Mandanas vs. Ochoa, G.R. No. 199802

G.R. No. 199802, JULY 3, 2018

CONGRESSMAN HERMILANDO I. MANDANAS et.al, Petitioners vs.
EXECUTIVE SECRETARY PAQUITO N. OCHOA, JR. et al, Respondents

BERSAMIN, J.:

Facts:

The petitioners challenge the manner in which the just share in the national taxes of the local government units (LGUs) has been computed.

G.R. No. 199802 (Mandanas, et al.) is a special civil action for certiorari, prohibition and mandamus assailing the manner the General Appropriations Act (GAA) for FY 2012 computed the IRA for the LGUs. Mandanas, et al. allege herein that certain collections of NIRTs by the Bureau of Customs (BOC) – specifically: excise taxes, value added taxes (VATs) and documentary stamp taxes (DSTs) – have not been included in the base amounts for the computation of the IRA; that such taxes, albeit collected by the BOC, should form part of the base from which the IRA should be computed because they constituted NIRTs.

In G.R. No. 208488, Congressman Enrique Garcia, Jr., the lone petitioner, seeks the writ of mandamus to compel the respondents thereat to compute the just share of the LGUs on the basis of all national taxes. His petition insists on a literal reading of Section 6, Article X of the 1987 Constitution. He avers that the insertion by Congress of the words internal revenue in the phrase national taxes found in Section 284 of the LGC caused the diminution of the base for determining the just share of the LGUs, and should be declared unconstitutional; that, moreover, the exclusion of certain taxes and accounts pursuant to or in accordance with special laws was similarly constitutionally untenable; that the VATs and excise taxes collected by the BOC should be included in the computation of the IRA; and that the respondents should compute the IRA on the basis of all national tax collections, and thereafter distribute any shortfall to the LGUs.

One of the key features of the 1987 Constitution is its push towards decentralization of government and local autonomy. Local autonomy has two facets, the administrative and the fiscal. Fiscal autonomy means that 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.¹ Such autonomy is as indispensable to the viability of the policy of decentralization as the other.

The share of the LGUs, heretofore known as the Internal Revenue Allotment (IRA), has been regularly released to the LGUs. According to the implementing rules and regulations of the LGC, the IRA is determined on the basis of the actual collections of the National Internal Revenue Taxes (NIRTs) as certified by the Bureau of Internal Revenue (BIR).²

The OSG avers that Article 284 of the LGC is consistent with the mandate of Section 6, Article X of the 1987 Constitution to the effect that the LGUs shall have a just share in the national taxes; that the determination of the just share is within the discretion of Congress; that the limitation under the LGC of the basis for the just share in the NIRTs was within the powers granted to Congress by the 1987 Constitution; that the LGUs have been receiving their just share in the national taxes based on the correct base amount; that Congress has the authority to exclude certain taxes from the base amount in computing the IRA; that there is a distinction between the VATs, excise taxes and DSTs collected by the BIR, on one hand, and the VATs, excise taxes and DSTs collected by the BOC, on the other, thereby warranting their different treatment; and that Development Budget Coordination Committee (DBCC) Resolution No. 2003-02 dated September 4, 2003 has limited the base amount for the computation of the IRA to the “cash collections based on the BIR data as reconciled with the Bureau of Treasury;” and that the collection of such national taxes by the BOC should be excluded.

Issue:

Whether or not the exclusion of certain national taxes from the base amount for the computation of the just share of the LGUs in the national taxes is unconstitutional.

Ruling:

Yes, the exclusion of other national taxes from the base amount for determining the just share of the LGUs contravened the express constitutional edict in Section 6, Article X the 1987 Constitution.

Taxes are the enforced proportional contributions exacted by the State from persons and properties pursuant to its sovereignty in order to support the Government and to defray all the public needs. Every tax has three elements, namely: (a) it is an enforced proportional contribution from persons and properties; (b) it is imposed by the State by virtue of its sovereignty; and (c) it is levied for the support of the Government.

Section 6, Article X the 1987 Constitution textually commands the allocation to the LGUs of a just share in the national taxes. It says that local government units shall have a just share, as determined by law, in the national taxes which shall be automatically released to them.

However, Section 284 of the LGC, Allotment of Internal Revenue Taxes states that 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

There is no issue as to what constitutes the LGUs’ just share expressed in percentages of the national taxes. Yet, Section 6, supra, mentions national taxes as the source of the just share of the LGUs while Section 284 ordains that the share of the LGUs be taken from national internal revenue taxes instead.

What the phrase national internal revenue taxes as used in Section 284 included are all the taxes enumerated in Section 21 of the National Internal Revenue Code (NIRC), as amended by R.A. No. 8424, viz.:

Section 21. Sources of Revenue. – The following taxes, fees and charges are deemed to be national internal revenue taxes:

(a) Income tax;

(b) Estate and donor’s taxes;

(d) Other percentage taxes;

(e) Excise taxes;

(f) Documentary stamp taxes; and

(g) Such other taxes as arc or hereafter may be imposed and collected by the Bureau of Internal Revenue.

In view of the foregoing enumeration of what are the national internal revenue taxes, Section 284 has effectively deprived the LGUs from deriving their just share from other national taxes, like the customs duties.

Strictly speaking, customs duties are also taxes because they are exactions whose proceeds become public funds. According to Garcia v. Executive Secretary, customs duties is the nomenclature given to taxes imposed on the importation and exportation of commodities and merchandise to or from a foreign country. Although customs duties have either or both the generation of revenue and the regulation of economic or social activity as their moving purposes, it is often difficult to say which of the two is the principal objective in a particular instance, for, verily, customs duties, much like internal revenue taxes, are rarely designed to achieve only one policy objective.

The position of the OSG cannot be sustained. Although it has the primary discretion to determine and fix the just share of the LGUs in the national taxes (e.g., Section 284 of the LGC), Congress cannot disobey the express mandate of Section 6, Article X of the 1987 Constitution for the just share of the LGUs to be derived from the national taxes. The phrase as determined by law in Section 6 follows and qualifies the phrase just share, and cannot be construed as qualifying the succeeding phrase in the national taxes. The intent of the people in respect of Section 6 is really that the base for reckoning the just share of the LGUs should include all national taxes. To read Section 6 differently as requiring that the just share of LGUs in the national taxes shall be determined by law is tantamount to the unauthorized revision of the 1987 Constitution.

Further, the dissenting opinion holds that the Constitution only requires that the local government units should have a “just share” in the national taxes and the majority Decision is encroaching on the plenary power of Congress to determine the just share of LGUs in the national taxes. “Just share, as determined by law”¹ does not refer only to a percentage, but likewise a determination by Congress and the President as to which national taxes, as well as the percentage of such classes of national taxes, will be shared with local governments. The phrase “national taxes” is broad to give Congress a lot of leeway in determining what portion or what sources within the national taxes should be “just share.”

However, majority Decision disagree and avers that although the power of Congress to make laws is plenary in nature, congressional lawmaking remains subject to the limitations stated in the 1987 Constitution. The phrase national internal revenue taxes engrafted in Section 284 is undoubtedly more restrictive than the term national taxes written in Section 6. As such, Congress has actually departed from the letter of the 1987 Constitution stating that national taxes should be the base from which the just share of the LGU comes. Such departure is impermissible. Verba legis non est recedendum (from the words of a statute there should be no departure). Equally impermissible is that Congress has also thereby curtailed the guarantee of fiscal autonomy in favor of the LGUs under the 1987 Constitution.

Hence, the exclusion of certain national taxes from the base amount for the computation of the just share of the LGUs is unconstitutional.