Is the VAT law constitutional?

This question has unavoidably become contentious because Congress has delegated to the President the power to raise the VAT rate from 10 percent to 12 percent in January next year under certain specified conditions; and the power delegated appears to be a legislative function that could not be entrusted to another department of government.

To be sure, legislative power or the power to make, alter or repeal laws is conferred by the Constitution in the Senate and the House of Representatives although the people can also directly propose or enact laws or reject or approve any act or law or part thereof passed by Congress or local legislative body under the system of initiative and referendum (Section 1 and 32, Article VI).

As a rule Congress to which this law making power has been entrusted by the people cannot in turn delegate it to another (Delegatus non potest delegare). Sometimes however, the law itself cannot supply all the details necessary for it to be effectively and efficiently carried out by the executive or administrative agencies. Hence it may delegate to said administrative bodies the power to adopt and promulgate the implementing rules and regulations. Thus, while the law-making power cannot, as a general rule, be delegated, the rule-making power may be entrusted to another government agency for the execution of the enacted law. The law delegating this rule making power must however (1) set forth therein the policy to be implemented by the delegate and not allow the delegate to formulate or make policy; and (2) fix the determinate or determinable limits to which the delegate must conform in the performance of its functions, to ensure that the delegate has acted within the scope of his authority (Pelaez vs. Auditor General 15 SCRA 569).

Obviously, the fixing of the VAT rate as well as increasing or decreasing it goes beyond the mere execution or implementation of the law. It already involves law making or the amendment of the law and therefore, no longer part of the rule making power that Congress can validly delegate under specified limits and conditions.

But while as a general rule, legislative power may not be delegated, the Constitution itself, in specific instances allows such delegation. One such instance is the delegation of the legislative power to tax as provided in Section 28 (2) Article VI which provides that: "The Congress may, by law authorize the President to fix within specified limits, and subject to such limitations and restrictions as it may impose, tariff rates, import and export quotas, tonnage and wharfage dues, and other duties and imposts within the framework of the national development program of the government".

Apparently the above provision does not mention the VAT rate as one of those which Congress may authorize the President to fix. It is concededly plausible to argue that said Constitutional exception refers only to tariff which is definitely different from tax. Tariffs are the customs, duties or toll usually imposed on goods and merchandise imported or exported (Bouvier’s Law Dictionary, p. 3219). Tax is the enforced proportional contribution of persons and property levied by authority of the State for the support of the government and for all public needs (Cooley, Tax 1). Tax is a demand of sovereignty while tariff or toll is a demand of proprietorship (State Freight Tax Case 21 L. Ed 146). Thus it can be logically contended that the rates enumerated in Section 28 (2) which the President can fix by authority of Congress refers only to import and export of merchandise or transactions related thereto. This is the narrow view.

On the other hand, from a broader perspective, the said Constitutional provision can also cover the authority to fix the VAT rate. It is also correct to say that said Section 28 (2) refers to VAT particularly the phrase, "and other duties or imposts". Duties and imposts as used comprehensively cover customs and excise taxes imposed on importation, consumption, manufacture, and sale of certain commodities, privileges, business transactions, vocations, occupations and the like (Thomas vs. US 192 US 363). It is therefore more reasonable to conclude that the authority given to the President under said section covers the fixing of the VAT rate as it is within the meaning of "duties or imposts", which, according to Cooley (Tax 61), include those levied on commodities before they reach the consumer and are paid by those upon whom they ultimately fall, not as taxes but as part of the market price of the commodity. From this viewpoint, the VAT law is constitutional.

But if it is true that the two conditions specified by Congress before the President could fix a higher rate of 12 percent VAT rate have indeed been met already when the law was passed, then Congress should not have delegated that power anymore and should have just fixed the 12 percent VAT rate. On this aspect, the VAT law may really be constitutionally vulnerable. E-mail: [email protected]