactive brands of cigarette not sold in commercial quantity before January 1, 1997.
Section 4. Classification and Manner of Taxation of Existing Brands, New Brands and Variant of
Existing Brands.
xxxx
B. New Brand
New brands shall be classified according to their current net retail price. In the meantime that the
current net retail price has not yet been established, the suggested net retail price shall be used to
 determine the specific tax classification. Thereafter, a survey shall be conducted in 20 major
supermarkets or retail outlets in Metro Manila (for brands of cigarette marketed nationally) or in five
(5) major supermarkets or retail outlets in the region (for brands which are marketed only outside
Metro Manila) at which the cigarette is sold on retail in reams/cartons, three (3) months after the
initial removal of the new brand to determine the actual net retail price excluding the excise tax and
value added tax which shall then be the basis in determining the specific tax classification. In case
the current net retail price is higher than the suggested net retail price, the former shall prevail. Any
difference in specific tax due shall be assessed and collected inclusive of increments as provided for
by the National Internal Revenue Code, as amended.
In June 2001, petitioner British American Tobacco introduced into the market Lucky Strike Filter, Lucky Strike
Lights and Lucky Strike Menthol Lights cigarettes, with a suggested retail price of P9.90 per pack.3 Pursuant to
Sec. 145 (c) quoted above, the Lucky Strike brands were initially assessed the excise tax at P8.96 per pack.
On February 17, 2003, Revenue Regulations No. 9-2003,4amended Revenue Regulations No. 1-97 by
providing, among others, a periodic review every two years or earlier of the current net retail price of new
brands and variants thereof for the purpose of establishing and updating their tax classification, thus:
For the purpose of establishing or updating the tax classification of new brands and variant(s)
thereof, their current net retail price shall be reviewed periodically through the conduct of survey or
any other appropriate activity, as mentioned above, every two (2) years unless earlier ordered by
the Commissioner. However, notwithstanding any increase in the current net retail price, the tax
classification of such new brands shall remain in force until the same is altered or changed through
the issuance of an appropriate Revenue Regulations.
Pursuant thereto, Revenue Memorandum Order No. 6-20035 was issued on March 11, 2003, prescribing the
guidelines and procedures in establishing current net retail prices of new brands of cigarettes and alcohol
products.
Subsequently, Revenue Regulations No. 22-20036 was issued on August 8, 2003 to implement the revised
tax classification of certain new brands introduced in the market after January 1, 1997, based on the survey of
their current net retail price. The survey revealed that Lucky Strike Filter, Lucky Strike Lights, and Lucky Strike
Menthol Lights, are sold at the current net retail price of P22.54, P22.61 and P21.23, per pack,
respectively.7 Respondent Commissioner of the Bureau of Internal Revenue thus recommended the applicable
tax rate of P13.44 per pack inasmuch as Lucky Strikes average net retail price is above P10.00 per pack.
Thus, on September 1, 2003, petitioner filed before the Regional Trial Court (RTC) of Makati, Branch 61, a
petition for injunction with prayer for the issuance of a temporary restraining order (TRO) and/or writ of
preliminary injunction, docketed as Civil Case No. 03-1032. Said petition sought to enjoin the implementation of
Section 145 of the NIRC, Revenue Regulations Nos. 1-97, 9-2003, 22-2003 and Revenue Memorandum Order
No. 6-2003 on the ground that they discriminate against new brands of cigarettes, in violation of the equal
protection and uniformity provisions of the Constitution.
Respondent Commissioner of Internal Revenue filed an Opposition8 to the application for the issuance of a
TRO. On September 4, 2003, the trial court denied the application for TRO, holding that the courts have no
authority to restrain the collection of taxes.9 Meanwhile, respondent Secretary of Finance filed a Motion to
Dismiss,10 contending that the petition is premature for lack of an actual controversy or urgent necessity to
justify judicial intervention.
In an Order dated March 4, 2004, the trial court denied the motion to dismiss and issued a writ of preliminary
injunction to enjoin the implementation of Revenue Regulations Nos. 1-97, 9-2003, 22-2003 and Revenue
Memorandum Order No. 6-2003.11 Respondents filed a Motion for Reconsideration12 and Supplemental Motion
for Reconsideration.13 At the hearing on the said motions, petitioner and respondent Commissioner of Internal
Revenue stipulated that the only issue in this case is the constitutionality of the assailed law, order, and
regulations.14
On May 12, 2004, the trial court rendered a decision15 upholding the constitutionality of Section 145 of the
NIRC, Revenue Regulations Nos. 1-97, 9-2003, 22-2003 and Revenue Memorandum Order No. 6-2003. The
trial court also lifted the writ of preliminary injunction. The dispositive portion of the decision reads:
WHEREFORE, premises considered, the instant Petition is hereby DISMISSED for lack of merit.
The Writ of Preliminary Injunction previously issued is hereby lifted and dissolved.
SO ORDERED.16
Petitioner brought the instant petition for review directly with this Court on a pure question of law.
While the petition was pending, RA 9334 (An Act Increasing The Excise Tax Rates Imposed on Alcohol And
Tobacco Products, Amending For The Purpose Sections 131, 141, 143, 144, 145 and 288 of the NIRC of 1997,
As Amended), took effect on January 1, 2005. The statute, among others,
(1) increased the excise tax rates provided in paragraph (c) of Section 145;
(2) mandated that new brands of cigarettes shall initially be classified according to their suggested net retail
price, until such time that their correct tax bracket is finally determined under a specified period and, after
which, their classification shall remain in force until revised by Congress;
(3) retained Annex "D" as tax base of those surveyed as of October 1, 1996 including the classification of
brands for the same products which, although not set forth in said Annex "D," were registered on or before
January 1, 1997 and were being commercially produced and marketed on or after October 1, 1996, and which
continue to be commercially produced and marketed after the effectivity of this Act. Said classification shall
remain in force until revised by Congress; and
(4) provided a legislative freeze on brands of cigarettes introduced between the period January 2, 199717 to
December 31, 2003, such that said cigarettes shall remain in the classification under which the BIR has
determined them to belong as of December 31, 2003, until revised by Congress.
Pertinent portions, of RA 9334, provides:
SEC. 145. Cigars and Cigarettes.
xxxx
(C) Cigarettes Packed by Machine. There shall be levied, assessed and collected on cigarettes
packed by machine a tax at the rates prescribed below:
(1) If the net retail price (excluding the excise tax and the value-added tax) is below Five pesos
(P5.00) per pack, the tax shall be:
Effective on January 1, 2005, Two pesos (P2.00) per pack;
Effective on January 1, 2007, Two pesos and twenty-three centavos (P2.23) per pack;
Effective on January 1, 2009, Two pesos and forty-seven centavos (P2.47) per pack; and
Effective on January 1, 2011, Two pesos and seventy-two centavos (P2.72) per pack.
(2) If the net retail price (excluding the excise tax and the value-added tax) is Five pesos (P5.00) but
does not exceed Six pesos and fifty centavos (P6.50) per pack, the tax shall be:
Effective on January 1, 2005, Six pesos and thirty-five centavos (P6.35) per pack;
Effective on January 1, 2007, Six pesos and seventy-four centavos (P6.74) per pack;
Effective on January 1, 2009, Seven pesos and fourteen centavos (P7.14) per pack; and
Effective on January 1, 2011, Seven pesos and fifty-six centavos (P7.56) per pack.
(3) If the net retail price (excluding the excise tax and the value-added tax) exceeds Six pesos and
fifty centavos (P6.50) but does not exceed Ten pesos (P10.00) per pack, the tax shall be:
Effective on January 1, 2005, Ten pesos and thirty-five centavos (10.35) per pack;
Effective on January 1, 2007, Ten pesos and eighty-eight centavos (P10.88) per pack;
Effective on January 1, 2009, Eleven pesos and forty-three centavos (P11.43) per pack; and
Effective on January 1, 2011, Twelve pesos (P12.00) per pack.
(4) If the net retail price (excluding the excise tax and the value-added tax) is above Ten pesos
(P10.00) per pack, the tax shall be:
Effective on January 1, 2005, Twenty-five pesos (P25.00) per pack;
Effective on January 1, 2007, Twenty-six pesos and six centavos (P26.06) per pack;
Effective on January 1, 2009, Twenty-seven pesos and sixteen centavos (P27.16) per pack; and
Effective on January 1, 2011, Twenty-eight pesos and thirty centavos (P28.30) per pack.
xxxx
New brands, as defined in the immediately following paragraph, shall initially be classified
according to their suggested net retail price.
New brands shall mean a brand registered after the date of effectivity of R.A. No. 8240.
Suggested net retail price shall mean the net retail price at which new brands, as defined above,
of locally manufactured or imported cigarettes are intended by the manufacturer or importer to be
sold on retail in major supermarkets or retail outlets in Metro Manila for those marketed nationwide,
and in other regions, for those with regional markets. At the end of three (3) months from the
product launch, the Bureau of Internal Revenue shall validate the suggested net retail price of the
new brand against the net retail price as defined herein and determine the correct tax bracket under
which a particular new brand of cigarette, as defined above, shall be classified. After the end of
eighteen (18) months from such validation, the Bureau of Internal Revenue shall revalidate the
initially validated net retail price against the net retail price as of the time of revalidation in order to
finally determine the correct tax bracket under which a particular new brand of cigarettes shall be
classified; Provided however, That brands of cigarettes introduced in the domestic market
between January 1, 1997 [should be January 2, 1997]and December 31, 2003 shall remain in
the classification under which the Bureau of Internal Revenue has determined them to
belong as of December 31, 2003. Such classification of new brands and brands introduced
between January 1, 1997 and December 31, 2003 shall not be revised except by an act of
Congress.
Net retail price, as determined by the Bureau of Internal Revenue through a price survey to be
conducted by the Bureau of Internal Revenue itself, or the National Statistics Office when deputized
for the purpose by the Bureau of Internal Revenue, shall mean the price at which the cigarette is
sold in retail in at least twenty (20) major supermarkets in Metro Manila (for brands of cigarettes
marketed nationally), excluding the amount intended to cover the applicable excise tax and the
value-added tax. For brands which are marketed only outside Metro Manila, the "net retail price"
shall mean the price at which the cigarette is sold in at least five (5) major supermarkets in the
region excluding the amount intended to cover the applicable excise tax and value-added tax.
The classification of each brand of cigarettes based on its average net retail price as of
October 1, 1996, as set forth in Annex "D", including the classification of brands for the same
products which, although not set forth in said Annex "D", were registered and were being
commercially produced and marketed on or after October 1, 1996, and which continue to be
commercially produced and marketed after the effectivity of this Act, shall remain in force
until revised by Congress. (Emphasis added)
Under RA 9334, the excise tax due on petitioners products was increased to P25.00 per pack. In the
implementation thereof, respondent Commissioner assessed petitioners importation of 911,000 packs of Lucky
Strike cigarettes at the increased tax rate of P25.00 per pack, rendering it liable for taxes in the total sum of
P22,775,000.00.18
Hence, petitioner filed a Motion to Admit Attached Supplement19 and a Supplement20 to the petition for review,
assailing the constitutionality of RA 9334 insofar as it retained Annex "D" and praying for a downward
classification of Lucky Strike products at the bracket taxable at P8.96 per pack. Petitioner contended that the
continued use of Annex "D" as the tax base of existing brands of cigarettes gives undue protection to said
brands which are still taxed based on their price as of October 1996 notwithstanding that they are now sold at
the same or even at a higher price than new brands like Lucky Strike. Thus, old brands of cigarettes such as
Marlboro and Philip Morris which, like Lucky Strike, are sold at or more than P22.00 per pack, are taxed at the
rate of P10.88 per pack, while Lucky Strike products are taxed at P26.06 per pack.
In its Comment to the supplemental petition, respondents, through the Office of the Solicitor General (OSG),
argued that the passage of RA 9334, specifically the provision imposing a legislative freeze on the classification
of cigarettes introduced into the market between January 2, 1997 and December 31, 2003, rendered the instant
petition academic. The OSG claims that the provision in Section 145, as amended by RA 9334, prohibiting the
reclassification of cigarettes introduced during said period, "cured the perceived defect of Section 145
considering that, like the cigarettes under Annex "D," petitioners brands and other brands introduced between
January 2, 1997 and December 31, 2003, shall remain in the classification under which the BIR has placed
them and only Congress has the power to reclassify them.
On March 20, 2006, Philip Morris Philippines Manufacturing Incorporated filed a Motion for Leave to Intervene
with attached Comment-in-Intervention.21 This was followed by the Motions for Leave to Intervene of Fortune
Tobacco Corporation,22 Mighty Corporation, 23 and JT International, S.A., with their respective Comments-in-
Intervention. The Intervenors claim that they are parties-in-interest who stand to be affected by the ruling of the
Court on the constitutionality of Section 145 of the NIRC and its Annex "D" because they are manufacturers of
cigarette brands which are included in the said Annex. Hence, their intervention is proper since the protection
of their interest cannot be addressed in a separate proceeding.
According to the Intervenors, no inequality exists because cigarettes classified by the BIR based on their net
retail price as of December 31, 2003 now enjoy the same status quo provision that prevents the BIR from
reclassifying cigarettes included in Annex "D." It added that the Court has no power to pass upon the wisdom of
the legislature in retaining Annex "D" in RA 9334; and that the nullification of said Annex would bring about
tremendous loss of revenue to the government, chaos in the collection of taxes, illicit trade of cigarettes, and
cause decline in cigarette demand to the detriment of the farmers who depend on the tobacco industry.
Intervenor Fortune Tobacco further contends that petitioner is estopped from questioning the constitutionality of
Section 145 and its implementing rules and regulations because it entered into the cigarette industry fully
aware of the existing tax system and its consequences. Petitioner imported cigarettes into the country knowing
that its suggested retail price, which will be the initial basis of its tax classification, will be confirmed and
validated through a survey by the BIR to determine the correct tax that would be levied on its cigarettes.
Moreover, Fortune Tobacco claims that the challenge to the validity of the BIR issuances should have been
brought by petitioner before the Court of Tax Appeals (CTA) and not the RTC because it is the CTA which has
exclusive appellate jurisdiction over decisions of the BIR in tax disputes.
On August 7, 2006, the OSG manifested that it interposes no objection to the motions for
intervention.24Therefore, considering the substantial interest of the intervenors, and in the higher interest of
justice, the Court admits their intervention.
Before going into the substantive issues of this case, we must first address the matter of jurisdiction, in light of
Fortune Tobaccos contention that petitioner should have brought its petition before the Court of Tax Appeals
rather than the regional trial court.
The jurisdiction of the Court of Tax Appeals is defined in Republic Act No. 1125, as amended by Republic Act
No. 9282. Section 7 thereof states, in pertinent part:
Sec. 7. Jurisdiction. The CTA shall exercise:
a. Exclusive appellate jurisdiction to review by appeal, as herein provided:
1. Decisions of the Commissioner of Internal Revenue in cases involving disputed assessments,
refunds of internal revenue taxes, fees or other charges, penalties in relation thereto, or other
matters arising under the National Internal Revenue or other laws administered by the Bureau of
Internal Revenue;
2. Inaction by the Commissioner of Internal Revenue in cases involving disputed assessments,
refunds of internal revenue taxes, fees or other charges, penalties in relations thereto, or other
matters arising under the National Internal Revenue Code or other laws administered by the Bureau
of Internal Revenue, where the National Internal Revenue Code provides a specific period of action,
in which case the inaction shall be deemed a denial; xxx.25
While the above statute confers on the CTA jurisdiction to resolve tax disputes in general, this does not include
cases where the constitutionality of a law or rule is challenged. Where what is assailed is the validity or
constitutionality of a law, or a rule or regulation issued by the administrative agency in the performance of its
quasi-legislative function, the regular courts have jurisdiction to pass upon the same. The determination of
whether a specific rule or set of rules issued by an administrative agency contravenes the law or the
constitution is within the jurisdiction of the regular courts. Indeed, the Constitution vests the power of judicial
review or the power to declare a law, treaty, international or executive agreement, presidential decree, order,
instruction, ordinance, or regulation in the courts, including the regional trial courts. This is within the scope of
judicial power, which includes the authority of the courts to determine in an appropriate action the validity of the
acts of the political departments. Judicial power includes the duty of the courts of justice to settle actual
controversies involving rights which are legally demandable and enforceable, and to determine whether or not
there has been a grave abuse of discretion amounting to lack or excess of jurisdiction on the part of any branch
or instrumentality of the Government.26
In Drilon v. Lim,27 it was held:
We stress at the outset that the lower court had jurisdiction to consider the constitutionality of
Section 187, this authority being embraced in the general definition of the judicial power to
determine what are the valid and binding laws by the criterion of their conformity to the fundamental
law. Specifically, B.P. 129 vests in the regional trial courts jurisdiction over all civil cases in which
the subject of the litigation is incapable of pecuniary estimation, even as the accused in a criminal
action has the right to question in his defense the constitutionality of a law he is charged with
violating and of the proceedings taken against him, particularly as they contravene the Bill of Rights.
Moreover, Article X, Section 5(2), of the Constitution vests in the Supreme Court appellate
jurisdiction over final judgments and orders of lower courts in all cases in which the constitutionality
or validity of any treaty, international or executive agreement, law, presidential decree, proclamation,
order, instruction, ordinance, or regulation is in question.
The petition for injunction filed by petitioner before the RTC is a direct attack on the constitutionality of Section
145(C) of the NIRC, as amended, and the validity of its implementing rules and regulations. In fact, the RTC
limited the resolution of the subject case to the issue of the constitutionality of the assailed provisions. The
determination of whether the assailed law and its implementing rules and regulations contravene the
Constitution is within the jurisdiction of regular courts. The Constitution vests the power of judicial review or the
power to declare a law, treaty, international or executive agreement, presidential decree, order, instruction,
ordinance, or regulation in the courts, including the regional trial courts.28 Petitioner, therefore, properly filed the
subject case before the RTC.
We come now to the issue of whether petitioner is estopped from assailing the authority of the Commissioner of
Internal Revenue. Fortune Tobacco raises this objection by pointing out that when petitioner requested the
Commissioner for a ruling that its Lucky Strike Soft Pack cigarettes was a "new brand" rather than a variant of
an existing brand, and thus subject to a lower specific tax rate, petitioner executed an undertaking to comply
with the procedures under existing regulations for the assessment of deficiency internal revenue taxes.
Fortune Tobacco argues that petitioner, after invoking the authority of the Commissioner of Internal Revenue,
cannot later on turn around when the ruling is adverse to it.
Estoppel, an equitable principle rooted in natural justice, prevents persons from going back on their own acts
and representations, to the prejudice of others who have relied on them.29 The principle is codified in Article
1431 of the Civil Code, which provides:
Through estoppel, an admission or representation is rendered conclusive upon the person making it and
cannot be denied or disproved as against the person relying thereon.
Estoppel can also be found in Rule 131, Section 2 (a) of the Rules of Court, viz:
Sec. 2. Conclusive presumptions. The following are instances of conclusive presumptions:
(a) Whenever a party has by his own declaration, act or omission, intentionally and deliberately led
another to believe a particular thing true, and to act upon such belief, he cannot, in any litigation
arising out of such declaration, act or omission be permitted to falsify it.
The elements of estoppel are: first, the actor who usually must have knowledge, notice or suspicion of the true
facts, communicates something to another in a misleading way, either by words, conduct or silence; second,
the other in fact relies, and relies reasonably or justifiably, upon that communication;third, the other would be
harmed materially if the actor is later permitted to assert any claim inconsistent with his earlier conduct;
and fourth, the actor knows, expects or foresees that the other would act upon the information given or that a
reasonable person in the actor's position would expect or foresee such action.30
In the early case of Kalalo v. Luz,31 the elements of estoppel, as related to the party to be estopped, are: (1)
conduct amounting to false representation or concealment of material facts; or at least calculated to convey the
impression that the facts are other than, and inconsistent with, those which the party subsequently attempts to
assert; (2) intent, or at least expectation that this conduct shall be acted upon by, or at least influence, the other
party; and (3) knowledge, actual or constructive, of the real facts.
We find that petitioner was not guilty of estoppel. When it made the undertaking to comply with all issuances of
the BIR, which at that time it considered as valid, petitioner did not commit any false misrepresentation or
misleading act. Indeed, petitioner cannot be faulted for initially undertaking to comply with, and subjecting itself
to the operation of Section 145(C), and only later on filing the subject case praying for the declaration of its
unconstitutionality when the circumstances change and the law results in what it perceives to be unlawful
discrimination. The mere fact that a law has been relied upon in the past and all that time has not been
attacked as unconstitutional is not a ground for considering petitioner estopped from assailing its validity. For
courts will pass upon a constitutional question only when presented before it in bona fide cases for
determination, and the fact that the question has not been raised before is not a valid reason for refusing to
allow it to be raised later.32
Now to the substantive issues.
To place this case in its proper context, we deem it necessary to first discuss how the assailed law operates in
order to identify, with precision, the specific provisions which, according to petitioner, have created a grossly
discriminatory classification scheme between old and new brands. The pertinent portions of RA 8240, as
amended by RA 9334, are reproduced below for ready reference:
SEC. 145. Cigars and Cigarettes.
xxxx
(C) Cigarettes Packed by Machine. There shall be levied, assessed and collected on cigarettes
packed by machine a tax at the rates prescribed below:
(1) If the net retail price (excluding the excise tax and the value-added tax) is below Five pesos
(P5.00) per pack, the tax shall be:
Effective on January 1, 2005, Two pesos (P2.00) per pack;
Effective on January 1, 2007, Two pesos and twenty-three centavos (P2.23) per pack;
Effective on January 1, 2009, Two pesos and forty-seven centavos (P2.47) per pack; and
Effective on January 1, 2011, Two pesos and seventy-two centavos (P2.72) per pack.
(2) If the net retail price (excluding the excise tax and the value-added tax) is Five pesos (P5.00) but
does not exceed Six pesos and fifty centavos (P6.50) per pack, the tax shall be:
Effective on January 1, 2005, Six pesos and thirty-five centavos (P6.35) per pack;
Effective on January 1, 2007, Six pesos and seventy-four centavos (P6.74) per pack;
Effective on January 1, 2009, Seven pesos and fourteen centavos (P7.14) per pack; and
Effective on January 1, 2011, Seven pesos and fifty-six centavos (P7.56) per pack.
(3) If the net retail price (excluding the excise tax and the value-added tax) exceeds Six pesos and
fifty centavos (P6.50) but does not exceed Ten pesos (P10.00) per pack, the tax shall be:
Effective on January 1, 2005, Ten pesos and thirty-five centavos (10.35) per pack;
Effective on January 1, 2007, Ten pesos and eighty-eight centavos (P10.88) per pack;
Effective on January 1, 2009, Eleven pesos and forty-three centavos (P11.43) per pack;
and
Effective on January 1, 2011, Twelve pesos (P12.00) per pack.
(4) If the net retail price (excluding the excise tax and the value-added tax) is above Ten pesos
(P10.00) per pack, the tax shall be:
Effective on January 1, 2005, Twenty-five pesos (P25.00) per pack;
Effective on January 1, 2007, Twenty-six pesos and six centavos (P26.06) per pack;
Effective on January 1, 2009, Twenty-seven pesos and sixteen centavos (P27.16) per
pack; and
Effective on January 1, 2011, Twenty-eight pesos and thirty centavos (P28.30) per pack.
xxxx
New brands, as defined in the immediately following paragraph, shall initially be classified according
to their suggested net retail price.
New brands shall mean a brand registered after the date of effectivity of R.A. No. 8240.
Suggested net retail price shall mean the net retail price at which new brands, as defined above, of
locally manufactured or imported cigarettes are intended by the manufacturer or importer to be sold
on retail in major supermarkets or retail outlets in Metro Manila for those marketed nationwide, and
in other regions, for those with regional markets. At the end of three (3) months from the product
launch, the Bureau of Internal Revenue shall validate the suggested net retail price of the new brand
against the net retail price as defined herein and determine the correct tax bracket under which a
particular new brand of cigarette, as defined above, shall be classified. After the end of eighteen
(18) months from such validation, the Bureau of Internal Revenue shall revalidate the initially
validated net retail price against the net retail price as of the time of revalidation in order to finally
determine the correct tax bracket under which a particular new brand of cigarettes shall be
classified; Provided however, That brands of cigarettes introduced in the domestic market between
January 1, 1997 [should be January 2, 1997] and December 31, 2003 shall remain in the
classification under which the Bureau of Internal Revenue has determined them to belong as of
December 31, 2003. Such classification of new brands and brands introduced between January 1,
1997 and December 31, 2003 shall not be revised except by an act of Congress.
 Net retail price, as determined by the Bureau of Internal Revenue through a price survey to be
conducted by the Bureau of Internal Revenue itself, or the National Statistics Office when deputized
for the purpose by the Bureau of Internal Revenue, shall mean the price at which the cigarette is
sold in retail in at least twenty (20) major supermarkets in Metro Manila (for brands of cigarettes
marketed nationally), excluding the amount intended to cover the applicable excise tax and the
value-added tax. For brands which are marketed only outside Metro Manila, the "net retail price"
shall mean the price at which the cigarette is sold in at least five (5) major supermarkets in the
region excluding the amount intended to cover the applicable excise tax and value-added tax.
The classification of each brand of cigarettes based on its average net retail price as of October 1,
1996, as set forth in Annex "D", including the classification of brands for the same products which,
although not set forth in said Annex "D", were registered and were being commercially produced
and marketed on or after October 1, 1996, and which continue to be commercially produced and
marketed after the effectivity of this Act, shall remain in force until revised by Congress.
As can be seen, the law creates a four-tiered system which we may refer to as the low-priced,33medium-
priced,34 high-priced,35 and premium-priced36 tax brackets. When a brand is introduced in the market, the
current net retail price is determined through the aforequoted specified procedure. The current net retail price is
then used to classify under which tax bracket the brand belongs in order to finally determine the corresponding
excise tax rate on a per pack basis. The assailed feature of this law pertains to the mechanism where, after a
brand is classified based on its current net retail price, the classification is frozen and only Congress can
thereafter reclassify the same. From a practical point of view, Annex "D" is merely a by-product of the whole
mechanism and philosophy of the assailed law. That is, the brands under Annex "D" were also classified based
on their current net retail price, the only difference being that they were the first ones so classified since they
were the only brands surveyed as of October 1, 1996, or prior to the effectivity of RA 8240 on January 1,
1997.37
Due to this legislative classification scheme, it is possible that over time the net retail price of a previously
classified brand, whether it be a brand under Annex "D" or a new brand classified after the effectivity of RA
8240 on January 1, 1997, would increase (due to inflation, increase of production costs, manufacturers
decision to increase its prices, etc.) to a point that its net retail price pierces the tax bracket to which it was
previously classified.38 Consequently, even if its present day net retail price would make it fall under a higher
tax bracket, the previously classified brand would continue to be subject to the excise tax rate under the lower
tax bracket by virtue of the legislative classification freeze.
Petitioner claims that this is what happened in 2004 to the Marlboro and Philip Morris brands, which were
permanently classified under Annex "D." As of October 1, 1996, Marlboro had net retail prices ranging from
P6.78 to P6.84 while Philip Morris had net retail prices ranging from P7.39 to P7.48. Thus, pursuant to RA
8240,39 Marlboro and Philip Morris were classified under the high-priced tax bracket and subjected to an excise
tax rate of P8.96 per pack. Petitioner then presented evidence showing that after the lapse of about seven
years or sometime in 2004, Marlboros and Philip Morris net retail prices per pack both increased to about
P15.59.40 This meant that they would fall under the premium-priced tax bracket, with a higher excise tax rate of
P13.44 per pack,41 had they been classified based on their 2004 net retail prices. However, due to the
legislative classification freeze, they continued to be classified under the high-priced tax bracket with a lower
excise tax rate. Petitioner thereafter deplores the fact that its Lucky Strike Filter, Lucky Strike Lights, and Lucky
Strike Menthol Lights cigarettes, introduced in the market sometime in 2001 and validated by a BIR survey in
2003, were found to have net retail prices of P11.53, P11.59 and P10.34,42 respectively, which are lower than
those of Marlboro and Philip Morris. However, since petitioners cigarettes were newly introduced brands in the
market, they were taxed based on their current net retail prices and, thus, fall under the premium-priced tax
bracket with a higher excise tax rate of P13.44 per pack. This unequal tax treatment between Marlboro and
Philip Morris, on the one hand, and Lucky Strike, on the other, is the crux of petitioners contention that the
legislative classification freeze violates the equal protection and uniformity of taxation clauses of the
Constitution.
It is apparent that, contrary to its assertions, petitioner is not only questioning the undue favoritism accorded to
brands under Annex "D," but the entire mechanism and philosophy of the law which freezes the tax
classification of a cigarette brand based on its current net retail price. Stated differently, the alleged
discrimination arising from the legislative classification freeze between the brands under Annex "D" and
petitioners newly introduced brands arose only because the former were classified based on their "current" net
retail price as of October 1, 1996 and petitioners newly introduced brands were classified based on their
"current" net retail price as of 2003. Without this corresponding freezing of the classification of petitioners
newly introduced brands based on their current net retail price, it would be impossible to establish that a
disparate tax treatment occurred between the Annex "D" brands and petitioners newly introduced brands.
This clarification is significant because, under these circumstances, a declaration of unconstitutionality would
necessarily entail nullifying the whole mechanism of the law and not just Annex "D." Consequently, if the
assailed law is declared unconstitutional on equal protection grounds, the entire method by which a brand of
cigarette is classified would have to be invalidated. As a result, no method to classify brands under Annex "D"
as well as new brands would be left behind and the whole Section 145 of the NIRC, as amended, would
become inoperative.43
To simplify the succeeding discussions, we shall refer to the whole mechanism and philosophy of the assailed
law which freezes the tax classification of a cigarette brand based on its current net retail price and which, thus,
produced different classes of brands based on the time of their introduction in the market (starting with the
brands in Annex "D" since they were the first brands so classified as of October 1, 1996) as the classification
freeze provision.44
As thus formulated, the central issue is whether or not the classification freeze provision violates the equal
protection and uniformity of taxation clauses of the Constitution.
In Sison, Jr. v. Ancheta,45 this Court, through Chief Justice Fernando, explained the applicable standard in
deciding equal protection and uniformity of taxation challenges:
Now for equal protection. The applicable standard to avoid the charge that there is a denial of this
constitutional mandate whether the assailed act is in the exercise of the police power or the power
of eminent domain is to demonstrate "that the governmental act assailed, far from being inspired by
the attainment of the common weal was prompted by the spirit of hostility, or at the very least,
discrimination that finds no support in reason. It suffices then that the laws operate equally and
uniformly on all persons under similar circumstances or that all persons must be treated in the same
manner, the conditions not being different, both in the privileges conferred and the liabilities
imposed. Favoritism and undue preference cannot be allowed. For the principle is that equal
protection and security shall be given to every person under circumstances, which if not identical are
analogous. If law be looks upon in terms of burden or charges, those that fall within a class should
be treated in the same fashion, whatever restrictions cast on some in the group equally binding on
the rest." That same formulation applies as well to taxation measures. The equal protection clause
is, of course, inspired by the noble concept of approximating the ideal of the laws's benefits being
available to all and the affairs of men being governed by that serene and impartial uniformity, which
is of the very essence of the idea of law. There is, however, wisdom, as well as realism, in these
words of Justice Frankfurter: "The equality at which the 'equal protection' clause aims is not a
disembodied equality. The Fourteenth Amendment enjoins 'the equal protection of the laws,' and
laws are not abstract propositions. They do not relate to abstract units A, B and C, but are
expressions of policy arising out of specific difficulties, addressed to the attainment of specific ends
by the use of specific remedies. The Constitution does not require things which are different in fact
or opinion to be treated in law as though they were the same." Hence the constant reiteration of
the view that classification if rational in character is allowable. As a matter of fact, in a leading
case of Lutz v. Araneta, this Court, through Justice J.B.L. Reyes, went so far as to hold "at any rate,
it is inherent in the power to tax that a state be free to select the subjects of taxation, and it has been
 repeatedly held that 'inequalities which result from a singling out of one particular class for taxation, First, to evolve a tax structure which will promote fair competition among the players in the
or exemption infringe no constitutional limitation.'" industries concerned and generate buoyant and stable revenue for the government.

Petitioner likewise invoked the kindred concept of uniformity. According to the Constitution: "The rule Second, to ensure that the tax burden is equitably distributed not only amongst the industries
of taxation shall be uniform and equitable." This requirement is met according to Justice Laurel in affected but equally amongst the various levels of our society that are involved in various markets
Philippine Trust Company v. Yatco, decided in 1940, when the tax "operates with the same force that are going to be affected by the excise tax on distilled spirits, fermented liquor, cigars and
and effect in every place where the subject may be found." He likewise added: "The rule of cigarettes.
uniformity does not call for perfect uniformity or perfect equality, because this is hardly attainable."
The problem of classification did not present itself in that case. It did not arise until nine years later, In the case of firms engaged in the industries producing the products that we are about to tax, this
when the Supreme Court held: "Equality and uniformity in taxation means that all taxable articles or means relating the tax burden to their market share, not only in terms of quantity, Mr. President, but
kinds of property of the same class shall be taxed at the same rate. The taxing power has the in terms of value.
authority to make reasonable and natural classifications for purposes of taxation, . . . As
clarified by Justice Tuason, where "the differentiation" complained of "conforms to the practical In case of consumers, this will mean evolving a multi-tiered rate structure so that low-priced
dictates of justice and equity" it "is not discriminatory within the meaning of this clause and is products are subject to lower tax rates and higher-priced products are subject to higher tax rates.
therefore uniform." There is quite a similarity then to the standard of equal protection for all that is
required is that the tax "applies equally to all persons, firms and corporations placed in similar
Third, to simplify the tax administration and compliance with the tax laws that are about to unfold in
situation."46 (Emphasis supplied)
order to minimize losses arising from inefficiencies and tax avoidance scheme, if not outright tax
evasion.54
In consonance thereto, we have held that "in our jurisdiction, the standard and analysis of equal protection
challenges in the main have followed the rational basis test, coupled with a deferential attitude to legislative
In the initial stages of the crafting of the assailed law, the Department of Finance (DOF) recommended to
classifications and a reluctance to invalidate a law unless there is a showing of a clear and unequivocal breach
Congress a shift from the then existing ad valorem taxation system to a specific taxation system with respect to
of the Constitution."47 Within the present context of tax legislation on sin products which neither contains a
sin products, including cigarettes. The DOF noted that the ad valorem taxation system was a source of massive
suspect classification nor impinges on a fundamental right, the rational-basis test thus finds application. Under
tax leakages because the taxpayer was able to evade paying the correct amount of taxes through the
this test, a legislative classification, to survive an equal protection challenge, must be shown to rationally further
undervaluation of the price of cigarettes using various marketing arms and dummy corporations. In order to
a legitimate state interest.48 The classifications must be reasonable and rest upon some ground of difference
address this problem, the DOF proposed a specific taxation system where the cigarettes would be taxed based
having a fair and substantial relation to the object of the legislation.49 Since every law has in its favor the
on volume or on a per pack basis which was believed to be less susceptible to price manipulation. The reason
presumption of constitutionality, the burden of proof is on the one attacking the constitutionality of the law to
was that the BIR would only need to monitor the sales volume of cigarettes, from which it could easily compute
prove beyond reasonable doubt that the legislative classification is without rational basis.50 The presumption of
the corresponding tax liability of cigarette manufacturers. Thus, the DOF suggested the use of a three-tiered
constitutionality can be overcome only by the most explicit demonstration that a classification is a hostile and
system which operates in substantially the same manner as the four-tiered system under RA 8240 as earlier
oppressive discrimination against particular persons and classes, and that there is no conceivable basis which
discussed. The proposal of the DOF was embodied in House Bill (H.B.) No. 6060, the pertinent portions of
might support it.51
which states
A legislative classification that is reasonable does not offend the constitutional guaranty of the equal protection
SEC. 142. Cigars and cigarettes.
of the laws. The classification is considered valid and reasonable provided that: (1) it rests on substantial
distinctions; (2) it is germane to the purpose of the law; (3) it applies, all things being equal, to both present and
future conditions; and (4) it applies equally to all those belonging to the same class.52 (c) Cigarettes packed by machine. There shall be levied, assessed and collected on cigarettes
packed by machine a tax at the rates prescribed below:
The first, third and fourth requisites are satisfied. The classification freeze provision was inserted in the law for
reasons of practicality and expediency. That is, since a new brand was not yet in existence at the time of the (1) If the manufacturers or importers wholesale price (net of excise tax and value-added tax) per
passage of RA 8240, then Congress needed a uniform mechanism to fix the tax bracket of a new brand. The pack exceeds four pesos and twenty centavos (P4.20), the tax shall be seven pesos and fifty
current net retail price, similar to what was used to classify the brands under Annex "D" as of October 1, 1996, centavos (P7.50);
was thus the logical and practical choice. Further, with the amendments introduced by RA 9334, the freezing of
the tax classifications now expressly applies not just to Annex "D" brands but to newer brands introduced after (2) If the manufacturers or importers wholesale price (net of excise tax and value-added tax) per
the effectivity of RA 8240 on January 1, 1997 and any new brand that will be introduced in the pack exceeds three pesos and ninety centavos (P3.90) but does not exceed four pesos and twenty
future.53 (However, as will be discussed later, the intent to apply the freezing mechanism to newer brands was centavos (P4.20), the tax shall be five pesos and fifty centavos (P5.50): provided, that after two (2)
already in place even prior to the amendments introduced by RA 9334 to RA 8240.) This does not explain, years from the effectivity of this Act, cigarettes otherwise subject to tax under this subparagraph
however, why the classification is "frozen" after its determination based on current net retail price and how this shall be taxed under subparagraph (1) above.
is germane to the purpose of the assailed law. An examination of the legislative history of RA 8240 provides
interesting answers to this question. (3) If the manufacturers or importers wholesale price (net of excise tax and value-added tax) per
pack does not exceeds three pesos and ninety centavos (P3.90), the tax rate shall be one peso
RA 8240 was the first of three parts in the Comprehensive Tax Reform Package then being pushed by the (P1.00).
Ramos Administration. It was enacted with the following objectives stated in the Sponsorship Speech of
Senator Juan Ponce Enrile (Senator Enrile), viz: Variants of existing brands and new brands of cigarettes packed by machine to be introduced in the
domestic market after the effectivity of this Act, shall be taxed under paragraph (c)(1) hereof.
 The rates of specific tax on cigars and cigarettes under paragraphs (a), (b), and (c) hereof,
including the price levels for purposes of classifying cigarettes packed by machine, shall be
revised upward two (2) years after the effectivity of this Act and every two years thereafter by
the Commissioner of Internal Revenue, subject to the approval of the Secretary of Finance,
taking into account the movement of the consumer price index for cigars and cigarettes as
established by the National Statistics Office: provided, that the increase in taxes and/or price
levels shall be equal to the present change in such consumer price index for the two-year
period:provided, further, that the President, upon the recommendation of the Secretary of
Finance, may suspend or defer the adjustment in price levels and tax rates when the interest
of the national economy and general welfare so require, such as the need to obviate
unemployment, and economic and social dislocation: provided, finally, that the revised price
levels and tax rates authorized herein shall in all cases be rounded off to the nearest centavo
and shall be in force and effect on the date of publication thereof in a newspaper of general
circulation. x x x (Emphasis supplied)
What is of particular interest with respect to the proposal of the DOF is that it contained a provision for the
periodic adjustment of the excise tax rates and tax brackets, and a corresponding periodic resurvey and
reclassification of cigarette brands based on the increase in the consumer price index as determined by the
Commissioner of Internal Revenue subject to certain guidelines. The evident intent was to prevent inflation
from eroding the value of the excise taxes that would be collected from cigarettes over time by adjusting the tax
rate and tax brackets based on the increase in the consumer price index. Further, under this proposal, old
brands as well as new brands introduced thereafter would be subjected to a resurvey and reclassification
based on their respective values at the end of every two years in order to align them with the adjustment of the
excise tax rate and tax brackets due to the movement in the consumer price index.55
Of course, we now know that the DOF proposal, insofar as the periodic adjustment of tax rates and tax
brackets, and the periodic resurvey and reclassification of cigarette brands are concerned, did not gain
approval from Congress. The House and Senate pushed through with their own versions of the excise tax
system on beers and cigarettes both denominated as H.B. No. 7198. For convenience, we shall refer to the bill
deliberated upon by the House as the House Version and that of the Senate as the Senate Version.
The Houses Committee on Ways and Means, then chaired by Congressman Exequiel B. Javier (Congressman
Javier), roundly rejected the DOF proposal. Instead, in its Committee Report submitted to the plenary, it
proposed a different excise tax system which used a specific tax as a basic tax with anad valorem comparator.
Further, it deleted the proposal to have a periodic adjustment of tax rates and the tax brackets as well as
periodic resurvey and reclassification of cigarette brands, to wit:
The rigidity of the specific tax system calls for the need for frequent congressional intervention to
adjust the tax rates to inflation and to keep pace with the expanding needs of government for more
revenues. The DOF admits this flaw inherent in the tax system it proposed. Hence, to obviate the
need for remedial legislation, the DOF is asking Congress to grant to the Commissioner the power
to revise, one, the specific tax rates: and two, the price levels of beer and cigarettes. What the DOF
is asking, Mr. Speaker, is for Congress to delegate to the Commissioner of Internal Revenue the
power to fix the tax rates and classify the subjects of taxation based on their price levels for
purposes of fixing the tax rates. While we sympathize with the predicament of the DOF, it is not for
Congress to abdicate such power. The power sought to be delegated to be exercised by the
Commissioner of Internal Revenue is a legislative power vested by the Constitution in Congress
pursuant to Section 1, Article VI of the Constitution. Where the power is vested, there it must
remain in Congress, a body of representatives elected by the people. Congress may not delegate
such power, much less abdicate it.
xxxx
Moreover, the grant of such power, if at all constitutionally permissible, to the Commissioner of
Internal Revenue is fraught with ethical implications. The debates on how much revenue will be
raised, how much money will be taken from the pockets of taxpayers, will inexorably shift from the
democratic Halls of Congress to the secret and non-transparent corridors of unelected agencies of
government, the Department of Finance and the Bureau of Internal Revenue, which are not
accountable to our people. We cannot countenance the shift for ethical reasons, lest we be accused
of betraying the trust reposed on this Chamber by the people. x x x
A final point on this proposal, Mr. Speaker, is the exercise of the taxing power of the Commissioner
of Internal Revenue which will be triggered by inflation rates based on the consumer price index.
Simply stated, Mr. Speaker, the specific tax rates will be fixed by the Commissioner depending on
the price levels of beers and cigarettes as determined by the consumers price index. This is a novel
idea, if not necessarily weird in the field of taxation. What if the brewer or the cigarette manufacturer
sells at a price below the consumers price index? Will it be taxed on the basis of the consumers
price index which is over and above its wholesale or retail price as the case may be? This is a weird
form of exaction where the tax is based not on what the brewer or manufacturer actually realized but
on an imaginary wholesale or retail price. This amounts to a taxation based on presumptive price
levels and renders the specific tax a presumptive tax. We hope, the DOF and the BIR will also honor
a presumptive tax payment.
Moreover, specific tax rates based on price levels tied to consumers price index as proposed by the
DOF engenders anti-trust concerns. The proposal if enacted into law will serve as a barrier to the
entry of new players in the beer and cigarette industries which are presently dominated by shared
monopolies. A new player in these industries will be denied business flexibility to fix its price levels
to promote its product and penetrate the market as the price levels are dictated by the consumer
price index. The proposed tax regime, Mr. Speaker, will merely enhance the stranglehold of the
oligopolies in the beer and cigarette industries, thus, reversing the governments policy of
dismantling monopolies and combinations in restraint of trade.56
For its part, the Senates Committee on Ways and Means, then chaired by Senator Juan Ponce Enrile (Senator
Enrile), developed its own version of the excise tax system on cigarettes. The Senate Version consisted of a
four-tiered system and, interestingly enough, contained a periodic excise tax rate and tax bracket adjustment
as well as a periodic resurvey and reclassification of brands provision ("periodic adjustment and reclassification
provision," for brevity) to be conducted by the DOF in coordination with the BIR and the National Statistics
Office based on the increase in the consumer price index similar to the one proposed by the DOF, viz:
SEC. 4 Section 142 of the National Internal Revenue Code, as amended, is hereby further amended
to read as follows:
"SEC. 142. Cigars and cigarettes.
xxxx
(c) Cigarettes packed by machine. There shall be levied, assessed and collected on cigarettes
packed by machine a tax at the rates prescribed below:
(1) If the net retail price (excluding the excise tax and the value-added tax) is above Ten pesos
(P10.00) per pack, the tax shall be Twelve pesos (P12.00) per pack;
(2) If the net retail price (excluding the excise tax and the value-added tax) exceeds Six pesos and
fifty centavos (P6.50) per pack, the tax shall be Eight pesos (P8.00) per pack;
 (3) If the net retail price (excluding the excise tax and the value-added tax) is Five pesos (P5.00) up
to Six pesos and fifty centavos (P6.50) per pack, the tax shall be Five pesos (P5.00) per pack;
(4) If the net retail price (excluding the excise tax and the value-added tax) is below Five pesos
(P5.00) per pack, the tax shall be One peso (P1.00) per pack.
Variants of existing brands of cigarettes which are introduced in the domestic market after the
effectivity of this Act shall be taxed under the highest classification of any variant of that brand.
xxx
The rates of specific tax on cigars and cigarettes under subparagraph (a), (b) and (c) hereof,
including the net retail prices for purposes of classification, shall be adjusted on the sixth of
January three years after the effectivity of this Act and every three years thereafter. The
adjustment shall be in accordance with the inflation rate measured by the average increase
in the consumer price index over the three-year period. The adjusted tax rates and net price
levels shall be in force on the eighth of January.
Within the period hereinabove mentioned, the Secretary of Finance shall direct the conduct
of a survey of retail prices of each brand of cigarettes in coordination with the Bureau of
Internal Revenue and the National Statistics Office.
For purposes of this Section, net retail price shall mean the price at which the cigarette is sold on
retail in 20 major supermarkets in Metro Manila (for brands of cigarettes marketed nationally),
excluding the amount intended to cover the applicable excise tax and the value-added tax. For
brands which are marketed only outside Metro Manila, the net retail price shall mean the price at
which the cigarette is sold in five major supermarkets in the region excluding the amount intended to
cover the applicable excise tax and the value-added tax.
The classification of each brand of cigarettes in the initial year of implementation of this Act
shall be based on its average net retail price as of October 1, 1996. The said classification by
brand shall remain in force until January 7, 2000.
New brands shall be classified according to their current net retail price.57 (Emphasis supplied)
During the period of interpellations, the late Senator Raul S. Roco (Senator Roco) expressed doubts as to the
legality and wisdom of putting a periodic adjustment and reclassification provision:
Senator Enrile: This will be the first time that a tax burden will be allowed to be automatically
adjusted upwards based on a system of indexing tied up with the Consumers Price Index (CPI).
Although I must add that we have adopted a similar system in adjusting the personal tax exemption
from income tax of our individual taxpayers.
Senator Roco: They are not exactly the same, Mr. President. But even then, we do note that this the
first time we are trying to put an automatic adjustment. My concern is, why do we propose now this
automatic adjustment? What is the reason that impels the committee? Maybe we can be
enlightened and maybe we shall embrace it forthwith. But what is the reason?
Senator Enrile: Mr. President, we will recall that in the House of Representatives, it has adopted a
tax proposal on these products based on a specific tax as a basic tax with an ad
valoremcomparator. The Committee on Ways and Means of the Senate has not seen it fit to adopt
this system, but it recognized the possibility that there may be an occasion where the price
movement in the country might unwarrantedly move upwards, in which case, if we peg the
government to a specific tax rate of P6.30, P9.30 and P12.30 for beer, since we are talking of
beer, 58 the government might lose in the process.
In order to consider the interest of the government in this, Mr. President, and in order to obviate the
possibility that some of these products categorized under the different tiers with different specific tax
rates from moving upwards and piercing their own tiers and thereby expose themselves to an
incremental tax of higher magnitude, it was felt that we should adopt a system where, in spite of any
escalation in the price of these products in the future, the tax rates could be adjusted upwards so
that none of these products would leave their own tier. That was the basic principle under which we
crafted this portion of the tax proposal.
Senator Roco: Mr. President, we certainly share the judgment of the distinguished gentleman as
regards the comparator provision in the House of Representatives and we appreciate the reasons
given. But we are under the impression that the House also, aside from the comparator, has an
adjustment clause that is fixed. It has fixed rates for the adjustment. So that one of the basic
differences between the Senate proposed version now and the House version is that, the House of
Representatives has manifested its will and judgment as regards the tax to which we will adjust,
whereas the Senate version relegates fundamentally that judgment to the Department of Finance.
Senator Enrile: That is correct, Mr. President, because we felt that in imposing a fixed adjustment,
we might be fixing an amount that is either too high or too low. We cannot foresee the economic
trends in this country over a period of two years, three years, let alone ten years. So we felt that a
mechanism ought to be adopted in order to serve the interest of the government, the interest of the
producers, and the interest of the consuming public.
Senator Roco: This is where, Mr. President, my policy difficulties start. Under the Constitution I
think it is Article VI, Section 24, and it was the distinguished chairman of the Committee on Ways
and Means who made this Chamber very conscious of this provision revenue measures and tariff
measures shall originate exclusively from the House of Representatives.
The reason for this, Mr. President, is, there is a long history why the House of Representatives must
originate judgments on tax. The House members represent specific districts. They represent specific
constituencies, and the whole history of parliamentarism, the whole history of Congress as an
institution is founded on the proposition that the direct representatives of the people must speak
about taxes.
Mr. President, while the Senate can concur and can introduce amendments, the proposed change
here is radical. This is the policy difficulty that I wish to clarify with the gentleman because the
judgment call now on the amount of tax to be imposed is not coming from Congress. It is shifted to
the Department of Finance. True, the Secretary of Finance may have been the best finance officer
two years ago and now the best finance officer in Asia, but that does not make him qualified to
replace the judgment call of the House of Representatives. That is my first difficulty.
Senator Enrile: Mr. President, precisely the law, in effect, authorizes this rate beforehand. The
computation of the rate is the only thing that was left to the Department of Finance as a tax
implementor of Congress. This is not unusual because we have already, as I said, adopted a
system similar to this. If we adjust the personal exemption of an individual taxpayer, we are in effect
adjusting the applicable tax rate to him.
Senator Roco: But the point I was trying to demonstrate, Mr. President, is that we depart precisely
from the mandate of the Constitution that judgment on revenue must emanate from Congress. Here,
it is shifted to the Department of Finance for no visible or patent reason insofar as I could
understand. The only difference is, who will make the judgment? Should it be Congress?
 Senator Enrile: Mr. President, forgive me for answering sooner than I should. My understanding of
the Constitution is that all revenue measures must emanate from the House. That is all the
Constitution says.
Now, it does not say that the judgment call must belong to the House. The judgment call can belong
both to the House and to the Senate. We can change whatever proposal the House did. Precisely,
we are now crafting a measure, and we are saying that this is the rate subject to an adjustment
which we also provide. We are not giving any unusual power to the Secretary of Finance because
we tell him, "This is the formula that you must adopt in arriving at the adjustment so that you do not
have to come back to us."59
Apart from his doubts as to the legality of the delegation of taxing power to the DOF and BIR, Senator Roco
also voiced out his concern about the possible abuse and corruption that will arise from the periodic adjustment
and reclassification provision. Continuing
Senator Roco: Mr. President, if that is the argument, that the distinguished gentleman has a different
legal interpretation, we will then now examine the choice. Because his legal interpretation is different
from mine, then the issues becomes: Is it more advantageous that this judgment be exercised
by the House? Should we not concur or modify in terms of the exercise by the House of its
power or are we better off giving this judgment call to the Department of Finance?
Let me now submit, Mr. President, that in so doing, it is more advantageous to fix the rate so
that even if we modify the rates identified by Congress, it is better and less susceptible to
abuse.
For instance, Mr. President, would the gentlemen wish to demonstrate to us how this will be done?
On page 8, lines 5 to 9, there is a provision here as to when the Secretary of Finance shall direct the
conduct of survey of retail prices of each brand of fermented liquor in coordination with the Bureau
of Internal Revenue and the National Statistics Office.
These offices are not exactly noted, Mr. President, for having been sanctified by the Holy Spirit in
their noble intentions. x x x60 (Emphasis supplied)
Pressing this point, Senator Roco continued his query:
Senator Roco: x x x [On page 8, lines 5 to 9] it says that during the two-year period, the Secretary of
Finance shall direct the conduct of the survey. How? When? Which retail prices and what brand
shall he consider? When he coordinates with the Bureau of Internal Revenue, what is the Bureau of
Internal Revenue supposed to be doing? What is the National Statistics Office supposed to be
doing, and under what guides and standards?
May the gentleman wish to demonstrate how this will be done? My point, Mr. President, is, by
giving the Secretary of Finance, the BIR and the National Statistics Office discretion over a
two-year period will invite corruption and arbitrariness, which is more dangerous than letting
the House of Representatives and this Chamber set the adjustment rate. Why not set the
adjustment rate? Why should Congress not exercise that judgment now? x x x
Senator Enrile: x x x
Senator Roco: x x x We respectfully submit that the Chairman consider choosing the judgment of
this Chamber and the House of Representatives over a delegated judgment of the Department of
Finance.
Again, it is not to say that I do not trust the Department of Finance. It has won awards, and I also
trust the undersecretary. But that is beside the point. Tomorrow, they may not be there.61(Emphasis
supplied)
This point was further dissected by the two senators. There was a genuine difference of opinion as to which
system one with a fixed excise tax rate and classification or the other with a periodic adjustment of excise tax
rate and reclassification was less susceptible to abuse, as the following exchanges show:
Senator Enrile: Mr. President, considering the sensitivity of these products from the viewpoint of
exerted pressures because of the understandable impact of this measure on the pockets of the
major players producing these products, the committee felt that perhaps to lessen such pressures, it
is best that we now establish a norm where the tax will be adjusted without incurring too much
political controversy as has happened in the case of this proposal.
Senator Roco: But that is exactly the same reason we say we must rely upon Congress because
Congress, if it is subjected to pressure, at least balances off because of political factors.
When the Secretary of Finance is now subjected to pressure, are we saying that the Secretary of
Finance and the Department of Finance is better-suited to withstand the pressure? Or are we saying
"Let the Finance Secretary decide whom to yield"?
I am saying that the temptation and the pressure on the Secretary of Finance is more dangerous
and more corruption-friendly than ascertaining for ourselves now a fixed rate of increase for a fixed
period.
Senator Enrile: Mr. President, perhaps the gentleman may not agree with this representation, but in
my humble opinion, this formulation is less susceptible to pressure because there is a definite point
of reference which is the consumer price index, and that consumer price index is not going to be
used only for this purpose. The CPI is used for a national purpose, and there is less possibility of
tinkering with it.62
Further, Senator Roco, like Congressman Javier, expressed the view that the periodic adjustment and
reclassification provision would create an anti-competitive atmosphere. Again, Senators Roco and Enrile had
genuine divergence of opinions on this matter, to wit:
Senator Roco: x x x On the marketing level, an adjustment clause may, in fact, be disadvantageous
to both companies, whether it is the Lucio Tan companies or the San Miguel companies. If we have
to adjust our marketing position every two years based on the adjustment clause, the established
company may survive, but the new ones will have tremendous difficulty. Therefore, this provision
tends to indicate an anticompetitive bias.
It is good for San Miguel and the Lucio Tan companies, but the new companies assuming there
may be new companies and we want to encourage them because of the old point of liberalization
will be at a disadvantage under this situation. If this observation will find receptivity in the policy
consideration of the distinguished Gentleman, maybe we can also further, later on, seek
amendments to this automatic adjustment clause in some manner.
Senator Enrile: Mr. President, I cannot foresee any anti-competitiveness of this provision with
respect to a new entrant, because a new entrant will not just come in without studying the market.
He is a lousy businessman if he will just come in without studying the market. If he comes in, he will
determine at what retail price level he will market his product, and he will be coming under any of
the tiers depending upon his net retail price. Therefore, I do not see how this particular provision will
affect a new entrant.
 Senator Roco: Be that as it may, Mr. President, we obviously will not resort to debate until this
evening, and we will have to look for other ways of resolving the policy options.
Let me just close that particular area of my interpellation, by summarizing the points we were hoping
could be clarified.
1. That the automatic adjustment clause is at best questionable in law.
2. It is corruption-friendly in the sense that it shifts the discretion from the House of
Representatives and this Chamber to the Secretary of Finance, no matter how saintly he
may be.
3. There is, although the judgment call of the gentleman disagrees to our view, an
anticompetitive situation that is geared at63
After these lengthy exchanges, it appears that the views of Senator Enrile were sustained by the Senate Body
because the Senate Version was passed on Third Reading without substantially altering the periodic
adjustment and reclassification provision.
It was actually at the Bicameral Conference Committee level where the Senate Version underwent major
changes. The Senate Panel prevailed upon the House Panel to abandon the basic excise tax rate and ad
valorem comparator as the means to determine the applicable excise tax rate. Thus, the Senates four-tiered
system was retained with minor adjustments as to the excise tax rate per tier. However, the House Panel
prevailed upon the Senate Panel to delete the power of the DOF and BIR to periodically adjust the excise tax
rate and tax brackets, and periodically resurvey and reclassify the cigarette brands based on the increase in
the consumer price index.
In lieu thereof, the classification of existing brands based on their average net retail price as of October 1, 1996
was "frozen" and a fixed across-the-board 12% increase in the excise tax rate of each tier after three years
from the effectivity of the Act was put in place. There is a dearth of discussion in the deliberations as to the
applicability of the freezing mechanism to new brands after their classification is determined based on their
current net retail price. But a plain reading of the text of RA 8240, even before its amendment by RA 9334, as
well as the previously discussed deliberations would readily lead to the conclusion that the intent of Congress
was to likewise apply the freezing mechanism to new brands. Precisely, Congress rejected the proposal to
allow the DOF and BIR to periodically adjust the excise tax rate and tax brackets as well as to periodically
resurvey and reclassify cigarettes brands which would have encompassed old and new brands alike. Thus, it
would be absurd for us to conclude that Congress intended to allow the periodic reclassification of new brands
by the BIR after their classification is determined based on their current net retail price. We shall return to this
point when we tackle the second issue.
In explaining the changes made at the Bicameral Conference Committee level, Senator Enrile, in his report to
the Senate plenary, noted that the fixing of the excise tax rates was done to avoid confusion.64 Congressman
Javier, for his part, reported to the House plenary the reasons for fixing the excise tax rate and freezing the
classification, thus:
Finally, this twin feature, Mr. Speaker, fixed specific tax rates and frozen classification, rejects the
Senate version which seeks to abdicate the power of Congress to tax by pegging the rates as well
as the classification of sin products to consumer price index which practically vests in the
Secretary of Finance the power to fix the rates and to classify the products for tax
purposes.65 (Emphasis supplied)
Congressman Javier later added that the frozen classification was intended to give stability to the industry as
the BIR would be prevented from tinkering with the classification since it would remain unchanged despite the
increase in the net retail prices of the previously classified brands.66 This would also assure the industry
players that there would be no new impositions as long as the law is unchanged.67
From the foregoing, it is quite evident that the classification freeze provision could hardly be considered
arbitrary, or motivated by a hostile or oppressive attitude to unduly favor older brands over newer brands.
Congress was unequivocal in its unwillingness to delegate the power to periodically adjust the excise tax rate
and tax brackets as well as to periodically resurvey and reclassify the cigarette brands based on the increase in
the consumer price index to the DOF and the BIR. Congress doubted the constitutionality of such delegation of
power, and likewise, considered the ethical implications thereof. Curiously, the classification freeze
provision was put in place of the periodic adjustment and reclassification provision because of the belief that
the latter would foster an anti-competitive atmosphere in the market. Yet, as it is, this same criticism is being
foisted by petitioner upon theclassification freeze provision.
To our mind, the classification freeze provision was in the main the result of Congresss earnest efforts to
improve the efficiency and effectivity of the tax administration over sin products while trying to balance the
same with other state interests. In particular, the questioned provision addressed Congresss administrative
concerns regarding delegating too much authority to the DOF and BIR as this will open the tax system to
potential areas for abuse and corruption. Congress may have reasonably conceived that a tax system which
would give the least amount of discretion to the tax implementers would address the problems of tax avoidance
and tax evasion.
To elaborate a little, Congress could have reasonably foreseen that, under the DOF proposal and the Senate
Version, the periodic reclassification of brands would tempt the cigarette manufacturers to manipulate their
price levels or bribe the tax implementers in order to allow their brands to be classified at a lower tax bracket
even if their net retail prices have already migrated to a higher tax bracket after the adjustment of the tax
brackets to the increase in the consumer price index. Presumably, this could be done when a resurvey and
reclassification is forthcoming. As briefly touched upon in the Congressional deliberations, the difference of the
excise tax rate between the medium-priced and the high-priced tax brackets under RA 8240, prior to its
amendment, was P3.36. For a moderately popular brand which sells around 100 million packs per year, this
easily translates to P336,000,000.68 The incentive for tax avoidance, if not outright tax evasion, would clearly
be present. Then again, the tax implementers may use the power to periodically adjust the tax rate and
reclassify the brands as a tool to unduly oppress the taxpayer in order for the government to achieve its
revenue targets for a given year.
Thus, Congress sought to, among others, simplify the whole tax system for sin products to remove these
potential areas of abuse and corruption from both the side of the taxpayer and the government. Without doubt,
the classification freeze provision was an integral part of this overall plan. This is in line with one of the avowed
objectives of the assailed law "to simplify the tax administration and compliance with the tax laws that are about
to unfold in order to minimize losses arising from inefficiencies and tax avoidance scheme, if not outright tax
evasion."69 RA 9334 did not alter this classification freeze provision of RA 8240. On the contrary, Congress
affirmed this freezing mechanism by clarifying the wording of the law. We can thus reasonably conclude, as the
deliberations on RA 9334 readily show, that the administrative concerns in tax administration, which moved
Congress to enact theclassification freeze provision in RA 8240, were merely continued by RA 9334. Indeed,
administrative concerns may provide a legitimate, rational basis for legislative classification.70 In the case at
bar, these administrative concerns in the measurement and collection of excise taxes on sin products are
readily apparent as afore-discussed.
Aside from the major concern regarding the elimination of potential areas for abuse and corruption from the tax
administration of sin products, the legislative deliberations also show that the classification freeze provision was
intended to generate buoyant and stable revenues for government. With the frozen tax classifications, the
revenue inflow would remain stable and the government would be able to predict with a greater degree of
certainty the amount of taxes that a cigarette manufacturer would pay given the trend in its sales volume over
time. The reason for this is that the previously classified cigarette brands would be prevented from moving
either upward or downward their tax brackets despite the changes in their net retail prices in the future and, as
a result, the amount of taxes due from them would remain predictable. The classification freeze
provision would, thus, aid in the revenue planning of the government.71
All in all, the classification freeze provision addressed Congresss administrative concerns in the simplification
of tax administration of sin products, elimination of potential areas for abuse and corruption in tax collection,
buoyant and stable revenue generation, and ease of projection of revenues.Consequently, there can be no
denial of the equal protection of the laws since the rational-basis test is amply satisfied.
Going now to the contention of petitioner that the classification freeze provision unduly favors older brands over
newer brands, we must first contextualize the basis of this claim. As previously discussed, the evidence
presented by the petitioner merely showed that in 2004, Marlboro and Philip Morris, on the one hand, and
Lucky Strike, on the other, would have been taxed at the same rate had the classification freeze provision been
not in place. But due to the operation of the classification freeze provision, Lucky Strike was taxed higher. From
here, petitioner generalizes that this differential tax treatment arising from the classification freeze
provision adversely impacts the fairness of the playing field in the industry, particularly, between older and
newer brands. Thus, it is virtually impossible for new brands to enter the market.
Petitioner did not, however, clearly demonstrate the exact extent of such impact. It has not been shown that the
net retail prices of other older brands previously classified under this classification system have already pierced
their tax brackets, and, if so, how this has affected the overall competition in the market. Further, it does not
necessarily follow that newer brands cannot compete against older brands because price is not the only factor
in the market as there are other factors like consumer preference, brand loyalty, etc. In other words, even if the
newer brands are priced higher due to the differential tax treatment, it does not mean that they cannot compete
in the market especially since cigarettes contain addictive ingredients so that a consumer may be willing to pay
a higher price for a particular brand solely due to its unique formulation. It may also be noted that in 2003, the
BIR surveyed 29 new brands72 that were introduced in the market after the effectivity of RA 8240 on January 1,
1997, thus negating the sweeping generalization of petitioner that the classification freeze provision has
become an insurmountable barrier to the entry of new brands. Verily, where there is a claim of breach of the
due process and equal protection clauses, considering that they are not fixed rules but rather broad standards,
there is a need for proof of such persuasive character as would lead to such a conclusion. Absent such a
showing, the presumption of validity must prevail.73
Be that as it may, petitioners evidence does suggest that, at least in 2004, Philip Morris and Marlboro, older
brands, would have been taxed at the same rate as Lucky Strike, a newer brand, due to certain conditions (i.e.,
the increase of the older brands net retail prices beyond the tax bracket to which they were previously
classified after the lapse of some time) were it not for the classification freeze provision. It may be conceded
that this has adversely affected, to a certain extent, the ability of petitioner to competitively price its newer
brands vis--vis the subject older brands. Thus, to a limited extent, the assailed law seems to derogate one of
its avowed objectives, i.e. promoting fair competition among the players in the industry. Yet, will this
occurrence, by itself, render the assailed law unconstitutional on equal protection grounds?
We answer in the negative.
Whether Congress acted improvidently in derogating, to a limited extent, the states interest in promoting fair
competition among the players in the industry, while pursuing other state interests regarding the simplification
of tax administration of sin products, elimination of potential areas for abuse and corruption in tax collection,
buoyant and stable revenue generation, and ease of projection of revenues through the classification freeze
provision, and whether the questioned provision is the best means to achieve these state interests, necessarily
go into the wisdom of the assailed law which we cannot inquire into, much less overrule. The classification
freeze provision has not been shown to be precipitated by a veiled attempt, or hostile attitude on the part of
Congress to unduly favor older brands over newer brands. On the contrary, we must reasonably assume,
owing to the respect due a co-equal branch of government and as revealed by the Congressional deliberations,
that the enactment of the questioned provision was impelled by an earnest desire to improve the efficiency and
effectivity of the tax administration of sin products. For as long as the legislative classification is rationally
related to furthering some legitimate state interest, as here, the rational-basis test is satisfied and the
constitutional challenge is perfunctorily defeated.
We do not sit in judgment as a supra-legislature to decide, after a law is passed by Congress, which state
interest is superior over another, or which method is better suited to achieve one, some or all of the states
interests, or what these interests should be in the first place. This policy-determining power, by constitutional
fiat, belongs to Congress as it is its function to determine and balance these interests or choose which ones to
pursue. Time and again we have ruled that the judiciary does not settle policy issues. The Court can only
declare what the law is and not what the law should be. Under our system of government, policy issues are
within the domain of the political branches of government and of the people themselves as the repository of all
state power.74 Thus, the legislative classification under theclassification freeze provision, after having been
shown to be rationally related to achieve certain legitimate state interests and done in good faith, must,
perforce, end our inquiry.
Concededly, the finding that the assailed law seems to derogate, to a limited extent, one of its avowed
objectives (i.e. promoting fair competition among the players in the industry) would suggest that, by Congresss
own standards, the current excise tax system on sin products is imperfect. But, certainly, we cannot declare a
statute unconstitutional merely because it can be improved or that it does not tend to achieve all of its stated
objectives.75 This is especially true for tax legislation which simultaneously addresses and impacts multiple
state interests.76 Absent a clear showing of breach of constitutional limitations, Congress, owing to its vast
experience and expertise in the field of taxation, must be given sufficient leeway to formulate and experiment
with different tax systems to address the complex issues and problems related to tax administration. Whatever
imperfections that may occur, the same should be addressed to the democratic process to refine and evolve a
taxation system which ideally will achieve most, if not all, of the states objectives.
In fine, petitioner may have valid reasons to disagree with the policy decision of Congress and the method by
which the latter sought to achieve the same. But its remedy is with Congress and not this Court. As succinctly
articulated in Vance v. Bradley:77
The Constitution presumes that, absent some reason to infer antipathy, even improvident decisions
will eventually be rectified by the democratic process, and that judicial intervention is generally
unwarranted no matter how unwisely we may think a political branch has acted. Thus, we will not
overturn such a statute unless the varying treatment of different groups or persons is so unrelated to
the achievement of any combination of legitimate purposes that we can only conclude that the
legislature's actions were irrational.78
We now tackle the second issue.
Petitioner asserts that Revenue Regulations No. 1-97, as amended by Revenue Regulations No. 9-2003,
Revenue Regulations No. 22-2003 and Revenue Memorandum Order No. 6-2003, are invalid insofar as they
empower the BIR to reclassify or update the classification of new brands of cigarettes based on their current
net retail prices every two years or earlier. It claims that RA 8240, even prior to its amendment by RA 9334, did
not authorize the BIR to conduct said periodic resurvey and reclassification.
The questioned provisions are found in the following sections of the assailed issuances:
(1) Section 4(B)(e)(c), 2nd paragraph of Revenue Regulations No. 1-97, as amended by Section 2 of Revenue
Regulations 9-2003, viz:
For the purpose of establishing or updating the tax classification of new brands and variant(s)
thereof, their current net retail price shall be reviewed periodically through the conduct of survey or
any other appropriate activity, as mentioned above, every two (2) years unless earlier ordered by
the Commissioner. However, notwithstanding any increase in the current net retail price, the tax
 classification of such new brands shall remain in force until the same is altered or changed through
the issuance of an appropriate Revenue Regulations.
(2) Sections II(1)(b), II(4)(b), II(6), II(7), III (Large Tax Payers Assistance Division II) II(b) of Revenue
Memorandum Order No. 6-2003, insofar as pertinent to cigarettes packed by machine, viz:
II. POLICIES AND GUIDELINES
1. The conduct of survey covered by this Order, for purposes of determining the current retail prices
of new brands of cigarettes and alcohol products introduced in the market on or after January 1,
1997, shall be undertaken in the following instances:
xxxx
b. For reclassification of new brands of said excisable products that were introduced in the market
after January 1, 1997.
xxxx
4. The determination of the current retail prices of new brands of the aforesaid excisable products
shall be initiated as follows:
xxxx
b. After the lapse of the prescribed two-year period or as the Commissioner may otherwise direct,
the appropriate tax reclassification of these brands based on the current net retail prices thereof
shall be determined by a survey to be conducted upon a written directive by the Commissioner.
For this purpose, a memorandum order to the Assistant Commissioner, Large Taxpayers Service,
Heads, Excise Tax Areas, and Regional Directors of all Revenue Regions, except Revenue Region
Nos. 4, 5, 6, 7, 8 and 9, shall be issued by the Commissioner for the submission of the list of major
supermarkets/retail outlets where the above excisable products are being sold, as well as the list of
selected revenue officers who shall be designated to conduct the said activity(ies).
xxxx
6. The results of the survey conducted in Revenue Region Nos. 4 to 9 shall be submitted directly to
the Chief, LT Assistance Division II (LTAD II), National Office for consolidation. On the other hand,
the results of the survey conducted in Revenue Regions other than Revenue Region Nos. 4 to 9,
shall be submitted to the Office of the Regional Director for regional consolidation. The consolidated
regional survey, together with the accomplished survey forms shall be transmitted to the Chief,
LTAD II for national consolidation within three (3) days from date of actual receipt from the survey
teams. The LTAD II shall be responsible for the evaluation and analysis of the submitted survey
forms and the preparation of the recommendation for the updating/revision of the tax classification of
each brand of cigarettes and alcohol products. The said recommendation, duly validated by the
ACIR, LTS, shall be submitted to the Commissioner for final review within ten (10) days from the
date of actual receipt of complete reports from all the surveying Offices.
7. Upon final review by the Commissioner of the revised tax classification of the different new
brands of cigarettes and alcohol products, the appropriate revenue regulations shall be prepared
and submitted for approval by the Secretary of Finance.
xxxx
III. PROCEDURES
xxxx
Large Taxpayers Assistance Division II
xxxx
1. Perform the following preparatory procedures on the identification of brands to be surveyed,
supermarkets/retail outlets where the survey shall be conducted, and the personnel selected to
conduct the survey.
xxxx
b. On the tax reclassification of new brands
i. Submit a master list of registered brands covered by the survey pursuant to the provisions of Item
II.2 of this Order containing the complete description of each brand, existing net retail price and the
corresponding tax rate thereof.
ii. Submit to the ACIR, LTS, a list of major supermarkets/retail outlets within the territorial jurisdiction
of the concerned revenue regions where the survey will be conducted to be used as basis in the
issuance of Mission Orders. Ensure that the minimum number of establishments to be surveyed, as
prescribed under existing revenue laws and regulations, is complied with. In addition, the names
and designations of revenue officers selected to conduct the survey shall be clearly indicated
opposite the names of the establishments to be surveyed.
There is merit to the contention.
In order to implement RA 8240 following its effectivity on January 1, 1997, the BIR issued Revenue Regulations
No. 1-97, dated December 13, 1996, which mandates a one-time classification only.79 Upon their launch, new
brands shall be initially taxed based on their suggested net retail price. Thereafter, a survey shall be conducted
within three (3) months to determine their current net retail prices and, thus, fix their official tax classifications.
However, the BIR made a turnaround by issuing Revenue Regulations No. 9-2003, dated February 17, 2003,
which partly amended Revenue Regulations No. 1-97, by authorizing the BIR to periodically reclassify new
brands (i.e., every two years or earlier) based on their current net retail prices. Thereafter, the BIR issued
Revenue Memorandum Order No. 6-2003, dated March 11, 2003, prescribing the guidelines on the
implementation of Revenue Regulations No. 9-2003. This was patent error on the part of the BIR for being
contrary to the plain text and legislative intent of RA 8240.
It is clear that the afore-quoted portions of Revenue Regulations No. 1-97, as amended by Section 2 of
Revenue Regulations 9-2003, and Revenue Memorandum Order No. 6-2003 unjustifiably emasculate the
operation of Section 145 of the NIRC because they authorize the Commissioner of Internal Revenue to update
the tax classification of new brands every two years or earlier subject only to its issuance of the appropriate
Revenue Regulations, when nowhere in Section 145 is such authority granted to the Bureau. Unless expressly
granted to the BIR, the power to reclassify cigarette brands remains a prerogative of the legislature which
cannot be usurped by the former.
More importantly, as previously discussed, the clear legislative intent was for new brands to benefit from the
same freezing mechanism accorded to Annex "D" brands. To reiterate, in enacting RA 8240, Congress
categorically rejected the DOF proposal and Senate Version which would have empowered the DOF and BIR
to periodically adjust the excise tax rate and tax brackets, and to periodically resurvey and reclassify cigarette
brands. (This resurvey and reclassification would have naturally encompassed both old and new brands.) It
would thus, be absurd for us to conclude that Congress intended to allow the periodic reclassification of new
brands by the BIR after their classification is determined based on their current net retail price while limiting the
freezing of the classification to Annex "D" brands. Incidentally, Senator Ralph G. Recto expressed the following
views during the deliberations on RA 9334, which later amended RA 8240:
Senator Recto: Because, like I said, when Congress agreed to adopt a specific tax system [under
R.A. 8240], when Congress did not index the brackets, and Congress did not index the rates but
only provided for a one rate increase in the year 2000, we shifted from ad valorem which was based
on value to a system of specific which is based on volume. Congress then, in effect, determined the
classification based on the prices at that particular period of time and classified these products
accordingly.
Of course, Congress then decided on what will happen to the new brands or variants of existing
brands. To favor government, a variant would be classified as the highest rate of tax for that
particular brand. In case of a new brand, Mr. President, then the BIR should classify them. But I do
not think it was the intention of Congress then to give the BIR the authority to reclassify them every
so often. I do not think it was the intention of Congress to allow the BIR to classify a new brand
every two years, for example, because it will be arbitrary for the BIR to do so. x x x80(Emphasis
supplied)
For these reasons, the amendments introduced by RA 9334 to RA 8240, insofar as the freezing mechanism is
concerned, must be seen merely as underscoring the legislative intent already in place then, i.e. new brands as
being covered by the freezing mechanism after their classification based on their current net retail prices.
Unfortunately for petitioner, this result will not cause a downward reclassification of Lucky Strike. It will be
recalled that petitioner introduced Lucky Strike in June 2001. However, as admitted by petitioner itself, the BIR
did not conduct the required market survey within three months from product launch. As a result, Lucky Strike
was never classified based on its actual current net retail price. Petitioner failed to timely seek redress to
compel the BIR to conduct the requisite market survey in order to fix the tax classification of Lucky Strike. In the
meantime, Lucky Strike was taxed based on its suggested net retail price of P9.90 per pack, which is within the
high-priced tax bracket. It was only after the lapse of two years or in 2003 that the BIR conducted a market
survey which was the first time that Lucky Strikesactual current net retail price was surveyed and found to be
from P10.34 to P11.53 per pack, which is within the premium-priced tax bracket. The case of petitioner falls
under a situation where there was no reclassification based on its current net retail price which would have
been invalid as previously explained. Thus, we cannot grant petitioners prayer for a downward reclassification
of Lucky Strike because it was never reclassified by the BIR based on its actual current net retail price.
It should be noted though that on August 8, 2003, the BIR issued Revenue Regulations No. 22-2003 which
implemented the revised tax classifications of new brands based on their current net retail prices through the
market survey conducted pursuant to Revenue Regulations No. 9-2003. Annex "A" of Revenue Regulations
No. 22-2003 lists the result of the market survey and the corresponding recommended tax classification of the
new brands therein aside from Lucky Strike. However, whether these other brands were illegally reclassified
based on their actual current net retail prices by the BIR must be determined on a case-to-case basis because
it is possible that these brands were classified based on their actual current net retail price for the first time in
the year 2003 just like Lucky Strike. Thus, we shall not make any pronouncement as to the validity of the tax
classifications of the other brands listed therein.
Finally, it must be noted that RA 9334 introduced changes in the manner by which the current net retail price of
a new brand is determined and how its classification is permanently fixed, to wit:
New brands, as defined in the immediately following paragraph, shall initially be classified according
to their suggested net retail price.
New brands shall mean a brand registered after the date of effectivity of R.A. No. 8240 [on January
1, 1997].
Suggested net retail price shall mean the net retail price at which new brands, as defined above, of
locally manufactured or imported cigarettes are intended by the manufacture or importer to be sold
on retail in major supermarkets or retail outlets in Metro Manila for those marketed nationwide, and
in other regions, for those with regional markets. At the end of three (3) months from the product
launch, the Bureau of Internal Revenue shall validate the suggested net retail price of the
new brand against the net retail price as defined herein and determine the correct tax bracket
under which a particular new brand of cigarette, as defined above, shall be classified. After
the end of eighteen (18) months from such validation, the Bureau of Internal Revenue shall
revalidate the initially validated net retail price against the net retail price as of the time of
revalidation in order to finally determine the correct tax bracket under which a particular new
brand of cigarettes shall be classified; Provided however, That brands of cigarettes introduced in
the domestic market between January 1, 1997 and December 31, 2003 shall remain in the
classification under which the Bureau of Internal Revenue has determined them to belong as of
December 31, 2003.Such classification of new brands and brands introduced between
January 1, 1997 and December 31, 2003 shall not be revised except by an act of
Congress. (Emphasis supplied)
Thus, Revenue Regulations No. 9-2003 and Revenue Memorandum Order No. 6-2003 should be deemed
modified by the above provisions from the date of effectivity of RA 9334 on January 1, 2005.
In sum, Section 4(B)(e)(c), 2nd paragraph of Revenue Regulations No. 1-97, as amended by Section 2 of
Revenue Regulations 9-2003, and Sections II(1)(b), II(4)(b), II(6), II(7), III (Large Tax Payers Assistance
Division II) II(b) of Revenue Memorandum Order No. 6-2003, as pertinent to cigarettes packed by machine, are
invalid insofar as they grant the BIR the power to reclassify or update the classification of new brands every two
years or earlier. Further, these provisions are deemed modified upon the effectivity of RA 9334 on January 1,
2005 insofar as the manner of determining the permanent classification of new brands is concerned.
We now tackle the last issue.
Petitioner contends that RA 8240, as amended by RA 9334, and its implementing rules and regulations violate
the General Agreement on Tariffs and Trade (GATT) of 1947, as amended, specifically, Paragraph 2, Article III,
Part II:
2. The products of the territory of any contracting party imported into the territory of any other
contracting party shall not be subject, directly or indirectly, to internal taxes or other internal charges
of any kind in excess of those applied, directly or indirectly, to like domestic products. Moreover, no
contracting party shall otherwise apply internal taxes or other internal charges to imported or
domestic products in a manner contrary to the principles set forth in paragraph 1.
It claims that it is the duty of this Court to correct, in favor of the GATT, whatever inconsistency exists between
the assailed law and the GATT in order to prevent triggering the international dispute settlement mechanism
under the GATT-WTO Agreement.
We disagree.
The classification freeze provision uniformly applies to all newly introduced brands in the market, whether
imported or locally manufactured. It does not purport to single out imported cigarettes in order to unduly favor
locally produced ones. Further, petitioners evidence was anchored on the alleged unequal tax treatment
between old and new brands which involves a different frame of reference vis--vis local and imported
products. Petitioner has, therefore, failed to clearly prove its case, both factually and legally, within the
parameters of the GATT.

At any rate, even assuming arguendo that petitioner was able to prove that the classification freeze
provision violates the GATT, the outcome would still be the same. The GATT is a treaty duly ratified by the
Philippine Senate and under Article VII, Section 2181 of the Constitution, it merely acquired the status of a
statute.82 Applying the basic principles of statutory construction in case of irreconcilable conflict between
statutes, RA 8240, as amended by RA 9334, would prevail over the GATT either as a later enactment by
Congress or as a special law dealing with the taxation of sin products. Thus, in Abbas v. Commission on
Elections,83 we had occasion to explain:

Petitioners premise their arguments on the assumption that the Tripoli Agreement is part of the law
of the land, being a binding international agreement. The Solicitor General asserts that the Tripoli
Agreement is neither a binding treaty, not having been entered into by the Republic of the
Philippines with a sovereign state and ratified according to the provisions of the 1973 or 1987
Constitutions, nor a binding international agreement.

We find it neither necessary nor determinative of the case to rule on the nature of the Tripoli
Agreement and its binding effect on the Philippine Government whether under public international or
internal Philippine law. In the first place, it is now the Constitution itself that provides for the creation
of an autonomous region in Muslim Mindanao. The standard for any inquiry into the validity of R.A.
No. 6734 would therefore be what is so provided in the Constitution. Thus, any conflict between the
provisions of R.A. No. 6734 and the provisions of the Tripoli Agreement will not have the effect of
enjoining the implementation of the Organic Act. Assuming for the sake of argument that the Tripoli
Agreement is a binding treaty or international agreement, it would then constitute part of the law of
the land. But as internal law it would not be superior to R.A. No. 6734, an enactment of the
Congress of the Philippines, rather it would be in the same class as the latter [SALONGA, PUBLIC
INTERNATIONAL LAW 320 (4th ed., 1974), citing Head Money Cases, 112 U.S. 580 (1884) and
Foster v. Nelson, 2 Pet. 253 (1829)]. Thus, if at all, R.A. No. 6734 would be amendatory of the
Tripoli Agreement, being a subsequent law. Only a determination by this Court that R.A. No. 6734
contravenes the Constitution would result in the granting of the reliefs sought. (Emphasis supplied)

WHEREFORE, the petition is PARTIALLY GRANTED and the decision of the Regional Trial Court of Makati,
Branch 61, in Civil Case No. 03-1032, is AFFIRMED with MODIFICATION. As modified, this Court declares
that:

(1) Section 145 of the NIRC, as amended by Republic Act No. 9334, is CONSTITUTIONAL; and that

(2) Section 4(B)(e)(c), 2nd paragraph of Revenue Regulations No. 1-97, as amended by Section 2 of Revenue
Regulations 9-2003, and Sections II(1)(b), II(4)(b), II(6), II(7), III (Large Tax Payers Assistance Division II) II(b)
of Revenue Memorandum Order No. 6-2003, insofar as pertinent to cigarettes packed by machine,
are INVALID insofar as they grant the BIR the power to reclassify or update the classification of new brands
every two years or earlier.

SO ORDERED.
G.R. No. L-14519 July 26, 1960 333, C. A. No. 466.) The provision of law on prescription was adopted in our statute books upon
recommendation of the tax commissioner of the Philippines which declares:
REPUBLIC OF THE PHILIPPINES, plaintiff-appellant,
vs. Under the former law, the right of the Government to collect the tax does not prescribe. However, in
LUIS G. ABLAZA, defendant-appellee. fairness to the taxpayer, the Government should be estopped from collecting the tax where it failed
to make the necessary investigation and assessment within 5 years after the filing of the return and
Assistant Solicitor General Jose P. Alejandro and Special Attorneys Cirilio R. Francisco and Santiago M. where it failed to collect the tax within 5 years from the date of assessment thereof. just as the
Kapunan for appellant. government is interested in the stability of its collection, so also are the taxpayers entitled to an
Martin B. Istaro for appellee. assurance that they will not be subjected to further investigation for tax purposes after the expiration
of a reasonable period of time. (Vol. II, Report of the Tax Commission of the Philippines, pp. 321-
LABRADOR, J.: 322)

Appeal from a judgment of the Court of First Instance of Manila, Hon. Carmelino G. Alvendia, presiding, The law prescribing a limitation of actions for the collection of the income tax is beneficial both to the
dismissing an action instituted by the Government to recover income taxes from the defendant-appellee Government and to its citizens; to the Government because tax officers would be obliged to act promptly in the
corresponding to the years 1945, 1946, 1947 and 1948. making of assessment, and to citizens because after the lapse of the period of prescription citizens would have
a feeling of security against unscrupulous tax agents who will always find an excuse to inspect the books of
taxpayers, not to determine the latter's real liability, but to take advantage of every opportunity to molest
The record discloses that on October 3, 1951, the Collector of Internal Revenue assessed income taxes for the
peaceful, law-abiding citizens. Without such legal defense taxpayers would furthermore be under obligation to
years 1945, 1946, 1947 and 1948 on the income tax returns of defendant-appellee Luis G. Ablaza. The
always keep their books and keep them open for inspection subject to harassment by unscrupulous tax agents.
assessments total P5,254.70 (Exhibit "I"). On October 16, 1951, the accountants for Ablaza requested a
The law on prescription being a remedial measure should be interpreted in a way conducive to bringing about
reinvestigation of Ablaza's tax liability, on the ground that (1) the assessment is based on third-party
the beneficient purpose of affording protection to the taxpayer within the contemplation of the Commission
information and (3) neither the taxpayer nor his accountants were permitted to appear in person (Exh. "J"). The
which recommend the approval of the law.
petition for reinvestigation was granted in a letter of the Collector of Internal Revenue, dated October 17, 1951.
On October 30, 1951, the accountants for Ablaza again sent another letter to the Collector of Internal Revenue
submitting a copy of their own computation (Exh. "L"). On October 23, 1952, said accountants again submitted The question in the case at bar boils down to the interpretation of Exhibit "P", dated March 10, 1954, quoted
a supplemental memorandum (Exh. "M"). On March 10, 1954, the accountants for Ablaza sent a letter to the above. If said letter be interpreted as a request for further investigation or a new investigation, different and
examiner of accounts and collections of the Bureau of Internal Revenue, stating: distinct from the investigation demanded or prayed for in Ablaza's first letter, Exhibit "L", then the period of
prescription would continue to be suspended thereby. but if the letter in question does not ask for another
investigation, the result would be just the opposite. In our opinion the letter in question, Exhibit "P", does not
In this connection, we wish to state that this case is presently under reinvestigation as per our
ask for another investigation. Its first paragraph quoted above shows that the reinvestigation then being
request dated October 16, 1951, and your letter to us dated October 17, 1951, and that said tax
conducted was by virtue of its request of October 16, 1951. All that the letter asks is that the taxpayer be
liability being only a tentative assessment, we are not as yet advised of the results of the requested
furnished a copy of the computation. The request may be explained in this manner: As the reinvestigation was
reinvestigation.
allowed on October 1, 1951 and on October 16, 1951, the taxpayer supposed or expected that at the time,
March, 1954 the reinvestigation was about to be finished and he wanted a copy of the re-assessment in order
In view thereof, we wish to request, in fairness to the taxpayer concerned, that we be furnished a to be prepared to admit or contest it. Nowhere does the letter imply a demand or request for a ready requested
copy of the detailed computation of the alleged tax liability as soon as the reinvestigation is and, therefore, the said letter may not be interpreted to authorize or justify the continuance of the suspension of
terminated to enable us to prove the veracity of the taxpayer's side of the case, and if it is found out the period of limitations.
that said assessment is proper and in order, we assure you of our assistance in the speedy
disposition of this case. (Exh. "P")
We find the appeal without merit and we hereby affirm the judgment of the lower court dismissing the action.
Without costs.
On February 11, 1957, after the reinvestigation, the Collector of Internal Revenue made a final assessment of
the income taxes of Ablaza, fixing said income taxes for the years already mentioned at P2,066.56 (Exh. "Q").
Notice of the said assessment was sent (Exhs. "V", "W" and "X") and upon receipt thereof the accountants of
Ablaza sent a letter to the Collector of Internal Revenue, dated May 8, 1957, protesting the assessments, on
the ground that the income taxes are no longer collectible for the reason that they have already prescribed. As
the Collector did not agree to the alleged claim of prescription, action was instituted by him in the Court of First
Instance to recover the amount assessed. The Court of First Instance upheld the contention of Ablaza that the
action to collect the said income taxes had prescribed. Against this decision the case was brought here on
appeal, where it is claimed by the Government that the prescriptive period has not fully run at the time of the
assessment, in view especially of the letter of the accountants of Ablaza, dated March 10, 1954, pertinent
provisions of which are quoted above.

It is of course true on October 14, 1951, Ablaza's accountants requested a reinvestigation of the assessment of
the income taxes against him, the period of prescription of action to collect the taxes was suspended. (Sec.
G.R. No. 148191 November 25, 2003
April to June 1994 370,913,832.70 18,545,691.63
COMMISSIONER OF INTERNAL REVENUE, petitioner,
vs.
SOLIDBANK CORPORATION, respondent.
July to September 1994 481,501,838.98 24,075,091.95
DECISION
October to December 1994 433,869,959.81 21,693,497.98
PANGANIBAN, J.:

Under the Tax Code, the earnings of banks from "passive" income are subject to a twenty percent final
withholding tax (20% FWT). This tax is withheld at source and is thus not actually and physically received by
the banks, because it is paid directly to the government by the entities from which the banks derived the
income. Apart from the 20% FWT, banks are also subject to a five percent gross receipts tax (5% GRT) which
is imposed by the Tax Code on their gross receipts, including the "passive" income.
Since the 20% FWT is constructively received by the banks and forms part of their gross receipts or earnings, it
follows that it is subject to the 5% GRT. After all, the amount withheld is paid to the government on their behalf,
in satisfaction of their withholding taxes. That they do not actually receive the amount does not alter the fact
that it is remitted for their benefit in satisfaction of their tax obligations.
Stated otherwise, the fact is that if there were no withholding tax system in place in this country, this 20 percent
portion of the "passive" income of banks would actually be paid to the banks and then remitted by them to the
government in payment of their income tax. The institution of the withholding tax system does not alter the fact
that the 20 percent portion of their "passive" income constitutes part of their actual earnings, except that it is
paid directly to the government on their behalf in satisfaction of the 20 percent final income tax due on their
"passive" incomes.
The Case
Total P 1,474,691,693.44 P 73,734,584.60
"[Respondent] alleges that the total gross receipts in the amount of P1,474,691,693.44 included the sum
of P350,807,875.15 representing gross receipts from passive income which was already subjected to 20% final
withholding tax.
"On January 30, 1996, [the Court of Tax Appeals] rendered a decision in CTA Case No. 4720 entitled Asian
Bank Corporation vs. Commissioner of Internal Revenue[,] wherein it was held that the 20% final withholding
tax on [a] banks interest income should not form part of its taxable gross receipts for purposes of computing
the gross receipts tax.
"On June 19, 1997, on the strength of the aforementioned decision, [respondent] filed with the Bureau of
Internal Revenue [BIR] a letter-request for the refund or issuance of [a] tax credit certificate in the aggregate
amount of P3,508,078.75, representing allegedly overpaid gross receipts tax for the year 1995, computed as
follows:
Gross Receipts Subjected to the Final
Tax

Before us is a Petition for Review1 under Rule 45 of the Rules of Court, seeking to annul the July 18, 2000
Decision2 and the May 8, 2001 Resolution3 of the Court of Appeals4 (CA) in CA-GR SP No. 54599. The Derived from Passive [Income] P 350,807,875.15
decretal portion of the assailed Decision reads as follows:

"WHEREFORE, we AFFIRM in toto the assailed decision and resolution of the Court of Tax Appeals."5 Multiply by Final Tax rate 20%

The challenged Resolution denied petitioners Motion for Reconsideration.

20% Final Tax Withheld at Source P 70,161,575.03
The Facts
Multiply by [Gross Receipts Tax] rate 5%
Quoting petitioner, the CA6 summarized the facts of this case as follows:

"For the calendar year 1995, [respondent] seasonably filed its Quarterly Percentage Tax Returns reflecting Overpaid [Gross Receipts Tax] P 3,508,078.75
gross receipts (pertaining to 5% [Gross Receipts Tax] rate) in the total amount of P1,474,691,693.44 with
corresponding gross receipts tax payments in the sum of P73,734,584.60, broken down as follows:
"Without waiting for an action from the [petitioner], [respondent] on the same day filed [a] petition for review
[with the Court of Tax Appeals] in order to toll the running of the two-year prescriptive period to judicially claim
Period Covered Gross Receipts Gross Receipts Tax for the refund of [any] overpaid internal revenue tax[,] pursuant to Section 230 [now 229] of the Tax Code [also
National Internal Revenue Code] x x x.
January to March 1994 P 188,406,061.95 P 9,420,303.10
xxx xxx xxx
"After trial on the merits, the [Court of Tax Appeals], on August 6, 1999, rendered its decision ordering x x x
petitioner to refund in favor of x x x respondent the reduced amount of P1,555,749.65 as overpaid [gross
receipts tax] for the year 1995. The legal issue x x x was resolved by the [Court of Tax Appeals], with Hon.
Amancio Q. Saga dissenting, on the strength of its earlier pronouncement in x x x Asian Bank Corporation vs.
Commissioner of Internal Revenue x x x, wherein it was held that the 20% [final withholding tax] on [a] banks
interest income should not form part of its taxable gross receipts for purposes of computing the [gross receipts
tax]."7
Ruling of the CA
The CA held that the 20% FWT on a banks interest income did not form part of the taxable gross receipts in
computing the 5% GRT, because the FWT was not actually received by the bank but was directly remitted to
the government. The appellate court curtly said that while the Tax Code "does not specifically state any
exemption, x x x the statute must receive a sensible construction such as will give effect to the legislative
intention, and so as to avoid an unjust or absurd conclusion."8
Hence, this appeal.9
Issue
Petitioner raises this lone issue for our consideration:
"Whether or not the 20% final withholding tax on [a] banks interest income forms part of the taxable gross
receipts in computing the 5% gross receipts tax."10
The Courts Ruling
The Petition is meritorious.
Sole Issue:
Whether the 20% FWT Forms Part
of the Taxable Gross Receipts
Petitioner claims that although the 20% FWT on respondents interest income was not actually received by
respondent because it was remitted directly to the government, the fact that the amount redounded to the
banks benefit makes it part of the taxable gross receipts in computing the 5% GRT. Respondent, on the other
hand, maintains that the CA correctly ruled otherwise.
We agree with petitioner. In fact, the same issue has been raised recently in China Banking Corporation v.
CA,11 where this Court held that the amount of interest income withheld in payment of the 20% FWT forms part
of gross receipts in computing for the GRT on banks.
The FWT and the GRT:
Two Different Taxes
The 5% GRT is imposed by Section 11912 of the Tax Code,13 which provides:
"SEC. 119. Tax on banks and non-bank financial intermediaries. There shall be collected a tax on gross
receipts derived from sources within the Philippines by all banks and non-bank financial intermediaries in
accordance with the following schedule:
"(a) On interest, commissions and discounts from lending activities as well as income from financial leasing, on
the basis of remaining maturities of instruments from which such receipts are derived.
Short-term maturity not in excess of two (2) years5%
Medium-term maturity over two (2) years
but not exceeding four (4) years....3%
Long-term maturity:
(i) Over four (4) years but not exceeding
seven (7) years1%
(ii) Over seven (7) years..0%
"(b) On dividends...0%
"(c) On royalties, rentals of property, real or personal, profits from exchange and all other items
treated as gross income under Section 2814 of this
Code....................................................................5%
Provided, however, That in case the maturity period referred to in paragraph (a) is shortened thru
pretermination, then the maturity period shall be reckoned to end as of the date of pretermination for purposes
of classifying the transaction as short, medium or long term and the correct rate of tax shall be applied
accordingly.
"Nothing in this Code shall preclude the Commissioner from imposing the same tax herein provided on persons
performing similar banking activities."
The 5% GRT15 is included under "Title V. Other Percentage Taxes" of the Tax Code and is not subject to
withholding. The banks and non-bank financial intermediaries liable therefor shall, under Section
125(a)(1),16 file quarterly returns on the amount of gross receipts and pay the taxes due thereon within twenty
(20)17 days after the end of each taxable quarter.
The 20% FWT,18 on the other hand, falls under Section 24(e)(1)19 of "Title II. Tax on Income." It is a tax on
passive income, deducted and withheld at source by the payor-corporation and/or person as withholding agent
pursuant to Section 50,20 and paid in the same manner and subject to the same conditions as provided for in
Section 51.21
A perusal of these provisions clearly shows that two types of taxes are involved in the present controversy: (1)
the GRT, which is a percentage tax; and (2) the FWT, which is an income tax. As a bank, petitioner is covered
by both taxes.
A percentage tax is a national tax measured by a certain percentage of the gross selling price or gross value in
money of goods sold, bartered or imported; or of the gross receipts or earnings derived by any person engaged
in the sale of services.22 It is not subject to withholding.
An income tax, on the other hand, is a national tax imposed on the net or the gross income realized in a taxable
year.23 It is subject to withholding.
In a withholding tax system, the payee is the taxpayer, the person on whom the tax is imposed; the payor, a
separate entity, acts as no more than an agent of the government for the collection of the tax in order to ensure
its payment. Obviously, this amount that is used to settle the tax liability is deemed sourced from the proceeds
constitutive of the tax base.24 These proceeds are either actual or constructive. Both parties herein agree that
there is no actual receipt by the bank of the amount withheld. What needs to be determined is if there is
constructive receipt thereof. Since the payee -- not the payor -- is the real taxpayer, the rule on constructive
receipt can be easily rationalized, if not made clearly manifest.25
Constructive Receipt
Versus Actual Receipt
Applying Section 7 of Revenue Regulations (RR) No. 17-84,26 petitioner contends that there is constructive
receipt of the interest on deposits and yield on deposit substitutes.27 Respondent, however, claims that even if
there is, it is Section 4(e) of RR 12-8028 that nevertheless governs the situation.
Section 7 of RR 17-84 states:
"SEC. 7. Nature and Treatment of Interest on Deposits and Yield on Deposit Substitutes.
(a) The interest earned on Philippine Currency bank deposits and yield from deposit substitutes
subjected to the withholding taxes in accordance with these regulations need not be included in the
gross income in computing the depositors/investors income tax liability in accordance with the
provision of Section 29(b),29 (c)30 and (d) of the National Internal Revenue Code, as amended.
(b) Only interest paid or accrued on bank deposits, or yield from deposit substitutes declared for
purposes of imposing the withholding taxes in accordance with these regulations shall be allowed as
interest expense deductible for purposes of computing taxable net income of the payor.
(c) If the recipient of the above-mentioned items of income are financial institutions, the same shall
be included as part of the tax base upon which the gross receipt[s] tax is imposed."
Section 4(e) of RR 12-80, on the other hand, states that the tax rates to be imposed on the gross receipts of
banks, non-bank financial intermediaries, financing companies, and other non-bank financial intermediaries not
performing quasi-banking activities shall be based on all items of income actually received. This provision
reads:
"SEC. 4. x x x x x x x x x
"(e) Gross receipts tax on banks, non-bank financial intermediaries, financing companies, and other non-bank
financial intermediaries not performing quasi-banking activities. The rates of tax to be imposed on the gross
receipts of such financial institutions shall be based on all items of income actually received. Mere accrual shall
not be considered, but once payment is received on such accrual or in cases of prepayment, then the amount
actually received shall be included in the tax base of such financial institutions, as provided hereunder x x x."
Respondent argues that the above-quoted provision is plain and clear: since there is no actual receipt, the FWT
is not to be included in the tax base for computing the GRT. There is supposedly no pecuniary benefit or
advantage accruing to the bank from the FWT, because the income is subjected to a tax burden immediately
upon receipt through the withholding process. Moreover, the earlier RR 12-80 covered matters not falling under
the later RR 17-84.31
We are not persuaded.
By analogy, we apply to the receipt of income the rules on actual and constructive possession provided in
Articles 531 and 532 of our Civil Code.
Under Article 531:32
"Possession is acquired by the material occupation of a thing or the exercise of a right, or by the fact that it is
subject to the action of our will, or by the proper acts and legal formalities established for acquiring such right."
Article 532 states:
"Possession may be acquired by the same person who is to enjoy it, by his legal representative, by his agent,
or by any person without any power whatever; but in the last case, the possession shall not be considered as
acquired until the person in whose name the act of possession was executed has ratified the same, without
prejudice to the juridical consequences of negotiorum gestio in a proper case."33
The last means of acquiring possession under Article 531 refers to juridical acts -- the acquisition of possession
by sufficient title to which the law gives the force of acts of possession.34 Respondent argues that only items
of income actually received should be included in its gross receipts. It claims that since the amount had already
been withheld at source, it did not have actual receipt thereof.
We clarify. Article 531 of the Civil Code clearly provides that the acquisition of the right of possession is through
the proper acts and legal formalities established therefor. The withholding process is one such act. There may
not be actual receipt of the income withheld; however, as provided for in Article 532, possession by any person
without any power whatsoever shall be considered as acquired when ratified by the person in whose name the
act of possession is executed.
In our withholding tax system, possession is acquired by the payor as the withholding agent of the government,
because the taxpayer ratifies the very act of possession for the government. There is thus constructive receipt.
The processes of bookkeeping and accounting for interest on deposits and yield on deposit substitutes that are
subjected to FWT are indeed -- for legal purposes -- tantamount to delivery, receipt or remittance.35 Besides,
respondent itself admits that its income is subjected to a tax burden immediately upon "receipt," although it
claims that it derives no pecuniary benefit or advantage through the withholding process. There being
constructive receipt of such income -- part of which is withheld -- RR 17-84 applies, and that income is included
as part of the tax base upon which the GRT is imposed.
RR 12-80 Superseded by RR 17-84
We now come to the effect of the revenue regulations on interest income constructively received.
In general, rules and regulations issued by administrative or executive officers pursuant to the procedure or
authority conferred by law upon the administrative agency have the force and effect, or partake of the nature, of
a statute.36 The reason is that statutes express the policies, purposes, objectives, remedies and sanctions
intended by the legislature in general terms. The details and manner of carrying them out are oftentimes left to
the administrative agency entrusted with their enforcement.
In the present case, it is the finance secretary who promulgates the revenue regulations, upon recommendation
of the BIR commissioner. These regulations are the consequences of a delegated power to issue legal
provisions that have the effect of law.37
A revenue regulation is binding on the courts as long as the procedure fixed for its promulgation is followed.
Even if the courts may not be in agreement with its stated policy or innate wisdom, it is nonetheless valid,
provided that its scope is within the statutory authority or standard granted by the legislature.38 Specifically, the
regulation must (1) be germane to the object and purpose of the law;39 (2) not contradict, but conform to, the
standards the law prescribes;40 and (3) be issued for the sole purpose of carrying into effect the general
provisions of our tax laws.41
In the present case, there is no question about the regularity in the performance of official duty. What needs to
be determined is whether RR 12-80 has been repealed by RR 17-84.
A repeal may be express or implied. It is express when there is a declaration in a regulation -- usually in its
repealing clause -- that another regulation, identified by its number or title, is repealed. All others are implied
repeals.42 An example of the latter is a general provision that predicates the intended repeal on a substantial
conflict between the existing and the prior regulations.43
As stated in Section 11 of RR 17-84, all regulations, rules, orders or portions thereof that are inconsistent with
the provisions of the said RR are thereby repealed. This declaration proceeds on the premise that RR 17-84
clearly reveals such an intention on the part of the Department of Finance. Otherwise, later RRs are to be
construed as a continuation of, and not a substitute for, earlier RRs; and will continue to speak, so far as the
subject matter is the same, from the time of the first promulgation.44
There are two well-settled categories of implied repeals: (1) in case the provisions are in irreconcilable conflict,
the later regulation, to the extent of the conflict, constitutes an implied repeal of an earlier one; and (2) if the
later regulation covers the whole subject of an earlier one and is clearly intended as a substitute, it will similarly
operate as a repeal of the earlier one.45 There is no implied repeal of an earlier RR by the mere fact that its
subject matter is related to a later RR, which may simply be a cumulation or continuation of the earlier one.46
Where a part of an earlier regulation embracing the same subject as a later one may not be enforced without
nullifying the pertinent provision of the latter, the earlier regulation is deemed impliedly amended or modified to
the extent of the repugnancy.47 The unaffected provisions or portions of the earlier regulation remain in force,
while its omitted portions are deemed repealed.48 An exception therein that is amended by its subsequent
elimination shall now cease to be so and instead be included within the scope of the general rule.49
Section 4(e) of the earlier RR 12-80 provides that only items of income actually received shall be included in
the tax base for computing the GRT, but Section 7(c) of the later RR 17-84 makes no such distinction and
provides that all interests earned shall be included. The exception having been eliminated, the clear intent is
that the later RR 17-84 includes the exception within the scope of the general rule.
Repeals by implication are not favored and will not be indulged, unless it is manifest that the administrative
agency intended them. As a regulation is presumed to have been made with deliberation and full knowledge of
all existing rules on the subject, it may reasonably be concluded that its promulgation was not intended to
interfere with or abrogate any earlier rule relating to the same subject, unless it is either repugnant to or fully
inclusive of the subject matter of an earlier one, or unless the reason for the earlier one is "beyond
peradventure removed."50 Every effort must be exerted to make all regulations stand -- and a later rule will not
operate as a repeal of an earlier one, if by any reasonable construction, the two can be reconciled.51
RR 12-80 imposes the GRT only on all items of income actually received, as opposed to their mere accrual,
while RR 17-84 includes all interest income in computing the GRT. RR 12-80 is superseded by the later rule,
because Section 4(e) thereof is not restated in RR 17-84. Clearly therefore, as petitioner correctly states, this
particular provision was impliedly repealed when the later regulations took effect.52
Reconciling the Two Regulations
Granting that the two regulations can be reconciled, respondents reliance on Section 4(e) of RR 12-80 is
misplaced and deceptive. The "accrual" referred to therein should not be equated with the determination of the
amount to be used as tax base in computing the GRT. Such accrual merely refers to an accounting method
that recognizes income as earned although not received, and expenses as incurred although not yet paid.
Accrual should not be confused with the concept of constructive possession or receipt as earlier discussed.
Petitioner correctly points out that income that is merely accrued -- earned, but not yet received -- does not
form part of the taxable gross receipts; income that has been received, albeit constructively, does.53
The word "actually," used confusingly in Section 4(e), will be clearer if removed entirely. Besides, if actually is
that important, accrual should have been eliminated for being a mere surplusage. The inclusion of accrual
stresses the fact that Section 4(e) does not distinguish between actual and constructive receipt. It merely
focuses on the method of accounting known as the accrual system.
Under this system, income is accrued or earned in the year in which the taxpayers right thereto becomes fixed
and definite, even though it may not be actually received until a later year; while a deduction for a liability is to
be accrued or incurred and taken when the liability becomes fixed and certain, even though it may not be
actually paid until later.54
Under any system of accounting, no duty or liability to pay an income tax upon a transaction arises until the
taxable year in which the event constituting the condition precedent occurs. 55 The liability to pay a tax may thus
arise at a certain time and the tax paid within another given time.56
In reconciling these two regulations, the earlier one includes in the tax base for GRT all income, whether
actually or constructively received, while the later one includes specifically interest income. In computing the
income tax liability, the only exception cited in the later regulations is the exclusion from gross income of
interest income, which is already subjected to withholding. This exception, however, refers to a different tax
altogether. To extend mischievously such exception to the GRT will certainly lead to results not contemplated
by the legislators and the administrative body promulgating the regulations.
Manila Jockey Club
Inapplicable
In Commissioner of Internal Revenue v. Manila Jockey Club,57 we held that the term "gross receipts" shall not
include money which, although delivered, has been especially earmarked by law or regulation for some person
other than the taxpayer.58
To begin, we have to nuance the definition of gross receipts59 to determine what it is exactly. In this regard, we
note that US cases have persuasive effect in our jurisdiction, because Philippine income tax law is patterned
after its US counterpart.60
"[G]ross receipts with respect to any period means the sum of: (a) The total amount received or accrued
during such period from the sale, exchange, or other disposition of x x x other property of a kind which would
properly be included in the inventory of the taxpayer if on hand at the close of the taxable year, or property held
by the taxpayer primarily for sale to customers in the ordinary course of its trade or business, and (b) The gross
income, attributable to a trade or business, regularly carried on by the taxpayer, received or accrued during
such period x x x."61
"x x x [B]y gross earnings from operations x x x was intended all operations xxx including incidental,
subordinate, and subsidiary operations, as well as principal operations."62
"When we speak of the gross earnings of a person or corporation, we mean the entire earnings or receipts of
such person or corporation from the business or operations to which we refer."63
From these cases, "gross receipts"64 refer to the total, as opposed to the net, income.65 These are therefore the
total receipts before any deduction66 for the expenses of management.67 Websters New International
Dictionary, in fact, defines gross as "whole or entire."
Statutes taxing the gross "receipts," "earnings," or "income" of particular corporations are found in many
jurisdictions.68 Tax thereon is generally held to be within the power of a state to impose; or constitutional,
unless it interferes with interstate commerce or violates the requirement as to uniformity of taxation.69
Moreover, we have emphasized that the BIR has consistently ruled that "gross receipts" does not admit of any
deduction.70 Following the principle of legislative approval by reenactment,71 this interpretation has been
adopted by the legislature throughout the various reenactments of then Section 119 of the Tax Code.72
Given that a tax is imposed upon total receipts and not upon net earnings,73 shall the income withheld be
included in the tax base upon which such tax is imposed? In other words, shall interest income constructively
received still be included in the tax base for computing the GRT?
We rule in the affirmative.
Manila Jockey Club does not apply to this case. Earmarking is not the same as withholding. Amounts
earmarked do not form part of gross receipts, because, although delivered or received, these are by law or
regulation reserved for some person other than the taxpayer. On the contrary, amounts withheld form part of
gross receipts, because these are in constructive possession and not subject to any reservation, the
withholding agent being merely a conduit in the collection process.
The Manila Jockey Club had to deliver to the Board on Races, horse owners and jockeys amounts that never
became the property of the race track.74 Unlike these amounts, the interest income that had been withheld for
the government became property of the financial institutions upon constructive possession thereof. Possession
was indeed acquired, since it was ratified by the financial institutions in whose name the act of possession had
been executed. The money indeed belonged to the taxpayers; merely holding it in trust was not enough.75
The government subsequently becomes the owner of the money when the financial institutions pay the FWT to
extinguish their obligation to the government. As this Court has held before, this is the consideration for the
transfer of ownership of the FWT from these institutions to the government.76 It is ownership that determines
whether interest income forms part of taxable gross receipts.77 Being originally owned by these financial
institutions as part of their interest income, the FWT should form part of their taxable gross receipts.
Besides, these amounts withheld are in payment of an income tax liability, which is different from a percentage
tax liability. Commissioner of Internal Revenue v. Tours Specialists, Inc. aptly held thus:78
"x x x [G]ross receipts subject to tax under the Tax Code do not include monies or receipts entrusted to the
taxpayer which do not belong to them and do not redound to the taxpayers benefit; and it is not necessary that
there must be a law or regulation which would exempt such monies and receipts within the meaning of gross
receipts under the Tax Code."79
In the construction and interpretation of tax statutes and of statutes in general, the primary consideration is to
ascertain and give effect to the intention of the legislature.80 We ought to impute to the lawmaking body the
intent to obey the constitutional mandate, as long as its enactments fairly admit of such construction.81In fact, "x
x x no tax can be levied without express authority of law, but the statutes are to receive a reasonable
construction with a view to carrying out their purpose and intent."82
Looking again into Sections 24(e)(1) and 119 of the Tax Code, we find that the first imposes an income tax; the
second, a percentage tax. The legislature clearly intended two different taxes. The FWT is a tax on passive
income, while the GRT is on business.83 The withholding of one is not equivalent to the payment of the other.
Non-Exemption of FWT from GRT:
Neither Unjust nor Absurd
Taxing the people and their property is essential to the very existence of government. Certainly, one of the
highest attributes of sovereignty is the power of taxation,84 which may legitimately be exercised on the objects
to which it is applicable to the utmost extent as the government may choose.85 Being an incident of
sovereignty, such power is coextensive with that to which it is an incident.86 The interest on deposits and yield
on deposit substitutes of financial institutions, on the one hand, and their business as such, on the other, are
the two objects over which the State has chosen to extend its sovereign power. Those not so chosen are, upon
the soundest principles, exempt from taxation.87
While courts will not enlarge by construction the governments power of taxation,88 neither will they place upon
tax laws so loose a construction as to permit evasions, merely on the basis of fanciful and insubstantial
distinctions.89 When the legislature imposes a tax on income and another on business, the imposition must be
respected. The Tax Code should be so construed, if need be, as to avoid empty declarations or possibilities of
crafty tax evasion schemes. We have consistently ruled thus:
"x x x [I]t is upon taxation that the [g]overnment chiefly relies to obtain the means to carry on its operations, and
it is of the utmost importance that the modes adopted to enforce the collection of the taxes levied should be
summary and interfered with as little as possible. x x x."90
"Any delay in the proceedings of the officers, upon whom the duty is devolved of collecting the taxes, may
derange the operations of government, and thereby cause serious detriment to the public."91
"No government could exist if all litigants were permitted to delay the collection of its taxes." 92
A taxing act will be construed, and the intent and meaning of the legislature ascertained, from its
language.93 Its clarity and implied intent must exist to uphold the taxes as against a taxpayer in whose favor
doubts will be resolved.94 No such doubts exist with respect to the Tax Code, because the income and
percentage taxes we have cited earlier have been imposed in clear and express language for that purpose.95
This Court has steadfastly adhered to the doctrine that its first and fundamental duty is the application of the
law according to its express terms -- construction and interpretation being called for only when such literal
application is impossible or inadequate without them.96 In Quijano v. Development Bank of the Philippines,97 we
stressed as follows:
"No process of interpretation or construction need be resorted to where a provision of law peremptorily calls for
application." 98
A literal application of any part of a statute is to be rejected if it will operate unjustly, lead to absurd results, or
contradict the evident meaning of the statute taken as a whole.99 Unlike the CA, we find that the literal
application of the aforesaid sections of the Tax Code and its implementing regulations does not operate
unjustly or contradict the evident meaning of the statute taken as a whole. Neither does it lead to absurd
results. Indeed, our courts are not to give words meanings that would lead to absurd or unreasonable
consequences.100 We have repeatedly held thus:
"x x x [S]tatutes should receive a sensible construction, such as will give effect to the legislative intention and
so as to avoid an unjust or an absurd conclusion."101
"While it is true that the contemporaneous construction placed upon a statute by executive officers whose duty
is to enforce it should be given great weight by the courts, still if such construction is so erroneous, x x x the
same must be declared as null and void."102
It does not even matter that the CTA, like in China Banking Corporation,103 relied erroneously on Manila Jockey
Club. Under our tax system, the CTA acts as a highly specialized body specifically created for the purpose of
reviewing tax cases.104 Because of its recognized expertise, its findings of fact will ordinarily not be reviewed,
absent any showing of gross error or abuse on its part.105 Such findings are binding on the Court and, absent
strong reasons for us to delve into facts, only questions of law are open for determination.106
Respondent claims that it is entitled to a refund on the basis of excess GRT payments. We disagree.
Tax refunds are in the nature of tax exemptions.107 Such exemptions are strictly construed against the
taxpayer, being highly disfavored108 and almost said "to be odious to the law." Hence, those who claim to be
exempt from the payment of a particular tax must do so under clear and unmistakable terms found in the
statute. They must be able to point to some positive provision, not merely a vague implication,109 of the law
creating that right.110
The right of taxation will not be surrendered, except in words too plain to be mistaken.1wphi1 The reason is
that the State cannot strip itself of this highest attribute of sovereignty -- its most essential power of taxation --
by vague or ambiguous language. Since tax refunds are in the nature of tax exemptions, these are deemed to
be "in derogation of sovereign authority and to be construed strictissimi juris against the person or entity
claiming the exemption."111
purpose of raising revenues, the taxing periods they affect are different. The FWT is deducted and withheld as
soon as the income is earned, and is paid after every calendar quarter in which it is earned. On the other hand,
the GRT is neither deducted nor withheld, but is paid only after every taxable quarter in which it is earned.
Third, these two taxes are of different kinds or characters. The FWT is an income tax subject to withholding,
while the GRT is a percentage tax not subject to withholding.
In short, there is no double taxation, because there is no taxing twice, by the same taxing authority, within the
same jurisdiction, for the same purpose, in different taxing periods, some of the property in the
territory.125 Subjecting interest income to a 20% FWT and including it in the computation of the 5% GRT is
clearly not double taxation.
WHEREFORE, the Petition is GRANTED. The assailed Decision and Resolution of the Court of Appeals are
hereby REVERSED and SET ASIDE. No costs.
SO ORDERED.

No less than our 1987 Constitution provides for the mechanism for granting tax exemptions.112 They certainly
cannot be granted by implication or mere administrative regulation. Thus, when an exemption is claimed, it
must indubitably be shown to exist, for every presumption is against it,113 and a well-founded doubt is fatal to
the claim.114 In the instant case, respondent has not been able to satisfactorily show that its FWT on interest
income is exempt from the GRT. Like China Banking Corporation, its argument creates a tax exemption where
none exists.115

No exemptions are normally allowed when a GRT is imposed. It is precisely designed to maintain simplicity in
the tax collection effort of the government and to assure its steady source of revenue even during an economic
slump.116

No Double Taxation

We have repeatedly said that the two taxes, subject of this litigation, are different from each other. The basis of
their imposition may be the same, but their natures are different, thus leading us to a final point. Is there double
taxation?

The Court finds none.

Double taxation means taxing the same property twice when it should be taxed only once; that is, "x x x taxing
the same person twice by the same jurisdiction for the same thing."117 It is obnoxious when the taxpayer is
taxed twice, when it should be but once.118 Otherwise described as "direct duplicate taxation,"119 the two taxes
must be imposed on the same subject matter, for the same purpose, by the same taxing authority, within the
same jurisdiction, during the same taxing period; and they must be of the same kind or character.120

First, the taxes herein are imposed on two different subject matters. The subject matter of the FWT is the
passive income generated in the form of interest on deposits and yield on deposit substitutes, while the subject
matter of the GRT is the privilege of engaging in the business of banking.

A tax based on receipts is a tax on business rather than on the property; hence, it is an excise121 rather than a
property tax.122 It is not an income tax, unlike the FWT. In fact, we have already held that one can be taxed for
engaging in business and further taxed differently for the income derived therefrom.123 Akin to our ruling in
Velilla v. Posadas,124 these two taxes are entirely distinct and are assessed under different provisions.

Second, although both taxes are national in scope because they are imposed by the same taxing authority --
the national government under the Tax Code -- and operate within the same Philippine jurisdiction for the same
G.R. No. L-16619 June 29, 1963
COMPAIA GENERAL DE TABACOS DE FILIPINAS, plaintiff-appellee,
vs.
CITY OF MANILA, ET AL., defendants-appellants.
Ponce Enrile, Siguion Reyna, Montecillo and Belo for plaintiff-appellee.
City Fiscal Hermogenes Concepcion, Jr. and Assistant City Fiscal M. T. Reyes for defendants-appellants.
DIZON, J.:
Appeal from the decision of the Court of First Instance of Manila ordering the City Treasurer of Manila to refund
the sum of P15,280.00 to Compania General de Tabacos de Filipinas.
Appellee Compania General de Tabacos de Filipinas hereinafter referred to simply as Tabacalera filed
this action in the Court of First Instance of Manila to recover from appellants, City of Manila and its Treasurer,
Marcelino Sarmiento also hereinafter referred to as the City the sum of P15,280.00 allegedly overpaid by
it as taxes on its wholesale and retail sales of liquor for the period from the third quarter of 1954 to the second
quarter of 1957, inclusive, under Ordinances Nos. 3634, 3301, and 3816.
Tabacalera, as a duly licensed first class wholesale and retail liquor dealer paid the City the fixed license
fees prescribed by Ordinance No. 3358 for the years 1954 to 1957, inclusive, and, as a wholesale and retail
dealer of general merchandise, it also paid the sales taxes required by Ordinances Nos. 3634, 3301, and
3816.1wph1.t is often loosely used to include levies for revenue as well as levies for regulatory purposes. Thus license fees
In its sworn statements of wholesale, retail, and grocery sales of general merchandise from the third quarter of
1954 to the second quarter of 1957, inclusive, Tabacalera included its liquor sales of the same period, and it is
not denied that of the taxes it paid on all its sales of general merchandise, the sum of P15,280.00 subject to the
action represents the tax corresponding to the liquor sales aforesaid.
Tabacalera's action for refund is based on the theory that, in connection with its liquor sales, it should pay the
license fees prescribed by Ordinance No. 3358 but not the municipal sales taxes imposed by Ordinances Nos.
3634, 3301, and 3816; and since it already paid the license fees aforesaid, the sales taxes paid by it
amounting to the sum of P15,208.00 under the three ordinances mentioned heretofore is an overpayment
made by mistake, and therefore refundable.
The City, on the other hand, contends that, for the permit issued to it granting proper authority to "conduct or
engage in the sale of alcoholic beverages, or liquors" Tabacalera is subject to pay the license feesprescribed
by Ordinance No. 3358, aside from the sales taxes imposed by Ordinances Nos. 3634, 3301, and 3816; that,
even assuming that Tabacalera is not subject to the payment of the sales taxes prescribed by the said three
ordinances as regards its liquor sales, it is not entitled to the refund demanded for the following reasons:.
(a) The said amount was paid by the plaintiff voluntarily and without protest;
(b) If at all the alleged overpayment was made by mistake, such mistake was one of law and arose
from the plaintiff's neglect of duty; .
(c) The said amount had been added by the plaintiff to the selling price of the liquor sold by it and
passed to the consumers; and
(d) The said amount had been already expended by the defendant City for public improvements and
essential services of the City government, the benefits of which are enjoyed, and being enjoyed by
the plaintiff.
It is admitted that as liquor dealer, Tabacalera paid annually the wholesale and retail liquor license fees under
Ordinance No. 3358. In 1954, City Ordinance No. 3634, amending City Ordinance No. 3420, and City
Ordinance No. 3816, amending City Ordinance No. 3301 were passed. By reason thereof, the City Treasurer
issued the regulations marked Exhibit A, according to which, the term "general merchandise as used in said
ordinances, includes all articles referred to in Chapter 1, Sections 123 to 148 of the National Internal Revenue
Code. Of these, Sections 133-135 included liquor among the taxable articles. Pursuant to said regulations,
Tabacalera included its sales of liquor in its sworn quarterly declaration submitted to the City Treasurer
beginning from the third quarter of 1954 to the second quarter of 1957, with a total value of P722,501.09 and
correspondingly paid a wholesaler's tax amounting to P13,688.00 and a retailer's tax amounting to P1,520.00,
or a total of P15,208.00 the amount sought to be recovered.
It appears that in the year 1954, the City, through its treasurer, addressed a letter to Messrs. Sycip, Gorres,
Velayo and Co., an accounting firm, expressing the view that liquor dealers paying the annual wholesale and
retail fixed tax under City Ordinance No. 3358 are not subject to the wholesale and retail dealers' taxes
prescribed by City Ordinances Nos. 3634, 3301, and 3816. Upon learning of said opinion, appellee stopped
including its sales of liquor in its quarterly sworn declarations submitted in accordance with the aforesaid City
Ordinances Nos. 3634, 3301, and 3816, and on December 3, 1957, it addressed a letter to the City Treasurer
demanding refund of the alleged overpayment. As the claim was disallowed, the present action was instituted.
The term "tax" applies generally speaking to all kinds of exactions which become public funds. The term
are commonly called taxes. Legally speaking, however, license fee is a legal concept quite distinct from tax; the
former is imposed in the exercise of police power for purposes of regulation, while the latter is imposed under
the taxing power for the purpose of raising revenues (MacQuillin, Municipal Corporations, Vol. 9, 3rd Edition, p.
26).
Ordinance No. 3358 is clearly one that prescribes municipal license fees for the privilege to engage in the
business of selling liquor or alcoholic beverages, having been enacted by the Municipal Board of Manila
pursuant to its charter power to fix license fees on, and regulate, the sale of intoxicating liquors, whether
imported or locally manufactured. (Section 18 [p], Republic Act 409, as amended). The license fees imposed by
it are essentially for purposes of regulation, and are justified, considering that the sale of intoxicating liquor is,
potentially at least, harmful to public health and morals, and must be subject to supervision or regulation by the
state and by cities and municipalities authorized to act in the premises. (MacQuillin, supra, p. 445.)
On the other hand, it is clear that Ordinances Nos. 3634, 3301, and 3816 impose taxes on the sales of general
merchandise, wholesale or retail, and are revenue measures enacted by the Municipal Board of Manila by
virtue of its power to tax dealers for the sale of such merchandise. (Section 10 [o], Republic Act No. 409, as
amended.).
Under Ordinance No. 3634 the word "merchandise" as employed therein clearly includes liquor. Aside from
this, we have held in City of Manila vs. Inter-Island Gas Service, Inc., G.R. No. L-8799, August 31, 1956, that
the word "merchandise" refers to all subjects of commerce and traffic; whatever is usually bought and sold in
trade or market; goods or wares bought and sold for gain; commodities or goods to trade; and commercial
commodities in general.
That Tabacalera is being subjected to double taxation is more apparent than real. As already stated what is
collected under Ordinance No. 3358 is a license fee for the privilege of engaging in the sale of liquor, a calling
in which it is obvious not anyone or anybody may freely engage, considering that the sale of liquor
indiscriminately may endanger public health and morals. On the other hand, what the three ordinances
mentioned heretofore impose is a tax for revenue purposes based on the sales made of the same article or
merchandise. It is already settled in this connection that both a license fee and a tax may be imposed on the
same business or occupation, or for selling the same article, this not being in violation of the rule against
double taxation (Bentley Gray Dry Goods Co. vs. City of Tampa, 137 Fla. 641, 188 So. 758; MacQuillin,
Municipal Corporations, Vol. 9, 3rd Edition, p. 83). This is precisely the case with the ordinances involved in the
case at bar.

Appellee's contention that the City is repudiating its previous view expressed by its Treasurer in a letter
addressed to Messrs. Sycip, Gorres, Velayo & Co. in 1954 that a liquor dealer who pays the annual license
fee under Ordinance No. 3358 is exempted from the wholesalers and retailers taxes under the other three
ordinances mentioned heretofore is of no consequence. The government is not bound by the errors or mistakes
committed by its officers, specially on matters of law.

Having arrived at the above conclusion, we deem it unnecessary to consider the other legal points raised by
the City.

WHEREFORE, the decision appealed from is reversed, with the result that this case should be, as it is hereby
dismissed, with costs.
G.R. No. L-24756 October 31, 1968
CITY OF BAGUIO, plaintiff-appellee,
vs.
FORTUNATO DE LEON, defendant-appellant.
The City Attorney for plaintiff-appellee.
Fortunato de Leon for and in his own behalf as defendant-appellant.
FERNANDO, J.:
In this appeal, a lower court decision upholding the validity of an ordinance1 of the City of Baguio imposing a
license fee on any person, firm, entity or corporation doing business in the City of Baguio is assailed by
defendant-appellant Fortunato de Leon. He was held liable as a real estate dealer with a property therein worth
more than P10,000, but not in excess of P50,000, and therefore obligated to pay under such ordinance the P50
annual fee. That is the principal question. In addition, there has been a firm and unyielding insistence by
defendant-appellant of the lack of jurisdiction of the City Court of Baguio, where the suit originated, a complaint
having been filed against him by the City Attorney of Baguio for his failure to pay the amount of P300 as license
fee covering the period from the first quarter of 1958 to the fourth quarter of 1962, allegedly, inspite of repeated
demands. Nor was defendant-appellant agreeable to such a suit being instituted by the City Treasurer without
the consent of the Mayor, which for him was indispensable. The lower court was of a different mind.
In its decision of December 19, 1964, it declared the above ordinance as amended, valid and subsisting, and
held defendant-appellant liable for the fees therein prescribed as a real estate dealer. Hence, this appeal.
Assume the validity of such ordinance, and there would be no question about the liability of defendant-appellant
for the above license fee, it being shown in the partial stipulation of facts, that he was "engaged in the rental of
his property in Baguio" deriving income therefrom during the period covered by the first quarter of 1958 to the
fourth quarter of 1962.
The source of authority for the challenged ordinance is supplied by Republic Act No. 329, amending the city
charter of Baguio2 empowering it to fix the license fee and regulate "businesses, trades and occupations as
may be established or practiced in the City."
Unless it can be shown then that such a grant of authority is not broad enough to justify the enactment of the
ordinance now assailed, the decision appealed from must be affirmed. The task confronting defendant-
appellant, therefore, was far from easy. Why he failed is understandable, considering that even a cursory
reading of the above amendment readily discloses that the enactment of the ordinance in question finds
support in the power thus conferred.
Nor is the question raised by him as to the validity thereof novel in character. In Medina v. City of Baguio,3the
effect of the amendatory section insofar as it would expand the previous power vested by the city charter was
clarified in these terms: "Appellants apparently have in mind section 2553, paragraph (c) of the Revised
Administrative Code, which empowers the City of Baguio merely to impose a license fee for the purpose of
rating the business that may be established in the city. The power as thus conferred is indeed limited, as it
does not include the power to levy a tax. But on July 15, 1948, Republic Act No. 329 was enacted amending
the charter of said city and adding to its power to license the power to tax and to regulate. And it is precisely
having in view this amendment that Ordinance No. 99 was approved in order to increase the revenues of the
city. In our opinion, the amendment above adverted to empowers the city council not only to impose a license
fee but also to levy a tax for purposes of revenue, more so when in amending section 2553 (b), the phrase 'as
provided by law' has been removed by section 2 of Republic Act No. 329. The city council of Baguio, therefore,
has now the power to tax, to license and to regulate provided that the subjects affected be one of those
included in the charter. In this sense, the ordinance under consideration cannot be considered ultra
vires whether its purpose be to levy a tax or impose a license fee. The terminology used is of no consequence."
It would be an undue and unwarranted emasculation of the above power thus granted if defendant-appellant
were to be sustained in his contention that no such statutory authority for the enactment of the challenged
ordinance could be discerned from the language used in the amendatory act. That is about all that needs to be
said in upholding the lower court, considering that the City of Baguio was not devoid of authority in enacting this
particular ordinance. As mentioned at the outset, however, defendant-appellant likewise alleged procedural
missteps and asserted that the challenged ordinance suffered from certain constitutional infirmities. To such
points raised by him, we shall now turn.
1. Defendant-appellant makes much of the alleged lack of jurisdiction of the City Court of Baguio in the suit for
the collection of the real estate dealer's fee from him in the amount of P300. He contended before the lower
court, and it is his contention now, that while the amount of P300 sought was within the jurisdiction of the City
Court of Baguio where this action originated, since the principal issue was the legality and constitutionality of
the challenged ordinance, it is not such City Court but the Court of First Instance that has original jurisdiction.
There is here a misapprehension of the Judiciary Act. The City Court has jurisdiction. Only recently, on
September 7, 1968 to be exact, we rejected a contention similar in character in Nemenzo v. Sabillano.4The
plaintiff in that case filed a claim for the payment of his salary before the Justice of the Peace Court of
Pagadian, Zamboanga del Sur. The question of jurisdiction was raised; the defendant Mayor asserted that what
was in issue was the enforcement of the decision of the Commission of Civil Service; the Justice of the Peace
Court was thus without jurisdiction to try the case. The above plea was curtly dismissed by Us, as what was
involved was "an ordinary money claim" and therefore "within the original jurisdiction of the Justice of the Peace
Court where it was filed, considering the amount involved." Such is likewise the situation here.
Moreover, in City of Manila v. Bugsuk Lumber Co.,5 a suit to collect from a defendant this license fee
corresponding to the years 1951 and 1952 was filed with the Municipal Court of Manila, in view of the amount
involved. The thought that the municipal court lacked jurisdiction apparently was not even in the minds of the
parties and did not receive any consideration by this Court.
Evidently, the fear is entertained by defendant-appellant that whenever a constitutional question is raised, it is
the Court of First Instance that should have original jurisdiction on the matter. It does not admit of doubt,
however, that what confers jurisdiction is the amount set forth in the complaint. Here, the sum sought to be
recovered was clearly within the jurisdiction of the City Court of Baguio.
Nor could it be plausibly maintained that the validity of such ordinance being open to question as a defense
against its enforcement from one adversely affected, the matter should be elevated to the Court of First
Instance. For the City Court could rely on the presumption of the validity of such ordinance,6 and the mere fact,
however, that in the answer to such a complaint a constitutional question was raised did not suffice to oust the
City Court of its jurisdiction. The suit remains one for collection, the lack of validity being only a defense to such
an attempt at recovery. Since the City Court is possessed of judicial power and it is likewise axiomatic that the
judicial power embraces the ascertainment of facts and the application of the law, the Constitution as the
highest law superseding any statute or ordinance in conflict therewith, it cannot be said that a City Court is
bereft of competence to proceed on the matter. In the exercise of such delicate power, however, the
admonition of Cooley on inferior tribunals is well worth remembering. Thus: "It must be evident to any one that
the power to declare a legislative enactment void is one which the judge, conscious of the fallibility of the
human judgment, will shrink from exercising in any case where he can conscientiously and with due regard to
duty and official oath decline the responsibility."7 While it remains undoubted that such a power to pass on the
validity of an ordinance alleged to infringe certain constitutional rights of a litigant exists, still it should be
exercised with due care and circumspection, considering not only the presumption of validity but also the
relatively modest rank of a city court in the judicial hierarchy.
2. To repeat the challenged ordinance cannot be considered ultra vires as there is more than ample statutory
authority for the enactment thereof. Nonetheless, its validity on constitutional grounds is challenged because of
the allegation that it imposed double taxation, which is repugnant to the due process clause, and that it violated
the requirement of uniformity. We do not view the matter thus.
As to why double taxation is not violative of due process, Justice Holmes made clear in this language: "The
objection to the taxation as double may be laid down on one side. ... The 14th Amendment [the due process
clause] no more forbids double taxation than it does doubling the amount of a tax, short of confiscation or
proceedings unconstitutional on other grounds."8With that decision rendered at a time when American
sovereignty in the Philippines was recognized, it possesses more than just a persuasive effect. To some, it
delivered the coup de grace to the bogey of double taxation as a constitutional bar to the exercise of the taxing
power. It would seem though that in the United States, as with us, its ghost as noted by an eminent critic, still
stalks the juridical state. In a 1947 decision, however,9 we quoted with approval this excerpt from a leading
American decision:10 "Where, as here, Congress has clearly expressed its intention, the statute must be
sustained even though double taxation results."
At any rate, it has been expressly affirmed by us that such an "argument against double taxation may not be
invoked where one tax is imposed by the state and the other is imposed by the city ..., it being widely
recognized that there is nothing inherently obnoxious in the requirement that license fees or taxes be exacted
with respect to the same occupation, calling or activity by both the state and the political subdivisions thereof."11
The above would clearly indicate how lacking in merit is this argument based on double taxation.
Now, as to the claim that there was a violation of the rule of uniformity established by the constitution.
According to the challenged ordinance, a real estate dealer who leases property worth P50,000 or above must
pay an annual fee of P100. If the property is worth P10,000 but not over P50,000, then he pays P50 and P24 if
the value is less than P10,000. On its face, therefore, the above ordinance cannot be assailed as violative of
the constitutional requirement of uniformity. In Philippine Trust Company v. Yatco,12 Justice Laurel, speaking
for the Court, stated: "A tax is considered uniform when it operates with the same force and effect in every
place where the subject may be found."
of the City Treasurer, whose position is roughly analogous, may be assumed to carry the seal of approval of
the City Mayor unless repudiated or set aside. This should be the case considering that such city official is
called upon to see to it that revenues due the City are collected. When administrative steps are futile and
unavailing, given the stubbornness and obduracy of a taxpayer, convinced in good faith that no tax was due,
judicial remedy may be resorted to by him. It would be a reflection on the state of the law if such fidelity to duty
would be met by condemnation rather than commendation.
So, much for the analytical approach. The conclusion thus reached has a reinforcement that comes to it from
the functional and pragmatic test. If a city treasurer has to await the nod from the city mayor before a municipal
ordinance is enforced, then opportunity exists for favoritism and undue discrimination to come into play.
Whatever valid reason may exist as to why one taxpayer is to be accorded a treatment denied another, the
suspicion is unavoidable that such a manifestation of official favor could have been induced by unnamed but
not unknown consideration. It would not be going too far to assert that even defendant-appellant would find no
satisfaction in such a sad state of affairs. The more desirable legal doctrine therefore, on the assumption that a
choice exists, is one that would do away with such temptation on the part of both taxpayer and public official
alike.
WHEREFORE, the lower court decision of December 19, 1964, is hereby affirmed. Costs against defendant-
appellant.

There was no occasion in that case to consider the possible effect on such a constitutional requirement where
there is a classification. The opportunity came in Eastern Theatrical Co. v. Alfonso.13 Thus: "Equality and
uniformity in taxation means that all taxable articles or kinds of property of the same class shall be taxed at the
same rate. The taxing power has the authority to make reasonable and natural classifications for purposes of
taxation; ..." About two years later, Justice Tuason, speaking for this Court inManila Race Horses Trainers
Assn. v. De la Fuente14 incorporated the above excerpt in his opinion and continued: "Taking everything into
account, the differentiation against which the plaintiffs complain conforms to the practical dictates of justice and
equity and is not discriminatory within the meaning of the Constitution."

To satisfy this requirement then, all that is needed as held in another case decided two years later, 15 is that the
statute or ordinance in question "applies equally to all persons, firms and corporations placed in similar
situation." This Court is on record as accepting the view in a leading American case16 that "inequalities which
result from a singling out of one particular class for taxation or exemption infringe no constitutional limitation."17

It is thus apparent from the above that in much the same way that the plea of double taxation is unavailing, the
allegation that there was a violation of the principle of uniformity is inherently lacking in persuasiveness. There
is no need to pass upon the other allegations to assail the validity of the above ordinance, it being maintained
that the license fees therein imposed "is excessive, unreasonable and oppressive" and that there is a failure to
observe the mandate of equal protection. A reading of the ordinance will readily disclose their inherent lack of
plausibility.

3. That would dispose of all the errors assigned, except the last two, which would predicate a grievance on the
complaint having been started by the City Treasurer rather than the City Mayor of Baguio. These alleged
errors, as was the case with the others assigned, lack merit.

In much the same way that an act of a department head of the national government, performed within the limits
of his authority, is presumptively the act of the President unless reprobated or disapproved,18 similarly the act