G.R. No. 168056 (ABAKADA Guro Party List [formerly ASSJS] Officers Samson S. Alcantara, et al. v. Hon. Executive Secretary Eduardo Ermita, et al.);

G.R. No. 168207 (Aquilino Q. Pimentel, Jr., et al. v. Executive Secretary Eduardo R. Ermita, et al.);

G.R. No. 168461 (Association of Pilipinas Shell Dealers, Inc., etc., et al. v. Cesar V. Purisima, etc., et al.);

G.R. No. 168463 (Francis Joseph G. Escudero, et al. v. Cesar V. Purisima, etc., et al.); and

G.R. No. 168730 (Bataan Governor Enrique T. Garcia, Jr. v. Hon. Eduardo R. Ermita, etc., et al.)



September 1, 2005









Republic Act No. 9337, the E-VAT law, is assailed as an unconstitutional abdication of Congress of its power to tax through its delegation to the President of the decision to increase the rate of the tax from 10% to 12%, effective January 1, 2006, after any of two conditions has been satisfied.[1]


The two conditions are:


(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 %).[2]


A scrutiny of these conditions shows that one of them is certain to happen on January 1, 2006.


The first condition is that the collection from the E-VAT exceeds 2 4/5% of the Gross Domestic Product (GDP) of the previous year, a ratio that is known as the tax effort.


The second condition is that the national government deficit exceeds 1 % of the GDP of the previous year.


Note that the law says that the rate shall be increased if any of the two conditions happens, i.e., if condition (i) or condition (ii) occurs.

Now, in realistic terms, considering the short time-frame given, the only practicable way that the present deficit of the national government can be reduced to 1 % or lower, thus preventing condition (ii) from happening, is to increase the tax effort, which mainly has to come from the E-VAT. But increasing the tax effort through the E-VAT, to the extent needed to reduce the national deficit to 1 % or less, will trigger the happening of condition (i) under the law. Thus, the happening of condition (i) or condition (ii) is in reality certain and unavoidable, as of January 1, 2006.


This becomes all the more clear when we consider the figures provided during the oral arguments.


The Gross Domestic Product for 2005 is estimated at P5.3 Trillion pesos.


The tax effort of the present VAT is now at 1.5%.


The national budgetary deficit against the GDP is now at 3%.


So to reduce the deficit to 1.5% from 3%, one has to increase the tax effort from VAT, now at 1.5%, to at least 3%, thereby exceeding the 2 4/5 percent ceiling in condition (i), making condition (i) happen.

If, on the other hand, this is not done, then condition (ii) happens the budget deficit remains over 1.5%.


What is the result of this? The result is that in reality, the law does not impose any condition, or the rate increase thereunder, from 10% to 12%, effective January 1, 2006, is unconditional. For a condition is an event that may or may not happen, or one whose occurrence is uncertain.[3] Now while condition (i) is indeed uncertain and condition (ii) is likewise uncertain, the combination of both makes the occurrence of one of them certain.


Accordingly, there is here no abdication by Congress of its power to fix the rate of the tax since the rate increase provided under the law, from 10% to 12%, is definite and certain to occur, effective January 1, 2006. All that the President will do is state which of the two conditions occurred and thereupon implement the rate increase.


At first glance, therefore, it would appear that the decision to increase the rate is to be made by the President, or that the increase is still uncertain, as it is subject to the happening of any of two conditions.


Nevertheless, the contrary is true and thus it would be best in these difficult and critical times to let our people know precisely what burdens they are being asked to bear as the necessary means to recover from a crisis that calls for a heroic sacrifice by all.


It is for this reason that the Court required respondents to submit a copy of the rules to implement the E-VAT, particularly as to the impact of the tax on prices of affected commodities, specially oil and electricity. For the onset of the law last July 1, 2005 was confusing, resulting in across-the-board increases of 10% in the prices of commodities. This is not supposed to be the effect of the law, as was made clear during the oral arguments, because the law also contains provisions that mitigate the impact of the E-VAT through reduction of other kinds of taxes and duties, and other similar measures, specially as to goods that go into the supply chain of the affected products. A proper implementation of the E-VAT, therefore, should cause only the appropriate incremental increase in prices, reflecting the net incremental effect of the tax, which is not necessarily 10%, but possibly less, depending on the products involved.


The introduction of the mitigating or cushioning measures through the Senate or through the Bicameral Conference Committee, is also being questioned by petitioners as unconstitutional for violating the rule against amendments after third reading and the rule that tax measures must originate exclusively in the House of Representatives (Art. VI, Secs. 24 and 26 [2], Constitution). For my part, I would rather give the necessary leeway to Congress, as long as the changes are germane to the bill being changed, the bill which

originated from the House of Representatives, and these are so, since these were precisely the mitigating measures that go hand-on-hand with the E-VAT, and are, therefore, essential -- and hopefully sufficient -- means to enable our people to bear the sacrifices they are being asked to make. Such an approach is in accordance with the Enrolled Bill Doctrine that is the prevailing rule in this jurisdiction. (Tolentino v. Secretary of Finance, 249 SCRA 628 [1994]). The exceptions I find are the provisions on corporate income taxes, which are not germane to the E-VAT law, and are not found in the Senate and House bills.


I thus agree with Chief Justice Hilario G. Davide, Jr. in his separate opinion that the following are not germane to the E-VAT legislation:


Amended TAX

CODE Provision Subject Matter

Section 27 Rate of income tax on domestic corporations

Section 28(A)(1) Rate of income tax on resident foreign corporations

Section 28(B)(1) Rate of income tax on non-resident foreign corporations

Section 28(B)(5-b) Rate of income tax on intercorporate dividends received by non-resident foreign corporations

Section 34(B)(1) Deduction from gross income


Similarly, I agree with Justice Artemio V. Panganiban in his separate opinion that the following are not germane to the E-VAT law:

Sections 1, 2, and 3 of the Republic Act No. 9337, in so far as these sections (a) amend the rates of income tax on domestic, resident foreign, and nonresident foreign corporations; (b) amend the tax credit against taxes due from nonresident foreign corporations on the intercorporate dividends; and (c) reduce the allowable deduction from interest expense.


Respondents should, in any case, now be able to implement the E-VAT law without confusion and thereby achieve its purpose.[4]


I vote to GRANT the petitions to the extent of declaring unconstitutional the provisions in Republic Act. No. 9337 that are not germane to the subject matter and DENY said petitions as to the rest of the law, which are constitutional.





Associate Justice

[1] The Constitution states that Congress may, by law, allow the President to fix within specified limits, and subject to such limitations and restrictions as it may impose, tariff rates, import and export quotas, tonnage and wharfage dues, and other duties as imposts within the framework of the national development program of the Government. (Art. VI, Sec. 28 [2], emphasis supplied.)

Petitioners claim that the power does not extend to fixing the rates of taxes, since taxes are not tariffs, import and export quotas, tonnage and wharfage dues, or other duties or imposts.

[2] Section 4, Republic Act No. 9337. The pertinent portion of the provision states:

SEC. 4. Section 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 %).

[3] Condition has been defined by Escriche as every future and uncertain event upon which an obligation or provision is made to depend. It is a future and uncertain event upon which the acquisition or resolution of rights is made to depend by those who execute the juridical act. Futurity and uncertainty must concur as characteristics of the event.

. . .

An event which is not uncertain but must necessarily happen cannot be a condition; the obligation will be considered as one with a term. (IV TOLENTINO, COMMENTARIES AND JURISPRUDENCE ON THE CIVIL CODE OF THE PHILIPPINES, 144).

[4] I voted for the issuance of the temporary restraining order to prevent the disorderly implementation of the law that would have defeated its very purpose and disrupted the entire VAT system, resulting in less revenues. The rationale, therefore, of the rule against enjoining the collection of taxes, that taxes are the lifeblood of Government, leaned in favor of the temporary restraining order.