FACTS
Congress enacted RA No. 7716, which sought to widen the tax base of the existing Value Added Tax (VAT) system and enhance its administration by amending the National Internal Revenue Code (NIRC).
The VAT is levied on the sale, barter or exchange of goods and properties as well as on the sale or exchange of service. 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.
Several petitioners, including Arturo Tolentino, Raul Roco, the IBP, the Philippine Press Institute, PAL, Kilosbayan, and Liwayway Chato, among others, challenged the constitutionality of said law.
RULING
The Supreme Court ruled for the Government.
Contrary to petitioners' assertion that RA 7716 is regressive, the SC held that the law in fact distributes the tax burden to as many goods and services as possible particularly to those which are within the reach of higher-income groups, even as the law exempts basic goods and services. It is thus equitable.
A tax measure, like the expanded VAT law, is enacted by Congress and approved by the President in the exercise of the State's power to tax, which is an attribute of sovereignty. And while the power to tax, if exercised without limit, is a power to destroy, and should, therefore, not be allowed in such form, it has to be equally recognized that the power to tax is an essential right of government. Without taxes, basic services to the people can come to a halt; economic progress will be stunted, and, in the long run, the people will suffer the pains of stagnation and retrogression.
RESOLUTION
In 1995, the SC denied with finality the Motion for Reconsideration filed by the petitioners. The Court held that it is inherent in the power to tax that the State be free to select the subjects of taxation, and it has been repeatedly held that inequalities which result from a singling out of one particular class for taxation, or exemption infringe no constitutional limitation.
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.”
