DOJ Opinion No. 077, s. 1987

DOJ OPINION NO. 077 , s. 1987 August 6, 1987 The Honorable The Executive Secretary Malacaang, Manila Sir : Some serious legal doubts, based on constitutional grounds, have been raised on the validity of Executive Order No. 93, dated December 17, 1986, which grants the Fiscal Incentives Review Board (FIRB) the power, among others, to restore the tax and duty incentives/exemptions withdrawn thereunder. For the guidance of all concerned and in order that appropriate remedial measures could be taken, I have deemed it necessary to render this legal opinion. The FIRB was originally tasked by the law that created it, namely Presidential Decree No. 776, dated August 24, 1975, to make recommendation to the President of the Philippines in the withdrawal, modification, revocation or suspension of the enforceability of any of the statutory subsidies or tax exemption grants, save only those granted by the Constitution. (Sec. 2, PD 776.) This nature of FIRB's function remained even with the promulgation of June 11, 1984 of Presidential Decree No. 1931 which (unlike PD No. 776 which did not by itself withdraw any tax or duty incentives/exemptions) withdrew all exemptions from the payment of duties, taxes, fees, imposts and other charges granted to government-owned or controlled corporations including their subsidiaries (Sec. 1, PD 1931), and empowered the President of the Philippines and/or the Minister of Finance, upon recommendation of the FIRB, to restore, partially or totally, the tax exemptions withdrawn thereunder, or otherwise revise the scope and coverage of any applicable tax and duty, taking into account any or all of the considerations mentioned there in, namely: (1) the effect on the relative price levels, (2) the relative contribution of the corporation to the revenue generation effort; (3) the nature of the activity in which the corporation is engaged in; or (4) in general, the greater national interest to be served. (Sec. 2. PD 1931.) prcd Now, under E.O. No. 93, the FIRB'S function is no longer recommendatory. It is now authorized to exercise by itself powers far greater in scope and coverage than those conferred upon the President of the Philippines (and the Minister of Finance) by PD Nos. 776 and 1931, as shown by Section 2 of Executive Order No. 93 reading, thus: "SEC. 2. The Fiscal Incentives Review Board created under Presidential Decree No. 776, as amended, is hereby authorized to: a) restore tax and/or duty exemptions withdrawn hereunder in whole or in part; b) revise the scope and coverage of tax and/or duty exemption that may be restored; c) impose conditions for the restoration of tax and/or duty exemption; d) prescribe the date or period of effectivity of the restoration of tax and/or duty exemption; e) formulate and submit to the President for approval, a complete system for the grant of subsidies to deserving beneficiaries, in lieu of or in combination with the restoration of tax and duty exemptions or preferential treatment in taxation, indicating the source of funding therefor, eligible beneficiaries and the terms and conditions for the grant thereof taking into consideration the international commitments of the Philippines and the necessary precautions such that the grant of subsidies does not become the basis for countervailing action." cdll The gravamen of the grievance lies in these powers vested upon the FIRE by Executive Order No. 93 which withdraws, in Section 1 thereof, all tax and duty incentives/exemptions, save those enumerated therein, in the following manner: " SEC. 1 . The provisions of any general or special law to the contrary notwithstanding, all tax and duty incentives granted to government and private entities are hereby withdrawn, except: a) those covered by the non-impairment clause of the Constitution; b) those conferred by effective international agreements to which the Government of the Republic of the Philippines is a signatory; c) those enjoyed by enterprises registered with: (i) the Board of Investments pursuant to Presidential Decree No. 1789, as amended; (ii) the Export Processing Zone Authority, pursuant to Presidential Decree No. 66, as amended; (iii) the Philippine Veterans Investment Development Corporation Industrial Authority pursuant to Presidential Decree No. 538, as amended; d) those enjoyed by the copper mining industry pursuant to the provisions of Letter of Instruction No. 1416; e) those conferred under the four basic codes namely: (i) the Tariff and Customs Code, as amended; (ii) the National Internal Revenue Code, as amended; (iii) the Local Tax Code, as amended; (iv) the Real Property Tax Code, as amended; f) those approved by the President upon recommendation of the Fiscal Incentives Review Board." The power to tax and the power to exempt from taxation are essentially attributes of sovereignty and, therefore, essentially and eminently legislative in character; hence, unless otherwise provided by the Constitution, cannot be delegated to another branch of the Government or to an administrative agency, except to local governments. (84 C.J.S., pp. 56 & 414; Cooley on Taxation, Vol. 1, pp. 184-190; Sec. 5, Art. X, 1987 Constitution.) However, one thing it is to delegate the authority to determine what the law shall be and another thing to delegate the authority to fix the details in the execution or enforcement of a policy set out in the law itself (People vs. Jolliffe, 105 Phil. 677; People vs. Vera, 65 Phil. 56). The first, which necessarily involves a discretion as to what the law shall be, cannot be done; the second, which involves the ascertainment of the circumstances upon which the law shall operate, is permissible (People vs. Vera, supra ) if the law authorizing the delegation furnished a reasonable standard which "sufficiently marks the field with which the Administrator is to act so that it may be known whether he has kept within it in compliance with the legislative will." (People vs. Jolliffe, supra , quoting Yakus vs. United States, 88 L. ed. 848.) prcd The erudite Justice Jose P. Laurel, quoting some other great minds, explained the rule in this wise: ". . . 'The principle which permits the legislature to provide that the administrative agent may determine when the circumstances are such as [to] require the application of a law is defended upon the ground that at the time this authority is granted, the rule of public policy, which is the essence of the legislative act, is determined by the legislature. In other words, the legislature, as it is its duty to do, determines that, under given circumstances, certain executive or administrative action is to be taken and that, under other circumstances, different or no action at all is to be taken. What is thus left to the administrative official is not the legislative determination of what public policy demands, but simply the ascertainment of fact of the case required to be done accordingly to the terms of law by which he is governed . . .' The efficiency of an Act as a declaration of legislative will must, of course, come from Congress but the ascertainment the contingency upon which the Act shall take effect may be left to such agencies as it may designate." . . ." (People vs. Vera, supra , at p. 119.) The rule was simplified, and the reasons therefor explained, by the equally learned Justice (later Chief Justice) Robert Conception in the following clear and understandable language: "Although Congress may delegate to another branch of the Government the power to fill in the details in the execution, enforcement or administration of a law, it is essential, to forestall a violation of the principle of separation of powers, that said law: (a) be complete in itself it must set forth therein the policy to be executed, carried out or implemented by the delegate and (b) fix a standard the limits of which are sufficiently determinate or determinable to which the delegate must conform in the performance of his function. Indeed, without a statutory declaration of policy, which is the essence of every law; and, without the aforementioned standard, there would be no means to determine, with reasonable certainty, whether the delegate has acted within or beyond the scope of his authority. Hence, he could thereby arrogate upon himself the power, not only to make the law, but also and this is worse to unmake it, by adopting measures inconsistent with the end sought to be attained by the Act of Congress, thus nullifying the principle of separation of powers and the system of checks and balances, and, consequently, undermining the very foundation of our Republican system." (Pelaez vs. Auditor-General, 15 SCRA at pp. 576-577.) With the above guidelines in mind, the complaint against E.O. No. 93 gains an immediate acceptance and concurrence as a reading of the whole text thereof shows ominous traces of its indefensibility. While E.O. No. 93 expressly withdraws all tax and duty incentives/exemptions granted to government and private entities (save only those enumerated in Section 1 thereof), it, at the same time, empowers the FIRE to restore, in whole or in part, the same withdrawn incentives/exemptions, with additional authority to revise the scope and coverage thereof, impose conditions for their restoration, and prescribe the date or period of their effectivity. The FIRB, if it restores all the tax and duty incentives/ exemptions ostensibly withdrawn by E.O. No. 93, can render the withdrawal of such incentives/ exemptions ineffective and ineffectual as if there was no withdrawal at all made by E.O. No. 93. It thus can make or unmade E.O. No. 93. And worse still, it can make new tax and duty incentives/exemptions by expanding, under its revisory power, the scope and coverage of the restored tax and duty incentives/exemptions to include entities or things not previously covered thereby. prcd Obviously, E.O. No. 93 does not state a definite public policy, which is the essence of every law (Pelaez vs. Auditor-General, supra ; People vs. Vera, supra ), on the matter of the withdrawal or continued operation, let alone the scope and coverage, of the tax and duty incentives/exemptions of government and private entities. It leaves the determination thereof to the entire discretion of the FIRB. What is thus delegated to the FIRB is the authority to determine what the law shall be or what public policy demands on the matter of withdrawal or continued operation of said incentives/ exemptions, and that is offensively repugnant to the principle of separation of powers and the system of checks and balances profoundly emphasized in our Constitution. ( Idem .) The above conclusion is made more evident by the source of the tax and duty incentives/exemptions withdrawn by E.O. No. 93 but which may be totally or partially restored and revised by the FIRB. Section 1 hereof says: " The provisions of any general or special law to the contrary notwithstanding , all tax and duty incentives granted to government and private entities are hereby withdrawn, except . . ." What are therefore withdrawn by E.O. No. 93 are tax and duty incentives/exemptions granted to government and private entities by the provisions of general and special laws. It thus repeals the provisions of such general and special laws granting such incentives/exemptions. And since the FIRB can restore, in whole or in part, the tax and duty incentives/exemptions withdrawn by E.O. No. 93, it follows, as a logical consequence, that the FIRB can restore, in whole or in part, the provisions of said general and special laws already repealed by E.O. No. 93. The restoration or reenactment, in whole or in part, or the continued existence or operation of said provisions of general and special laws is thus left to the wisdom of the FIRB. Not only that, E.O. No. 93 also empowers the FIRB to revise the scope and coverage of the tax and duty incentives/exemptions withdrawn thereunder but restored by it. The FIRB may be thus not only restore or reenact the provisions of general and special laws granting the tax and duty incentives/exemptions withdrawn by EO No. 93, it may also limit or expand the scope and coverage thereof, and may thus extend the restored incentives/ exemptions to entities or things not covered nor contemplated by the provisions of such general and special laws. As stated earlier, it can create new tax and duty incentives/exemptions by extending, under its revisory power, the restored tax and duty incentives/exemptions to entities or things not covered by the provisions of the general and special laws originally granting the same. In effect, it can expand the scope and coverage of said statutory provisions or, stated differently, it can amend said general and special laws. Nor is this all. EO No. 93 further empowers the FIRB to impose conditions for the restoration of the withdrawn tax and duty incentives/exemptions. It is very obvious that the conditions that the FIRB is allowed to impose here are not found in the provisions of the general and special laws originally granting the said tax and duty incentives/ exemptions withdrawn by EO No. 93. It can, therefore, restrict the operation of the restored tax and duty incentives/exemptions and deny them, at its own discretion, entities or things originally laws. It can, in effect, create new provisions different from that found in said special and general laws. And to top it all, EO No. 93 empowers the FIRB to prescribe or fix not only the date of effectivity of the restored tax and duty incentives/exemptions, but likewise the duration thereof. It thus can, at its discretion, fix the date of effectivity of the restored tax and duty incentives/exemptions or the provisions of special and general laws originally granting the same, as well as the duration thereof, even without the publication required for the effectivity of a legislative act. But, even the act of the legislature itself has to be publicized in the Official Gazette before it becomes operative (Taada vs. Tuvera, L-63915, December 29, 1986). prcd Verily, the exercise by the FIRB of its powers under Section 2 (a), (b), (c) and (d) of EO No. 93 involves not only the reenactment of the provisions of special and general laws, but also the enactment of a new law, granting again the tax and duty incentives/exemptions withdrawn by EO No. 93 as the restored incentives/exemptions may cover entities or things not covered nor contemplated, or exclude those covered, by the said special and general laws and may further contain conditions or period not provided nor contemplated by the latter laws. Undeniably, the enactment or reenactment of laws or any portions or provisions thereof is essentially and inherently legislative in nature and may not, therefore, be delegated by the legislature to any other branch of the government, much less to an administrative agency or official (Schechter Poultry Corp. v. U.S., 295 US 495; Alexander v. Thompson [CD Cal.] 131 F Supp. 1389). Indeed, EO No. 93 fails to pass the completeness test as it states no definite policy on the matter of the withdrawal or continued operation or the scope and coverage of tax and duty incentives/exemptions granted to government and private entities. Neither does Executive Order No. 93 provide sufficient standards or the conditions or contingencies under which the FIRB may totally or partially restore the tax and duty exemptions/incentives withdrawn thereunder; under which it may revise or limit or expand the scope and coverage of such tax and duty exemptions/incentives; and under which it may impose conditions for the total or partial restoration of such tax and duty exemptions/incentives. Likewise, EO No. 93 does not specify the conditions or contingencies upon which the total or partial restoration of the withdrawn tax and duty exemptions/incentives is made to depend. True, Section 3 of EO 93 enumerates several considerations which the FIRB shall take into account in the exercise of its powers. But these considerations are too indeterminate or undeterminable and, therefore, insufficient to free the delegation from the taint of unconstitutionality . A standard must define the legislative policy, mark its limits, map out its boundaries, specify the public agency to apply it, and indicate the circumstances under which the legislative command is to be effected (De la Llana vs. Alba, 112 SCRA 294). The limits of the standard must be sufficiently determinate or determinable (Pelaez vs. Auditor General, supra ) so that it can be known whether the delegate has acted within or beyond the scope of his authority (People vs. Jolliffe, supra ; Pelaez vs. Auditor General, supra ). As discussed above, EO 93 does not state the legislative policy on the withdrawal, continued operation and the scope and coverage of the tax and duty incentives/exemptions granted by provisions of special and general laws to government and private entities, but leaves the determination thereof to the FIRB. But, nonetheless, let us examine the considerations enumerated in Section 3 of EO 93. As to the first (" the effect on the relative price levels "), just what degree or condition of the effect of the tax and duty exemptions/incentives on the relative price levels, or just what price levels would demand the restoration or non-restoration of such tax and duty exemptions/incentives, and just under what conditions or situations would the FIRB make the restoration total or partial, is not sufficiently marked. The fields within which the FIRB is to act is not sufficiently marked. The fields within which the FIRB is to act is not sufficiently defined and, therefore, there is no way of knowing whether it has kept within the law. As to the second ("relative contribution of the beneficiary to the revenue generation effort "), just what legals or under what conditions of the contribution made by the beneficiary to the revenue generation effort would demand the total or partial restoration or non-restoration of the tax and duty exemptions/incentives in his (beneficiary's) favor, EO 93 again does not state. It gives the FIRB uncontrolled discretion in the determination of that degree, extent or conditions of the beneficiary's contribution to the revenue generation effort which would justify the restoration or non-restoration of the tax and duty exemptions/incentives in its favor, as well as the determination of whether the restoration is total or partial. The FIRB may then exercise its power arbitrarily. As to the third (" nature of the activity the beneficiary is engaged "), just under what conditions or contingencies would the FIRB determine that a certain activity, business or industry would need the restoration of the withdrawn tax and duty exemptions/incentives, again EO 93 does not specify. The FIRB can, it its own discretion, uncontrolled by any reasonable guidelines, say that a particular activity, business or industry may continue to enjoy the tax and duty exemptions/incentives withdrawn by EO 93 without providing the public the means of knowing whether the FIRB has acted within or beyond the scope of its authority. As to the fourth and last (" in general, the greater national interest to be served"), it is true that "public interest" (which may fairly be considered as importing the same meaning as "national interest") has been considered as a sufficient standard (People vs. Rosenthal and Osmea, 68 Phil. 328). But such standard to be sufficient must be taken in conjunction with the intention and purpose of the law, the requirement it imposes, and the context of its provisions (Idem). Here, the intention or purpose of EO 93 is not definite, for, while it withdraws tax and duty exemptions/incentives granted under several statutes, it allows the FIRB to restore the same and even revise or expand the scope and coverage thereof and, therefore, the issuance stand as if it expresses no policy at all. It has been said that "the creation of municipalities, is not an administrative function, but one which is essentially and eminently legislative in character. The question of whether or not 'public interest' demands the exercise of such power is not one of fact . It is ' purely a legislative question . . . or a political question . . .." (Pelaez vs. Auditor General, supra , at pp. 579-580.) As the power to create municipalities is essentially and eminently legislative, so is the power to tax and to exempt from taxation (16 Am Jur 2d, Constitutional Law, p. 877). It may thus be stated that the question of whether or not "public interest" or " national interest " demands the exercise of such power in not one of fact but is purely a legislative or political question; hence, may not be validly delegated to an administrative agency of official. Let us hear again from Chief Justice Roberto Conception speaking on the standard of "public interest" and on the case of People vs. Rosenthal , supra: "At any rate, the conclusion would be the same, insofar as the case at bar is concerned, even if we assumed that the phrase 'as the public welfare may require,' in said Section 68, qualifies all other clauses thereof. It is true that in Calalang vs. Williams (70 Phil. 726) and People vs. Rosenthal (68 Phil. 328), this Court had upheld 'public welfare' and 'public interest', respectively, as sufficient standards for a valid delegation of the authority to execute the law. But, the doctrine laid down in these cases as all judicial pronouncements must be construed in relation to the specific facts and issues involved therein, outside of which they do not constitute precedents and have no binding effect. The law construed in the Calalang case conferred upon the Director of Public Works, with the approval of the Secretary of Public Works and Communications, the power to issue rules and regulations to promote safe transmit upon national roads and streets. Upon the other hand, the Rosenthal case referred to the authority of the Insular Treasurer, under Act No. 2581, to issue and cancel certificates or permits for the sale of speculative securities . Both cases involved grants to administrative officers of powers related to the exercise of their administrative functions, calling for the determination of questions of fact ." (Pelaez vs. Auditor General, supra , at p. 579.) As in the case of Pelaez vs. Auditor-General , supra , the authority granted to the FIRB does not involve the withdrawal or cancellation of a certificate or permit issued by an administrative agency under the law as in the Rosenthal Case, but the total or partial restoration (or non-restoration) or withdrawn tax and duty exemptions/incentives granted not by administrative agencies but by general and special laws. After their withdrawal by law, they may be restored only by another subsequent law. Moreover, unlike in People vs. Rosenthal , supra , where the law involved (Act No. 2581) allowed appeals from the decisions of the delegate (Insular Treasurer) to the Secretary of Finance, in which case, there was a restraining influence upon the actions and decisions of the delegate, EO 93 does not provide for any appeal from the decisions of the FIRB. Indeed, EO 93 does not provide the means of determining, with reasonable certainty, whether the FIRB has acted within or beyond the scope of its authority. It thus can arrogate upon itself the power to restore, in whole or in part, tax and duty exemptions/incentives withdrawn by EO 93. And worse still, it can revise, expand, or limit the scope and coverage of such exemptions/incentives or, in a more proper sense, the statutes originally granting such exemptions/incentives. In simple language, it can make or unmake the law not only EO 93 but also the statutes originally granting the withdrawn tax and duty exemptions/incentives and expand or limit their coverage, their effectivity and duration. prcd IN VIEW OF THE FOREGOING, it is my considered view that the powers conferred upon the Fiscal Incentives Review Board by Section 2(a), (b), (c) and (d) of Executive Order No. 19 constitute undue delegation of legislative power and is, therefore, unconstitutional. Very truly yours, (SGD.) SEDFREY A. ORDOEZ Secretary of Justice