G.R. No. 213860 , July 5, 2022
The Philippine Stock Exchange, Inc., et al., Petitioners, vs. Secretary of Finance, et al., Respondents.

FACTS

Petitioners challenged the validity of Revenue Regulation (RR) No. 1-2014, Revenue Memorandum Circular (RMC) No. 5-14, and Securities and Exchange Commission (SEC) Memorandum Circular No. 10-14. These issuances mandated stockbrokers, dealers, and other financial institutions to submit detailed reports containing the personal information and tax identification numbers (TINs) of all investors, including those earning below the taxable threshold, to the Bureau of Internal Revenue (BIR). The government’s objective was to establish a comprehensive database for monitoring income from the securities market to enhance tax administration.
Petitioners argued that the issuances were invalid for lack of prior notice and hearing, and for violating data privacy rights. They contended these were legislative rules that increased the burden on the governed and should have undergone the required administrative procedures. The government defended the issuances as a valid exercise of its taxation and police powers, necessary for efficient tax collection and the creation of an effective taxpayer database.

ISSUE

Whether the assailed administrative issuances are valid despite the absence of prior notice and hearing, and whether they constitute an infringement on the right to data privacy.

RULING

The Concurring and Dissenting Opinion of Justice Lazaro-Javier voted to grant the petitions and declare the issuances void. The legal logic centers on the nature of the rules and the consequent due process requirements. The opinion characterizes the assailed issuances as legislative in nature because they substantially increase the burden on the governed by imposing new reporting obligations and penalties for non-compliance. Following the Administrative Code and jurisprudence, legislative rules require prior notice, hearing, registration with the UP Law Center, and publication for validity.
The opinion adopts a nuanced, sliding-scale approach to distinguish between legislative and interpretative rules, rejecting a strict pigeonholing. It emphasizes that the substance of a rule, not its nomenclature, determines the required procedure. Here, the issuances created new duties and significantly altered existing practices, thus falling within the legislative category and triggering the due process requirements. The failure to observe these procedural steps rendered the issuances invalid.
On data privacy, the opinion acknowledges the nobility of the government’s objective but finds the procedural lapse fatal. It suggests that compliance with notice and hearing would have allowed stakeholders to be apprised and make necessary adjustments, potentially obviating privacy concerns. While it notes that the Data Privacy Act may exempt processing for the performance of mandated functions of agencies like the BIR, this does not cure the foundational procedural defect. Consequently, the issuances were declared void for violating the Administrative Code.