Abakada Guro v. Ermita
G.R. No. 168056September 1, 2005
Study material, not legal advice. Written and checked by the PhilippineLaws team to the best of our knowledge; not reviewed by a lawyer. A digest is a summary — the full decision is the authority, so read it before you cite it.
Cited for
Input tax credit is a statutory privilege; the 70% cap and the 5% final VAT withholding on government purchases were upheld
Why it matters
Upheld the E-VAT Law (R.A. 9337) in full. The Court held that a VAT-registered person's right to credit input tax is a statutory privilege, not property, so Congress may limit it. The 70% cap on creditable input tax and the 60-month amortization of input tax on capital goods only delay crediting, and the 5% final withholding on government purchases is a valid method of collection. The stand-by authority to raise the rate to 12% was also held to delegate only the ascertainment of facts.
Digest
Republic Act No. 9337 amended the NIRC's VAT and other provisions. Five petitions challenged it. ABAKADA Guro Party List, Senator Pimentel and others, and Representative Escudero and others attacked the common proviso in Sections 4, 5 and 6. That proviso required the President, upon the Secretary of Finance's recommendation, to raise VAT from 10% to 12% effective January 1, 2006 once either of two fiscal conditions occurred, and petitioners called it an undue delegation of the power to tax. The Association of Pilipinas Shell Dealers and others attacked three provisions as arbitrary, confiscatory, and violative of due process, equal protection and progressive taxation. These were Section 8, amending Section 110(A)(2) to spread input tax on capital goods costing over P1,000,000 over 60 months; Section 8, amending Section 110(B) to cap creditable input tax at 70% of output tax; and Section 12, amending Section 114(C) to require the government to withhold a 5% final VAT on its purchases. They argued that input tax is property. Governor Garcia argued that the cap let VAT-registered establishments keep part of the taxes they collect. Others claimed the Bicameral Conference Committee exceeded its powers and the non-VAT amendments did not originate in the House.
- 1Whether the 70% cap on creditable input tax and the 60-month amortization of input tax on capital goods (Section 110(A)(2) and (B), as amended) deprive taxpayers of property without due process or violate equal protection, uniformity and progressivity.
- 2Whether the 5% final withholding VAT on government purchases under Section 114(C), as amended, is invalid.
- 3Whether the stand-by authority to raise VAT to 12% is an undue delegation of legislative power, and whether R.A. 9337 violated Article VI, Sections 24 and 26(2) of the Constitution.
The Court upheld R.A. 9337. The 70% cap is not confiscatory. If input tax is below 70% of output tax, all of it is creditable. Any excess carries over to later quarters under Section 110(B) or may be refunded or credited under Section 112(B). Taxpayers retain no tax, because the input tax was already paid to sellers, who are the parties liable to remit it. The Court held: "The input tax is not a property or a property right within the constitutional purview of the due process clause. A VAT-registered person’s entitlement to the creditable input tax is a mere statutory privilege." What the law creates, it may remove or limit. The 60-month spread only delays crediting. Section 114(C) is a method of collection that makes the government a withholding agent. "Final" means full, so the 5% is full payment of the VAT on the transaction, and the other 5% effectively stands for a deemed input VAT. Under RR 14-2005, actual input tax above 5% may form part of cost. Congress may treat transactions with the government differently, and the rule applies to everyone who deals with the government. The law is uniform, making no industry distinctions, and equitable, given the P1.5 million threshold, exempt basic food, and cushioning measures. The Constitution does not bar regressive indirect taxes. The 12% proviso delegates only the ascertainment of facts. The word "shall" makes the increase mandatory, and the Finance Secretary acts as Congress's agent. The Bicameral Conference Committee's changes were germane, and the Senate's amendments did not breach the origination rule. The petitions were dismissed and the TRO was lifted upon finality.
Checked against the full decision by the PhilippineLaws team on September 21, 2026. Not reviewed by a lawyer.
Separate opinions
Upholds the VAT provisions, but would declare unconstitutional Sections 1, 2, 3, 14, 15, 16, 17 and 18 of R.A. 9337 (amending NIRC Sections 27, 28, 34, 117, 119, 121, 148 and 151). The House bills dealt only with VAT, so the Senate's non-VAT amendments, and the Bicameral Conference Committee's insertion of Sections 121 and 151, violated the House's exclusive power to originate revenue bills under Article VI, Section 24.
Would withhold judgment on the stand-by authority as not ripe, and would strike down the Bicameral Conference Committee's deletion of the no pass-on provision and Section 21.
The enrolled bill doctrine yields to mandatory constitutional provisions; would void Sections 1, 2 and 3 insofar as they amend corporate income tax rates, the tax credit on intercorporate dividends, and the interest-expense deduction.
The Bicameral Conference Committee may only adopt either house's version or neither; joins Justice Puno's opinion.
Joins Justice Puno that the Bicameral Conference Committee's deletion of the no pass-on provision was unconstitutional; would also hold the stand-by authority in Sections 4 to 6 an undue delegation of legislative power, and the Senate's non-VAT tax amendments a violation of the germaneness and exclusive origination rules. Justice Corona joined this opinion.
Joins Justice Puno; would dismiss the challenge to Sections 4-6 as premature, and would void Section 21 and the deletion of the no pass-on provision.
The two conditions make the 12% increase certain, so there is no abdication of the taxing power; would void the income-tax amendments as not germane.
Would grant G.R. No. 168461 and strike down the 70% cap and 60-month amortization (Section 8) and the 5% final withholding (Section 12) as violating due process; also considers Section 21 unconstitutional.
Concurs in full that R.A. 9337 is constitutional both procedurally and substantively.