IS IT REALLY UNCONSTITUTIONAL?

On September 1, 2005, the Supreme Court (SC) declared Republic Act (RA) No. 9337 (the new value-added tax, or VAT, law) as valid and constitutional. RA No. 9337 is projected to generate, for the government, additional revenues of PhP64.3 billion annually.

Issues

In the five cases separately filed before the Supreme Court, petitioners claimed that RA No. 9337 is unconstitutional because of:

1. Breach of constitutional procedures by the bicameral conference (Bicam) committee:

1. No amendment rule after the third reading of bills. (Article VI, Section 26[2], Constitution).

Although Senate Bill (SB) No. 1950 and House Bill (HB) Nos. 3555 and 3705 had already been passed on third reading, the Bicam committee still deleted from said bills the “no pass-on” provisions, and inserted the 70% cap on input tax credit and the President’s standby authority to increase the VAT rate from 10% to 12%.

2. Revenue bills to originate exclusively in the House of Representatives. (Article VI, Section 24, Constitution). The Bicam committee adopted certain tax measures in SB No. 1950 that are not found in the House bills.

2. Breach of substantive rights and duties:

The provisions of RA No. 9337 pertaining to the President’s standby authority to increase the VAT rate to 12%, the 70% cap on input tax credit, and the 5% creditable VAT withholding on government transactions allegedly contravened the following constitutional policies:

a. Uniform, equitable, and evolving progressive taxation (Article VI, Section 28 [1], Constitution);

b. Non-delegation of legislative power (Article VI, Section 28 [2], Constitution), with regard to the President’s standby authority to increase the VAT rate to 12%; and

c. Due process and equal protection clauses (Article III, Section 1, Constitution).

Supreme Court ruling

The SC dismissed the petitions and upheld the constitutionality of RA No. 9337, based on the following:

On the procedural issues

1. The Bicam committee followed the Constitution and Congress’ internal rules.

First, the SC noted that Article VI, Section 16(3) of the Constitution recognizes that Congress has the intrinsic power to “determine the rules of its proceedings.” Pursuant to the doctrine of separation of powers, the SC is wont to deny a review of the internal proceedings of a co-equal body. Congress is the best judge of how it should conduct its own business expeditiously and in an orderly manner.

Second, under the enrolled bill doctrine, the signatures of the Speaker of the House and the Senate President on the bill, and the certification by the secretaries of both Houses of Congress that such bill was passed, are conclusive of its due enactment.

Third, the Supreme Court explained that the “No Amendment Rule” under Article VI, Section 26(2) of the Constitution refers only to the procedure to be followed by each House with regard to bills initiated in each of the Houses, before said bill is transmitted to the other House for concurrence or amendment.

Fourth, the creation of a Bicam committee is a legislative practice sanctioned by the rules of both the Senate (Rule XII, Section 35) and the House of Representatives (Rule XIV, Sections 88 and 89). Apparently, this addresses the absence of constitutional procedures to be followed in cases where the two Houses of Congress find themselves in disagreement over changes introduced by the other House in a legislative bill. Hence, if a change is desired in the practice of the Bicam committee, it must be sought in Congress since this question is not covered by any constitutional provision but is only an internal rule of each House.

The SC explained that Article VI, Section 24 of the Constitution requires that the revenue bill – not the law itself – should originate exclusively in the House of Representatives. This has been complied with by the introduction of HB No. 3555 and 3705. A bill originating in the House may undergo changes in the Senate that may result in a rewriting of the whole and for which a distinct bill may be produced. The Senate has the power not only to concur with amendments and propose amendments, but also to propose its own version, even with respect to bills that are required by the Constitution to originate in the House.

Under RA No. 9337, however, a person can credit his or her input tax only up to 70% of the output tax. The Court clarified that a creditable input tax is not a property or property right within the constitutional purview of the due process clause, but merely a statutory privilege, which the State may change or take away by amendatory or superseding law. With respect to the 5% creditable VAT withholding imposed on payments made by the government for VAT-taxable transactions, the Court emphasized that such provision is only a method of collection for a simplified VAT withholding system. Equal protection clause requires equality among equals as determined according to a valid classification, that is, the grouping of persons or things similar to each other in certain particulars and different from all others in these same particulars. Here, Congress intended to treat differently taxable transactions with the government, and such is a valid classification.

The Court also expounded that uniformity in taxation means that all taxable articles or kinds of property of the same class shall be taxed at the same rate. Different articles may be taxed at different amounts provided that the rate is uniform on the same class everywhere with all people at all times. RA No. 9337 uniformly provides a standard 0% or 10% (or 12%) rate on all goods and services. It does not distinguish as to the type of industry or trade that will bear the 70% limit, five-year amortization on capital goods, or the 5% creditable VAT withholding by the government. The SC also reasoned that RA No. 9337 is equitable as it is equipped with threshold margins. The VAT rate of 0% or 10% (or 12%) does not apply to gross annual sales or receipts equal to or below PhP1.5 million.

Under RA 9337, basic marine and agricultural food products in their original state are still not subject to tax. Excise taxes on petroleum products and natural gas were reduced. Percentage tax on domestic carriers was removed. Power producers are now exempt from paying franchise tax. Congress also increased the income tax rates of corporations from 32% to 35%.

Taxation is progressive when the rate goes up depending on the resources of the person affected. The Court yielded that the VAT is an antithesis of progressive taxation. By its very nature, it is regressive and, at the end of the day, it is really the lower income group or business with low-profit margins that is always hardest hit. But the Court noted that the Constitution does not prohibit the imposition of indirect taxes, like VAT. What it simply provides is that Congress shall “evolve a progressive system of taxation.”

Finally, the SC admitted that “taxes are the lifeblood of the government… The Court is neither blind nor is it turning a deaf ear on the plight of the masses. But it does not have the panacea for the malady that the law seeks to remedy. As in other cases, the Court cannot strike down a law as unconstitutional simply because of its yokes.”

In closing, the SC held that the assailed provisions of RA No. 9337 involve legislative policy and wisdom. And, so long as there is a public end for which RA No. 9337 was passed, the means through which such end shall be accomplished is for the legislature (not the Court) to choose so long as it is within constitutional bounds.