Government asks SC to lift EVAT law suspension

The Department of Finance (DOF), the Bureau of Internal Revenue (BIR) and Executive Secretary Eduardo Ermita separately asked the Supreme Court (SC) yesterday to immediately lift the temporary restraining order (TRO) it issued last week to block implementation of Republic Act (RA) 9337, or the Expanded Value Added Tax (EVAT) Law.

Acting quickly to restore the flow of revenues from the expanded tax measure, Malacañang expressed confidence that the SC would recognize the wisdom of implementing the EVAT.

In an urgent 50-page motion seeking to lift the TRO, Finance Secretary Cesar Purisima, BIR Commissioner Guillermo Parayno Jr. and Ermita also asked the SC to require the opposition congressmen led by House Minority Leader Francis Escudero and the Petroleum Dealers Association to pay a hefty P130-million bond per day if the government’s motion to lift the order on the EVAT law is denied, until final resolution of the case.

The EVAT law had been in effect less than a day before the SC issued the TRO at the urging of Escudero and others.

Purisima, who led in filing the motion before the SC, said "the suspension of the implementation of RA 9337, albeit still temporary, endangers the country’s fiscal capability."

He said the government loses a potential P130 million in revenues for every day that the TRO is in effect.

"This will frustrate our efforts to bring down our budget deficit from P187 billion to P160 billion by the end of the year. With the new VAT law in force, we expect to wipe out our budget deficit by 2008," Purisima said.

"Delays in (the EVAT) implementation would derail, if not endanger, our fiscal consolidation efforts," he said. "The sooner we resolve this issue the better for all of us."

Purisima cited the argument of Chief Justice Hilario Davide Jr., who along with Justice Reynato Puno voted against the TRO, that the collection of taxes could not be prohibited, being the lifeblood of the nation.

He said that mere allegations of unconstitutionality of a tax law does not warrant the issuance of a TRO to enjoin its enforcement, adding that RA 9337 enjoys the presumption of constitutionality.

"The irreparable damage, if at all, that petitioners (Escudero et al) may sustain is far less than the untold pecuniary damage which the government and the people it serves will suffer as a result of the TRO," Purisima said.

Purisima said the SC, in its ruling on the case of Southern Cross Cement Corp. vs Philippine Cement Manufacturers Corp., declared that Section 218 of the Tax Reform Act of 1997 "prohibits any court from granting an injunction to restrain the collection of any national internal revenue tax, fee or charge imposed by the Internal Revenue Code.

Press Secretary Ignacio Bunye said in a statement that the EVAT law was meant to provide economic stability as he underscored the legality of the tax measure.

"We will plead with the high court to reverse its decision," Bunye said, adding that the country cannot afford any further delays in the implementation of the EVAT.

Huge deposit

Purisima said the power to block the collection of taxes is not treated lightly and the law requires that when the Court of Tax Appeals exercises this power, it must require the taxpayer to deposit the amount claimed by the government to file a surety bond for not more than double the amount.

"RA 9337 enjoys the presumption of validity. This presumption obtains until its assailants prove its unconstitutionality, beyond a reasonable doubt. It is but a decent respect to the wisdom, integrity and patriotism of the legislative body, by which any law is passed, to presume in favor of its validity, until its violation of the Constitution is proved beyond a reasonable doubt" Purisima said.

He calculated that, from the first day of July 2005, when the EVAT went into effect, until the end of this year, the national government stood to collect incremental revenues of P25 billion to P28 billion. "Losses to the national government for each month that RA 9337 is not implemented will run to around P4 billion to P5 billion. Each day that the TRO exists will cost the national government revenues in excess of P130 million," he argued.

Purisima said these daily losses would be unrecoverable: "Not even any eventual decision of (the SC) upholding the validity of the RA 9337 will allow the BIR or the DOF to collect value-added taxes accruing to the transactions during the time the TRO is in effect.

"The very issuance of the TRO has already put respondents’ collection projection, and hence the deficit reduction program, off-track, albeit (at the time of filing this motion) at still manageable levels. An early lifting of the TRO will only serve to limit the Republic’s losses," Purisima said.

He said the injuries that Escudero and the Petroleum Dealers Association had claimed they would suffer could be mitigated through prudent business decisions or through the remedies provided for under the Tax Code.

"Any additional VAT that such petitioners will pay pursuant to RA 93237 may be returned to them should this honorable court hold that such collection was illegal due to the invalidity of RA 9337," Purisima said.

"In the event that this honorable court sustains the issuance of a TRO against RA 9337, respondents request that the (SC) require (the) petitioners to file the appropriate bond to cover the unrecoverable tax losses during the pendency of this case conditioned on this court sustaining the validity of RA 9337 pursuant to Section 4 (b) Rule 58 of the Revised Rules of Court.

"The TRO will inflict greater damage on the Republic. Perforce, it is respectfully submitted that the TRO must be lifted immediately," he added.

Voting 13-2, the SC stopped the implementation of the EVAT, with Davide and Puno voting against the issuance of the TRO.

SC Justices Angelina Sandoval-Gutierrez, Renato Corona and Antonio Carpio called by long distance from Madrid and conveyed their votes for the issuance of the TRO.

Justices Consulelo Ynares-Santiago and Alicia Austria-Martinez conveyed their votes for the issuance of the TRO via cellular phone.

Hope for reconsideration

Meanwhile, administration lawmakers House Deputy Speaker for Mindanao Gerry Salapuddin and Bacolod City Rep. Monico Puentevella (Lakas) also asked the SC to lift the TRO on the EVAT.

According to them, the implementation of the EVAT is vital to the country’s survival and its non-implementation is expected by economists to be "brutally detrimental" to financial markets.

Citing the warning of University of the Philippines (UP) economics professor Ernie Pernia, Salapuddin said the impact of the TRO is "terribly adverse" due to the loss of revenue that could be used to ease the country’s financial burden.

Salapuddin took exception to claims made by members of the opposition that the EVAT was merely crafted to increase the burden on the public: "This (claim) is illogical and downright ridiculous. They have overplayed this argument too long."

He said the EVAT law was the product of a long legislative process, incorporating the best proposals from the administration and opposition: "Of course, there would always be political leverage banking on the unpopularity of the legislation. Nobody loves new taxes."

Puentevella said the EVAT law is the centerpiece of the government’s economic reforms and, without the tax legislation, all the government’s other reform programs will be rendered useless to plug the fiscal deficit.

He also expressed dismay over remarks made by Senate Minority Leader Aquilino Pimentel Jr., who said the President would be digging her own political grave if she pushes for the implementation of the EVAT.

"The President has long prioritized national economic recovery over political considerations," Puentevella said. "She is not afraid to make the tough choices no matter how unpopular they are."

He said instant but temporary solutions cannot help the country achieve economic stability: "We have to start thinking in the long-term and this entails work and sacrifice. This is the only way to make our economic gains permanent."

Both good and bad

Opposition Sen. Edgardo Angara said the TRO on the EVAT is both good and bad news, adding that the positive aspect of the TRO is that it "provides a breathing spell for the court to review the provisions" of the law.

RA 9337 had been the subject of debate by all sectors because of a number of provisions — including the removal of exemptions for power and petroleum and the hike in the corporate income tax — before it was signed by President Arroyo on May 24.

However, the petitions raised by both the House and the Senate focused mainly on the constitutionality of the standby authority granted to the President to raise the EVAT rate by two percent next year.

Angara said the petitions would fail if the only issue raised is the constitutionality of the standby authority.

Under RA 9337, the President "shall" upon the recommendation of the Secretary of Finance, raise the EVAT rate to 12 percent on January 1, 2006 after any of the following conditions are satisfied: VAT collection as a percentage of gross domestic product of the previous

year exceeds two and four-fifths percent or the national government deficit as a percentage of GDP of the previous year exceeds one and a half percent.

"The increase in rate is not left for the President to decide. It is mandatory. The delegation is already fixed. The judgment is exercised by the legislature. The delegation is complete," Angara said.

He said that what should have been challenged in the law were the hike in the corporate income tax rate of three percent and the cap on input tax credits of 70 percent.

Angara also said the hike in the corporate income tax rate is not germane to the subject matter of the EVAT and should not have been included in the first place.

The negative aspect of the TRO relates to its impact on the fiscal condition of the country: "The bad news is that this is the single biggest source of revenue for the government. The longer you delay, the worse for the fiscal condition of the country. I appeal to the Supreme Court to act speedily and not look at it as a single tax measure." — With Marvin Sy