constitutional limitation tax

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Constitutional Limitation

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G.R. No. 81311 June 30, 1988

KAPATIRAN NG MGA NAGLILINGKOD SA PAMAHALAAN NG PILIPINAS, INC., HERMINIGILDO C. DUMLAO, GERONIMO Q. QUADRA, and MARC. VILLANUEVA, petitioners,vs.HON. BIENVENIDO TAN, as Commissioner of Internal Revenue, respondent.

G.R. No. 81820 June 30, 1988

KILUSANG MAYO UNO LABOR CENTER (KMU), its officers and affiliated labor federations and alliances,petitioners,vs.THE EXECUTIVE SECRETARY, SECRETARY OF FINANCE, THE COMMISSIONER OF INTERNAL REVENUE, and SECRETARY OFBUDGET, respondents.

G.R. No. 81921 June 30, 1988

INTEGRATED CUSTOMS BROKERS ASSOCIATION OF THE PHILIPPINES and JESUS B. BANAL, petitioners,vs.The HON. COMMISSIONER, BUREAU OF INTERNAL REVENUE, respondent.

G.R. No. 82152 June 30, 1988

RICARDO C. VALMONTE, petitioner,vs.THE EXECUTIVE SECRETARY, SECRETARY OF FINANCE, COMMISSIONER OF INTERNAL REVENUE and SECRETARY OF BUDGET, responde

Franklin S. Farolan for petitioner Kapatiran in G.R. No. 81311.

Jaime C. Opinion for individual petitioners in G.R. No. 81311.

Banzuela, Flores, Miralles, Rañeses, Sy, Taquio and Associates for petitioners in G.R. No 81820.

Union of Lawyers and Advocates for Peoples Right collaborating counsel for petitioners in G.R. No 81820.

Jose C. Leabres and Joselito R. Enriquez for petitioners in G.R. No. 81921.

PADILLA, J.:

These four (4) petitions, which have been consolidated because of the similarity of the main issues involved therein, seek to nullify Executive Order No. 2(EO 273, for short), issued by the President of the Philippines on 25 July 1987, to take effect on 1 January 1988, and which amended certain sections of National Internal Revenue Code and adopted the value-added tax (VAT, for short), for being unconstitutional in that its enactment is not alledgedly within

powers of the President; that the VAT is oppressive, discriminatory, regressive, and violates the due process and equal protection clauses and other provisions of the 1987 Constitution.

The Solicitor General prays for the dismissal of the petitions on the ground that the petitioners have failed to show justification for the exercise of its judicipowers, viz. (1) the existence of an appropriate case; (2) an interest, personal and substantial, of the party raising the constitutional questions; (3) theconstitutional question should be raised at the earliest opportunity; and (4) the question of constitutionality is directly and necessarily involved in a justiciacontroversy and its resolution is essential to the protection of the rights of the parties. According to the Solicitor General, only the third requisite — that thconstitutional question should be raised at the earliest opportunity — has been complied with. He also questions the legal standing of the petitioners whocontends, are merely asking for an advisory opinion from the Court, there being no justiciable controversy for resolution.




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Objections to taxpayers' suit for lack of sufficient personality standing, or interest are, however, in the main procedural matters. Considering the importanto the public of the cases at bar, and in keeping with the Court's duty, under the 1987 Constitution, to determine wether or not the other branches of government have kept themselves within the limits of the Constitution and the laws and that they have not abused the discretion given to them, the Court brushed aside technicalities of procedure and has taken cognizance of these petitions.

But, before resolving the issues raised, a brief look into the tax law in question is in order.

The VAT is a tax levied on a wide range of goods and services. It is a tax on the value, added by every seller, with aggregate gross annual sales of articleand/or services, exceeding P200,00.00, to his purchase of goods and services, unless exempt. VAT is computed at the rate of 0% or 10% of the grossselling price of goods or gross receipts realized from the sale of services.

The VAT is said to have eliminated privilege taxes, multiple rated sales tax on manufacturers and producers, advance sales tax, and compensating tax onmportations. The framers of EO 273 that it is principally aimed to rationalize the system of taxing goods and services; simplify tax administration; and mathe tax system more equitable, to enable the country to attain economic recovery.

The VAT is not entirely new. It was already in force, in a modified form, before EO 273 was issued. As pointed out by the Solicitor General, the Philippinesales tax system, prior to the issuance of EO 273, was essentially a single stage value added tax system computed under the "cost subtraction method" o"cost deduction method" and was imposed only on original sale, barter or exchange of articles by manufacturers, producers, or importers. Subsequent saof such articles were not subject to sales tax. However, with the issuance of PD 1991 on 31 October 1985, a 3% tax was imposed on a second sale, whic

was reduced to 1.5% upon the issuance of PD 2006 on 31 December 1985, to take effect 1 January 1986. Reduced sales taxes were imposed not only othe second sale, but on every subsequent sale, as well. EO 273 merely increased the VAT on every sale to 10%, unless zero-rated or exempt.

Petitioners first contend that EO 273 is unconstitutional on the Ground that the President had no authority to issue EO 273 on 25 July 1987.

The contention is without merit.

t should be recalled that under Proclamation No. 3, which decreed a Provisional Constitution, sole legislative authority was vested upon the President. AI, sec. 1 of the Provisional Constitution states:

Sec. 1. Until a legislature is elected and convened under a new Constitution, the President shall continue to exercise legislative powe

On 15 October 1986, the Constitutional Commission of 1986 adopted a new Constitution for the Republic of the Philippines which was ratified in a plebiscconducted on 2 February 1987. Article XVIII, sec. 6 of said Constitution, hereafter referred to as the 1987 Constitution, provides:

Sec. 6. The incumbent President shall continue to exercise legislative powers until the first Congress is convened.

t should be noted that, under both the Provisional and the 1987 Constitutions, the President is vested with legislative powers until a legislature under a neConstitution is convened . The first Congress, created and elected under the 1987 Constitution, was convened on 27 July 1987. Hence, the enactment of 273 on 25 July 1987, two (2) days before Congress convened on 27 July 1987, was within the President's constitutional power and authority to legislate.

Petitioner Valmonte claims, additionally, that Congress was really convened on 30 June 1987 (not 27 July 1987). He contends that the word "convene" issynonymous with "the date when the elected members of Congress assumed office."

The contention is without merit. The word "convene" which has been interpreted to mean "to call together, cause to assemble, or convoke," 1 is clearlydifferent from assumption of office by the individual members of Congress or their taking the oath of office. As an example, we call to mind the interimNational Assembly created under the 1973 Constitution, which had not been "convened" but some members of the body, more particularly the delegatesthe 1971 Constitutional Convention who had opted to serve therein by voting affirmatively for the approval of said Constitution, had taken their oath of offi

To uphold the submission of petitioner Valmonte would stretch the definition of the word "convene" a bit too far. It would also defeat the purpose of theframers of the 1987 Constitutional and render meaningless some other provisions of said Constitution. For example, the provisions of Art. VI, sec. 15,requiring Congress to convene once every year on the fourth Monday of July for its regular session would be a contrariety, since Congress would alreadydeemed to be in session after the individual members have taken their oath of office. A portion of the provisions of Art. VII, sec. 10, requiring Congressto convene for the purpose of enacting a law calling for a special election to elect a President and Vice-President in case a vacancy occurs in said officeswould also be a surplusage. The portion of Art. VII, sec. 11, third paragraph, requiring Congress to convene, if not in session, to decide a conflict betwee




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the President and the Cabinet as to whether or not the President and the Cabinet as to whether or not the President can re-assume the powers and dutiehis office, would also be redundant. The same is true with the portion of Art. VII, sec. 18, which requires Congress to convene within twenty-four (24) houfollowing the declaration of martial law or the suspension of the privilage of the writ of habeas corpus.

The 1987 Constitution mentions a specific date when the President loses her power to legislate. If the framers of said Constitution had intended to terminathe exercise of legislative powers by the President at the beginning of the term of office of the members of Congress, they should have so stated (but did

not) in clear and unequivocal terms. The Court has not power to re-write the Constitution and give it a meaning different from that intended.

The Court also finds no merit in the petitioners' claim that EO 273 was issued by the President in grave abuse of discretion amounting to lack or excess ourisdiction. "Grave abuse of discretion" has been defined, as follows:

Grave abuse of discretion" implies such capricious and whimsical exercise of judgment as is equivalent to lack of jurisdiction (AbadSantos vs. Province of Tarlac, 38 Off. Gaz. 834), or, in other words, where the power is exercised in an arbitrary or despotic manner breason of passion or personal hostility, and it must be so patent and gross as to amount to an evasion of positive duty or to a virtualrefusal to perform the duty enjoined or to act at all in contemplation of law. (Tavera-Luna, Inc. vs. Nable, 38 Off. Gaz. 62). 2

Petitioners have failed to show that EO 273 was issued capriciously and whimsically or in an arbitrary or despotic manner by reason of passion or personhostility. It appears that a comprehensive study of the VAT had been extensively discussed by this framers and other government agencies involved in itsmplementation, even under the past administration. As the Solicitor General correctly sated. "The signing of E.O. 273 was merely the last stage in the

exercise of her legislative powers. The legislative process started long before the signing when the data were gathered, proposals were weighed and thefinal wordings of the measure were drafted, revised and finalized. Certainly, it cannot be said that the President made a jump, so to speak, on the Congretwo days before it convened." 3

Next, the petitioners claim that EO 273 is oppressive, discriminatory, unjust and regressive, in violation of the provisions of Art. VI, sec. 28(1) of the 1987Constitution, which states:

Sec. 28 (1) The rule of taxation shall be uniform and equitable. The Congress shall evolve a progressive system of taxation.

The petitioners" assertions in this regard are not supported by facts and circumstances to warrant their conclusions. They have failed to adequately showthat the VAT is oppressive, discriminatory or unjust. Petitioners merely rely upon newspaper articles which are actually hearsay and have evidentiary valuTo justify the nullification of a law. there must be a clear and unequivocal breach of the Constitution, not a doubtful and argumentative implication. 4

As the Court sees it, EO 273 satisfies all the requirements of a valid tax. It is uniform. The court, in City of Baguio vs. De Leon, 5 said:

... In Philippine Trust Company v. Yatco (69 Phil. 420), Justice Laurel, speaking for the Court, stated: "A tax is considered uniform whit operates with the same force and effect in every place where the subject may be found."

There was no occasion in that case to consider the possible effect on such a constitutional requirement where there is a classificationThe opportunity came in Eastern Theatrical Co. v. Alfonso (83 Phil. 852, 862). Thus: "Equality and uniformity in taxation means that ataxable articles or kinds of property of the same class shall be taxed at the same rate. The taxing power has the authority to makereasonable 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 Fuente (88 Phil. 60, 65) 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 anequity 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, (Uy Matias v. City of Cebu, 93 Ph300) is that the statute or ordinance in question "applies equally to all persons, firms and corporations placed in similar situation." ThisCourt is on record as accepting the view in a leading American case (Carmichael v. Southern Coal and Coke Co., 301 US 495) that"inequalities which result from a singling out of one particular class for taxation or exemption infringe no constitutional limitation." (LutAraneta, 98 Phil. 148, 153).

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%




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The disputed sales tax is also equitable. It is imposed only on sales of goods or services by persons engage in business with an aggregate gross annualsales exceeding P200,000.00. Small corner sari-sari stores are consequently exempt from its application. Likewise exempt from the tax are sales of farmand marine products, spared as they are from the incidence of the VAT, are expected to be relatively lower and within the reach of the general public. 6

The Court likewise finds no merit in the contention of the petitioner Integrated Customs Brokers Association of the Philippines that EO 273, more particulathe new Sec. 103 (r) of the National Internal Revenue Code, unduly discriminates against customs brokers. The contested provision states:

Sec. 103. Exempt transactions.— The following shall be exempt from the value-added tax:

xxx xxx xxx

(r) Service performed in the exercise of profession or calling (except customs brokers) subject to the occupation tax under the Local TCode, and professional services performed by registered general professional partnerships;

The phrase "except customs brokers" is not meant to discriminate against customs brokers. It was inserted in Sec. 103(r) to complement the provisions oSec. 102 of the Code, which makes the services of customs brokers subject to the payment of the VAT and to distinguish customs brokers from other professionals who are subject to the payment of an occupation tax under the Local Tax Code. Pertinent provisions of Sec. 102 read:

Sec. 102. Value-added tax on sale of services.—

There shall be levied, assessed and collected, a value-added tax equivalent to 10%percent of gross receipts derived by any person engaged in the sale of services. The phrase sale of services" means the performanceall kinds of services for others for a fee, remuneration or consideration, including those performed or rendered by construction andservice contractors; stock, real estate, commercial, customs and immigration brokers; lessors of personal property; lessors or distribuof cinematographic films; persons engaged in milling, processing, manufacturing or repacking goods for others; and similar servicesregardless of whether or not the performance thereof call for the exercise or use of the physical or mental faculties: ...

With the insertion of the clarificatory phrase "except customs brokers" in Sec. 103(r), a potential conflict between the two sections, (Secs. 102 and 103),nsofar as customs brokers are concerned, is averted.

At any rate, the distinction of the customs brokers from the other professionals who are subject to occupation tax under the Local Tax Code is based upomaterial differences, in that the activities of customs brokers (like those of stock, real estate and immigration brokers) partake more of a business, rather than a profession and were thus subjected to the percentage tax under Sec. 174 of the National Internal Revenue Code prior to its amendment by EO 27

EO 273 abolished the percentage tax and replaced it with the VAT. If the petitioner Association did not protest the classification of customs brokers then, Court sees no reason why it should protest now.

The Court takes note that EO 273 has been in effect for more than five (5) months now, so that the fears expressed by the petitioners that the adoption othe VAT will trigger skyrocketing of prices of basic commodities and services, as well as mass actions and demonstrations against the VAT should by nowbe evident. The fact that nothing of the sort has happened shows that the fears and apprehensions of the petitioners appear to be more imagined than ret would seem that the VAT is not as bad as we are made to believe.

n any event, if petitioners seriously believe that the adoption and continued application of the VAT are prejudicial to the general welfare or the interests ofthe majority of the people, they should seek recourse and relief from the political branches of the government. The Court, following the time-honored docof separation of powers, cannot substitute its judgment for that of the President as to the wisdom, justice and advisability of the adoption of the VAT. TheCourt can only look into and determine whether or not EO 273 was enacted and made effective as law, in the manner required by, and consistent with, thConstitution, and to make sure that it was not issued in grave abuse of discretion amounting to lack or excess of jurisdiction; and, in this regard, the Court

finds no reason to impede its application or continued implementation.

WHEREFORE, the petitions are DISMISSED. Without pronouncement as to costs.

SO ORDERED.




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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, asCommissioner 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 OFCUSTOMS, respondents.

G.R. No. 115544 October 30, 1995

PHILIPPINE PRESS INSTITUTE, INC.; EGP PUBLISHING CO., INC.; KAMAHALAN PUBLISHING CORPORATION; PHILIPPINE JOURNALISTS, INJOSE 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 asExecutive 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 TENDERFERNANDO SANTIAGO, JOSE ABCEDE, CHRISTINE TAN, FELIPE L. GOZON, RAFAEL G. FERNANDO, RAOUL V. VICTORINO, JOSE CUNANAQUINTIN S. DOROMAL, MOVEMENT OF ATTORNEYS FOR BROTHERHOOD, INTEGRITY AND NATIONALISM, INC. ("MABINI"), FREEDOM FRODEBT COALITION, INC., and PHILIPPINE BIBLE SOCIETY, INC. and WIGBERTO TAÑADA,petitioners,vs.THE EXECUTIVE SECRETARY, THE SECRETARY OF FINANCE, THE COMMISSIONER OF INTERNAL REVENUE and THE COMMISSIONER OFCUSTOMS, 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




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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 asExecutive 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 HOGUILLERMO PARAYNO, JR., in his capacity as the Commissioner of Customs, respondents.

R E S O L U T I O N

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. N7716, 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 thecases, 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, athe 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 SolicitorGeneral filed on June 1, 1995 a rejoinder to the PPI's reply.

On June 27, 1995 the matter was submitted for resolution.

. Power of the Senate to propose amendments to revenue bills . Some of the petitioners (Tolentino, Kilosbayan, Inc., Philippine Airlines (PAL), Roco, andChamber of Real Estate and Builders Association (CREBA)) reiterate previous claims made by them that R.A. No. 7716 did not "originate exclusively" in t

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 Representativeswhere 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 MeansCommittee, 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 bystriking 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 justbecomes 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 orevenue bill. On at least two occasions during the Eighth Congress, the Senate passed its own version of revenue bills, which, in consolidation with Housbills 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 THEPERIOD FOR TAX AND DUTY EXEMPTION AND TAX CREDIT ON CAPITAL EQUIPMENT) which was approved by the President on April 10, 1992. ThAct 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 theSenate 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 INOLYMPIC 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 Housof Representatives on August 2, 1989, and S. No. 807, which was approved by the Senate on October 21, 1991.




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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 thefollowing, 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 wrespectively passed:

1. R.A. NO. 7642

AN ACT INCREASING THE PENALTIES FOR TAX EVASION, AMENDING FOR THIS PURPOSE THE PERTINENT SECTIONS OFTHE 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-ADDEDTAX EVERY MONTH AND TO ALLOW LOCAL GOVERNMENT UNITS TO SHARE IN VAT REVENUE, AMENDING FOR THISPURPOSE 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 OFINTERNAL REVENUE TAXES BY LARGE TAXPAYERS, AMENDING FOR THIS PURPOSE CERTAIN PROVISIONS OF THENATIONAL 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 AGENCIESINCLUDING GOVERNMENT-OWNED OR CONTROLLED CORPORATIONS (GOCCS) TO DEDUCT AND WITHHOLD THE VALUEADDED TAX DUE AT THE RATE OF THREE PERCENT (3%) ON GROSS PAYMENT FOR THE PURCHASE OF GOODS AND SIXPERCENT (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 CERTAICONDITIONS TO THE NATIONAL GOVERNMENT, AND FOR OTHER PURPOSES (November 9, 1993)

House Bill No. 11024, November 3, 1993





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6. R.A. NO. 7660

AN ACT RATIONALIZING FURTHER THE STRUCTURE AND ADMINISTRATION OF THE DOCUMENTARY STAMP TAX, AMENDFOR THE PURPOSE CERTAIN PROVISIONS OF THE NATIONAL INTERNAL REVENUE CODE, AS AMENDED, ALLOCATINGFUNDS FOR SPECIFIC PROGRAMS, AND FOR OTHER PURPOSES (December 23, 1993)

House Bill No. 7789, May 31, 1993


7. R.A. NO. 7717

AN ACT IMPOSING A TAX ON THE SALE, BARTER OR EXCHANGE OF SHARES OF STOCK LISTED AND TRADED THROUGHTHE LOCAL STOCK EXCHANGE OR THROUGH INITIAL PUBLIC OFFERING, AMENDING FOR THE PURPOSE THE NATIONALINTERNAL REVENUE CODE, AS AMENDED, BY INSERTING A NEW SECTION AND REPEALING CERTAIN SUBSECTIONSTHEREOF (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 tooriginate 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 Tolentand 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 whsubstantial 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 ."

ndeed, 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 entertaine

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 thoriginal 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 otextual differences between constitutional provisions giving them the power to propose or concur with amendments.




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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 amendmentson 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 shalloriginate 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, accordto 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 any other bills' (sic ) were eliminated so as to showthese 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 anunsuccessful 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 theHouse of Representatives. The work of proposing amendments to the Constitution was done by the National Assembly, acting as a constituent assemblysome of whose members, jealous of preserving the Assembly's lawmaking powers, sought to curtail the powers of the proposed Senate. Accordingly theproposed the following provision:

All bills appropriating public funds, revenue or tariff bills, bills of local application, and private bills shall originate exclusively in theAssembly, but the Senate may propose or concur with amendments. In case of disapproval by the Senate of any such bills, theAssembly may repass the same by a two-thirds vote of all its members, and thereupon, the bill so repassed shall be deemed enactedand may be submitted to the President for corresponding action. In the event that the Senate should fail to finally act on any such billsthe Assembly may, after thirty days from the opening of the next regular session of the same legislative term, reapprove the same witvote of two-thirds of all the members of the Assembly. And upon such reapproval, the bill shall be deemed enacted and may besubmitted 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. Asrewritten, 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 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 ncopied. Considering the defeat of the proposal, the power of the Senate to propose amendments must be understood to be full, plenary and complete "asother Bills." Thus, because revenue bills are required to originate exclusively in the House of Representatives, the Senate cannot enact revenue measurets 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 thesame 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 thispower, the Senate can practically re-write a bill required to come from the House and leave only a trace of the original bill. For exampa general revenue bill passed by the lower house of the United States Congress contained provisions for the imposition of an inheritatax . This was changed by the Senate into a corporation tax. The amending authority of the Senate was declared by the United StatesSupreme 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. TAÑADA AND F. CARREON, POLITICAL LAW OF THE PHILIPPINES 247 (1961))




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The above-mentioned bills are supposed to be initiated by the House of Representatives because it is more numerous in membershiand therefore also more representative of the people. Moreover, its members are presumed to be more familiar with the needs of thecountry 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 initiatedthe House of Representatives. Thus, in one case, a bill introduced in the U.S. House of Representatives was changed by the Senate

make a proposed inheritance tax a corporation tax. It is also accepted practice for the Senate to introduce what is known as anamendment by substitution, which may entirely replace the bill initiated in the House of Representatives.

(I. CRUZ, PHILIPPINE POLITICAL LAW 144-145 (1993)).

n sum, while Art. VI, §24 provides that all appropriation, revenue or tariff bills, bills authorizing increase of the public debt, bills of local application, andprivate bills must "originate exclusively in the House of Representatives," it also adds, " but the Senate may propose or concur with amendments." In theexercise 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 committo 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 makeand 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 itsother 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 tbill 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 anamendment of H. No. 11197 as any which the Senate could have made.

I. 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 . Henctheir 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. 734and H .B. No. 11197 ," implying that there is something substantially different between the reference to S. No. 1129 and the reference to H. No. 11197. Frothis 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 becauseneither H. No. 11197 nor S. No. 1630 was passed by both houses of Congress."

n 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. 1119The 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, whshowing differences between the two bills, at the same time indicates that the provisions of the Senate bill were precisely intended to be amendments to tHouse 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 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 thSenate 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 breferred 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. N1405 (Act prohibiting the disclosure of bank deposits), were referred to a conference committee, the question was raised whether the two bills could be th

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 thequestion:

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 theSenate, 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 oconference, and can a law be enacted from these two bills? I understand that the Senate bill in this particular instance does not refer investments in government securities, whereas the bill in the House, which was introduced by the Speaker, covers two subject mattenot only investigation of deposits in banks but also investigation of investments in government securities. Now, since the two bills diffetheir subject matter, I believe that no law can be enacted.




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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 hathe House bill had been approved by the Senate, there would have been no need of a conference; but precisely because theSenate passed another bill on the same subject matter , the conference committee had to be created, and we are now considering thereport of that committee.

(2 CONG. REC. NO. 13, July 27, 1955, pp. 3841-42 (emphasis added))

II. The President's certification. The fallacy in thinking that H. No. 11197 and S. No. 1630 are distinct and unrelated measures also accounts for thepetitioners' (Kilosbayan's and PAL's) contention that because the President separately certified to the need for the immediate enactment of these measurhis 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 consideOtherwise, 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 thouthe 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, 1993the 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. Thbill 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

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 readinon 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 least three calendar days prior to its passage, except when the President shall have certified to the necessity of its immediate enactmUpon the last reading of a bill, no amendment thereof shall be allowed and the question upon its passage shall be taken immediatelythereafter, 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 havebeen distributed to the Members three days before its passage, except when the Prime Minister certifies to the necessity of its immedenactment to meet a public calamity or emergency. Upon the last reading of a bill, no amendment thereto shall be allowed, and the vothereon shall be taken immediately thereafter, and the yeas and nays 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 therein its final form have been distributed to its Members three days before its passage, except when the President certifies to the necessof its immediate enactment to meet a public calamity or emergency. Upon the last reading of a bill, no amendment thereto shall beallowed, and the vote thereon shall be taken immediately thereafter, and the yeasand 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 finalform 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 meantaddress.

Petitioners further contend that a "growing budget deficit" is not an emergency, especially in a country like the Philippines where budget deficit is a chroniccondition. 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 itsenactment 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. N1630, 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 departme




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s not bound by the Senate's acceptance of the President's certification, the respect due coequal departments of the government in matters committed tothem 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 inadvance 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 i

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 oand (2) to give them notice that a measure is progressing through the enacting process, thus enabling them and others interested in the measure to prepatheir positions with reference to it. (1 J. G. SUTHERLAND, STATUTES AND STATUTORY CONSTRUCTION §10.04, p. 282 (1972)). These purposes wesubstantially achieved in the case of R.A. No. 7716.

V. Power of Conference Committee. It is contended (principally by Kilosbayan, Inc. and the Movement of Attorneys for Brotherhood, Integrity andNationalism, 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) thConference 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 attendancand it was only in 1975 when a new rule was adopted requiring open sessions. Unlike its American counterpart, the Philippine Congress has not adopted

rule prescribing open hearings for conference committees.

t 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 membeof 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 daof 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, thepublic's right to know was fully served because the Conference Committee in this case submitted a report showing the changes made on the differingversions 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 thechanges in or other amendments." These changes are shown in the bill attached to the Conference Committee Report. The members of both houses couthus 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 ConferenceCommittee. 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 No2557 by reason of the provision of Section 11, Article XII, of the Rules of this House which provides specifically that the conferencereport must be accompanied by a detailed statement of the effects of the amendment on the bill of the House. This conferencecommittee 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 fromPangasinan.

There is no question about the provision of the Rule cited by the gentleman from Pangasinan, but this provision applies to those casewhere only portions of the bill have been amended . In this case before us an entire bill is presented ; therefore, it can be easily seen fthe 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 threquirement 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 m




13

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 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 thRule 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 divisiothe 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 conferenceAs this Court held in Philippine Judges Association v . Prado, 227 SCRA 703 (1993), in an opinion written by then Justice Cruz, the jurisdiction of theconference committee is not limited to resolving differences between the Senate and the House. It may propose an entirely new provision. What is imports that its report is subsequently approved by the respective houses of Congress. This Court ruled that it would not entertain allegations that, because newprovisions had been added by the conference committee, there was thereby a violation of the constitutional injunction that "upon the last reading of a bill, 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 obill that eventually became R.A. No. 7354 and that copiesthereof 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 wowe, at the very least, a becoming courtesy.

(Id . at 710. (emphasis added))

t 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 othey may be left without instructions. Normally the conference committees are without instructions, and this is why they are often criticreferred to as "the little legislatures." Once bills have been sent to them, the conferees have almost unlimited authority to change theclauses of the bills and in fact sometimes introduce new measures that were not in the original legislation. No minutes are kept, andmembers' activities on conference committees are difficult to determine. One congressman known for his idealism put it this way: "I kia bill on export incentives for my interest group [copra] in the conference committee but I could not have done so anywhere else." Theconference committee submits a report to both houses, and usually it is accepted. If the report is not accepted, then the committee isdischarged and new members are appointed.

(R. Jackson, Committees in the Philippine Congress, in COMMITTEES AND LEGISLATURES: A COMPARATIVE ANALYSIS 163 (J.LEES AND M. SHAW, eds.)).

n 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 differefrom 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 andprocedures 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 bipassed by Congress shall embrace only one subject which shall be expressed in the title thereof." PAL contends that the amendment of its franchise by thwithdrawal 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 another fees and charges of any kind, nature, or description, imposed, levied, established, assessed or collected by any municipal, city, provincial or nationauthority 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:




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§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, 159. .

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 THENATIONAL 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 ENHANCINGTS 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 NIRCwhich 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 thiorder 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 subjecegislation. 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. Ware 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.

n 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 CREATINTHE PHILIPPINE POSTAL CORPORATION, DEFINING ITS POWERS, FUNCTIONS AND RESPONSIBILITIES, PROVIDING FOR REGULATION OF TNDUSTRY AND FOR OTHER PURPOSES CONNECTED THEREWITH. It contained a provision repealing all franking privileges. It was contended that

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 titlencluding 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 titlewould not only be unreasonable but would actually render legislation impossible. [Cooley, Constitutional Limitations, 8th Ed., p. 297] Ahas been correctly explained:

The details of a legislative act need not be specifically stated in its title, but matter germane to the subject asexpressed in the title, and adopted to the accomplishment of the object in view, may properly be included in the aThus, it is proper to create in the same act the machinery by which the act is to be enforced, to prescribe thepenalties for its infraction, and to remove obstacles in the way of its execution. If such matters are properlyconnected with the subject as expressed in the title, it is unnecessary that they should also have special mention the title. (Southern Pac. Co. v. Bartine, 170 Fed. 725)

(227 SCRA at 707-708)




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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 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 specialtreatment 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 discriminatesagainst 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 anytimewithout offense to the Constitution. The reason is simple: by granting exemptions, the State does not forever waive the exercise of its sovereign prerogati

ndeed, in withdrawing the exemption, the law merely subjects the press to the same tax burden to which other businesses have long ago been subject. Itthus 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 (193was found to be discriminatory because it was laid on the gross advertising receipts only of newspapers whose weekly circulation was over 20,000, with tresult 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 stateegislature 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 bediscriminatory 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

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. SupremCourt held that the differential treatment of the press "suggests that the goal of regulation is not related to suppression of expression, and such goal ispresumptively unconstitutional." It would therefore appear that even a law that favors the press is constitutionally suspect. (See the dissent of Rehnquist, n 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 exemptiofrom the VAT, such as those previously granted to PAL, petroleum concessionaires, enterprises registered with the Export Processing Zone Authority, anmany 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 exemptunder 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 grantfor a purpose. As the Solicitor General says, such exemptions are granted, in some cases, to encourage agricultural production and, in other cases, for thpersonal 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 originstate, 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 taxand services subject to percentage tax.

(d) Educational services, medical, dental, hospital and veterinary services, and services rendered under employer-employee relations

(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 .




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(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 onconstitutionally guaranteed freedom is unconstitutional." PPI cites in support of this assertion the following statement in Murdock v . Pennsylvania, 319 U.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. Alicense tax certainly does not acquire constitutional validity because it classifies the privileges protected by the First Amendment alonwith the wares and merchandise of hucksters and peddlers and treats them all alike. Such equality in treatment does not save theordinance. 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 unconstitutionalbecause 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 thpress or to religious groups, such as the Jehovah's Witnesses, in connection with the latter's sale of religious books and pamphlets, is unconstitutional. Athe 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 delivea 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 abusiness 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 salbarter, 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 tpress 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 toviolate 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 osale. 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 another economic imposition that might make the right to disseminate religious doctrines costly. Otherwise, to follow the petitioner's argument, to increase ttax 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 reallyust 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 distribufree 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 wheththe 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 obligations of contracts, (2) classifies transactions as covered or exempt without reasonable basis and (3) violates the rule that taxes should be uniform aequitable 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 deferrepayment basis would result in substantial increases in the monthly amortizations to be paid because of the 10% VAT. The additional amount, it is pointedout, 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 sthat 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 theConstitution. Even though such taxation may affect particular contracts, as it may increase the debt of one person and lessen the security of another, or mmpose 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 bsaid 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 legorder." (Philippine-American Life Ins. Co. v. Auditor General, 22 SCRA 135, 147 (1968)) Contracts must be understood as having been made in referencthe possible exercise of the rightful authority of the government and no obligation of contract can extend to the defeat of that authority. (Norman v. Baltimoand Ohio R.R., 79 L. Ed. 885 (1935)).




17

t 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 anveterinary services, it grants no exemption on the sale of real property which is equally essential. The sale of real property for socialized and low-costhousing 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, shoikewise 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, wsubjecting those of petitioner to the payment of the VAT. Moreover, there is a difference between the "homeless poor" and the "homeless less poor" in theexample 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 homThe 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 hbeen 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 beuniform 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 tauthority to make reasonable and natural classifications for purposes of taxation. To satisfy this requirement it is enough that the statute or ordinance app

equally to all persons, forms and corporations placed in similar situation. (City of Baguio v. De Leon, supra; Sison, Jr. v. Ancheta, supra)

ndeed, 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. Thevalidity of the original VAT Law was questioned in Kapatiran ng Naglilingkod sa Pamahalaan ng Pilipinas, Inc . v . Tan, 163 SCRA 383 (1988) on groundssimilar to those made in these cases, namely, that the law was "oppressive, discriminatory, unjust and regressive in violation of Art. VI, §28(1) of theConstitution." (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 constarate 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 anaggregate 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 asthey 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 10and 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 shal"evolve a progressive system of taxation." The constitutional provision has been interpreted to mean simply that "direct taxes are . . . to be preferred [and

much as possible, indirect taxes should be minimized." (E. FERNANDO, THE CONSTITUTION OF THE PHILIPPINES 221 (Second ed. (1977)). Indeed, mandate to Congress is not to prescribe, but to evolve, a progressive tax system. Otherwise, sales taxes, which perhaps are the oldest form of indirecttaxes, 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. Saltaxes 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 accordto 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 certaintransactions (R.A. No. 7716, §3, amending §102 (b) of the NIRC), while granting exemptions to other transactions. (R.A. No. 7716, §4, amending §103 ofNIRC).




18

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 originstate, 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 taxand services subject to percentage tax.

(d) Educational services, medical, dental, hospital and veterinary services, and services rendered under employer-employee relations

(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 highncome 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 picfilms, tapes and discs, radio, television, satellite transmission and cable television time, hotels, restaurants and similar places, securities, lendingnvestments, 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 theabstract. There is no fully developed record which can impart to adjudication the impact of actuality. There is no factual foundation to show inthe 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 evebeen 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 inadvisory opinions.

The difficulty confronting petitioner is thus apparent. He alleges arbitrariness. A mere allegation, as here, does not suffice. There musa factual foundation of such unconstitutional taint. Considering that petitioner here would condemn such a provision as void on its fache has not made out a case. This is merely to adhere to the authoritative doctrine that where the due process and equal protectionclauses are invoked, considering that they are not fixed rules but rather broad standards, there is a need for proof of such persuasivecharacter 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 multiplicof 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 anabstract 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 givingadvisory 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 lacor 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




19

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 whave 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 partieswho 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 andexecutive power. This power cannot be directly appropriated until it is apportioned among several courts either by the Constitution, as in the case of Art. V

§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 thusapportioned 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 exclusof 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 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 coursegislation, argues that it was to adopt a definite policy of granting tax exemption to cooperatives that the present Constitution embodies provisions oncooperatives. To subject cooperatives to the VAT would therefore be to infringe a constitutional policy. Petitioner claims that in 1973, P.D. No. 175 waspromulgated exempting cooperatives from the payment of income taxes and sales taxes but in 1984, because of the crisis which menaced the nationaleconomy, this exemption was withdrawn by P.D. No. 1955; that in 1986, P.D. No. 2008 again granted cooperatives exemption from income and sales taxuntil 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 thprevious actions of the government adverse to the interests of the cooperatives, that is, the repeated revocation of the tax exemption to cooperatives andnstead 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 inamount of goods and services produced by the nation for the benefit of the people; and an expanding productivity as the key to raisinthe quality of life for all, especially the underprivileged.

The State shall promote industrialization and full employment based on sound agricultural development and agrarian reform, throughindustries that make full and efficient use of human and natural resources, and which are competitive in both domestic and foreignmarkets. However, the State shall protect Filipino enterprises against unfair foreign competition and trade practices.

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 baof their ownership.

§15. The Congress shall create an agency to promote the viability and growth of cooperatives as instruments for social justice andeconomic 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 incomand 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 toprivate 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 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 whoseexemptions were withdrawn. The withdrawal of tax incentives applied to all, including government and private entities . In the second place, the Constitutidoes not really require that cooperatives be granted tax exemptions in order to promote their growth and viability. Hence, there is no basis for petitioner'sassertion 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 wasput an end to this indecision that the constitutional provisions cited were adopted. Perhaps as a matter of policy cooperatives should be granted taxexemptions, but that is left to the discretion of Congress. If Congress does not grant exemption and there is no discrimination to cooperatives, no violationany constitutional policy can be charged.

ndeed, petitioner's theory amounts to saying that under the Constitution cooperatives are exempt from taxation . Such theory is contrary to the Constitutiounder which only the following are exempt from taxation: charitable institutions, churches and parsonages, by reason of Art. VI, §28 (3), and non-stock, nprofit 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 cooperativare exempted from the VAT. The classification between electric and other cooperatives (farmers cooperatives, producers cooperatives, marketingcooperatives, etc.) apparently rests on a congressional determination that there is greater need to provide cheaper electric power to as many people aspossible, especially those living in the rural areas, than there is to provide them with other necessities in life. We cannot say that such classification isunreasonable.




20

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 attributeto 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 itsnecessity, desirability or expediency must be addressed to Congress as the body which is electorally responsible, remembering that, as Justice Holmes hsaid, "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 & TeRy. 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 theburden 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 oveegislation.

WHEREFORE, the motions for reconsideration are denied with finality and the temporary restraining order previously issued is hereby lifted.

SO ORDERED.




21

ANTERO M. SISON, JR., petitioner,vs.RUBEN B. ANCHETA, Acting Commissioner, Bureau of Internal Revenue; ROMULO VILLA, Deputy Commissioner, Bureau of Internal RevenueTOMAS TOLEDO Deputy Commissioner, Bureau of Internal Revenue; MANUEL ALBA, Minister of Budget, FRANCISCO TANTUICO, Chairman,Commissioner on Audit, and CESAR E. A. VIRATA, Minister of Finance, respondents.

Antero Sison for petitioner and for his own behalf.

The Solicitor General for respondents.FERNANDO, C.J.:

The success of the challenge posed in this suit for declaratory relief or prohibition proceeding 1 on the validity of Section I of Batas Pambansa Blg. 135depends upon a showing of its constitutional infirmity. The assailed provision further amends Section 21 of the National Internal Revenue Code of 1977,which provides for rates of tax on citizens or residents on (a) taxable compensation income, (b) taxable net income, (c) royalties, prizes, and other winning(d) interest from bank deposits and yield or any other monetary benefit from deposit substitutes and from trust fund and similar arrangements, (e) dividendand share of individual partner in the net profits of taxable partnership, (f) adjusted gross income. 2 Petitioner 3 as taxpayer alleges that by virtue thereof, would be unduly discriminated against by the imposition of higher rates of tax upon his income arising from the exercise of his profession vis-a-vis thosewhich are imposed upon fixed income or salaried individual taxpayers. 4 He characterizes the above sction as arbitrary amounting to class legislation,oppressive and capricious in character 5For petitioner, therefore, there is a transgression of both the equal protection and due process clauses 6 of theConstitution as well as of the rule requiring uniformity in taxation. 7

The Court, in a resolution of January 26, 1982, required respondents to file an answer within 10 days from notice. Such an answer, after two extensionswere granted the Office of the Solicitor General, was filed on May 28, 1982. 8 The facts as alleged were admitted but not the allegations which to their minare "mere arguments, opinions or conclusions on the part of the petitioner, the truth [for them] being those stated [in their] Special and AffirmativeDefenses." 9 The answer then affirmed: "Batas Pambansa Big. 135 is a valid exercise of the State's power to tax. The authorities and cases cited whilecorrectly quoted or paraghraph do not support petitioner's stand." 10 The prayer is for the dismissal of the petition for lack of merit.

This Court finds such a plea more than justified. The petition must be dismissed.

1. It is manifest that the field of state activity has assumed a much wider scope, The reason was so clearly set forth by retired Chief Justice Makalintal thu"The areas which used to be left to private enterprise and initiative and which the government was called upon to enter optionally, and only 'because it wabetter equipped to administer for the public welfare than is any private individual or group of individuals,' continue to lose their well-defined boundaries anbe absorbed within activities that the government must undertake in its sovereign capacity if it is to meet the increasing social challenges of thetimes." 11 Hence the need for more revenues. The power to tax, an inherent prerogative, has to be availed of to assure the performance of vital statefunctions. It is the source of the bulk of public funds. To praphrase a recent decision, taxes being the lifeblood of the government, their prompt and certainavailability is of the essence. 12

2. The power to tax moreover, to borrow from Justice Malcolm, "is an attribute of sovereignty. It is the strongest of all the powers of of government." 13 Itof course, to be admitted that for all its plenitude 'the power to tax is not unconfined. There are restrictions. The Constitution sets forth such limits . Adversaffecting as it does properly rights, both the due process and equal protection clauses inay properly be invoked, all petitioner does, to invalidate inappropriate cases a revenue measure. if it were otherwise, there would -be truth to the 1803 dictum of Chief Justice Marshall that "the power to tax involvthe power to destroy." 14 In a separate opinion in Graves v. New York , 15 Justice Frankfurter, after referring to it as an 1, unfortunate remark characterizas "a flourish of rhetoric [attributable to] the intellectual fashion of the times following] a free use of absolutes." 16 This is merely to emphasize that it is rioand there cannot be such a constitutional mandate. Justice Frankfurter could rightfully conclude: "The web of unreality spun from Marshall's famous dictuwas brushed away by one stroke of Mr. Justice Holmess pen: 'The power to tax is not the power to destroy while this Court sits." 17 So it is in thePhilippines.

3. This Court then is left with no choice. The Constitution as the fundamental law overrides any legislative or executive, act that runs counter to it. In anycase therefore where it can be demonstrated that the challenged statutory provision — as petitioner here alleges— fails to abide by its command, then tCourt must so declare and adjudge it null. The injury thus is centered on the question of whether the imposition of a higher tax rate on taxable net incomederived from business or profession than on compensation is constitutionally infirm.

4, The difficulty confronting petitioner is thus apparent. He alleges arbitrariness. A mere allegation, as here. does not suffice. There must be a factualfoundation of such unconstitutional taint. Considering that petitioner here would condemn such a provision as void or its face, he has not made out a caseThis is merely to adhere to the authoritative doctrine that were the due process and equal protection clauses are invoked, considering that they arc not fix




22

rules but rather broad standards, there is a need for of such persuasive character as would lead to such a conclusion. Absent such a showing, thepresumption of validity must prevail. 18

5. It is undoubted that the due process clause may be invoked where a taxing statute is so arbitrary that it finds no support in the Constitution. An obviousexample is where it can be shown to amount to the confiscation of property. That would be a clear abuse of power. It then becomes the duty of this Courtsay that such an arbitrary act amounted to the exercise of an authority not conferred. That properly calls for the application of the Holmes dictum. It has a

been held that where the assailed tax measure is beyond the jurisdiction of the state, or is not for a public purpose, or, in case of a retroactive statute is sharsh and unreasonable, it is subject to attack on due process grounds. 19

6. 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 inexercise of the lice power or the power of eminent domain is to demonstrated that the governmental act assailed, far from being inspired by the attainmenthe 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 lawsoperate equally and uniformly on all persons under similar circumstances or that all persons must be treated in the same manner, the conditions not beingdifferent, both in the privileges conferred and the liabilities imposed. Favoritism and undue preference cannot be allowed. For the principle is that equalprotection and security shall be given to every person under circumtances which if not Identical are analogous. If law be looked upon in terms of burden ocharges, those that fall within a class should be treated in the same fashion, whatever restrictions cast on some in the group equally binding on therest." 20 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 benefits being available to all and the affairs of men being governed by that serene and impartial uniformity, which is othe 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 'equa

protection' clause aims is not a disembodied equality. The Fourteenth Amendment enjoins 'the equal protection of the laws,' and laws are not abstractpropositions. They do not relate to abstract units A, B and C, but are expressions of policy arising out of specific difficulties, address 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 thoughthey were the same." 21Hence the constant reiteration of the view that classification if rational in character is allowable. As a matter of fact, in a leading caof Lutz V. Araneta, 22 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 toselect 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.'" 23

7. Petitioner likewise invoked the kindred concept of uniformity. According to the Constitution: "The rule of taxation shag be uniform and equitable." 24 Threquirement is met according to Justice Laurel in Philippine Trust Company v. Yatco, 25 decided in 1940, when the tax "operates with the same force andeffect in every place where the subject may be found. " 26 He likewise added: "The rule of uniformity does not call for perfect uniformity or perfect equalitybecause this is hardly attainable." 27 The problem of classification did not present itself in that case. It did not arise until nine years later, when the SupremCourt held: "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, ... .28

As clarified by Justice Tuason, where "thedifferentiation" complained of "conforms to the practical dictates of justice and equity" it "is not discriminatory within the meaning of this clause and istherefore uniform." 29 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 personsfirms and corporations placed in similar situation." 30

8. Further on this point. Apparently, what misled petitioner is his failure to take into consideration the distinction between a tax rate and a tax base. There no legal objection to a broader tax base or taxable income by eliminating all deductible items and at the same time reducing the applicable tax rate.Taxpayers may be classified into different categories. To repeat, it. is enough that the classification must rest upon substantial distinctions that make realdifferences. In the case of the gross income taxation embodied in Batas Pambansa Blg. 135, the, discernible basis of classification is the susceptibility of ncome to the application of generalized rules removing all deductible items for all taxpayers within the class and fixing a set of reduced tax rates to beapplied to all of them. Taxpayers who are recipients of compensation income are set apart as a class. As there is practically no overhead expense, thesetaxpayers are e not entitled to make deductions for income tax purposes because they are in the same situation more or less. On the other hand, in the cof professionals in the practice of their calling and businessmen, there is no uniformity in the costs or expenses necessary to produce their income. It wou

not be just then to disregard the disparities by giving all of them zero deduction and indiscriminately impose on all alike the same tax rates on the basis ofgross income. There is ample justification then for the Batasang Pambansa to adopt the gross system of income taxation to compensation income, whilecontinuing the system of net income taxation as regards professional and business income.

9. Nothing can be clearer, therefore, than that the petition is without merit, considering the (1) lack of factual foundation to show the arbitrary character of assailed provision; 31 (2) the force of controlling doctrines on due process, equal protection, and uniformity in taxation and (3) the reasonableness of thedistinction between compensation and taxable net income of professionals and businessman certainly not a suspect classification,

WHEREFORE, the petition is dismissed. Costs against petitioner.




23

G.R. Nos. L-49839-46 April 26, 1991

JOSE B. L. REYES and EDMUNDO A. REYES, petitioners,vs.PEDRO ALMANZOR, VICENTE ABAD SANTOS, JOSE ROÑO, in their capacities as appointed and Acting Members of the CENTRAL BOARD OFASSESSMENT APPEALS; TERESITA H. NOBLEJAS, ROMULO M. DEL ROSARIO, RAUL C. FLORES, in their capacities as appointed and Actin

Members of the BOARD OF ASSESSMENT APPEALS of Manila; and NICOLAS CATIIL in his capacity as City Assessor of Manila,respondents.

Barcelona, Perlas, Joven & Academia Law Offices for petitioners.

PARAS, J.:p

This is a petition for review on certiorari to reverse the June 10, 1977 decision of the Central Board of Assessment Appeals 1 in CBAA Cases Nos. 72-79entitled "J.B.L. Reyes, Edmundo Reyes, et al. v. Board of Assessment Appeals of Manila and City Assessor of Manila" which affirmed the March 29, 1976decision of the Board of Tax Assessment Appeals 2 in BTAA Cases Nos. 614, 614-A-J, 615, 615-A, B, E, "Jose Reyes, et al. v. City Assessor of Manila" "Edmundo Reyes and Milagros Reyes v. City Assessor of Manila" upholding the classification and assessments made by the City Assessor of Manila.

The facts of the case are as follows:

Petitioners J.B.L. Reyes, Edmundo and Milagros Reyes are owners of parcels of land situated in Tondo and Sta. Cruz Districts, City of Manila, which areeased and entirely occupied as dwelling sites by tenants. Said tenants were paying monthly rentals not exceeding three hundred pesos (P300.00) in July1971. On July 14, 1971, the National Legislature enacted Republic Act No. 6359 prohibiting for one year from its effectivity, an increase in monthly rentalsdwelling units or of lands on which another's dwelling is located, where such rentals do not exceed three hundred pesos (P300.00) a month but allowing ncrease in rent by not more than 10% thereafter. The said Act also suspended paragraph (1) of Article 1673 of the Civil Code for two years from itseffectivity thereby disallowing the ejectment of lessees upon the expiration of the usual legal period of lease. On October 12, 1972, Presidential Decree N20 amended R.A. No. 6359 by making absolute the prohibition to increase monthly rentals below P300.00 and by indefinitely suspending the aforementioprovision of the Civil Code, excepting leases with a definite period. Consequently, the Reyeses, petitioners herein, were precluded from raising the rentaland from ejecting the tenants. In 1973, respondent City Assessor of Manila re-classified and reassessed the value of the subject properties based on theschedule of market values duly reviewed by the Secretary of Finance. The revision, as expected, entailed an increase in the corresponding tax ratesprompting petitioners to file a Memorandum of Disagreement with the Board of Tax Assessment Appeals. They averred that the reassessments made we"excessive, unwarranted, inequitable, confiscatory and unconstitutional" considering that the taxes imposed upon them greatly exceeded the annual incoderived from their properties. They argued that the income approach should have been used in determining the land values instead of the comparable saapproach which the City Assessor adopted (Rollo, pp. 9-10-A). The Board of Tax Assessment Appeals, however, considered the assessments valid, holdthus:

WHEREFORE, and considering that the appellants have failed to submit concrete evidence which could overcome the presumptiveregularity of the classification and assessments appear to be in accordance with the base schedule of market values and of the baseschedule of building unit values, as approved by the Secretary of Finance, the cases should be, as they are hereby, upheld.

SO ORDERED. (Decision of the Board of Tax Assessment Appeals, Rollo, p. 22).

The Reyeses appealed to the Central Board of Assessment Appeals. They submitted, among others, the summary of the yearly rentals to show the incom

derived from the properties. Respondent City Assessor, on the other hand, submitted three (3) deeds of sale showing the different market values of the reproperty situated in the same vicinity where the subject properties of petitioners are located. To better appreciate the locational and physical features of thand, the Board of Hearing Commissioners conducted an ocular inspection with the presence of two representatives of the City Assessor prior to the healiof the case. Neither the owners nor their authorized representatives were present during the said ocular inspection despite proper notices served them. Iwas found that certain parcels of land were below street level and were affected by the tides ( Rollo, pp. 24-25).

On June 10, 1977, the Central Board of Assessment Appeals rendered its decision, the dispositive portion of which reads:

WHEREFORE, the appealed decision insofar as the valuation and assessment of the lots covered by Tax Declaration Nos. (5835) P5847, (5839), (5831) PD-5844 and PD-3824 is affirmed.




24

For the lots covered by Tax Declaration Nos. (1430) PD-1432, PD-1509, 146 and (1) PD-266, the appealed Decision is modified byallowing a 20% reduction in their respective market values and applying therein the assessment level of 30% to arrive at thecorresponding assessed value.

SO ORDERED. (Decision of the Central Board of Assessment Appeals, Rollo, p. 27)

Petitioner's subsequent motion for reconsideration was denied, hence, this petition.

The Reyeses assigned the following error:

THE HONORABLE BOARD ERRED IN ADOPTING THE "COMPARABLE SALES APPROACH" METHOD IN FIXING THE ASSESSVALUE OF APPELLANTS' PROPERTIES.

The petition is impressed with merit.

The crux of the controversy is in the method used in tax assessment of the properties in question. Petitioners maintain that the "Income Approach" methowould have been more realistic for in disregarding the effect of the restrictions imposed by P.D. 20 on the market value of the properties affected, respondAssessor of the City of Manila unlawfully and unjustifiably set increased new assessed values at levels so high and successive that the resulting annual

estate taxes would admittedly exceed the sum total of the yearly rentals paid or payable by the dweller tenants under P.D. 20. Hence, petitioners protesteagainst the levels of the values assigned to their properties as revised and increased on the ground that they were arbitrarily excessive, unwarranted,nequitable, confiscatory and unconstitutional (Rollo, p. 10-A).

On the other hand, while respondent Board of Tax Assessment Appeals admits in its decision that the income approach is used in determining land valuesome vicinities, it maintains that when income is affected by some sort of price control, the same is rejected in the consideration and study of land values n the case of properties affected by the Rent Control Law for they do not project the true market value in the open market ( Rollo, p. 21). Thus, respondeopted instead for the "Comparable Sales Approach" on the ground that the value estimate of the properties predicated upon prices paid in actual, markettransactions would be a uniform and a more credible standards to use especially in case of mass appraisal of properties ( Ibid .). Otherwise stated, publicrespondents would have this Court completely ignore the effects of the restrictions of P.D. No. 20 on the market value of properties within its coverage. Inany event, it is unquestionable that both the "Comparable Sales Approach" and the "Income Approach" are generally acceptable methods of appraisal fotaxation purposes (The Law on Transfer and Business Taxation by Hector S. De Leon, 1988 Edition). However, it is conceded that the propriety of one asagainst the other would of course depend on several factors. Hence, as early as 1923 in the case of Army & Navy Club, Manila v. Wenceslao Trinidad, GNo. 19297 (44 Phil. 383), it has been stressed that the assessors, in finding the value of the property, have to consider all the circumstances and elementvalue and must exercise a prudent discretion in reaching conclusions.

Under Art. VIII, Sec. 17 (1) of the 1973 Constitution, then enforced, the rule of taxation must not only be uniform, but must also be equitable and progress

Uniformity has been defined as that principle by which all taxable articles or kinds of property of the same class shall be taxed at the same rate (Churchill Concepcion, 34 Phil. 969 [1916]).

Notably in the 1935 Constitution, there was no mention of the equitable or progressive aspects of taxation required in the 1973 Charter (Fernando "TheConstitution of the Philippines", p. 221, Second Edition). Thus, the need to examine closely and determine the specific mandate of the Constitution.

Taxation is said to be equitable when its burden falls on those better able to pay. Taxation is progressive when its rate goes up depending on the resourcof the person affected (Ibid .).

The power to tax "is an attribute of sovereignty". In fact, it is the strongest of all the powers of government. But for all its plenitude the power to tax is notunconfined as there are restrictions. Adversely effecting as it does property rights, both the due process and equal protection clauses of the Constitution mproperly be invoked to invalidate in appropriate cases a revenue measure. If it were otherwise, there would be truth to the 1903 dictum of Chief JusticeMarshall that "the power to tax involves the power to destroy." The web or unreality spun from Marshall's famous dictum was brushed away by one strokeMr. Justice Holmes pen, thus: "The power to tax is not the power to destroy while this Court sits. So it is in the Philippines " (Sison, Jr. v. Ancheta, 130 SC655 [1984]; Obillos, Jr. v. Commissioner of Internal Revenue, 139 SCRA 439 [1985]).

n the same vein, the due process clause may be invoked where a taxing statute is so arbitrary that it finds no support in the Constitution. An obviousexample is where it can be shown to amount to confiscation of property. That would be a clear abuse of power (Sison v. Ancheta, supra).

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