KAPATIRAN NG MGA NAGLILINGKOD SA PAMAHALAAN NG PILIPINAS, INC., HERMINIGILDO C. DUMLAO, GERONIMO Q. QUADRA, and MARIO C. VILLANUEVA, petitioners, vs. HON. BIENVENIDO TAN, as Commissioner of Internal Revenue (CIR), respondent. G.R. No. 81311 June 30, 1988

G.R. No. 81311 June 30, 1988

KAPATIRAN NG MGA NAGLILINGKOD SA PAMAHALAAN NG PILIPINAS, INC., HERMINIGILDO C. DUMLAO, GERONIMO Q. QUADRA, and MARIO C. VILLANUEVA, petitioners,

vs.

HON. BIENVENIDO TAN, as Commissioner of Internal Revenue (CIR), respondent.

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PADILLA, J.:

FACTS: 
Because of the similarity of the main issues, these four petitions were consolidated. It  seek to nullify EO No. 273. [EO No. 273 was issued by the President of the Philippines (CORY) on July 25, 1987, to take effect on January 1, 1988, and which amended certain sections of the National Internal Revenue Code and adopted the value-added tax (VAT)].

Petitioners contend that: (1) EO No. 273 is unconstitutional on the ground that the President had no authority to issue it; (2) that the VAT is oppressive, discriminatory, regressive, and violates the due process and equal protection clauses and other provisions of the 1987 Constitution.

ISSUE #1: W/N EO 273 is unconstitutional? →  NO

RULING #1: No. 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 articles and/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 gross selling 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 on importations. The framers of EO 273 that it is principally aimed to rationalize the system of taxing goods and services; simplify tax administration; and make the tax system more equitable, to enable the country to attain economic recovery.

ISSUE #2: W/N President had authority to issue EO 273 →  YES

RULING #2: Yes. It should be recalled that under Proclamation No. 3, which decreed a Provisional Constitution, sole legislative authority was vested upon the President. Art. II, 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 powers. (Art. II, sec. 1)

Sec. 6. The incumbent President shall continue to exercise legislative powers until the first Congress is convened. (Article XVIII, sec. 6)

ISSUE #3: W/N EO 273 is oppressive, discriminatory, unjust and regressive, in violation of the provisions of Art. VI, sec. 28(1) of the 1987 Constitution →  NO

RULING #3: No.

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

Petitioners merely rely upon newspaper articles which are actually hearsay and have evidentiary value. To justify the nullification of a law. there must be a clear and unequivocal breach of the Constitution, not a doubtful and argumentative implication. ⁴

Justice Laurel: A tax is considered uniform when it operates with the same force and effect in every place where the subject may be found. "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; . . ."

Justice Tuason: "Taking everything into account, the differentiation against which the plaintiffs complain conforms to the practical dictates of justice and equity and is not discriminatory within the meaning of the Constitution."

To satisfy this requirement then, all that is needed is that the statute or ordinance in question "applies equally to all persons, firms and corporations placed in similar situation."

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 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, 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

Other issue: W/N EO 273, more particularly the new Sec. 103 (r) of the National Internal Revenue Code, unduly discriminates against customs brokers. →  NO

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

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(r) Service performed in the exercise of profession or calling (except customs brokers) subject to the occupation tax under the Local Tax Code, 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 of Sec. 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.

In any event, if petitioners seriously believe that the adoption and continued application of the VAT are prejudicial to the general welfare or the interests of the majority of the people, they should seek recourse and relief from the political branches of the government. The Court, following the time-honored doctrine of 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. The Court 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, the Constitution, 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.