EN BANC

[ GR No. 115455, Aug 25, 1994 ]

ARTURO M. TOLENTINO v. SECRETARY OF FINANCE

DECISION

Facts: RA 7716, otherwise known as the Expanded Value-Added Tax Law, is an act that seeks to widen
the tax base of the existing VAT system and enhance its administration by amending the National
Internal Revenue Code. There are various suits questioning and challenging the constitutionality of RA
7716 on various grounds.

The value-added tax (VAT) is levied on the sale, barter or exchange of goods and properties as well as on
the sale or exchange of services. It is equivalent to 10% of the gross selling price or gross value in money
of goods or properties sold, bartered or exchanged or of the gross receipts from the sale or exchange of
services.

Tolentino contends that RA 7716 did not originate exclusively from the House of Representatives but is a
mere consolidation of HB. No. 11197 and SB. No. 1630 and it did not pass three readings on separate
days on the Senate thus violating Article VI, Sections 24 and 26(2) of the Constitution, respectively.

Issues:
I. Procedural
A. Does Republic Act No. 7716 violate Art. VI, § 24? No, the initiative started with HoR
B. Does it violate Art. VI, § 26(2) of the Constitution? No, exempted since bill was certified as urgent

II. Substantive Issues:

HELD

I. Procedural
FIRST

Art. VI, Section 24: 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.

Art. VI, Section 26(2): No bill passed by either House shall become a law unless it has passed three readings on separate days, and printed
copies thereof in its final form have been distributed to its Members three days before its passage, except when the President certifies to the
necessity of its immediate enactment to meet a public calamity or emergency. Upon the last reading of a bill, no amendment thereto shall be
allowed, and the vote thereon shall be taken immediately thereafter, and the yeas and nays entered in the Journal.

By a 9-6 vote, the SC rejected the challenge, holding that such consolidation was consistent with the
power of the Senate to propose or concur with amendments to the version originated in the HoR.

What the Constitution simply means is that the initiative for filing revenue bills must come from the
House of Representatives. The Constitution does not prohibit the filing in the Senate of a substitute bill
in anticipation of its receipt of the bill from the House of Representatives so long as action by the Senate
as a body is withheld pending receipt of the bill from the House of Representatives. It is not the law but
the revenue bill which is required to originate exclusively in the House of Representatives.

A bill originating in the House of Representatives may undergo such extensive changes in the Senate
that the result may be a rewriting of the whole bill. To insist that a revenue statute must be
substantially the same as the bill approved by the House of Representatives is to deny the power of the
Senate to propose amendments and to violate the equality of the legislative power of the two Houses.
SB. No. 1630, having been certified as urgent by the President need not meet the requirement not only
of printing but also of reading the bill on separate days.

SECOND

PAL contended that RA 7716 violates Art. VI, § 26(1) which provides that "Every bill passed by Congress
shall embrace only one subject which shall be expressed in the title thereof. PAL contended that
amendment of petitioner's franchise may only be made by special law. Futhermore the title of the VAT
law does not reflect the removal of PAL grant of exemptions for the VAT.

However, the court ruled that Republic Act No. 7716 expressly amends PAL's franchise (P.D. No. 1590)
by specifically excepting from the grant of exemptions from the VAT PAL's exemption under P.D. No.
1590. For the reason that the title of the law the title states that the purpose of the statute is to expand
the VAT system, and one way of doing this is to widen its base by withdrawing some of the exemptions
granted before. This is within the power of Congress to do under Art. XII, 11 of the Constitution, which
provides that the grant of a franchise for the operation of a public utility is subject to amendment,
alteration or repeal by Congress when the common good so requires.

The trend in our cases is to construe the constitutional requirement in such a manner that courts do not
unduly interfere with the enactment of necessary legislation and to consider it sufficient if the title
expresses the general subject of the statute and all its provisions are germane to the general subject
thus expressed.

II. SUBSTANTIVE

A. Claims of Press Freedom, Freedom of Thought and Religious Freedom

As a general proposition, the press is not exempt from the taxing power of the State and 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 special treatment 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. Since the law granted the
press a privilege, the law could take back the privilege anytime without offense to the Constitution. The
reason is simple: by granting exemptions, the State does not forever waive the exercise of its sovereign
prerogative. Indeed, in withdrawing the exemption, the law merely subjects the press to the same tax
burden to which other businesses have long ago been subject.

As to the issue of censorship of the press. The registration fee is thus a mere administrative fee, one
not imposed on the exercise of a privilege, much less a constitutional right. It does not prohibit the
exercise of the freedom of the press. VAT 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 sale, barter, 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 the press 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 to violate its freedom under the
Constitution.

The publisher of a newspaper has no immunity from the application of general laws. He has no special
privilege to invade the rights and liberties of others. He must answer for libel. He may be punished for
contempt of court. . . . Like others, he must pay equitable and nondiscriminatory taxes on his business.

B. FREEDOM OF RELIGION

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 of sale. 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 any other economic imposition that might make the right to disseminate
religious doctrines costly. The registration fee imposed by § 107 of the NIRC, as amended by 7 of R.A.
No. 7716, although fixed in amount, is really just to pay for the expenses of registration and
enforcement of provisions such as those relating to accounting in § 108 of the NIRC. The registration
requirement is a central feature of the VAT system. It is designed to provide a record of tax credits
because any person who is subject to the payment of the VAT pays an input tax, even as he collects an
output tax on sales made or services rendered.

The PBS distributes free bibles and therefore is not liable to pay the VAT, however, this does not excuse
it from the payment of this fee because it also sells some copies. At any rate whether the 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.

C. NON-IMPAIRMENT OF CONTRACTS

It is enough to say that the parties to a contract cannot, through the exercise of prophetic discernment,
restrict the exercise of the taxing power of the State. For not only are existing laws read into contracts in
order to fix obligations as between parties, but the reservation of essential attributes of sovereign
power is also read into contracts as a basic postulate of the legal order. The policy of protecting
contracts against impairment presupposes the maintenance of a government which retains adequate
authority to secure the peace and good order of society. In truth, the Contract Clause has never been
thought as a limitation on the exercise of the State's power of taxation save only where a tax exemption
has been granted for a valid consideration.

Authorities from numerous sources are cited by the plaintiffs, but none of them show that 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 the Constitution. Even though such taxation may affect particular contracts, as it
may increase the debt of one person and lessen the security of another, or may impose 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 be said that it impairs the obligation of any existing contract in its true
legal sense." Contracts must be understood as having been made in reference to the possible exercise
of the rightful authority of the government and no obligation of contract can extend to the defeat of
that authority.

D. VAT IS AN INDIRECT AND REGRESSIVE TAX WHICH IS NOT PROHIBITED BY THE CONSTITUTION.

The peitioners argued that the VAT is regressive and that it violates the requirement that "The rule of
taxation shall be uniform and equitable [and] Congress shall evolve a progressive system of taxation.

(Art. VI, § 28 (1)) 1. The rule of taxation shall be uniform and equitable. The Congress shall evolve a progressive system of taxation.

(Art. XIV, § 1) - promotion of the right to "quality education"

(Art. XIII, § 1) - to give priority to the enactment of laws for the enhancement of human dignity and the reduction of social, economic and
political inequalitiesEqual protection of cooperatives

These provisions are put in the Constitution as moral incentives to legislation, not as judicially
enforceable rights.

The Constitution does not really prohibit the imposition of indirect taxes which, like the VAT, are
regressive. What it simply provides is that Congress shall "evolve a progressive system of taxation." The
constitutional provision has been interpreted to mean simply that "direct taxes are . . . to be preferred
[and] as much as possible, indirect taxes should be minimized." Indeed, the mandate to Congress is not
to prescribe, but to evolve, a progressive tax system. Sales taxes, are form of indirect taxes, and they 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 according to 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 certain transactions (R.A. No. 7716, 3, amending § 102 (b) of the NIRC), while granting
exemptions to other transactions. (R.A. No. 7716, § 4, amending § 103 of the NIRC) Transactions
involving basic and essential goods and services are exempted from the VAT. 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 higher income groups.
Not all provisions of the Constitution are self executing and, therefore, judicially enforceable. The other
departments of the government are equally charged with the enforcement of the Constitution,
especially the provisions relating to them.

The CUP's (Cooperative Union of the Philippines) contention that Congress' withdrawal of exemption of
producers cooperatives, marketing cooperatives, and service cooperatives, while maintaining that
granted to electric cooperatives, not only goes against the constitutional policy to promote cooperatives
as instruments of social justice (Art. XII, § 15) but also denies such cooperatives the equal protection of
the law is actually a policy argument. The legislature is not required to adhere to a policy of "all or none"
in choosing the subject of taxation.