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Post by grifter on Oct 19, 2005 9:48:10 GMT 7
(2ND UPDATE)
THE SUPREME Court upheld the constitutionality of the Expanded Value Added Tax Law and paved the way for its implementation after lifting a temporary restraining order imposed last July 1, according to a court resolution issued Tuesday.
"The motions for reconsideration are hereby denied with finality. The temporary restraining order issued by the Court is lifted," according to the resolution penned by Associate Justice Alicia Austria-Martinez.
In its nine-page resolution, the tribunal said they could not find any new argument that could warrant the reversal of their September 1 ruling upholding the legality of the VAT law or Republic Act 9337.
"[The] legislature has spoken and the Court's place in the picture is to determine whether the law was passed with due regard to the mandate of [the] Constitution," the tribunal said.
"In as much as the Court finds that there are no constitutional infirmities with its passage, the validity of the law must therefore be upheld. The temporary restraining order is hereby lifted," the same resolution said.
Implementation of the VAT law will sharply raise the prices of goods and services at a time Filipinos are struggling to cope with surging world oil prices.
Sorsogon Representative Joseph Francis Escudero and Bataan Governor Enrique T. Garcia, and the Petroleum Dealers Association had filed separate motions for reconsideration.
In its latest ruling, the high court also reiterated that there was "no undue delegation of legislative power but only of discretion as to the execution of the law when [President Gloria Macapagal-Arroyo gave] the Finance Secretary the authority to determine the necessity of increasing the 10 percent VAT to 12 percent."
The court said the "recommendation of the Secretary of Finance as to the tax rates does not mean that there is an undue delegation of legislative power since he is not acting as an alter ego of the President but as agent of the legislative department."
"The Secretary of Finance becomes the means or tool by which legislative policy is determined and implemented, considering that he possesses all the facilities to gather data and information and has a much broader perspective to properly evaluate them," the tribunal said.
With regards to the "no pass on provision," the tribunal said the arguments raised by Escudero were invalid when he argued that the bicameral conference committee should not have ruled on the conflicts on the VAT version of the House of Representatives and the Senate.
Escudero claimed that the presence of the "no pass on" provision in one version alone showed that there was no conflict and that the committee should not have acted on it.
"The fact that a 'no pass on' provision was 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 intends [that] only the industry of power generation, transmission and distribution be saddled with such burden, shows that there were indeed differences between the bills coming from each House, which differences should [have] been acted upon by the bicameral conference committee," the high court said.
"It is incorrect to conclude that there was no clash between two opposing forces with regard to the 'no pass on' provision for VAT on the sale of petroleum products merely because such provision exists in the House version and absent in the Senate version," the tribunal said.
"It is precisely the absence of such provision in the Senate bill and the presence thereof in the House bills that causes the conflict. The absence of the provision in the Senate bill shows the Senate's disagreement to the intention of the House of Representatives to make the sellers of petroleum bear the burden of the VAT," the Court added.
Governor Garcia's argument that businesses will collapse with the imposition of the 70-percent limitation on the creditable input tax is "premature."
"There is no actual case or controversy to bring this issue and it is not ripe for judicial determination. Whatever the merchants will suffer in their businesses shall be based on their expertise and business management," the tribunal said.
The high court also stressed that the VAT law involved "congressional wisdom" and that it was only "proper" that they did not interfere.
"The assailed provision of Republic Act No. 9337 already involves legislative policy and wisdom. So long [as] there is a public end for which RA 9337 was passed, the means through which such end shall be accomplished is for the legislature to choose so long as it is within the constitutional bounds," the Court said.
Earlier on Tuesday, militants in "monster" costumes picketed the Supreme Court in an attempt to call its attention to the negative effects of the VAT law.
Police blocked members of the Partidong Manggagawa (Worker's Party), Bukluran ng Manggagawang Pilipino (Association of Filipino Workers), at Kongreso ng Pagkakaisang Panglungsod (United Urban Congress), which wanted to stage their protest in front of the high tribunal.
The police managed to disperse the groups peacefully.
The high court on September 1 ruled the VAT law constitutional but retained a freeze on its implementation to allow petitioners to reply to the ruling. The Supreme Court rarely reverses its rulings.
The law expands the sales tax base to include the electricity, fuel, air and sea transport, and other previously exempt industries. The rate was kept at 10 percent but it gave President Gloria Macapagal-Arroyo unprecedented powers to bypass Congress and raise it to 12 percent by next year under certain conditions.
The law also raises the corporate income tax to 35 percent from 32 percent for three years and brings it down to 30 percent after that.
Arroyo has said that implementing the VAT law is necessary if the government is to balance its budget and avoid going the way of an Argentine-style debt default.
Others who contested the VAT law were opposition senators led by Senator Aquilino Pimentel Jr. and the Abakada Guro party-list group.
They had questioned the constitutionality of a provision in the law giving the President “standby authority” to increase the VAT rate to 12 percent in January, among others.
But in its September 1 decision, the high court said there was no basis to the charge that the standby authority amounted to a “virtual abdication by Congress of its exclusive power to tax.”
Revisions to the value-added tax, the government's centerpiece of the fiscal reform program and biggest revenue-raising measure, were intended to narrow the fiscal deficit and balance the budget by 2010.
*courtesy of INQ7.net
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Post by grifter on Oct 19, 2005 10:02:22 GMT 7
Tinga, J.:
Once again, the majority has refused to engage and refute in any meaningful fashion the arguments raised by the petitioners in G.R. No. 168461. The de minimis appreciation exhibited by the majority of the issues of 70% cap, the 60-month amortization period, and 5% withholding VAT on transactions made with the national government is regrettable, with ruinous consequences for the nation. I see no reason to turn back from any of the views expressed in my Dissenting Opinion, and I accordingly dissent from the denial of the Motion for Reconsideration filed by the petitioners in G.R. No. 168461.[1]
The reasons for my vote have been comprehensively discussed in my previous Dissenting Opinion, and I do not see the need to replicate them herein. However, I wish to stress a few points.
Tax Statutes May Be Invalidated
If They Pose a Clear and Present Danger
To the Deprivation of Life, Liberty and
Property Without Due Process of Law
The majority again dismisses the arguments of the petitioners as “theoretical”, “conjectural” or merely “anticipatory,” notwithstanding that the injury to the taxpayers resulting from Section 8 and 12 of the E-VAT Law is ascertainable with mathematical certainty. In support of this view, the majority cites the Court’s Resolution dated 15 June 2005 in Information Technology Foundation v. COMELEC,[2] one of the rulings issued in that case subsequent to the main Decision rendered on 13 January 2004. The reference is grievously ironic, considering that in the 13 January 2004 Decision, the Court, over vigorous dissents, chose anyway to intervene and grant the petition despite the fact that the petitioners therein did not allege any violation of any constitutional provision or letter of statute.[3] In this case, the petitioners have squarely invoked the violation of the Bill of Rights of the Constitution, and yet the majority is suddenly timid, unlike in Infotech.
Still, the formulation of the majority unfortunately leaves the impression that any statute, taxing or otherwise, is beyond judicial attack prior to its implementation. If the tax measure in question provided that the taxpayer shall remit all income earned to the government beginning 1 January 2008, would this mean that the Court can take cognizance of the legal challenge only starting 2 January 2008?
I do not share the majority’s penchant for awaiting the blood spurts before taking action even when the knife’s edge already dangles. As I maintained in my Dissenting Opinion, a tax measure may be validly challenged and stricken down even before its implementation if it poses a clear and present danger to the deprivation of life, liberty or property of the taxpayer without due process of law. This is the expectation of every citizen who wishes to maintain trust in all the branches of government. In the enforcement of the constitutional rights of all persons, the commonsense expectation is that the Court, as guardian of these rights, is empowered to step in even before the prospective violation takes place. Hence, the evolution of the “clear and present danger” doctrine and other analogous principles, without which, the Court would be seen as inutile in the face of constitutional violation.
Of course, not every anticipatory threat to constitutional liberties can be assailed prior to implementation, hence the employment of the “clear and present danger” standard to separate the wheat from the chaff. Still, the Court should not be so readily dismissive of the petitioners’ posture herein merely because it is anticipatory. There should have been a meaningful engagement by the majority of the facts and formulae presented by the petitioners before the reasonable conclusion could have been reached on the maturity of the claim. That the majority has not bothered to do so is ultimately of tragic consequence.
70% Input VAT Credit
An Impaired Asset
The ponencia, joined by Justices Panganiban and Chico-Nazario, express the belief that no property rights attach to the input VAT paid by the taxpayer. This is a bizarre view that assumes that all income earned by private persons preternaturally belongs to the government, and whatever is retained by the person after taxes is acquired as a matter of privilege. This is the sort of thinking that has fermented revolutions throughout history, such as the American Revolution of 1776.
I pointed out in my Dissenting Opinion that under current accepted international accounting standards, the 30% prepaid input VAT would be recorded as a loss in the accounting books, since the possibility of its recovery is improbable, considering that the E-VAT Law allows its recovery only after the business has ceased to exist. Even the Bureau of Internal Revenue itself has long recognized the unutilized input VAT as an asset.
The majority fails to realize that even under the new E-VAT Law, the State recognizes that the persons who pre-pay that input VAT, usually the dealers or retailers, are not the persons who are liable to pay for the tax. The VAT system, as implemented through the previous VAT law and the new E-VAT Law, squarely holds the end consumer as the taxpayer liable to shoulder the input VAT. Nonetheless, under the mechanism foisted in the new E-VAT Law, the dealer or retailer who pre-pays the input VAT is virtually precluded from recovering the pre-paid input VAT, since the law only allows such recovery upon the cessation of the business. Indeed, the only way said class of taxpayers can recover this pre-paid input VAT was if it were to cease operations at the end of every quarter.
The illusion that blinds the majority to this state of affairs is the claim that the pre-paid input VAT may anyway be carried over into the succeeding quarter, a chimera enhanced by the grossly misleading presentation of the Office of the Solicitor General. What this deception fosters, and what the majority fails to realize, is that since the taxpayer is perpetually obliged to remit the 30% input VAT every quarter, there would be a continuous accumulation of excess input VAT. It is not true then that the input VAT prepaid for the first quarter can be recovered in the second, third or fourth quarter of that year, or at any time in the next year for that matter since the amount of prepaid input VAT accumulates with every succeeding prepayment of input VAT. Moreover, the accumulation of the prepaid input VAT diminishes the actual value of the refundable amounts, considering the established principle of “time-value of money”, as explained in my Dissenting Opinion.
Thus, the pre-paid input VAT, for which the petitioners and other similarly situated taxpayers are not even ultimately liable in the first place, represents in tangible terms an actual loss. To put it more succinctly, when the taxpayer prepays the 30% input VAT, there is no chance for its recovery except until after the taxpayer ceases to be such. This point is crucial, as it goes in the heart of the constitutional challenge raised by the petitioners. A recognition that the input VAT is a property asset places it squarely in the ambit of the due process clause.
The majority now stresses that prior to Executive Order No. 273 sales taxes paid by the retailer or dealers were not recoverable. The nature of a sales tax precisely is that it is shouldered by the seller, not the consumer. In that case, the clear legislative intent is to encumber the retailer with the end tax. Under the VAT system, as enshrined under Rep. Act No. 9337, the new E-VAT Law, there is precisely a legislative recognition that it is the end user, not the seller, who shoulders the E-VAT. The problem with the new E-VAT law is that it correspondingly imposes a defeatist mechanism that obviates this entitlement of the seller by forcibly withholding in perpetua this pre-paid input VAT.
The majority cites with approval Justice Chico-Nazario’s argument, as expressed in her concurring opinion, that prior to the new E-VAT Law, the petroleum dealers in particular had no input VAT credits to speak of, and therefore, could not assert any property rights to the input VAT credits under the new law. Of course the petroleum dealers had no input VAT credits prior to the E-VAT Law because precisely they were not covered by the VAT system in the first place. What would now be classified as “input VAT credits” was, in real terms, profit obtainable by the petroleum dealers prior to the new E-VAT Law. The E-VAT Law stands to diminish such profit, not by outright taking perhaps, but by ad infinitum confiscation with the illusory promise of eventual return. Obviously, there is a deprivation of property in such case; yet is it seriously contended that such deprivation is ipso facto sheltered if it is not classified as a taking, but instead reclassified as a “credit”?
It is highly distressful that the Court, in its haste to decree petitioners as bereft of any vested property rights, rejects the notion that a person has a vested right to the earnings and profits incurred in business. Before, no legal basis could be found to prop up such a palpably outlandish claim; but the Decision, as affirmed by the majority’s Resolution, now enshrines a temerarious proposition with doctrinal status.
In the Decision, and also in Justice Panganiban’s Separate Opinion therein, the case of United Paracale Mining Co. v. De la Rosa[4] was cited in support of the proposition that there is no vested right to the input VAT credit. Justice Panganiban went as far as to cite that case to support the contention that “[t]here is no vested right in a deferred input tax account; it is a mere statutory privilege.” Reliance on the case is quite misplaced. First, as pointed out in my Dissenting Opinion, it does not even pertain to tax credits involving as it does, questions on the jurisdiction of the Bureau of Mines.[5] Second, the putative vested rights therein pertained to mining claims, yet all mineral resources indisputably belong to the State. Herein, the rights pertain to profit incurred by private enterprise, and certainly the majority cannot contend that such profits actually belong to the State.
As stated in my Dissenting Opinion, the Constitution itself recognizes a right to income and profit when it recognizes “the right of enterprises to reasonable returns on investments, and to expansion and growth.”[6] Section 20, Article II of the Constitution further mandates that the State recognize the indispensable role of the private sector, the encouragement of private enterprise, and the provision of incentives to needed investments.[7] Indeed, there is a fundamental recognition in any form of democratic government that recognizes a capitalist economy that the enterprise has a right to its profits. Today, the Court instead affirms that there is no such right. Should capital flight ensue, the phenomenom should not be blamed on investors in view of our judicial system’s rejection of capitalism’s fundamental precept.
Mainstream Denunciation of 70% Cap
The fact that petitioners are dealers of petroleum products may have left the impression that the 70% cap singularly affects the petroleum industry; or that other classes of dealers or retailers do not pose the same objections to these “innovations” in the E-VAT law. This is far from the truth.
In fact, the clamor against the 70% cap has been widespread among the players and components in the financial mainstream. Denunciations have been registered by the Philippine Chamber of Commerce and Industry[8], the Joint Foreign Chambers of the Philippines (comprising of the American Chamber of Commerce in the Philippines, the Australian-New Zealand Chamber Commerce of the Philippines, Inc., the Canadian Chamber of Commerce of the Philippines, Inc., the European Chamber of Commerce of the Philippines, Inc., the Japanese Chamber of Commerce of the Philippines, Inc., the Korean Chamber of Commerce and Industry of the Philippines, and the Philippine Association of Multinational Companies Regional Headquarters, Inc.),[9] the Filipino-Chinese Chamber of Commerce and Industry,[10] the Federation of Philippine Industries,[11] the Consumer and Oil Price Watch,[12] the Association of Certified Public Accountants in Public Practice,[13] the Philippine Tobacco Institute,[14] and the auditing firm of PricewaterhouseCooper.[15]
Even newly installed Finance Secretary Margarito Teves has expressed concern that the 70% input VAT “may not work across all industries because of varying profit margins”.[16] Other experts who have voiced concerns on the 70% input VAT are former NEDA Directors Cielito Habito[17] and Solita Monsod,[18] Peter Wallace of the Wallace Business Forum,[19] and Paul R. Cooper, director of PricewaterhouseCooper.
In fact, Mr. Cooper published in the Philippine Daily Inquirer a lengthy disquisition on the problems surrounding the 70% cap, portions of which I replicate below:
Policy concerns on the cap
When the idea of putting a cap was originally introduced on the floor of the Senate. The idea was to address to some extent the under-reporting of output VAT by non-complaint taxpayers. The original suggestion was a 90 percent cap, or effectively a 1-percent minimum VAT. At that level, the rule should not impact adversely on complaint taxpayers, but would result in non-complaint taxpayers having to account for closer to their true tax liability.
As a general policy consideration, one should question why our legislators are penalizing complaint taxpayers when the fundamental issue is at the apparent inability of the Bureau of Internal Revenue (BIR) to implement tax law effectively.
At a 90-percent cap, the measure might still have been defensible as a rough proxy for VAT. However, somewhere in the bicameral process, the rule has become even more punitive with a 70-percent cap. As with most amendments introduced at the bicameral stage, there is no public indication about what lawmakers were thinking when they put the travesty in place.
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One of the arguments in Senate debates for taxing the power and petroleum sectors was that if it was good enough for mom-and-pop stores to have to account for the VAT, it was good enough for the biggest companies in the country to do the same. A similar argument here is that if small businesses have to pay a minimum 3-percent tax, why should larger VAT-registered persons get away with paying less?
The problem with this thinking is threefold:
· The percentage tax applies to small businesses in the hard-to-tax sector and a few believe the BIR collects close to what it should from this. Nor should we be overly concerned if this is the case—the revenues are small, and the BIR’s efforts would be a lot better focused on larger taxpayers where more significant revenues will be at issue.
· VAT-registered persons incur compliance costs. The 3-percent tax might be better conceived as a slightly more expensive option to allow taxpayers to opt out of the VAT, rather than a punitive rule for small businesses. (If the percentage tax is considered unduly punitive, why is it not just repealed?)
· Ironically, one of the new measures in the Senate bill was to allow taxpayers with turnovers below, the registration threshold to register voluntarily for VAT if they believe the 3-percent tax imposition to be excessive. Without the minimum VAT, smaller taxpayers might have been encouraged to enter the more formalized VAT sector.
Potential consequences of the cap
The minimum VAT will distort the way taxpayers conduct business. A 3-percent minimum VAT is more likely to impact on sellers of goods than on sellers of services, as their proportion of taxable inputs are lower (there is no VAT paid when using labor, but there is VAT on the purchase of goods). Consequently, there will be a bias toward consuming services over goods. Businesses may have an incentive to obtain goods from the informal (and potentially tax-evading) sector as there will be no input tax paid for the purchase—in other words, the bill may actively encourage less tax complaint behavior. Business structures may change; expect buy-sell distributors to convent into commission agents, as this reduces the risk that they will need to pay more than should be paid under a VAT system to cover the 3-percent minimum VAT.[20]
These objections are voiced by members of the sensible center, and not those reflexively against VAT or any tax imposition of the current administration. These objections are raised by the people who stand to be directly affected on a daily punitive basis by the imposition of the 70% cap, the 60-month amortization period and the 5% withholding VAT. Indeed, Justice Chico-Nazario has expressed her disbelief over, or at least has asserted as unproven, the claimed impact of the input VAT on the petroleum dealers.[21] Of course there can be no tangible gauge as of yet on the impact of these changes in the VAT law, since they have yet to be implemented. However, the prevalent adverse reaction within the business sector should be sufficiently expressive of the actual fears of the people who should know better. It is sad that the majority, by maintaining a blithely naïve view of the input VAT, perpetuates the disconnect between the Court and the business sector, unnecessarily considering that in this instance, the concerns of the financial community can be translated into a viable constitutional challenge.
Reliance on Legislative Amendments
An Abdication of the Court’s Constitutional Duty
Justice Panganiban has already expressed the view that the remedy to the inequities caused by the new input VAT system would be amending the law, and not an outright declaration of unconstitutionality. I can only hazard a guess on how many members of the Court or the legal community are similarly reliant on that remedy as a means of assuaging their fears on the impact of the input VAT innovations.
As I stated in my Dissenting Opinion, it is this Court, and not the legislature, which has the duty to strike down unconstitutional laws. Congress may amend unconstitutional laws to remedy such legal infirmities, but it is under no constitutional or legal obligation to do so. The same does not hold true with this Court. The essence of judicial review mandates that the Court strike down unconstitutional laws.
Another corollary prospect has also arisen, that the Executive Department itself will mitigate the implementation of the 70% cap by not fully implementing the law.
This prospect of course is speculative, the sort of speculation that is wholly dependent on the whim of the officials of the executive branch and one that cannot be quantified by mathematical formula. This cannot be the basis for any judicial action or vote. Moreover, such resort may actually be illegal.
For one, Article 239 of the Revised Penal Code imposes the penalty of prision correccional on public officers “who shall encroach upon the powers of the legislative branch of the Government, either by making general rules or regulations beyond the scope of his authority, or by attempting to repeal a law or suspending the execution thereof.” Certainly, the remedy to the inequities of the E-VAT Law cannot be left to administrative girl thingy-footing, considering that these officials may be jailed for refusing to implement the law, or obfuscating the legislative will.
Second, it is a cardinal rule that an administrative agency such as the Bureau of Internal Revenue or even the Department of Finance cannot amend an act of Congress. Whatever administrative regulations they may adopt under legislative authority must be in harmony with the provisions of the law they are intended to carry into effect. They cannot widen or diminish its scope.[22]
Finally, it must be remembered that one of the central doctrines enforced in the disposition of the joint petitions is that the power to tax belongs solely to the legislative branch of government. If the legislative will were to be frustrated by haphazard implementation by the executive branch, all our disquisitions on this matter, as well as the key constitutional principle on the inherent, non-delegable nature of the legislative power of taxation, will be for naught.
Indeed, I truly fear the scenario when, after the deluge, the executive branch of government suspends the implementation of the 70% cap, or increases the cap to a higher amount such as 90%. Any taxpayer will have standing to attack such remedial measure, considering that the net effect would be to diminish the government’s collection of cash at hand. Following the law, the proper judicial action would be to uphold the clear legislative intent over the reengineering of the taxing provisions by the executive branch of government. Yet if the courts instead uphold the power of the executive branch of government to reinvent the tax statute, then the end concession would be that the power to enact tax laws ultimately belongs to the executive branch of government.
I hesitate to say this, but there will be confusion, instability, and multiple fatalities within the business sector with the enforcement of the amendments of Section 8 and 12 of the E-VAT Law. It could have been stopped through the allowance of the petition in G.R. No. 168461, but regrettably the Court did not act.
I respectfully dissent.
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