Constitutions are the fundamental law of every nation. They put in place basic tenets and forms of government to be observed in the country. The Philippine Constitution is no different. One of the vital portions of our Constitution provides us with the three branches of government: the legislative department, there to pass laws; the executive department, to enforce laws; and, the judiciary department, to interpret laws. The doctrine of separation of powers ensures that neither branch encroaches on the powers of the other. Each branch is considered as a coequal of the other two in hierarchy but is considered supreme in matters which pertain to that branch.
While these branches have distinct powers and functions, there is also an interplay among them to ensure that their roles are properly being carried out. This system of checks and balances ensures that each branch is still acting within the parameters set for it in the Constitution.
The system of checks and balances is manifest in the exercise of passing, executing, and interpreting a law. A law begins by it being proposed, discussed and passed in Congress. Thereafter, the bill is passed to the executive department, specifically the President, so that he may act on the bill. Acting on such bill would mean either approving the bill, letting it pass into law or vetoing the same.
This veto power was granted in the Constitution through Article VI, Section 27 (1). Generally, when a President disapproves a bill, he or she exhibits such disapproval by executing a veto to invalidate the whole law. The power must generally be exercised in its entirety.
However, an exception exists under Article VI, Section 27 (2) when the bill is an appropriation, revenue or tariff bill. When any of these bills are involved, the President may execute a line or item veto. Such veto will not invalidate the whole bill but only the particular item under consideration. The other items to which the President does not object shall not be affected by this veto.
An example of this exercise can be seen in recent events. Republic Act 10963, also known as the Tax Reform for Acceleration and Inclusion (TRAIN) law, was passed on Dec. 19, 2017. This law amended certain provisions of the old tax law, the National Internal Revenue Code (NIRC). Section 6 of the TRAIN law amended Section 25 of the NIRC, which pertains to the entitlement of employees of certain qualified companies to a fifteen percent (15%) preferential tax rate.
The TRAIN Law added a subsection to Section 25 of the NIRC, which provided that regional headquarters (RHQs), regional operating headquarters (ROHQs), offshore banking units (OBUs) or petroleum service contractors and subcontractors registering with the Securities and Exchange Commission (SEC) after Jan. 1, 2018 would no longer be eligible to avail of the preferential tax rate. This Section ended with the proviso which stated, “Provided, however, That existing RHQs/ROHQs, OBUs or petroleum service contractors and subcontractors presently availing of preferential tax rates for qualified employees shall continue to be entitled to avail of the preferential tax rate for present and future qualified employees.”
President Rodrigo Duterte vetoed certain provisions of the TRAIN law including the proviso under the proposed Section 25 (F). In his veto message, the President explained that the proviso violates the “Equal Protection Clause under Section 1, Article III of the 1987 Constitution, as well as the rule of equity and uniformity in the application of the burden of taxation.”
However, in the same veto message, he also states, “Given the significant reduction in the personal income tax, the employees of these firms should follow the regular tax rates applicable to other individual taxpayers.”
The Bureau of Internal Revenue has interpreted this to mean the complete withdrawal of the preferential tax rate, regardless of the date of registration of the RHQ, ROHQ, OBU, etc. with the SEC.
However, there is a contrary interpretation that the intention of the President was only to remove the proviso, and not the preferential rate altogether. This would mean that only future qualified employees are prohibited from availing of the preferential tax rate, but present qualified employees may still avail of such rate. Indeed, when only a part of the law is amended or declared unconstitutional, the rest of the law stands and is enforceable. The same may hold true for an item veto.
In the end, the proper understanding would be best determined by the judiciary department, in exercise of its power to interpret laws. The court with appropriate jurisdiction has the authority to rule on what the law should actually be, based on principles of law.
These circumstances exhibit the confluence of the three branches and the roles that all of them play in order to pass laws in the land. The principles of separation of powers and checks and balances maintain the stability and efficiency that our government still holds today.