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Wednesday, October 19, 2005
High court affirms legality of expanded VAT law
MANILA -- The Supreme Court (SC) lifted Tuesday the temporary restraining order (TRO) it issued last July 1 against the implementation of the expanded value-added tax (e-VAT) after it affirmed the constitutionality of the controversial tax law.
In an en banc resolution, the high court dismissed with finality the four motions for reconsideration filed by petitioners last September 1 because the arguments they raised in their motions were "flawed".
The Arroyo administration welcomed the decision of the SC.
Opponents of the e-VAT had insisted on their arguments that the deletion of the "no pass-on" provisions for the sale of petroleum products and power generation services constituted grave abuse of discretion on the part of the bicameral conference committee.
"Such argument is flawed, the fact that a 'no pass-on provision' is present in one version, but absent in the other, and one version intends two industries, i.e., power generation companies and petroleum sellers, to bear the burden of the tax while the other version intended only the industry of power generation, transmission and distribution to be saddled with such burden, clearly shows that there are indeed differences between the bills coming from each House, which differences should be acted upon by the bicameral conference committee," the SC said.
It noted that the rules of both houses of Congress provide that a conference committee shall settle the differences in the respective bills of each legislative body.
The SC said it is incorrect to conclude that there is no clash between two opposing forces with regard the "no pass-on provision for VAT on the sale of petroleum products merely because such provision exists in the House version while it is absent in the Senate version."
The deletion of the "no pass-on provision" made the present VAT law more in consonance with the very nature of VAT which, as stated in the decision promulgated last September 1, is a tax on spending or consumption, "thus, the burden thereof is ultimately borne by the end-consumer," the court ruled.
The minority bloc earlier claimed there had been changes introduced in the rules of the House of Representatives regarding the conduct of the House panel in a bicameral conference committee "since the time of Tolentino versus Secretary of Finance to act as safeguards against possible abuse of authority by the House members of the bicameral conference committee."
"Even assuming that the rule requiring the House panel to report back to the House if there are substantial differences in the House and Senate bills had indeed been introduced after Tolentino, the court stands by its ruling that the issue of whether or not the House panel in the bicameral conference committee complied with said internal rule cannot be inquired into by the court. To reiterate, mere failure to conform to parliamentary usage will not invalidate the action taken by a deliberative body when the requisite number of members have agreed to a particular measure," the SC said.
The 15-man High Tribunal also junked the arguments of petitioners that the e-VAT law grossly violates the constitutional imperative on exclusive origination of the revenue bills under Section 24, Article VI of the 1987 Philippine Constitution.
Opposition congressmen also said the stand-by authority given by Republic Act 9337 or the Expanded Value-Added Tax Law to the President to increase the VAT rate from 10 percent to 12 percent on January 1 next year, "especially on account of the effective recommendatory power granted to the Secretary of the Department of Finance, constitutes undue delegation of legislative authority."
"Article VI, Section 24 of the constitution provides that all appropriation, revenue or tariff bills, bills authorizing increase of the public debt, bills of local application, and private bills shall originate exclusively in the House of Representatives, but the Senate may propose or concur with amendments. Section 24 speaks of origination of certain bills from the House of Representatives which have been interpreted in the Tolentino case," said the SC.
The SC further said under the 1987 Constitution, the Senate can propose or concur with amendments after bills coming from the House are transmitted to the body. It said the revisions made by the Senate on corporate income taxes, which would yield about P10.5 billion a year, is also in line with the objectives of e-VAT.
It also agreed with government lawyers that the intent of the House in initiating House Bills 355 and 3705 was to solve the country's serious financial problems through improvement of tax administration and the review of existing tax rates.
"Moreover, since the objective of these House bills is to raise revenues, the increase in corporate income taxes would be a great help and would also soften the impact of VAT measure on the consumers by distributing the burden across all sectors instead of putting it entirely on the shoulders of the consumers," the resolution stated.
Justices also said the National Internal Revenue Code (NIRC) provisions found in Senate Bill (SB) 1950, such as percentage taxes, franchise taxes, amusement and excise taxes, are necessary to cushion the effects of VAT on consumers.
The SC said one opportunity that could be beneficial to the overall status of the country's economy is to review the existing tax rates, evaluating the relevance given the present conditions of the country.
"As we said in our decision, certain goods and services which were subject to percentage tax and excise tax would no longer be VAT exempt, thus the consumer would be burdened more as they would be paying the VAT in addition to these taxes. Thus, there is a need to amend these sections to soften the impact on VAT. The court finds no reason to reverse the earlier ruling that the Senate introduced amendments that are germane to the subject matter and purposes of the House bills," the resolution stated.
Finance Undersecretary Emmanuel Bonoan said the e-VAT law would likely be implemented starting November 1 this year because it has yet to publish RA 9337 and its implementing rules and regulations (IRR) in two major dailies.
The argument of petitioners of undue delegation of legislative power to the executive was not given merit by the court because it is "constitutionally permissible."
"Congress did not delegate the power to tax but the mere implementation of the law. The intent and will to increase the VAT rate to 12 percent came from Congress and the task of the President is to simply execute the legislative policy," the SC said.
The argument of the Association of Pilipinas Shell Dealers Inc. that the possible effects of the 70 percent limitation on their creditable input tax "still remains theoretical," according to the court.
"Theories have no place in this case as the court must only deal with an existing case or controversy that is appropriate or ripe for judicial determination, not one that is conjectural or merely anticipatory. The Court will not intervene absent an actual and substantial controversy admitting of specific relief through a decree conclusive in nature, as distinguished from an opinion advising what the law would be upon a hypothetical state of facts," it held.
The high court said the impact of the 70 percent limitation on the creditable input tax will ultimately depend on how one manages and operates its business.
"Market forces, strategy and acumen will dictate their moves. With or without these VAT provisions, an entrepreneur who does not have the ken to adapt to economic variables will surely perish in the competition. The arguments posed are within the realm of business and the solution lies also in business," it said in its resolution.
In Malacañang, Executive Secretary Eduardo Ermita said they are glad that the SC has lifted the TRO.
"We are glad the TRO has been lifted because this is what international financial agencies have been waiting for para sa ganon makikita nila (so that they will see) that the government will get some resources out of the implementation of the e-VAT in order to help us address our budget deficit. It's a welcome development that the TRO on the e-VAT has been lifted by the Supreme Court," said Ermita.
On the expected strong opposition to the e-VAT law, Ermita said: "Kaya nga anti-e-VAT sila (that's why they are e-VAT), they are really against the decision pero syempre (but of course) there are pros and cons but in the end we always say that this is a bitter pill that we have to thank. It's like the injection but it's good for the health of the nation as a whole."
Opposition members in the Lower House expressed dismay over the SC's decision on the e-VAT law.
House Minority Leader Francis Escudero, speaking on behalf of the opposition group at the Lower House, said they still believe that e-VAT is not in accordance with the law and that is the least the people need at this time.
"We, together with the entire Filipino people are saddened by the Supreme Court decision. We still disagree with it. It is not in accordance with the law and it is not our people need at this time," Escudero said.
"This is yet another testament to the administration's insensitivity and callousness to the pleas of our people especially the poor," he added.
He was not sure yet what would be the opposition's next step regarding the matter considering that the ruling made by the high court was final and executory.
The other alternative the opposition is now eyeing at this time is to push a proposal in the House that seeks a repeal of the e-VAT law.
Senior Deputy Minority Leader Rolex Suplico and Negros Oriental Representative Jacinto Paras have already filed House Bill 4716 last month on a repeal of the law, which they described as "oppressive and unjust".
While they expressed dismay over the decision reached by the SC, Suplico and Paras urged the people not to lose hope as there is still a way to overrule the SC decision on the e-VAT law.
"We have filed House Bill 4716, recommending to repeal the law. I call upon all our countrymen to ask their respective legislators to support the bill," they said, claiming that such would be the sole hope to repeal the oppressive law.
The decision made by the SC, Suplico added, would further worsen the country's political and economic situation.
"This is a sad day for all Filipinos. We are about to witness the marriage of two crises: the political crisis and the economic crisis. This is a deadly combination," Suplico said.
Bayan Muna party-list Representative Teodoro Casiño echoed the sentiments raised by Suplico that the decision of the high court would only worsen the country's political and economic situation.
He added that the ruling would give the people more reason to push for the ouster of President Arroyo.
"That will mean a bleak Christmas and a bleaker New Year for all. This will also worsen the political situation and put more pressure on GMA (Gloria Macapagal-Arroyo) to step down from office," Casino said.
Arroyo's economic manager, Albay Representative Joey Salceda, who is pushing for another alternative to remedy the situation could not be reached for comment.
Salceda earlier filed a resolution recently on the suspension of the implementation of the e-VAT until June next year or until the worldwide oil crisis is resolved. The proposal was endorsed by many congressmen.
House ways and means committee vice chairman Eric Singson (Ilocos Sur), on the other hand, welcomed the decision made by the high court.
With the resolution of the SC, Singson said the government would finally earn the confidence of both local and foreign investors and this would mean a steadier economy in the near future.
He also believed that the government would improve its credit rating being given by international credit rating firms.
"This (the resolution of the court) would show to the international community that our government is serious in resolving its economic problem," the congressman added.
House appropriations committee chairman Rolando Andaya Jr., for his part, believed that the resolution of the SC "would end the vicious cycle of the Philippine government's dependence on foreign loans and at the same time, this would be the start of government's vision to have a balanced budget by 2010." (ECV/JMR/DBP/Sunnex)
(October 19, 2005 issue)
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