GR No. 168461 ASSOCIATION OF PILIPINAS SHELL DEALERS, INC. represented by its President, ROSARIO ANTONIO, ET AL. v. CESAR V. PURISIMA, in his capacity as Secretary of the Department of Finance and GUILLERMO L. PARAYNO, JR., in his capacity as Commissioner of Internal Revenue.


GR No. 168463 FRANCIS JOSEPH G. ESCUDERO, ET AL. v. CESAR V. PURISIMA, in his capacity as Secretary of Finance, GUILLERMO L. PARAYNO, JR., in his capacity as Commissioner of Internal Revenue, and EDUARDO R. ERMITA, in his capacity as Executive Secretary.

GR. No. 168730 BATAAN GOVERNOR ENRIQUE T. GARCIA, JR. v. HON. EDUARDO R. ERMITA, in his capacity as the Executive Secretary; HON. MARGARITO TEVES, in his capacity as Secretary of Finance; HON. JOSE MARIO BUNAG, in his capacity as the OIC Commissioner of the Bureau of Customs.







Tinga, J.:


Once again, the majority has refused to engage and refute in any meaningful fashion the arguments raised by the petitioners in G.R. No. 168461. The de minimis appreciation exhibited by the majority of the issues of 70% cap, the 60-month amortization period, and 5% withholding VAT on transactions made with the national government is regrettable, with ruinous consequences for the nation. I see no reason to turn back from any of the views expressed in my Dissenting Opinion, and I accordingly dissent from the denial of the Motion for Reconsideration filed by the petitioners in G.R. No. 168461.[1]


The reasons for my vote have been comprehensively discussed in my previous Dissenting Opinion, and I do not see the need to replicate them herein. However, I wish to stress a few points.


Tax Statutes May Be Invalidated

If They Pose a Clear and Present Danger

To the Deprivation of Life, Liberty and

Property Without Due Process of Law



The majority again dismisses the arguments of the petitioners as theoretical, conjectural or merely anticipatory, notwithstanding that the injury to the taxpayers resulting from Section 8 and 12 of the E-VAT Law is ascertainable with mathematical certainty. In support of this view, the majority cites the Courts Resolution dated 15 June 2005 in Information Technology Foundation v. COMELEC,[2] one of the rulings issued in that case subsequent to the main Decision rendered on 13 January 2004. The reference is grievously ironic, considering that in the 13 January 2004 Decision, the Court, over vigorous dissents, chose anyway to intervene and grant the petition despite the fact that the petitioners therein did not allege any violation of any constitutional provision or letter of statute.[3] In this case, the petitioners have squarely invoked the violation of the Bill of Rights of the Constitution, and yet the majority is suddenly timid, unlike in Infotech.


Still, the formulation of the majority unfortunately leaves the impression that any statute, taxing or otherwise, is beyond judicial attack prior to its implementation. If the tax measure in question provided that the taxpayer shall remit all income earned to the government beginning 1 January 2008, would this mean that the Court can take cognizance of the legal challenge only starting 2 January 2008?


I do not share the majoritys penchant for awaiting the blood spurts before taking action even when the knifes edge already dangles. As I maintained in my Dissenting Opinion, a tax measure may be validly challenged and stricken down even before its implementation if it poses a clear and present danger to the deprivation of life, liberty or property of the taxpayer without due process of law. This is the expectation of every citizen who wishes to maintain trust in all the branches of government. In the enforcement of the constitutional rights of all persons, the commonsense expectation is that the Court, as guardian of these rights, is empowered to step in even before the prospective violation takes place. Hence, the evolution of the clear and present danger doctrine and other analogous principles, without which, the Court would be seen as inutile in the face of constitutional violation.


Of course, not every anticipatory threat to constitutional liberties can be assailed prior to implementation, hence the employment of the clear and present danger standard to separate the wheat from the chaff. Still, the Court should not be so readily dismissive of the petitioners posture herein merely because it is anticipatory. There should have been a meaningful engagement by the majority of the facts and formulae presented by the petitioners before the reasonable conclusion could have been reached on the maturity of the claim. That the majority has not bothered to do so is ultimately of tragic consequence.



70% Input VAT Credit

An Impaired Asset


The ponencia, joined by Justices Panganiban and Chico-Nazario, express the belief that no property rights attach to the input VAT paid by the taxpayer. This is a bizarre view that assumes that all income earned by private persons preternaturally belongs to the government, and whatever is retained by the person after taxes is acquired as a matter of privilege. This is the sort of thinking that has fermented revolutions throughout history, such as the American Revolution of 1776.

I pointed out in my Dissenting Opinion that under current accepted international accounting standards, the 30% prepaid input VAT would be recorded as a loss in the accounting books, since the possibility of its recovery is improbable, considering that the E-VAT Law allows its recovery only after the business has ceased to exist. Even the Bureau of Internal Revenue itself has long recognized the unutilized input VAT as an asset.


The majority fails to realize that even under the new E-VAT Law, the State recognizes that the persons who pre-pay that input VAT, usually the dealers or retailers, are not the persons who are liable to pay for the tax. The VAT system, as implemented through the previous VAT law and the new E-VAT Law, squarely holds the end consumer as the taxpayer liable to shoulder the input VAT. Nonetheless, under the mechanism foisted in the new E-VAT Law, the dealer or retailer who pre-pays the input VAT is virtually precluded from recovering the pre-paid input VAT, since the law only allows such recovery upon the cessation of the business. Indeed, the only way said class of taxpayers can recover this pre-paid input VAT was if it were to cease operations at the end of every quarter.


The illusion that blinds the majority to this state of affairs is the claim that the pre-paid input VAT may anyway be carried over into the succeeding quarter, a chimera enhanced by the grossly misleading presentation of the Office of the Solicitor General. What this deception fosters, and what the majority fails to realize, is that since the taxpayer is perpetually obliged to remit the 30% input VAT every quarter, there would be a continuous accumulation of excess input VAT. It is not true then that the input VAT prepaid for the first quarter can be recovered in the second, third or fourth quarter of that year, or at any time in the next year for that matter since the amount of prepaid input VAT accumulates with every succeeding prepayment of input VAT. Moreover, the accumulation of the prepaid input VAT diminishes the actual value of the refundable amounts, considering the established principle of time-value of money, as explained in my Dissenting Opinion.


Thus, the pre-paid input VAT, for which the petitioners and other similarly situated taxpayers are not even ultimately liable in the first place, represents in tangible terms an actual loss. To put it more succinctly, when the taxpayer prepays the 30% input VAT, there is no chance for its recovery except until after the taxpayer ceases to be such. This point is crucial, as it goes in the heart of the constitutional challenge raised by the petitioners. A recognition that the input VAT is a property asset places it squarely in the ambit of the due process clause.


The majority now stresses that prior to Executive Order No. 273 sales taxes paid by the retailer or dealers were not recoverable. The nature of a sales tax precisely is that it is shouldered by the seller, not the consumer. In that case, the clear legislative intent is to encumber the retailer with the end tax. Under the VAT system, as enshrined under Rep. Act No. 9337, the new E-VAT Law, there is precisely a legislative recognition that it is the end user, not the seller, who shoulders the E-VAT. The problem with the new E-VAT law is that it correspondingly imposes a defeatist mechanism that obviates this entitlement of the seller by forcibly withholding in perpetua this pre-paid input VAT.


The majority cites with approval Justice Chico-Nazarios argument, as expressed in her concurring opinion, that prior to the new E-VAT Law, the petroleum dealers in particular had no input VAT credits to speak of, and therefore, could not assert any property rights to the input VAT credits under the new law. Of course the petroleum dealers had no input VAT credits prior to the E-VAT Law because precisely they were not covered by the VAT system in the first place. What would now be classified as input VAT credits was, in real terms, profit obtainable by the petroleum dealers prior to the new E-VAT Law. The E-VAT Law stands to diminish such profit, not by outright taking perhaps, but by ad infinitum confiscation with the illusory promise of eventual return. Obviously, there is a deprivation of property in such case; yet is it seriously contended that such deprivation is ipso facto sheltered if it is not classified as a taking, but instead reclassified as a credit?



It is highly distressful that the Court, in its haste to decree petitioners as bereft of any vested property rights, rejects the notion that a person has a vested right to the earnings and profits incurred in business. Before, no legal basis could be found to prop up such a palpably outlandish claim; but the Decision, as affirmed by the majoritys Resolution, now enshrines a temerarious proposition with doctrinal status.

In the Decision, and also in Justice Panganibans Separate Opinion therein, the case of United Paracale Mining Co. v. De la Rosa[4] was cited in support of the proposition that there is no vested right to the input VAT credit. Justice Panganiban went as far as to cite that case to support the contention that [t]here is no vested right in a deferred input tax account; it is a mere statutory privilege. Reliance on the case is quite misplaced. First, as pointed out in my Dissenting Opinion, it does not even pertain to tax credits involving as it does, questions on the jurisdiction of the Bureau of Mines.[5] Second, the putative vested rights therein pertained to mining claims, yet all mineral resources indisputably belong to the State. Herein, the rights pertain to profit incurred by private enterprise, and certainly the majority cannot contend that such profits actually belong to the State.


As stated in my Dissenting Opinion, the Constitution itself recognizes a right to income and profit when it recognizes the right of enterprises to reasonable returns on investments, and to expansion and growth.[6] Section 20, Article II of the Constitution further mandates that the State recognize the indispensable role of the private sector, the encouragement of private enterprise, and the provision of incentives to needed investments.[7] Indeed, there is a fundamental recognition in any form of democratic government that recognizes a capitalist economy that the enterprise has a right to its profits. Today, the Court instead affirms that there is no such right. Should capital flight ensue, the phenomenom should not be blamed on investors in view of our judicial systems rejection of capitalisms fundamental precept.


Mainstream Denunciation of 70% Cap


The fact that petitioners are dealers of petroleum products may have left the impression that the 70% cap singularly affects the petroleum industry; or that other classes of dealers or retailers do not pose the same objections to these innovations in the E-VAT law. This is far from the truth.


In fact, the clamor against the 70% cap has been widespread among the players and components in the financial mainstream. Denunciations have been registered by the Philippine Chamber of Commerce and Industry[8], the Joint Foreign Chambers of the Philippines (comprising of the American Chamber of Commerce in the Philippines, the Australian-New Zealand Chamber Commerce of the Philippines, Inc., the Canadian Chamber of Commerce of the Philippines, Inc., the European Chamber of Commerce of the Philippines, Inc., the Japanese Chamber of Commerce of the Philippines, Inc., the Korean Chamber of Commerce and Industry of the Philippines, and the Philippine Association of Multinational Companies Regional Headquarters, Inc.),[9] the Filipino-Chinese Chamber of Commerce and Industry,[10] the Federation of Philippine Industries,[11] the Consumer and Oil Price Watch,[12] the Association of Certified Public Accountants in Public Practice,[13] the Philippine Tobacco Institute,[14] and the auditing firm of PricewaterhouseCooper.[15]


Even newly installed Finance Secretary Margarito Teves has expressed concern that the 70% input VAT may not work across all industries because of varying profit margins.[16] Other experts who have voiced concerns on the 70% input VAT are former NEDA Directors Cielito Habito[17] and Solita Monsod,[18] Peter Wallace of the Wallace Business Forum,[19] and Paul R. Cooper, director of PricewaterhouseCooper.


In fact, Mr. Cooper published in the Philippine Daily Inquirer a lengthy disquisition on the problems surrounding the 70% cap, portions of which I replicate below:


Policy concerns on the cap


When the idea of putting a cap was originally introduced on the floor of the Senate. The idea was to address to some extent the under-reporting of output VAT by non-complaint taxpayers. The original suggestion was a 90 percent cap, or effectively a 1-percent minimum VAT. At that level, the rule should not impact adversely on complaint taxpayers, but would result in non-complaint taxpayers having to account for closer to their true tax liability.


As a general policy consideration, one should question why our legislators are penalizing complaint taxpayers when the fundamental issue is at the apparent inability of the Bureau of Internal Revenue (BIR) to implement tax law effectively.


At a 90-percent cap, the measure might still have been defensible as a rough proxy for VAT. However, somewhere in the bicameral process, the rule has become even more punitive with a 70-percent cap. As with most amendments introduced at the bicameral stage, there is no public indication about what lawmakers were thinking when they put the travesty in place.




One of the arguments in Senate debates for taxing the power and petroleum sectors was that if it was good enough for mom-and-pop stores to have to account for the VAT, it was good enough for the biggest companies in the country to do the same. A similar argument here is that if small businesses have to pay a minimum 3-percent tax, why should larger VAT-registered persons get away with paying less?


The problem with this thinking is threefold:


        The percentage tax applies to small businesses in the hard-to-tax sector and a few believe the BIR collects close to what it should from this. Nor should we be overly concerned if this is the casethe revenues are small, and the BIRs efforts would be a lot better focused on larger taxpayers where more significant revenues will be at issue.

        VAT-registered persons incur compliance costs. The 3-percent tax might be better conceived as a slightly more expensive option to allow taxpayers to opt out of the VAT, rather than a punitive rule for small businesses. (If the percentage tax is considered unduly punitive, why is it not just repealed?)

        Ironically, one of the new measures in the Senate bill was to allow taxpayers with turnovers below, the registration threshold to register voluntarily for VAT if they believe the 3-percent tax imposition to be excessive. Without the minimum VAT, smaller taxpayers might have been encouraged to enter the more formalized VAT sector.


Potential consequences of the cap


The minimum VAT will distort the way taxpayers conduct business. A 3-percent minimum VAT is more likely to impact on sellers of goods than on sellers of services, as their proportion of taxable inputs are lower (there is no VAT paid when using labor, but there is VAT on the purchase of goods). Consequently, there will be a bias toward consuming services over goods. Businesses may have an incentive to obtain goods from the informal (and potentially tax-evading) sector as there will be no input tax paid for the purchasein other words, the bill may actively encourage less tax complaint behavior. Business structures may change; expect buy-sell distributors to convent into commission agents, as this reduces the risk that they will need to pay more than should be paid under a VAT system to cover the 3-percent minimum VAT.[20]



These objections are voiced by members of the sensible center, and not those reflexively against VAT or any tax imposition of the current administration. These objections are raised by the people who stand to be directly affected on a daily punitive basis by the imposition of the 70% cap, the 60-month amortization period and the 5% withholding VAT. Indeed, Justice Chico-Nazario has expressed her disbelief over, or at least has asserted as unproven, the claimed impact of the input VAT on the petroleum dealers.[21] Of course there can be no tangible gauge as of yet on the impact of these changes in the VAT law, since they have yet to be implemented. However, the prevalent adverse reaction within the business sector should be sufficiently expressive of the actual fears of the people who should know better. It is sad that the majority, by maintaining a blithely nave view of the input VAT, perpetuates the disconnect between the Court and the business sector, unnecessarily considering that in this instance, the concerns of the financial community can be translated into a viable constitutional challenge.


Reliance on Legislative Amendments

An Abdication of the Courts Constitutional Duty



Justice Panganiban has already expressed the view that the remedy to the inequities caused by the new input VAT system would be amending the law, and not an outright declaration of unconstitutionality. I can only hazard a guess on how many members of the Court or the legal community are similarly reliant on that remedy as a means of assuaging their fears on the impact of the input VAT innovations.


As I stated in my Dissenting Opinion, it is this Court, and not the legislature, which has the duty to strike down unconstitutional laws. Congress may amend unconstitutional laws to remedy such legal infirmities, but it is under no constitutional or legal obligation to do so. The same does not hold true with this Court. The essence of judicial review mandates that the Court strike down unconstitutional laws.


Another corollary prospect has also arisen, that the Executive Department itself will mitigate the implementation of the 70% cap by not fully implementing the law.


This prospect of course is speculative, the sort of speculation that is wholly dependent on the whim of the officials of the executive branch and one that cannot be quantified by mathematical formula. This cannot be the basis for any judicial action or vote. Moreover, such resort may actually be illegal.


For one, Article 239 of the Revised Penal Code imposes the penalty of prision correccional on public officers who shall encroach upon the powers of the legislative branch of the Government, either by making general rules or regulations beyond the scope of his authority, or by attempting to repeal a law or suspending the execution thereof. Certainly, the remedy to the inequities of the E-VAT Law cannot be left to administrative pussy-footing, considering that these officials may be jailed for refusing to implement the law, or obfuscating the legislative will.


Second, it is a cardinal rule that an administrative agency such as the Bureau of Internal Revenue or even the Department of Finance cannot amend an act of Congress. Whatever administrative regulations they may adopt under legislative authority must be in harmony with the provisions of the law they are intended to carry into effect. They cannot widen or diminish its scope.[22]


Finally, it must be remembered that one of the central doctrines enforced in the disposition of the joint petitions is that the power to tax belongs solely to the legislative branch of government. If the legislative will were to be frustrated by haphazard implementation by the executive branch, all our disquisitions on this matter, as well as the key constitutional principle on the inherent, non-delegable nature of the legislative power of taxation, will be for naught.


Indeed, I truly fear the scenario when, after the deluge, the executive branch of government suspends the implementation of the 70% cap, or increases the cap to a higher amount such as 90%. Any taxpayer will have standing to attack such remedial measure, considering that the net effect would be to diminish the governments collection of cash at hand. Following the law, the proper judicial action would be to uphold the clear legislative intent over the reengineering of the taxing provisions by the executive branch of government. Yet if the courts instead uphold the power of the executive branch of government to reinvent the tax statute, then the end concession would be that the power to enact tax laws ultimately belongs to the executive branch of government.




I hesitate to say this, but there will be confusion, instability, and multiple fatalities within the business sector with the enforcement of the amendments of Section 8 and 12 of the E-VAT Law. It could have been stopped through the allowance of the petition in G.R. No. 168461, but regrettably the Court did not act.


I respectfully dissent.




Associate Justice


[1]I similarly maintain my earlier vote, explained in my previous Dissenting Opinion, that Section 21 of the E-VAT law, assailed by the petitioners in G.R. No. 168463, is likewise unconstitutional.


[2]G.R. No. 159139.


[3]See J. Tinga, dissenting, Information Technology Foundation of the Phils. V. COMELEC, G.R. No. 159139, 13 January 2004.


[4]G.R. Nos. 63786-87, 7 April 1993, 221 SCRA 108.


[5]Id. at 115.


[6]See Section 3, Article XII, Constitution.


[7]See Section 20, Article II, Constitution.


[8]See Manila Bulletin, 7 July 2005, pp. B-1 and B-2.


[9]See Philippine Star, 23 June 2005, pp. B-1 and B-5.


[10]See BusinessWorld, 28 July 2005, p. 2/S1.


[11]See Philippine Star, 28 June 2005.


[12]See Malaya, 21 September 2005, p. B-10.


[13]See Manila Standard Today, 7 October 2005, p. B3.






[16]See BusinessWorld, 14 July 2005, p. S1/9.


[17]See Philippine Daily Inquirer, 11 July 2005, p. B6.


[18]See Philippine Daily Inquirer, 16 July 2005.


[19]Supra note 8.


[20]See Philippine Daily Inquirer, 7 June 2005.


[21]Indeed, it is rather curious that while Justice Chico-Nazario would belittle the factual presentation of the petroleum dealers as unsubstantiated, she would seem to accept the counter-presentation made by the Solicitor-General which is outright misleading, as pointed out in my Dissenting Opinion.


[22]See Boie-Takeda Chemicals Inc. v. De la Serna, G.R. No. 92174. December 10, 1993.