EN BANC
do not violate the equal protection clause prescribed under Article III, Section 1 of the 1987 Philippine
G.R. No. 168056 October 18, 2005
Agenda for Item No. 45
G.R. No. 168056 (ABAKADA Guro Party List Officer Samson S. Alcantara, et al. vs. The Hon. Executive Secretary
Eduardo R. Ermita); G.R. No. 168207 (Aquilino Q. Pimentel, Jr., et al. vs. Executive Secretary Eduardo R. Ermita, et
al.); G.R. No. 168461 (Association of Pilipinas Shell Dealers, Inc., et al. vs. Cesar V. Purisima, et al.); G.R. No. 168463
(Francis Joseph G. Escudero vs. Cesar V. Purisima, et al); and G.R. No. 168730 (Bataan Governor Enrique T. Garcia,
Jr. vs. Hon. Eduardo R. Ermita, et al.)
RESOLUTION
For resolution are the following motions for reconsideration of the Court’s Decision dated September 1, 2005
upholding the constitutionality of Republic Act No. 9337 or the VAT Reform Act1:
1) Motion for Reconsideration filed by petitioners in G.R. No. 168463, Escudero, et al., on the following grounds:
A. THE DELETION OF THE "NO PASS ON PROVISIONS" FOR THE SALE OF PETROLEUM PRODUCTS AND POWER
GENERATION SERVICES CONSTITUTED GRAVE ABUSE OF DISCRETION AMOUNTING TO LACK OR EXCESS OF
JURISDICTION ON THE PART OF THE BICAMERAL CONFERENCE COMMITTEE.
B. REPUBLIC ACT NO. 9337 GROSSLY VIOLATES THE CONSTITUTIONAL IMPERATIVE ON EXCLUSIVE
ORIGINATION OF REVENUE BILLS UNDER §24, ARTICLE VI, 1987 PHILIPPINE CONSTITUTION.
C. REPUBLIC ACT NO. 9337’S STAND-BY AUTHORITY TO THE EXECUTIVE TO INCREASE THE VAT RATE,
ESPECIALLY ON ACCOUNT OF THE EFFECTIVE RECOMMENDATORY POWER GRANTED TO THE SECRETARY OF
FINANCE, CONSTITUTES UNDUE DELEGATION OF LEGISLATIVE AUTHORITY.
2) Motion for Reconsideration of petitioner in G.R. No. 168730, Bataan Governor Enrique T. Garcia, Jr., with the
argument that burdening the consumers with significantly higher prices under a VAT regime vis-à-vis a 3% gross
tax renders the law unconstitutional for being arbitrary, oppressive and inequitable.
and
3) Motion for Reconsideration by petitioners Association of Pilipinas Shell Dealers, Inc. in G.R. No. 168461, on the
grounds that:
I. This Honorable Court erred in upholding the constitutionality of Section 110(A)(2) and Section 110(B) of the
NIRC, as amended by the EVAT Law, imposing limitations on the amount of input VAT that may be claimed as a
credit against output VAT, as well as Section 114(C) of the NIRC, as amended by the EVAT Law, requiring the
government or any of its instrumentalities to withhold a 5% final withholding VAT on their gross payments on
purchases of goods and services, and finding that the questioned provisions:
A. are not arbitrary, oppressive and consfiscatory as to amount to a deprivation of property without due process
of law in violation of Article III, Section 1 of the 1987 Philippine Constitution;
1
B.
Constitution; and
C. apply uniformly to all those belonging to the same class and do not violate Article VI, Section 28(1) of the 1987
Philippine Constitution.
II. This Honorable Court erred in upholding the constitutionality of Section 110(B) of the NIRC, as amended by the
EVAT Law, imposing a limitation on the amount of input VAT that may be claimed as a credit against output VAT
notwithstanding the finding that the tax is not progressive as exhorted by Article VI, Section 28(1) of the 1987
Philippine Constitution.
Respondents filed their Consolidated Comment. Petitioner Garcia filed his Reply.
Petitioners Escudero, et al., insist that the bicameral conference committee should not even have acted on the no
pass-on provisions since there is no disagreement between House Bill Nos. 3705 and 3555 on the one hand, and
Senate Bill No. 1950 on the other, with regard to the no pass-on provision for the sale of service for power
generation because both the Senate and the House were in agreement that the VAT burden for the sale of such
service shall not be passed on to the end-consumer. As to the no pass-on provision for sale of petroleum products,
petitioners argue that the fact that the presence of such a no pass-on provision in the House version and the
absence thereof in the Senate Bill means there is no conflict because "a House provision cannot be in conflict with
something that does not exist."
Such argument is flawed. Note that the rules of both houses of Congress provide that a conference committee shall
settle the "differences" in the respective bills of each house. Verily, the fact that a no pass-on provision is present
in one version but absent in the other, and one version intends two industries, i.e., power generation companies
and petroleum sellers, to bear the burden of the tax, while the other version intended only the industry of power
generation, transmission and distribution to be saddled with such burden, clearly shows that there are indeed
differences between the bills coming from each house, which differences should be acted upon by the bicameral
conference committee. It is incorrect to conclude that there is no clash between two opposing forces with regard
to the no pass-on provision for VAT on the sale of petroleum products merely because such provision exists in the
House version while it is absent in the Senate version. It is precisely the absence of such provision in the Senate
bill and the presence thereof in the House bills that causes the conflict. The absence of the provision in the Senate
bill shows the Senate’s disagreement to the intention of the House of Representatives make the sellers of
petroleum bear the burden of the VAT. Thus, there are indeed two opposing forces: on one side, the House of
Representatives which wants petroleum dealers to be saddled with the burden of paying VAT and on the other,
the Senate which does not see it proper to make that particular industry bear said burden. Clearly, such conflicts
and differences between the no pass-on provisions in the Senate and House bills had to be acted upon by the
bicameral conference committee as mandated by the rules of both houses of Congress.
Moreover, the deletion of the no pass-on provision made the present VAT law more in consonance with the very
nature of VAT which, as stated in the Decision promulgated on September 1, 2005, is a tax on spending or
consumption, thus, the burden thereof is ultimately borne by the end-consumer.
Escudero, et al., then claim that there had been changes introduced in the Rules of the House of Representatives
regarding the conduct of the House panel in a bicameral conference committee, since the time of Tolentino vs.
Secretary of Finance2 to act as safeguards against possible abuse of authority by the House members of the
bicameral conference committee. Even assuming that the rule requiring the House panel to report back to the
House if there are substantial differences in the House and Senate bills had indeed been introduced after Tolentino,
the Court stands by its ruling that the issue of whether or not the House panel in the bicameral conference
committee complied with said internal rule cannot be inquired into by the Court. To reiterate, "mere failure to
conform to parliamentary usage will not invalidate the action (taken by a deliberative body) when the requisite
number of members have agreed to a particular measure."3
Escudero, et. al., also contend that Republic Act No. 9337 grossly violates the constitutional imperative on
exclusive origination of revenue bills under Section 24 of Article VI of the Constitution when the Senate introduced
amendments not connected with VAT.
The Court is not persuaded.
Article VI, Section 24 of the Constitution provides:
Sec. 24 All appropriation, revenue or tariff bills, bills authorizing increase of the public debt, bills of local
application, and private bills shall originate exclusively in the House of Representatives, but the Senate may
propose or concur with amendments.
Section 24 speaks of origination of certain bills from the House of Representatives which has been interpreted in
the Tolentino case as follows:
… To begin with, it is not the law — but the revenue bill — which is required by the Constitution to "originate
exclusively" in the House of Representatives. It is important to emphasize this, because a bill originating in the
House may undergo such extensive changes in the Senate that the result may be a rewriting of the whole … At this
point, what is important to note is that, as a result of the Senate action, a distinct bill may be produced. To insist
that a revenue statute — and not only the bill which initiated the legislative process culminating in the enactment
of the law — must substantially be the same as the House bill would be to deny the Senate's power not only to
"concur with amendments" but also to " propose amendments." It would be to violate the coequality of legislative
power of the two houses of Congress and in fact make the House superior to the Senate.
… Given, then, the power of the Senate to propose amendments, the Senate can propose its own version even with
respect to bills which are required by the Constitution to originate in the House.
...
Indeed, what the Constitution simply means is that the initiative for filing revenue, tariff, or tax bills, bills
authorizing an increase of the public debt, private bills and bills of local application must come from the House of
Representatives on the theory that, elected as they are from the districts, the members of the House can be
expected to be more sensitive to the local needs and problems. On the other hand, the senators, who are elected
at large, are expected to approach the same problems from the national perspective. Both views are thereby made
to bear on the enactment of such laws.4
Clearly, after the House bills as approved on third reading are duly transmitted to the Senate, the Constitution
states that the latter can propose or concur with amendments. The Court finds that the subject provisions found
in the Senate bill are within the purview of such constitutional provision as declared in the Tolentino case.
The intent of the House of Representatives in initiating House Bill Nos. 3555 and 3705 was to solve the country’s
serious financial problems. It was stated in the respective explanatory notes that there is a need for the
government to make significant expenditure savings and a credible package of revenue measures. These measures
include improvement of tax administration and control and leakages in revenues from income taxes and value
added tax. It is also stated that one opportunity that could be beneficial to the overall status of our economy is to
review existing tax rates, evaluating the relevance given our present conditions. Thus, with these purposes in mind
2
and to accomplish these purposes for which the house bills were filed, i.e., to raise revenues for the government,
the Senate introduced amendments on income taxes, which as admitted by Senator Ralph Recto, would yield about
P10.5 billion a year.
Moreover, since the objective of these house bills is to raise revenues, the increase in corporate income taxes
would be a great help and would also soften the impact of VAT measure on the consumers by distributing the
burden across all sectors instead of putting it entirely on the shoulders of the consumers.
As to the other National Internal Revenue Code (NIRC) provisions found in Senate Bill No. 1950, i.e., percentage
taxes, franchise taxes, amusement and excise taxes, these provisions are needed so as to cushion the effects of VAT
on consumers. As we said in our decision, certain goods and services which were subject to percentage tax and
excise tax would no longer be VAT exempt, thus, the consumer would be burdened more as they would be paying
the VAT in addition to these taxes. Thus, there is a need to amend these sections to soften the impact of VAT. The
Court finds no reason to reverse the earlier ruling that the Senate introduced amendments that are germane to
the subject matter and purposes of the house bills.
Petitioners Escudero, et al., also reiterate that R.A. No. 9337’s stand- by authority to the Executive to increase the
VAT rate, especially on account of the recommendatory power granted to the Secretary of Finance, constitutes
undue delegation of legislative power. They submit that the recommendatory power given to the Secretary of
Finance in regard to the occurrence of either of two events using the Gross Domestic Product (GDP) as a
benchmark necessarily and inherently required extended analysis and evaluation, as well as policy making.
There is no merit in this contention. The Court reiterates that in making his recommendation to the President on
the existence of either of the two conditions, the Secretary of Finance is not acting as the alter ego of the President
or even her subordinate. He is acting as the agent of the legislative department, to determine and declare the event
upon which its expressed will is to take effect. The Secretary of Finance becomes the means or tool by which
legislative policy is determined and implemented, considering that he possesses all the facilities to gather data and
information and has a much broader perspective to properly evaluate them. His function is to gather and collate
statistical data and other pertinent information and verify if any of the two conditions laid out by Congress is
present. Congress granted the Secretary of Finance the authority to ascertain the existence of a fact, namely,
whether by December 31, 2005, the value-added tax collection as a percentage of GDP of the previous year exceeds
two and four-fifth percent (24/5%) or the national government deficit as a percentage of GDP of the previous year
exceeds one and one-half percent (1½%). If either of these two instances has occurred, the Secretary of Finance,
by legislative mandate, must submit such information to the President. Then the 12% VAT rate must be imposed
by the President effective January 1, 2006. Congress does not abdicate its functions or unduly delegate power
when it describes what job must be done, who must do it, and what is the scope of his authority; in our complex
economy that is frequently the only way in which the legislative process can go forward. There is no undue
delegation of legislative power but only of the discretion as to the execution of a law. This is constitutionally
permissible. Congress did not delegate the power to tax but the mere implementation of the law. The intent and
will to increase the VAT rate to 12% came from Congress and the task of the President is to simply execute the
legislative policy. That Congress chose to use the GDP as a benchmark to determine economic growth is not within
the province of the Court to inquire into, its task being to interpret the law.
With regard to petitioner Garcia’s arguments, the Court also finds the same to be without merit. As stated in the
assailed Decision, the Court recognizes the burden that the consumers will be bearing with the passage of R.A. No.
9337. But as was also stated by the Court, it cannot strike down the law as unconstitutional simply because of its
yokes. The legislature has spoken and the only role that the Court plays in the picture is to determine whether the
law was passed with due regard to the mandates of the Constitution. Inasmuch as the Court finds that there are
no constitutional infirmities with its passage, the validity of the law must therefore be upheld.
Finally, petitioners Association of Pilipinas Shell Dealers, Inc. reiterated their arguments in the petition, citing this Moreover, there is no vested right in generally accepted accounting principles. These refer to accounting concepts,
time, the dissertation of Associate Justice Dante O. Tinga in his Dissenting Opinion. measurement techniques, and standards of presentation in a company’s financial statements, and are not rooted
in laws of nature, as are the laws of physical science, for these are merely developed and continually modified by
local and international regulatory accounting bodies. To state otherwise and recognize such asset account as a
The glitch in petitioners’ arguments is that it presents figures based on an event that is yet to happen. Their
vested right is to limit the taxing power of the State. Unlimited, plenary, comprehensive and supreme, this power
illustration of the possible effects of the 70% limitation, while seemingly concrete, still remains theoretical.
cannot be unduly restricted by mere creations of the State.
Theories have no place in this case as the Court must only deal with an existing case or controversy that is
appropriate or ripe for judicial determination, not one that is conjectural or merely anticipatory.5 The Court will not
intervene absent an actual and substantial controversy admitting of specific relief through a decree conclusive in More importantly, the assailed provisions of R.A. No. 9337 already involve legislative policy and wisdom. So long
nature, as distinguished from an opinion advising what the law would be upon a hypothetical state of facts.6 as there is a public end for which R.A. No. 9337 was passed, the means through which such end shall be
accomplished is for the legislature to choose so long as it is within constitutional bounds. As stated in Carmichael
vs. Southern Coal & Coke Co.:
The impact of the 70% limitation on the creditable input tax will ultimately depend on how one manages and
operates its business. Market forces, strategy and acumen will dictate their moves. With or without these VAT
provisions, an entrepreneur who does not have the ken to adapt to economic variables will surely perish in the If the question were ours to decide, we could not say that the legislature, in adopting the present scheme rather
competition. The arguments posed are within the realm of business, and the solution lies also in business. than another, had no basis for its choice, or was arbitrary or unreasonable in its action. But, as the state is free to
distribute the burden of a tax without regard to the particular purpose for which it is to be used, there is no warrant
in the Constitution for setting the tax aside because a court thinks that it could have distributed the burden more
Petitioners also reiterate their argument that the input tax is a property or a property right. In the same breath,
wisely. Those are functions reserved for the legislature.9
the Court reiterates its finding that it is not a property or a property right, and a VAT-registered person’s
entitlement to the creditable input tax is a mere statutory privilege.
WHEREFORE, the Motions for Reconsideration are hereby DENIED WITH FINALITY. The temporary restraining
order issued by the Court is LIFTED.
Petitioners also contend that even if the right to credit the input VAT is merely a statutory privilege, it has already
evolved into a vested right that the State cannot remove.
SO ORDERED.
As the Court stated in its Decision, the right to credit the input tax is a mere creation of law. Prior to the enactment
of multi-stage sales taxation, the sales taxes paid at every level of distribution are not recoverable from the taxes (The Justices who filed their respective concurring and dissenting opinions maintain their respective positions.
payable. With the advent of Executive Order No. 273 imposing a 10% multi-stage tax on all sales, it was only then Justice Dante O. Tinga filed a dissenting opinion to the present Resolution; while Justice Consuelo Ynares- Santiago
that the crediting of the input tax paid on purchase or importation of goods and services by VAT-registered joins him in his dissenting opinion.)
persons against the output tax was established. This continued with the Expanded VAT Law (R.A. No. 7716), and
The Tax Reform Act of 1997 (R.A. No. 8424). The right to credit input tax as against the output tax is clearly a
privilege created by law, a privilege that also the law can limit. It should be stressed that a person has no vested
right in statutory privileges.7

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

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

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

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