HULAR// LOC GOV That when such national agency fails to act on the (a) The President, or his
s to act on the (a) The President, or his duly authorized
FISCAL AUTONOMY AND LOCAL
SOURCES OF FUNDS
1. SOURCES OF FUNDS
A. Section 5. Each local government unit shall have
the power to create its own sources of revenues and
to levy taxes, fees and charges subject to such
guidelines and limitations as the Congress may
provide, consistent with the basic policy of local
autonomy. Such taxes, fees, and charges shall
accrue exclusively to the local governments.
Section 6. Local government units shall have a just
share, as determined by law, in the national taxes
which shall be automatically released to them.
Section 7. Local governments shall be entitled to an
equitable share in the proceeds of the utilization and
development of the national wealth within their
respective areas, in the manner provided by law,
including sharing the same with the inhabitants by
way of direct benefits.
B. Section 22 (d) Local government units shall
enjoy full autonomy in the exercise of their
proprietary functions and in the limitations provided
in this Code and other applicable laws.
Section 23. Authority to Negotiate and Secure
Grants. - Local chief executives may, upon
authority of the sanggunian, negotiate and secure
financial grants or donations in kind, in support of
the basic services or facilities enumerated under
Section 17 hereof, from local and foreign assistance
agencies without necessity of securing clearance or
approval therefor from any department, agency, or
office of the national government of from any
higher local government unit: Provided, That
projects financed by such grants or assistance with
national security implications shall be approved by
the national agency concerned: Provided, further,
request for approval within thirty (30) days from
receipt thereof, the same shall be deemed approved.
The local chief executive shall, within thirty (30)
days upon signing of such grant agreement or deed
of donation, report the nature, amount, and terms of
such assistance to both Houses of Congress and the
President.
Section 299. Bonds and Other Long-Term
Securities. - Subject to the rules and regulations of
the Central Bank and the Securities and Exchange
Commission, provinces, cities, and municipalities
are hereby authorized to issue bonds, debentures,
securities, collaterals, notes and other obligations to
finance self-liquidating, income-producing
development or livelihood projects pursuant to the
priorities established in the approved local
development plan or the public investment
program. The sanggunian concerned shall, through
an ordinance approved by a majority of all its
members, declare and state the terms and conditions
of the bonds and the purpose for which the proposed
indebtedness is to be incurred.
Section 300. Inter-Local Government Loans,
Grants, and Subsidies. - Provinces, cities, and
municipalities may, upon approval of the majority
of all members of the sanggunian concerned and in
amounts not exceeding their surplus funds, extend
loans, grants, or subsidies to other local government
units under such terms and conditions as may be
agreed upon by the contracting parties.
Local government units may, upon approval of their
respective sanggunian, jointly or severally contract
loans, credits, and other forms of indebtedness for
purposes mutually beneficial to them.
Section 301. Loans from Funds Secured by the
National Government from Foreign Sources. -
representative, may, through any government
financial or other lending institution, relend to any
province, city, municipality, or barangay, the
proceeds of loans contracted with foreign financial
institutions or other international funding agencies
for the purpose of financing the construction,
installation, improvement, expansion, operation, or
maintenance of public utilities and facilities,
infrastructure facilities, or housing projects, the
acquisition of real property, and the implementation
of other capital investment projects, subject to such
terms and conditions as may be agreed upon by the
President and the local government unit. The
proceeds from such loans shall accrue directly to the
local government concerned.
(b) The President may likewise authorize the
relending to local government units the proceeds of
grants secured from foreign sources, subject to the
provisions of existing laws and the applicable grant
agreements. (c) Repayment or amortization of loans
including accrued interest thereon, may be financed
partly from the income of the projects or services
and from the regular income of the local
government unit, which must be provided for and
appropriated regularly in its annual budget until the
loan and the interest thereon shall have been fully
paid.
2. FISCAL AUTONOMY
A. Local governments have the power to create their
own sources of revenue in addition to their equitable
share in the national taxes released by the national
government as well as the power to allocate their
resources in accordance with their own priorities
The national government is not given any authority
to interfere with the way the resources of an lgu
shall be spent. No statute can ever be passed
mandating the manner by which local funds should
be spent, but still subject to guidelines and
limitations
B. RELATE TO LOCAL AUTONOMY.
What are the reasons why congress retains the
power to provide guidelines and limitations?
The legislature must still see to it that the taxpayer
will not be overburdened or saddled with multiple
and unreasonable impositions
C. PROVINCE OF BATANGAS VS. ROMULO
FACTS:
In 1998, then President Estrada issued EO No. 48
establishing the Program for Devolution
Adjustment and Equalization to enhance the
capabilities of LGUs in the discharge of the
functions and services devolved to them through the
LGC.
The Oversight Committee under Executive
Secretary Ronaldo Zamora passed Resolutions No.
OCD-99-005, OCD-99-006 and OCD-99-003
which were approved by Pres. Estrada on October
6, 1999. The guidelines formulated by the Oversight
Committee required the LGUs to identify the
projects eligible for funding under the portion of
LGSEF and submit the project proposals and other
requirements to the DILG for appraisal before the
Committee serves notice to the DBM for the
subsequent release of the corresponding funds.
Hon. Herminaldo Mandanas, Governor of
Batangas, petitioned to declare unconstitutional and
void certain provisos contained in the General
Appropriations Acts (GAAs) of 1999, 2000, and
2001, insofar as they uniformly earmarked for each
corresponding year the amount of P5billion for the
Internal Revenue Allotment (IRA) for the Local
Government Service Equalization Fund (LGSEF) &
imposed conditions for the release thereof.
ISSUE:
Whether the assailed provisos in the GAAs of 1999,
2000, and 2001, and the OCD resolutions infringe
the Constitution and the LGC of 1991.
HELD:
Yes. The assailed provisos in the GAAs of 1999,
2000, and 2001, and the OCD resolutions constitute
a withholding of a portion of the IRA they
effectively encroach on the fiscal autonomy enjoyed
by LGUs and must be struck down.
According to Art. II, Sec.25 of the Constitution,
the State shall ensure the local autonomy of local
governments. Consistent with the principle of local
autonomy, the Constitution confines the Presidents
power over the LGUs to one of general supervision,
which has been interpreted to exclude the power of
control. Drilon v. Lim distinguishes supervision
from control: control lays down the rules in the
doing of an act the officer has the discretion to
order his subordinate to do or redo the act, or decide
to do it himself; supervision merely sees to it that
the rules are followed but has no authority to set
down the rules or the discretion to modify/replace
them.
The entire process involving the distribution &
release of the LGSEF is constitutionally
impermissible. The LGSEF is part of the IRA or
just share of the LGUs in the national taxes.
Sec.6, Art.X of the Constitution mandates that the
just share shall be automatically released to the
LGUs. Since the release is automatic, the LGUs
arent required to perform any act to receive the
just share it shall be released to them without
need of further action. To subject its distribution &
release to the vagaries of the implementing rules &
regulations as sanctioned by the assailed provisos in
the GAAs of 1999-2001 and the OCD Resolutions
would violate this constitutional mandate.
The only possible exception to the mandatory
automatic release of the LGUs IRA is if the national
internal revenue collections for the current fiscal
year is less than 40% of the collections of the 3rd
preceding fiscal year. The exception does not apply
in this case.
The Oversight Committees authority is limited to
the implementation of the LGC of 1991 not to
supplant or subvert the same, and neither can it
exercise control over the IRA of the LGUs.
Congress may amend any of the provisions of the
LGC but only through a separate law and not
through appropriations laws or GAAs. Congress
cannot include in a general appropriations bill
matters that should be more properly enacted in a
separate legislation.
A general appropriations bill is a special type of
legislation, whose content is limited to specified
sums of money dedicated to a specific purpose or a
separate fiscal unit any provision therein which is
intended to amend another law is considered an
inappropriate provision. Increasing/decreasing
the IRA of LGUs fixed in the LGC of 1991 are
matters of general & substantive law. To permit the
Congress to undertake these amendments through
the GAAs would unduly infringe the fiscal
autonomy of the LGUs.
The value of LGUs as institutions of democracy is
measured by the degree of autonomy they enjoy.
Our national officials should not only comply with
the constitutional provisions in local autonomy but
should also appreciate the spirit and liberty upon
which these provisions are based.
D. PIMENTEL VS AGUIRRE
The President cannot order the withholding of 10%
of the lgus internal revenue allotments. This
encroaches on the fiscal autonomy of local
government and violates the consti and the lgc.
ISSUE: Whether AO 372 of President Ramos which
withholds10% of lgus IRA is valid
Section 4 of AO 372 cannot, however, be upheld.
A basic feature of local fiscal autonomy is the
automatic release of the shares of LGUs in the
national internal revenue. This is mandated by no
less than the Constitution. The Local Government
Code specifies further that the release shall be made
directly to the LGU concerned within five (5) days
after every quarter of the year and "shall not be
subject to any lien or holdback that may be imposed
by the national government for whatever purpose."
Asa rule, the term "shall" is a word of command that
must be given a compulsory meaning. The
provision is, therefore, imperative.
Section 4 of AO 372, however, orders the
withholding, effective January 1, 1998, of 10
percent of the LGUs' IRA "pending the assessment
and evaluation by the Development Budget
Coordinating Committee of the emerging fiscal
situation" in the country. Such withholding clearly
contravenes the Constitution and the law. Although
temporary, it is equivalent to a hold back, which
means "something held back or withheld, often
temporarily." Hence, the "temporary" nature of the
retention by the national government does not
matter. Any retention is prohibited.
In sum, while Section 1 of AO 372 may be upheld
as an advisory effected in times of national crisis,
Section 4 thereof has no color of validity at all. The
latter provision effectively encroaches on the fiscal
autonomy of local governments. Concededly, the
President was well-intentioned in issuing his Order
to withhold the LGUs IRA, but the rule of law
requires that even the best intentions must be carried
out within the parameters of the Constitution and
the law. Verily, laudable purposes must be carried
out by legal methods.
Respondents and their successors are hereby
permanently PROHIBITED from implementing
Administrative Order Nos. 372and 43 insofar as
local government units are concerned.
E. CONSEQUENCES OF FISCAL
AUTONOMY
1. DADOLE VS COA
FACTS: Acting on the DBM's Local Budget
Circular No. 55, the Mandaue City Auditor issued
notices of disallowances to RTC and MTC Judges,
in excess of the amount (maximum of P1000 and
P700 in provinces and cities and municipalities,
respectively) authorized by said circular. The
additional monthly allowances of the judges shall
be reduced to P1000 each. They were also asked to
reimbursed the amount they received in excess of
P1000 from the last six months.
ISSUE: Whether or not Local Budget Circular No.
55 void for going beyond the supervisory powers of
the President.
RULING: Yes. Although the Constitution
guarantees autonomy to local government units, the
exercise of local autonomy remains subject to the
power of control by Congress and the power of
supervision by the President. Sec 4 Art X of 1987
Constitution: "The President of the Philippines shall
exercise general supervision over local
governments. x x x" The said provision has been
interpreted to exclude the power of control.
The members of the Cabinet and other executive
officials are merely alter egos of the President. As
such, they are subject to the power of control of the
President; he will see to it that the local
governments or their officials were performing their
duties as provided by the Constitution and by
statutes, at whose will and behest they can be
removed from office; or their actions and decisions
changed, suspended or reversed. They are subject to
the President's supervision only, not control, so long
as their acts are exercised within the sphere of their
legitimate powers. The President can only interfere
in the affairs and activities of a LGU if he or she
finds that the latter has acted contrary to law. This
is the scope of the President's supervisory powers
over LGUs
2. PHILRECA v. Secretary of Interior and Local
Government
FACTS: This is a petition for Prohibition under
Rule 65 of the Rules of Court with prayer for the
issuance of a temporary restraining order seeking to
annul as unconstitutional sections 193 and 234 of
R.A. No. 7160 otherwise known as the Local
Government Code. A class suit was filed by
petitioners in their own behalf and in behalf of other
electric cooperatives organized and existing under
P.D. No. 269 who are members of petitioner
Philippine Rural Electric Cooperatives Association,
Inc. (PHILRECA). Petitioners contend that
pursuant to the provisions of P.D. No. 269, as
amended, and the provision in the loan agreements
of the government of the Philippines with the
government of the United State of America, they are
exempt from payment of local taxes, including
payment of real property tax. With the passage of
the Local Government Code, however, they allege
that their tax exemptions have been invalidly
withdrawn. In particular, petitioners assail Sections
193 and 234 of the Local Government Code on the
ground that the said provisions discriminate against
them, in violation of the equal protection clause.
Further, they submit that the said provisions are
unconstitutional because they impair the obligation
of contracts between the Philippine Government
and the United States Government.
ISSUE: Did Sections 193 and 234 of the Local
Government Code violate the equal protection
clause?
HELD: NO. The pertinent parts of Sections 193 and
234 of the Local Government Code provide:
Section 193. Withdrawal of Tax Exemption
Privileges. Unless otherwise provided in this Code,
tax exemptions or incentives granted to, or presently
enjoyed by all persons, whether natural or juridical,
including government-owned and controlled
corporations, except local water districts,
cooperatives duly registered under R.A. No. 6938,
non-stock and non-profit hospitals and educational
institutions, are hereby withdrawn upon the
effectivity of this Code.
Section 234. Exemptions from real property tax.
The following are exempted from payment of the
real property tax:
(d) All real property owned by duly registered
cooperatives as provided for under R.A. No. 6938;
and
Except as provided herein, any exemption from
payment of real property tax previously granted to,
or presently enjoyed by, all persons whether natural
or juridical, including all government-owned and
controlled corporations are hereby withdrawn upon
effectivity of this Code.
Petitioners argue that the above provisions of the
Local Government Code are unconstitutional for
violating the equal protection clause. Allegedly,
said provisions unduly discriminate against
petitioners who are duly registered cooperatives
under P.D. No. 269, as amended, and not under R.A.
No. 6938 or the Cooperative Code of the
Philippines. The Court holds taht there is reasonable
classification under the Local Government Code to
justify the different tax treatment between electric
cooperatives covered by P.D. No. 269, as amended,
and electric cooperatives under R.A. No. 6938.
First, substantial distinctions exist between
cooperatives under P.D. No. 269, as amended, and
cooperatives under R.A. No. 6938 on two material
points, to wit 1) the capital contributions of the
members, and 2) the extent of government control
over cooperatives. Second, the classification of tax-
exempt entities in the Local Government Code is
germane to the purpose of the law. The
Constitutional mandate that every local government
unit shall enjoy local autonomy, does not mean that
the exercise of power by local governments is
beyond regulation by Congress. Thus, while each
government unit is granted the power to create its
own sources of revenue, Congress, in light of its
broad power to tax, has the discretion to determine
the extent of the taxing powers of local government
units consistent with the policy of local autonomy.
Section 193 of the Local Government Code is
indicative of the legislative intent to vest broad
taxing powers upon local government units and to
limit exemptions from local taxation to entities
specifically provided therein. Section 193 provides:
Section 193. Withdrawal of Tax Exemption
Privileges. Unless otherwise provided in this Code,
tax exemptions or incentives granted to, or presently
enjoyed by all persons, whether natural or juridical,
including government-owned and controlled
corporations, except local water districts,
cooperatives duly registered under R.A. No. 6938,
non-stock and non-profit hospitals and educational
institutions, are hereby withdrawn upon the
effectivity of this Code.
The above provision effectively withdraws
exemptions from local taxation enjoyed by various
entities and organizations upon effectivity of the
Local Government Code except for a) local water
districts; b) cooperatives duly registered under R.A.
No. 6938; and c) non-stock and non-profit hospitals
and educational institutions.
Further, petitioners argue that as beneficiaries of the
loan proceeds all the assets of petitioners, such as
lands, buildings, distribution lines acquired through
the proceeds of the Loan Agreements are tax
exempt. The Court holds otherwise. A plain reading
of the provision readily shows that it does not grant
any tax exemption in favor of the borrower or the
beneficiary either on the proceeds of the loan itself
or the properties acquired through the said loan. It
simply states that the loan proceeds and the
principal and interest of the loan, upon repayment
by the borrower, shall be without deduction of any
tax or fee that may be payable under Philippine law
as such tax or fee will be absorbed by the borrower
with funds other than the loan proceeds.
3. NPC v. City of Cabanatuan
Facts: NPC, a GOCC, created under CA 120 as
amended, selling electric power, was assessed by
the City of Cabanatuan for franchise tax pursuant to
sec. 37 of Ordinance No. 165-92. NPC refused to
pay the tax assessment on the grounds that the City
of Cabanatuan has no authority to impose tax on
government entities and also that it is exempted as
a non-profit organization. For its part, the City
government alleged that NPCs exemption from
local taxes has been repealed by sec. 193 of RA
7160.
Issue: Whether NPC is liable to pay an annual
franchise tax to the City government
Held: One of the most significant provisions of the
LGC is the removal of the blanket exclusion of
instrumentalities and agencies of the national
government from the coverage of local taxation.
Although as a general rule, LGUs cannot impose
taxes, fees or charges of any kind on the National
Government, its agencies and instrumentalities, this
rule now admits an exception, i.e., when specific
provisions of the LGC authorize the LGUs to
impose taxes, fees or charges on the aforementioned
entities.
As commonly used, a franchise tax is "a tax on the
privilege of transacting business in the state and
exercising corporate franchises granted by the
state." It is not levied on the corporation simply for
existing as a corporation, upon its property or its
income, but on its exercise of the rights or privileges
granted to it by the government. Hence, a
corporation need not pay franchise tax from the time
it ceased to do business and exercise its franchise. It
is within this context that the phrase "tax on
businesses enjoying a franchise" in section 137 of
the LGC should be interpreted and understood.
Verily, to determine whether the petitioner is
covered by the franchise tax in question, the
following requisites should concur: (1) that
petitioner has a "franchise" in the sense of a
secondary or special franchise; and (2) that it is
exercising its rights or privileges under this
franchise within the territory of the respondent city
government
NPC fulfills both requisites. To stress, a franchise
tax is imposed based not on the ownership but on
the exercise by the corporation of a privilege to do
business. The taxable entity is the corporation
which exercises the franchise, and not the individual
stockholders. By virtue of its charter, petitioner was
created as a separate and distinct entity from the
National Government. It can sue and be sued under
its own name, and can exercise all the powers of a
corporation under the Corporation Code.
We also do not find merit in the petitioner's
contention that its tax exemptions under its charter
subsist despite the passage of the LGC.
As a rule, tax exemptions are construed strongly
against the claimant. Exemptions must be shown to
exist clearly and categorically, and supported by
clear legal provisions. In the case at bar, the
petitioner's sole refuge is section 13 of Rep. Act No.
6395 exempting from, among others, "all income
taxes, franchise taxes and realty taxes to be paid to
the National Government, its provinces, cities,
municipalities and other government agencies and
instrumentalities."
It is worth mentioning that section 192 of the LGC
empowers the LGUs, through ordinances duly
approved, to grant tax exemptions, initiatives or
reliefs.77 But in enacting section 37 of Ordinance
No. 165-92 which imposes an annual franchise tax
"notwithstanding any exemption granted by law or
other special law," the respondent city government
clearly did not intend to exempt the petitioner from
the coverage thereof.
Doubtless, the power to tax is the most effective
instrument to raise needed revenues to finance and
support myriad activities of the local government
units for the delivery of basic services essential to
the promotion of the general welfare and the
enhancement of peace, progress, and prosperity of
the people. As this Court observed in the Mactan
case, "the original reasons for the withdrawal of tax
exemption privileges granted to government-owned
or controlled corporations and all other units of
government were that such privilege resulted in
serious tax base erosion and distortions in the tax
treatment of similarly situated enterprises." With
the added burden of devolution, it is even more
imperative for government entities to share in the
requirements of development, fiscal or otherwise,
by paying taxes or other charges due from them.
"IN VIEW WHEREOF, the instant petition is
DENIED and the assailed Decision and Resolution
of the Court of Appeals dated March 12, 2001 and
July 10, 2001, respectively, are hereby
AFFIRMED."
4. REYES VS SAN PABLO CITY
Facts: Act 3648 granted the Escudero Electric
Service Company a legislative franchise to maintain
and operate an electric light and power system in the
city of San Pablo and nearby municipalities. Section
10 of said act provides:
In consideration of the franchise and rights hereby
granted, the grantee shall pay unto the municipal
treasury of each municipality in which it is
supplying electric current to the public under this
franchise, a tax equal to two percentum of the gross
earning from electric current sold or supplied under
this franchise in each said municipality. Said tax
shall be due and payable quarterly and shall be in
lieu of any and all taxes of any kind nature or
description levied, established or collected by any
authority whatsoever, municipal, provincial or
insular, now or in the future, or its pole wires,
insulator, switches, transformers, and structures,
installations, conductors and accessories placed in
and over and under all public property, including
public streets and highways, provincial roads,
bridges and public squares, and on its franchises,
rights, privileges, receipts, revenues and profits
from which taxes the grantee is hereby expressly
exempted.
Escuderos franchise was transferred to the plaintiff
MERALCO under RA 2340.
On October 5, 1992, the sangguniang panlungsod of
San Pablo City enacted ordinance no. 56 otherwise
known as the Revenue Code of the City of San
Pablo. Pursuant to sec 2.09 article D of the said
ordinance, the petitioner city treasurer sent to
private respondent a letter demanding payment of
the aforesaid franchise tax.
Issue: Whether or not the city of San Pablo may
impose a local franchise tax to MERALCO.
Held: Yes. A general law cannot be construed to
have repealed a special law by mere implication
unless the intent to repeal or alter is manifest and it
must be convincingly demonstrated that the two
laws are so clearly repugnant and patently
inconsistent that they cannot co-exist.
It is our view that petitions correctly rely on the
provisions of sections 137 and 193 of the LGC to
support their position that MERALCOs tax
exemption has been withdrawn. The explicit
language of section 137 which authorizes the
province to impose franchise tax not withstanding
any exemption granted by law or other special law
is all encompassing and clear. The franchise is
imposable despite any exemption enjoyed under
special law.
Sec 193 buttresses the withdrawal of extant tax
exemption privileges. By stating that unless
otherwise provided in this code, tax exemptions or
incentives granted to or presently enjoyed all
persons whether natural or juridical, including
GOCCs except: 1.) local water districts; 2.)
Cooperatives duly registered under RA 6938; 3.)
Non-stock and non-profit hospitals and education
institutions, are withdrawn upon the effectivity of
this code, the obvious import is to limit the
exemptions to the 3 enumerated entities. It is a basic
precept of statutory construction that the express
mention of one person, thing, act or consequences
excludes all others as expressed in the familiar
maxim expressio unius est exclusio alterus. In the
absence of any provision of the code to the contrary,
and we find no other provision in point, any existing
tax exemption or incentive enjoyed by the
MERALCO under the existing law was clearly
intended to be withdrawn.
Reading together section 193 and 137 of the LGC
conclude that under the LGC, the local government
unit may now impose a local tax at a rate not
excluding 50% of 1% of the gross annual receipts
for the preceding calendar year based on the
incoming receipts realized within its territorial
jurisdiction. The legislative purpose to withdraw tax
privilege only enjoy and an existing law or charter
is clearly manifested by the language used in
sections 137 and 193 categorically withdrawing
such exemption subject only to the exceptions
enumerated. Since it would be not only tedious and
impractical to attempt to enumerate all the existing
statutes providing for special tax exemptions or
privileges, the LGC provided for an express, albeit
general withdrawal of such exemptions or
privileges. No more unequivocal language could
have been used.
It is true that the phrase in lieu of all taxes found
in special franchises has been held in several cases
to exempt the franchise holder from payment of tax
on its corporate franchise imposed of the internal
revenue code, as the charter is in the nature of a
private contract and the exemption is part of the
inducement for the acceptance of the franchise, and
that the imposition of another franchise tax by the
local authority would constitute an impairment of
contract between the government and the
corporation. But these magic words contained in
the phrase shall be in lieu of all taxes have to give
way to the premptory language of the LGC
specifically providing for the withdrawal of such
exemption privileges.
3. INTERNAL REVENUE ALLOTMENT
A. Section 6. Local government units shall have a
just share, as determined by law, in the national
taxes which shall be automatically released to them.
B. SECTION 284. Allotment of Internal Revenue
Taxes. - Local government units shall have a share
in the national internal revenue taxes based on the
collection of the third fiscal year preceding the
current fiscal year as follows:
(a) On the first year of the effectivity of this Code,
thirty percent (30%);
(b) On the second year, thirty-five percent (35%);
and
(c) On the third year and thereafter, forty percent
(40%). Provided,
That in the event that the national government
incurs an unmanageable public sector deficit, the
President of the Philippines is hereby authorized,
upon the recommendation of Secretary of Finance,
Secretary of Interior and Local Government and
Secretary of Budget and Management, and subject
to consultation with the presiding officers of both
Houses of Congress and the presidents of the liga,
to make the necessary adjustments in the internal
revenue allotment of local government units but in
no case shall the allotment be less than thirty percent
(30%) of the collection of national internal revenue
taxes of the third fiscal year preceding the current
fiscal year: Provided, further That in the first year
of the effectivity of this Code, the local government
units shall, in addition to the thirty percent (30%)
internal revenue allotment which shall include the
cost of devolved functions for essential public
services, be entitled to receive the amount
equivalent to the cost of devolved personal services.
SECTION 285. Allocation to Local Government
Units. - The share of local government units in the
internal revenue allotment shall be allocated in the
following manner:
(a) Provinces - Twenty-three percent (23%);
(b) Cities - Twenty-three percent (23%);
(c) Municipalities - Thirty-four percent (34%); and
(d) Barangays - Twenty percent (20%) Provided,
however, That the share of each province, city, and
municipality shall be determined on the basis of the
following formula:
(a) Population - Fifty percent (50%);
(b) Land Area - Twenty-five percent
(25%); and
(c) Equal sharing - Twenty-five percent
(25%)
Provided, further, That the share of each Barangay
with a population of not less than one hundred (100)
inhabitants shall not be less than Eighty thousand
pesos (P=80,000.00) per annum chargeable against
the twenty percent (20%) share of the Barangay
from the internal revenue allotment, and the balance
to be allocated on the basis of the following
formula:
(a) On the first year of the effectivity of this Code:
(1) Population - Forty percent (40%); and
(2) Equal Sharing - Sixty percent (60%)
(b) On the second year:
(1) Population - Fifty percent (50%); and
(2) Equal Sharing - Fifty percent (50%)
(c) On the third year and thereafter:
(1) Population - Sixty percent (60%); and
(2) Equal Sharing - Forty percent (40%).
Provided, finally, That the financial requirements of
Barangays created by local government units after
the effectivity of this Code shall be the
responsibility of the local government unit
concerned.
SECTION 286. Automatic Release of Shares. - (a)
The share of each local government unit shall be
released, without need of any further action, directly
to the provincial, city, municipal or Barangay
treasurer, as the case may be, on a quarterly basis
within five (5) days after the end of each quarter,
and which shall not be subject to any lien or
holdback that may be imposed by the national
government for whatever purpose.
(b) Nothing in this Chapter shall be understood to
diminish the share of local government units under
existing laws
C. ALVAREZ VS GUINGONA
Internal Revenue Allotments(IRAs) should be
included in the computation of the average annual
income of the municipality. If you look at the
criterion income, it has to be based on income that
accrues to the general fund, that is therefore
regularly received by the lgu, so this excludes
special funds, trust funds, transfers and non-
recurring income. IRA is regularly accruing to the
general fund, in fact, it is regularly released and
automatically released to the lgus.
But under RA 9009, it is specifically provided that
for conversion to cities, the municipalitys income
should not include the IRA.
D. OFFICE OF THE OMBUDSMAN vs. CIVIL
SERVICE COMMISSION
Facts: It appears that Carandang and Clemente
were in the meantime conferred with CSE
Eligibility pursuant to CSC Resolution No. 03-0665
dated June 6, 2003.Petitioner subsequently
reclassified several positions by Resolution No. 02-
03 dated August 18, 2003 including Graft
Investigation Officer III which was reclassified to
Graft Investigation and Prosecution Officer III. The
Ombudsman thereupon requested the approval of
the proposed Qualification Standards for the
reclassified positions. With respect to the
reclassified Graft Investigation and Prosecution
Officer III position, the Qualification Standards
were the same as those for Graft Investigation
Officer III.Subsequently, the CSC, by the
challenged Resolution of August 28, 2003, changed
the status of Carandangs and Clementes
appointments to permanent effective June 6, 2003,
but not with respect to De Jesus on the ground that
he has not met the eligibility requirements.
Issue: Wether or not that there are independent
offices specifically authorized by the constitution to
appoint their officials ,does this imply that their
appointment will not be subject to civil service law
and rules?
Ruling: WHEREFORE, the petition is hereby
GRANTED. Resolution No. 030919 of the Civil
Service Commission dated August 28, 2003 is
hereby SET ASIDE. The appointment of Jose
Tereso U. de Jesus, Jr., as well as those of Melchor
Arthur H. Carandang, Paul Elmer M. Clemente, is
hereby ordered made permanent effective
December 18, 2002.
4. SHARE IN NATIONAL WEALTH
PROCEEDS
A. Section 7. Local governments shall be entitled to
an equitable share in the proceeds of the utilization
and development of the national wealth within their
respective areas, in the manner provided by law,
including sharing the same with the inhabitants by
way of direct benefits.
B. SECTION 290. Amount of Share of Local
Government Units. - Local government units shall,
in addition to the internal revenue allotment, have a
share of forty percent (40%) of the gross collection
derived by the national government from the
preceding fiscal year from mining taxes, royalties,
forestry and fishery charges, and such other taxes,
fees, or charges, including related surcharges,
interests, or fines, and from its share in any co-
production, joint venture or production sharing
agreement in the utilization and development of the
national wealth within their territorial jurisdiction.
SECTION 291 . Share of the Local Governments
from any Government Agency or -Owned and -
Controlled Corporation. - Local government units
shall have a share based on the preceding fiscal year
from the proceeds derived by any government
agency or government-owned or - controlled
corporation engaged in the utilization and
development of the national wealth based on the
following formula whichever will produce a higher
share for the local government unit: (a) One percent
(1%) of the gross sales or receipts of the preceding
calendar year; or (b) Forty percent (40%) of the
mining taxes, royalties, forestry and fishery charges
and such other taxes, fees or charges, including
related surcharges, interests, or fines the
government agency or government -owned or -
controlled corporation would have paid if it were
not otherwise exempt.
SECTION 292. Allocation of Shares. - The share in
the preceding Section shall be distributed in the
following manner:
(a) Where the natural resources are located in the
province
(1) province - Twenty percent (20%);
(2) Component city/municipality - Forty-
five percent (45%); and
(3) Barangay - Thirty-five percent (35%)
Provided, however, That where the natural
resources are located in two (2) or more provinces,
or in two (2) or more component cities or
municipalities or in two (2) or more Barangays,
their respective shares shall be computed on the
basis of:
(1) Population - Seventy percent (70%);
and
(2) Land area - Thirty percent (30%).
(b) Where the natural resources are located in a
highly urbanized or independent component city:
(1) city - Sixty-five percent (65%); and
(2) Barangay - Thirty-five percent (35%)
Provided, however, That where the natural
resources are located in such two (2) or more cities,
the allocation of shares shall be based on the
formula on population and land area as specified in
paragraph (a) of this Section.
5. POWER OF TAXATION
A. Section 5. Each local government unit shall have
the power to create its own sources of revenues and
to levy taxes, fees and charges subject to such
guidelines and limitations as the Congress may
provide, consistent with the basic policy of local
autonomy. Such taxes, fees, and charges shall
accrue exclusively to the local governments
B. MCIAA (MACTAN CEBU
INTERNATIONAL AIRPORT AUTHORITY)
VS MARCOS
Hence, the tax exemptions from RPT granted to
MCIAA under its charter had been withdrawn upon
the effectivity of the LGC of 1991 under Sec. 234;
(Thus, theres a need for a new law granting tax
exemption privilege in order to enjoy such
privilege)
MCIAA cannot invoke the Basco ruling that LGUs
cannot tax instrumentalities of the national
government because the Basco case was decided
before the effectivity of the LGC of 1991
C. SECTION 186. Power To Levy Other Taxes,
Fees or Charges. - Local government units may
exercise the power to levy taxes, fees or charges on
any base or subject not otherwise specifically
enumerated herein or taxed under the provisions of
the National Internal Revenue Code, as amended, or
other applicable laws: Provided, That the taxes,
fees, or charges shall not be unjust, excessive,
oppressive, confiscatory or contrary to declared
national policy: Provided, further, That the
ordinance levying such taxes, fees or charges shall
not be enacted without any prior public hearing
conducted for the purpose.
D. In Smart Communications Inc. v.
Municipality of Malvar, Batangas, the Supreme
Court explained that if the purpose of a local
government imposition is to regulate an activity, the
same shall not be considered a tax.
Smart Communications, Inc. (Smart) is a domestic
corporation engaged in the business of providing
telecommunications services to the general public.
In the course of its business, Smart constructed a
telecommunications tower within the territorial
jurisdiction of the Municipality of Malvar, Batangas
(Malvar).
Malvar passed Ordinance No. 18 entitled An
Ordinance Regulating the Establishment of Special
Projects. Thereafter, Smart received from the
Permit and Licensing Division of Malvar an
assessment letter for the construction of its
telecommunications tower.
Smart challenged the validity of said ordinance
upon which the assessment was based, arguing that
the fees imposed under the ordinance are actually
taxes since they are not regulatory, but revenue-
raising. In affirming the validity of the ordinance,
the Supreme Court explained that consistent with
the constitutional mandate, the Local Government
Code(LGC) grants municipalities the power to levy
taxes, fees and charges not otherwise levied by
provinces. Section 147 of the same law, allows
municipalities to impose and collect such
reasonable fees and charges on business and
occupation and on the practice of any profession or
calling, commensurate with the cost of regulation,
inspection and licensing before any person may
engage in such business or occupation, or practice
such profession or calling.
Under the LGC, the term charges refer to
pecuniary liability, as rents or fees against persons
or property, while the term fee means a charge
fixed by law or ordinance for the regulation or
inspection of a business or activity.
The High Tribunal pointed out that in the whereas
clauses of the assailed ordinance, the primary
purpose is to regulate the placing, stringing,
attaching, installing, repair and construction of all
gas mains, electric, telegraph and telephone wires,
conduits, meters and other apparatus listed therein,
which included telecommunications tower.
Evidently, the purpose of the ordinance is to
regulate the enumerated activities particularly
related to the construction and maintenance of
various structures. Thus, the fees in the ordinance
are not impositions on the building or structure itself
but on the activity subject of government regulation,
such as the installation and construction of the
structures.
The Court ruled that since the main purpose of the
ordinance is to regulate certain construction
activities of the identified special projects, which
included cell sites or telecommunications towers,
the fees imposed in the Ordinance are primarily
regulatory in nature, and not primarily revenue-
raising. While the fees may contribute to the
revenues of the Municipality, this effect is merely
incidental.
The Supreme Court reiterated its ruling in Victorias
Milling Co., Inc. v. Municipality of Victorias (134
Phil. 180 [1968]) that the purpose and effect of the
imposition determine whether it is a tax or a fee, and
that the lack of any standards for such imposition
gives the presumption that the same is a tax.
Further, the High Court said that, as in the case of
Progressive Development Corporation v. Quezon
City (254 Phil. 635, 643 [1989]), if the generating
of revenue is the primary purpose and regulation is
merely incidental, the imposition is a tax; but if
regulation is the primary purpose, the fact that
incidentally revenue is also obtained does not make
the imposition a tax.
E. National Power Corporation v Provincial
Government of Bataan
On March 28, 2003 petitioner National Power
Corporation (NPC) received a notice of franchise
tax delinquency from the respondent Provincial
Government of Bataan (the Province) for P45.9
million covering the years 2001, 2002, and 2003.
The Province based its assessment on the NPCs
sale of electricity that it generated from two power
plants in Bataan.
Rather than pay the tax or reject it, the NPC chose
to reserve its right to contest the computation
pending the decision of the Supreme Court in
National Power Corporation v. City of
Cabanatuan,1 a case where the issue of the NPCs
exemption from the payment of local franchise tax
was then pending.
On May 12 and 14, 2003 the Province again sent
notices of tax due to the NPC, calling its attention
to the Courts Decision in National Power
Corporation v. City of Cabanatuan that held the
NPC liable for the payment of local franchise tax.
The NPC replied, however, that it had ceased to be
liable for the payment of that tax after Congress
enacted Republic Act (R.A.) 9136, also known as
the Electric Power Industry Reform Act (EPIRA)
that took effect on June 26, 2001. The new law
relieved the NPC of the function of generating and
supplying electricity beginning that year.
Consequently, the Province has no right to further
assess it for the 2001, 2002, and 2003 local
franchise tax.
Ignoring the NPCs view, the Province issued a
"Warrant of Levy" on 14 real properties that it used
to own in Limay, Bataan. In March 2004 the
Province caused their sale at public auction with
itself as the winning bidder. Shortly after, the NPC
received a copy of the Certificate of Sale of Real
Property covering the auctioned properties for
P60,477,285.22, the amount of its franchise tax
delinquency.
On July 7, 2004 the NPC filed with the Regional
Trial Court (RTC) of Mariveles, Bataan, a petition
for declaration of nullity of the foreclosure sale with
prayer for preliminary mandatory injunction against
the Province, the provincial treasurer, and the
Sangguniang Panlalawigan.
The NPC alleged that the foreclosure had no legal
basis since R.A. 7160 which authorized the
collection of local franchise tax had been modified
by the EPIRA. The latter law provided that power
generation is not a public utility operation requiring
a franchise, hence, not taxable. What remains
subject to such tax is the business of transmission
and distribution of electricity since these required a
national franchise. As it happened, NPC had ceased
by operation of the EPIRA in 2001 to engage in
power transmission, given that all its facilities for
this function, including its nationwide franchise,
had been transferred to the National Transmission
Corporation (TRANSCO).
Thus, the NPC asked the RTC to issue a preliminary
injunction, enjoining the transfer of title and the sale
of the foreclosed lands to Bataan and, after trial, to
make the injunction permanent, declare NPC
exempt from the local franchise tax and annul the
foreclosure sale.
On November 3, 2005 the RTC dismissed the
NPCs petition, stating that the franchise tax was
not based on ownership of property but on the
NPCs exercise of the privilege of doing business
within Bataan. Further, the NPC presented no
evidence that it had ceased to operate its power
plants in that jurisdiction.
The NPC appealed the RTC Decision to the Court
of Appeals (CA) but the Province moved to dismiss
the same for lack of jurisdiction of that court over
the subject matter of the case. The Province pointed
out that, although the NPC denominated its suit
before the RTC as one for declaration of nullity of
foreclosure sale, it was essentially a local tax case
questioning the validity of the Provinces
imposition of the local franchise tax. Any appeal
from the action should, therefore, be lodged with the
Court of Tax Appeals (CTA). On November 27,
2007 the CA granted the Provinces motion and
dismissed the petition on the ground cited.
Issue: The issue in this case is whether or not the
CA erred in failing to rule that the NPC no longer
owned or operated the business subject to local
franchise tax and that the Province cannot execute
on former NPC properties that had been taken from
it and transferred to other government corporations.
Ruling of the Court: The RTC found that the NPC
failed to present evidence that it no longer owned or
operated the business subject to local franchise tax
and that the properties the Province levied on did
not belong to it. But proving these things did not
require the presentation of evidence in this case
since these events took place by operation of law,
particularly the EPIRA. Thus, Section 8 of the
EPIRA provides:
SEC. 8. Creation of the National Transmission
Company. There is hereby created a National
Transmission Corporation, hereinafter referred to as
TRANSCO, which shall assume the electrical
transmission function of the National Power
Corporation (NPC), and have the power and
functions hereinafter granted. The TRANSCO shall
assume the authority and responsibility of NPC for
the planning, construction and centralized operation
and maintenance of its high voltage transmission
facilities, including grid interconnections and
ancillary services.
Within six (6) months from the effectivity of this
Act, the transmission and subtransmission facilities
of NPC and all other assets related to transmission
operations, including the nationwide franchise of
NPC for the operation of the transmission system
and the grid, shall be transferred to the TRANSCO.
The TRANSCO shall be wholly owned by the
Power Sector Assets and Liabilities Management
Corporation (PSALM Corp.).
The subtransmission functions and assets shall be
segregated from the transmission functions, assets
and liabilities for transparency and disposal:
Provided, That the subtransmission assets shall be
operated and maintained by TRANSCO until their
disposal to qualified distribution utilities which are
in a position to take over the responsibility for
operating, maintaining, upgrading, and expanding
said assets. All transmission and subtransmission
related liabilities of NPC shall be transferred to and
assumed by the PSALM Corp.
TRANSCO shall negotiate with and thereafter
transfer such functions, assets, and associated
liabilities to the qualified distribution utility or
utilities connected to such subtransmission facilities
not later that two (2) years from the effectivity of
this act or the start of open access, whichever comes
earlier: x x x.