MANDANAS V. OCHOA (G.R. NO. 199802.

JULY 3, 2018)
CONGRESSMAN HERMILANDO I. MANDANAS; MAYOR EFREN
B. DIONA; MAYOR ANTONINO A. AURELIO; KAGAWAD MARIO
ILAGAN; BARANGAY CHAIR PERLITO MANALO; BARANGAY
CHAIR MEDEL MEDRANO; BARANGAY KAGAWAD CRIS
RAMOS; BARANGAY KAGAWAD ELISA D. BALBAGO, AND
ATTY. JOSE MALVAR VILLEGAS, Petitioners, v. EXECUTIVE
SECRETARY PAQUITO N. OCHOA, JR.; SECRETARY CESAR
PURISIMA, DEPARTMENT OF FINANCE; SECRETARY
FLORENCIO H. ABAD, DEPARTMENT OF BUDGET AND
MANAGEMENT; COMMISSIONER KIM JACINTO-HENARES,
BUREAU OF INTERNAL REVENUE; AND NATIONAL
TREASURER ROBERTO TAN, BUREAU OF THE TREASURY,
Respondents. (G.R. No. 199802. July 03, 2018)

WRITTEN BY JUSTICE BERSAMIN FOR THE SUPREME COURT OF

THE PHILIPPINES.

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

Antecedents

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.

Implementing the constitutional mandate for decentralization and

local autonomy, Congress enacted Republic Act No. 7160, otherwise
known as the Local Government Code (LGC), in order to guarantee
the fiscal autonomy of the LGUs by specifically providing that:

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.

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).

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; that, consequently, the release of the additional amount of
P60,750,000,000.00 to the LGUs as their IRA for FY 2012 should be
ordered; and that for the same reason the LGUs should also be
released their unpaid IRA for FY 1992 to FY 2011, inclusive, totaling
P438,103,906,675.73.

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.

It is noted that named as common respondents were the then

incumbent Executive Secretary, Secretary of Finance, the Secretary
of the Department of Budget and Management (DBM), and the
Commissioner of Internal Revenue. In addition, Mandanas, et al.
impleaded the National Treasurer, while Garcia added the
Commissioner of Customs.

The cases were consolidated on October 22, 2013.3 In the meanwhile,

Congressman Garcia, Jr. passed away. Jose Enrique Garcia III, who
was subsequently elected to the same congressional post, was
substituted for Congressman Garcia, Jr. as the petitioner in G.R. No.
208488 under the resolution promulgated on August 23, 2016.4

In response to the petitions, the several respondents, represented by

the Office of the Solicitor General (OSG), urged the dismissal of the
petitions upon procedural and substantive considerations.

Anent the procedural considerations, the OSG argues that the

petitions are procedurally defective because, firstly, mandamus does
not lie in order to achieve the reliefs sought because Congress may
not be compelled to appropriate the sums allegedly illegally withheld
for to do so will violate the doctrine of separation of powers; and,
secondly, mandamus does not also lie to compel the DBM to release
the amounts to the LGUs because such disbursements will be contrary
to the purposes specified in the GAA; that Garcia has no clear legal
right to sustain his suit for mandamus; that the filing of Garcia's suit
violates the doctrine of hierarchy of courts; and that Garcia's petition
seeks declaratory relief but the Court cannot grant such relief in the
exercise of its original jurisdiction.

On the substantive considerations, 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.
Issues

The issues for resolution are limited to the following, namely:

I.
Whether or not mandamus is the proper vehicle to assail the
constitutionality of the relevant provisions of the GAA and the
LGC;

II.
Whether or not Section 284 of the LGC is unconstitutional for
being repugnant to Section 6, Article X of the 1987
Constitution;

III.
Whether or not the existing shares given to the LGUs by virtue
of the GAA is consistent with the constitutional mandate to give
LGUs a "just share" to national taxes following Article X,
Section 6 of the 1987 Constitution;

IV.
Whether or not the petitioners are entitled to the reliefs prayed
for.

Simply stated, the petitioners raise the novel question of 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
constitutional.

Ruling of the Court

The petitions are partly meritorious.

I
Mandamus is an improper remedy

Mandanas, et al. seek the writs of certiorari, prohibition and

mandamus, while Garcia prays for the writ of mandamus. Both groups
of petitioners impugn the validity of Section 284 of the LGC.
The remedy of mandamus is defined in Section 3, Rule 65 of the Rules
of Court, which provides:

Section 3. Petition for mandamus. — When any tribunal, corporation,

board, officer or person unlawfully neglects the performance of an act
which the law specifically enjoins as a duty resulting from an office,
trust, or station, or unlawfully excludes another from the use and
enjoyment of a right or office to which such other is entitled, and
there is no other plain, speedy and adequate remedy in the ordinary
course of law, the person aggrieved thereby may file a verified
petition in the proper court, alleging the facts with certainty and
praying that judgment be rendered commanding the respondent,
immediately or at some other time to be specified by the court, to do
the act required to be done to protect the rights of the petitioner, and
to pay the damages sustained by the petitioner by reason of the
wrongful acts of the respondent.

The petition shall also contain a sworn certification of non-forum

shopping as provided in the third paragraph of section 3, Rule 46.

For the writ of mandamus to issue, the petitioner must show that the
act sought to be performed or compelled is ministerial on the part of
the respondent. An act is ministerial when it does not require the
exercise of judgment and the act is performed pursuant to a legal
mandate. The burden of proof is on the mandamus petitioner to show
that he is entitled to the performance of a legal right, and that the
respondent has a corresponding duty to perform the act. The writ of
mandamus may not issue to compel an official to do anything that is
not his duty to do, or that is his duty not to do, or to obtain for the
petitioner anything to which he is not entitled by law.5

Considering that its determination of what constitutes the just share

of the LGUs in the national taxes under the 1987 Constitution is an
entirely discretionary power, Congress cannot be compelled by writ of
mandamus to act either way. The discretion of Congress thereon,
being exclusive, is not subject to external direction; otherwise, the
delicate balance underlying our system of government may be unduly
disturbed. This conclusion should at once then demand the dismissal
of the Garcia petition in G.R. No. 208488, but we do not dismiss it.
Garcia has attributed the non-release of some portions of their IRA
balances to an alleged congressional indiscretion – the diminution of
the base amount for computing the LGU's just share. He has asserted
that Congress altered the constitutional base not only by limiting the
base to the NIRTs instead of including therein all national taxes, but
also by excluding some national taxes and revenues that only
benefitted a few LGUs to the detriment of the rest of the LGUs.

Garcia's petition, while dubbed as a petition for mandamus, is also a

petition for certiorari because it alleges that Congress thereby
committed grave abuse of discretion amounting to lack or excess of
jurisdiction. It is worth reminding that the actual nature of every
action is determined by the allegations in the body of the pleading or
the complaint itself, not by the nomenclature used to designate the
same.6Moreover, neither should the prayer for relief be controlling;
hence, the courts may still grant the proper relief as the facts alleged
in the pleadings and the evidence introduced may warrant even
without a prayer for specific remedy.7

In this regard, Garcia's allegation of the unconstitutionality of the

insertion by Congress of the words internal revenue in the phrase
national taxes justifies treating his petition as one for certiorari. It
becomes our duty, then, to assume jurisdiction over his petition. In
Araullo v. Aquino III,8 the Court has emphatically opined that the
Court's certiorari jurisdiction under the expanded judicial power as
stated in the second paragraph of Section 1, Article VIII of the
Constitution can be asserted:

xxxx to set right and undo any act of grave abuse of discretion
amounting to lack or excess of jurisdiction by any branch or
instrumentality of the Government, the Court is not at all precluded
from making the inquiry provided the challenge was properly brought
by interested or affected parties. The Court has been thereby
entrusted expressly or by necessary implication with both the duty
and the obligation of determining, in appropriate cases, the validity of
any assailed legislative or executive action. This entrustment is
consistent with the republican system of checks and balances.9
Further, observing that one of the reliefs being sought by Garcia is
identical to the main relief sought by Mandanas, et al., the Court
should rightly dwell on the substantive arguments posited by Garcia
to the extent that they are relevant to the ultimate resolution of these
consolidated suits.

II.
Municipal corporations and
their relationship with Congress
The correct resolution and fair disposition of the issues interposed for
our consideration require a review of the basic principles underlying
our system of local governments, and of the extent of the autonomy
granted to the LGUs by the 1987 Constitution.

Municipal corporations are now commonly known as local

governments. They are the bodies politic established by law partly as
agencies of the State to assist in the civil governance of the country.
Their chief purpose has been to regulate and administer the local and
internal affairs of the cities, municipalities or districts. They are legal
institutions formed by charters from the sovereign power, whereby
the populations within communities living within prescribed areas
have formed themselves into bodies politic and corporate, and
assumed their corporate names with the right of continuous
succession and for the purposes and with the authority of subordinate
self-government and improvement and the local administration of the
affairs of the State.10

Municipal corporations, being the mere creatures of the State, are

subject to the will of Congress, their creator. Their continued
existence and the grant of their powers are dependent on the
discretion of Congress. On this matter, Judge John F. Dillon of the
State of Iowa in the United States of America enunciated in Merriam
v. Moody's Executors11 the rule of statutory construction that came
to be oft-mentioned as Dillon's Rule, to wit:

[A] municipal corporation possesses and can exercise the following

powers and no others: First, those granted in express words; second,
those necessarily implied or necessarily incident to the powers
expressly granted; third, those absolutely essential to the declared
objects and purposes of the corporation-not simply convenient but
indispensible; fourth, any fair doubt as to the existence of a power is
resolved by the courts against the corporation-against the existence of
the powers.12

The formulation of Dillon's Rule has since undergone slight

modifications. Judge Dillon himself introduced some of the
modifications through his post-Merriam writings with the objective of
alleviating the original formulation's harshness. The word fairly was
added to the second proviso; the word absolutely was deleted from
the third proviso; and the words reasonable and substantial were
added to the fourth proviso, thusly:

x x x second, those necessarily or fairly implied in or incident to the

powers expressly granted; third, those essential to x x x. Any fair,
reasonable, doubt.13

The modified Dillon's Rule has been followed in this jurisdiction, and
has remained despite both the 1973 Constitution and the 1987
Constitution mandating autonomy for local governments. This has
been made evident in several rulings of the Court, one of which was
that handed down in Magtajas v. Pryce Properties Corporation,
Inc.:14

In light of all the above considerations, we see no way of arriving at

the conclusion urged on us by the petitioners that the ordinances in
question are valid. On the contrary, we find that the ordinances
violate P.D. 1869, which has the character and force of a statute, as
well as the public policy expressed in the decree allowing the playing
of certain games of chance despite the prohibition of gambling in
general.

The rationale of the requirement that the ordinances should not

contravene a statute is obvious. Municipal governments are only
agents of the national government. Local councils exercise only
delegated legislative powers conferred on them by Congress as the
national lawmaking body. The delegate cannot be superior to the
principal or exercise powers higher than those of the latter. It is a
heresy to suggest that the local government units can undo the acts of
Congress, from which they have derived their power in the first place,
and negate by mere ordinance the mandate of the statute.

Municipal corporations owe their origin to, and derive their powers
and rights wholly from the legislature. It breathes into them the
breath of life, without which they cannot exist. As it creates, so it may
destroy. As it may destroy, it may abridge and control. Unless there is
some constitutional limitation on the right, the legislature might, by a
single act, and if we can suppose it capable of so great a folly and so
great a wrong, sweep from existence all of the municipal corporations
in the State, and the corporation could not prevent it. We know of no
limitation on the right so far as to the corporation themselves are
concerned. They are, so to phrase it, the mere tenants at will of the
legislature.

This basic relationship between the national legislature and the local
government units has not been enfeebled by the new provisions in the
Constitution strengthening the policy of local autonomy. Without
meaning to detract from that policy, we here confirm that Congress
retains control of the local government units although in significantly
reduced degree now than under our previous Constitutions. The
power to create still includes the power to destroy. The power to
grant still includes the power to withhold or recall. True, there are
certain notable innovations in the Constitution, like the direct
conferment on the local government units of the power to tax, which
cannot now be withdrawn by mere statute. By and large, however, the
national legislature is still the principal of the local government units,
which cannot defy its will or modify or violate it. [Bold underscoring
supplied for emphasis]

Also, in the earlier ruling in Ganzon v. Court of Appeals,15 the Court

has pointed out that the 1987 Constitution, in mandating autonomy
for the LGUs, did not intend to deprive Congress of its authority and
prerogatives over the LGUs.

Nonetheless, the LGC has tempered the application of Dillon's Rule in

the Philippines by providing a norm of interpretation in favor of the
LGUs in its Section 5(a), to wit:
xxxx

(a)
Any provision on a power of a local government unit shall be liberally
interpreted in its favor, and in case of doubt, any question thereon
shall be resolved in favor of devolution of powers and of the local
government unit. Any fair and reasonable doubt as to the existence of
the power shall be interpreted in favor of the local government unit
concerned; [Bold underscoring supplied for emphasis]

xxxx

III.
The extent of local autonomy in the Philippines
Regardless, there remains no question that Congress possesses and
wields plenary power to control and direct the destiny of the LGUs,
subject only to the Constitution itself, for Congress, just like any
branch of the Government, should bow down to the majesty of the
Constitution, which is always supreme.

The 1987 Constitution limits Cong.ress' control over the LGUs by

ordaining in Section 25 of its Article II that: "The State shall ensure
the autonomy of local governments." The autonomy of the LGUs as
thereby ensured does not contemplate the fragmentation of the
Philippines into a collection of mini-states,16 or the creation of
imperium in imperio.17 The grant of autonomy simply means that
Congress will allow the LGUs to perform certain functions and
exercise certain powers in order not for them to be overly dependent
on the National Government subject to the limitations that the 1987
Constitution or Congress may impose.18 Local autonomy recognizes
the wholeness of the Philippine society in its ethnolinguistic, cultural,
and even religious diversities.19

The constitutional mandate to ensure local autonomy refers to

decentralization.20 In its broad or general sense, decentralization has
two forms in the Philippine setting, namely: the decentralization of
power and the decentralization of administration. The
decentralization of power involves the abdication of political power in
favor of the autonomous LGUs as to grant them the freedom to chart
their own destinies and to shape their futures with minimum
intervention from the central government. This amounts to self-
immolation because the autonomous LGUs thereby become
accountable not to the central authorities but to their constituencies.
On the other hand, the decentralization of administration occurs when
the central government delegates administrative powers to the LGUs
as the means of broadening the base of governmental powers and of
making the LGUs more responsive and accountable in the process,
and thereby ensure their fullest development as self-reliant
communities and more effective partners in the pursuit of the goals of
national development and social progress. This form of
decentralization further relieves the central government of the burden
of managing local affairs so that it can concentrate on national
concerns.21

Two groups of LGUs enjoy decentralization in distinct ways. The

decentralization of power has been given to the regional units
(namely, the Autonomous Region for Muslim Mindanao [ARMM] and
the constitutionally-mandated Cordillera Autonomous Region [CAR]).
The other group of LGUs (i.e., provinces, cities, municipalities and
barangays) enjoy the decentralization of administration.22 The
distinction can be reasonably understood. The provinces, cities,
municipalities and barangays are given decentralized administration
to make governance at the local levels more directly responsive and
effective. In turn, the economic, political and social developments of
the smaller political units are expected to propel social and economic
growth and development.23 In contrast, the regional autonomy of the
ARMM and the CAR aims to permit determinate groups with common
traditions and shared social-cultural characteristics to freely develop
their ways of life and heritage, to exercise their rights, and to be in
charge of their own affairs through the establishment of a special
governance regime for certain member communities who choose their
own authorities from within themselves, and exercise the
jurisdictional authority legally accorded to them to decide their
internal community affairs.24

It is to be underscored, however, that the decentralization of power in

favor of the regional units is not unlimited but involves only the
powers enumerated by Section 20, Article X of the 1987 Constitution
and by the acts of Congress. For, with various powers being devolved
to the regional units, the grant and exercise of such powers should
always be consistent with and limited by the 1987 Constitution and
the national laws.25 In other words, the powers are guardedly, not
absolutely, abdicated by the National Government.

Illustrative of the limitation is what transpired in Sema v. Commission

on Elections,26 where the Court struck down Section 19, Article VI of
Republic Act No. 9054 (An Act to Strengthen and Expand the Organic
Act for the Autonomous Region in Muslim Mindanao, Amending for
the Purpose Republic Act No. 6734, entitled "An Act Providing for the
Autonomous Region in Muslim Mindanao, " as Amended) insofar as
the provision granted to the ARMM the power to create provinces and
cities, and consequently declared as void Muslim Mindanao Autonomy
Act No. 201 creating the Province of Shariff Kabunsuan for being
contrary to Section 5, Article VI and Section 20, Article X of the 1987
Constitution, as well as Section 3 of the Ordinance appended to the
1987 Constitution. The Court clarified therein that only Congress
could create provinces and cities. This was because the creation of
provinces and cities necessarily entailed the creation of legislative
districts, a power that only Congress could exercise pursuant to
Section 5, Article VI of the 1987 Constitution and Section 3 of the
Ordinance appended to the Constitution; as such, the ARMM would be
thereby usurping the power of Congress to create legislative districts
and national offices.27

The 1987 Constitution has surely encouraged decentralization by

mandating that a system of decentralization be instituted through the
LGC in order to enable a more responsive and accountable local
government structure.28 It has also delegated the power to tax to the
LGUs by authorizing them to create their own sources of income that
would make them self-reliant.29 It further ensures that each and
every LGU will have a just share in national taxes as well in the
development of the national wealth.30

The LGC has further delineated in its Section 3 the different operative
principles of decentralization to be adhered to consistently with the
constitutional policy on local autonomy, viz.:
Sec. 3. Operative Principles of Decentralization –

The formulation and implementation of policies and measures on local

autonomy shall be guided by the following operative principles:

(a) There shall be an effective allocation among the different local

government units of their respective powers, functions,
responsibilities, and resources;
(b) There shall be established in every local government unit an
accountable, efficient, and dynamic organizational structure and
operating mechanism that will meet the priority needs and service
requirements of its communities;
(c) Subject to civil service law, rules and regulations, local officials
and employees paid wholly or mainly from local funds shall be
appointed or removed, according to merit and fitness, by the
appropriate appointing authority;
(d) The vesting of duty, responsibility, and accountability in local
government units shall be accompanied with provision for reasonably
adequate resources to discharge their powers and effectively carry
out their functions: hence, they shall have the power to create and
broaden their own sources of revenue and the right to a just share in
national taxes and an equitable share in the proceeds of the utilization
and development of the national wealth within their respective areas;
(e) Provinces with respect to component cities and municipalities, and
cities and municipalities with respect to component barangays, shall
ensure that the acts of their component units are within the scope of
their prescribed powers and functions;
(f) Local government units may group themselves, consolidate or
coordinate their efforts, services, and resources commonly beneficial
to them;
(g) The capabilities of local government units, especially the
municipalities and barangays, shall be enhanced by providing them
with opportunities to participate actively in the implementation of
national programs and projects;
(h) There shall be a continuing mechanism to enhance local autonomy
not only by legislative enabling acts but also by administrative and
organizational reforms;
(i) Local government units shall share with the national government
the responsibility in the management and maintenance of ecological
balance within their territorial jurisdiction, subject to the provisions of
this Code and national policies;
(j) Effective mechanisms for ensuring the accountability of local
government units to their respective constituents shall be
strengthened in order to upgrade continually the quality of local
leadership;
(k) The realization of local autonomy shall be facilitated through
improved coordination of national government policies and programs
an extension of adequate technical and material assistance to less
developed and deserving local government units;
(l) The participation of the private sector in local governance,
particularly in the delivery of basic services, shall be encouraged to
ensure the viability of local autonomy as an alternative strategy for
sustainable development; and
(m) The national government shall ensure that decentralization
contributes to the continuing improvement of the performance of local
government units and the quality of community life.

Based on the foregoing delineation, decentralization can be

considered as the decision by the central government to empower its
subordinates, whether geographically or functionally constituted, to
exercise authority in certain areas. It involves decision-making by
subnational units, and is typically a delegated power, whereby a
larger government chooses to delegate authority to more local
governments.31 It is also a process, being the set of policies, electoral
or constitutional reforms that transfer responsibilities, resources or
authority from the higher to the lower levels of government.32 It is
often viewed as a shift of authority towards local governments and
away from the central government, with total government authority
over society and economy imagined as fixed.33

As a system of transferring authority and power from the National

Government to the LGUs, decentralization in the Philippines may be
categorized into four, namely: (1) political decentralization or
devolution; (2) administrative decentralization or deconcentration; (3)
fiscal decentralization; and (4) policy or decision-making
decentralization.
Political decentralization or devolution occurs when there is a transfer
of powers, responsibilities, and resources from the central
government to the LGUs for the performance of certain functions. It is
a more liberal form of decentralization because there is an actual
transfer of powers and responsibilities. It aims to grant greater
autonomy to the LGUs in cognizance of their right to self-government,
to make them self-reliant, and to improve their administrative and
technical capabilities.34 It is an act by which the National
Government confers power and authority upon the various LGUs to
perform specific functions and responsibilities.35 It encompasses
reforms to open sub-national representation and policies to "devolve
political authority or electoral capacities to subnational actors."36
Section 16 to Section 19 of the LGC characterize political
decentralization in the LGC as different LGUs empowered to address
the different needs of their constituents. In contrast, devolution in
favor of the regional units is more expansive because they are given
the authority to regulate a wider array of subjects, including personal,
family and property relations.
Administrative decentralization or deconcentration involves the
transfer of functions or the delegation of authority and responsibility
from the national office to the regional and local offices.37 Consistent
with this concept, the LGC has created the Local School Boards,38 the
Local Health Boards39 and the Local Development Councils,40 and
has transferred some of the authority from the agencies of the
National Government, like the Department of Education and the
Department of Health, to such bodies to better cope up with the needs
of particular localities.

Fiscal decentralization means that the LGUs have the power to create
their own sources of revenue in addition to their just share in the
national taxes released by the National Government. It includes the
power to allocate their resources in accordance with their own
priorities. It thus extends to the preparation of their budgets, so that
the local officials have to work within the constraints of their budgets.
The budgets are not formulated at the national level and imposed on
local governments, without regard as to whether or not they are
relevant to local needs and resources. Hence, the necessity of a
balancing of viewpoints and the harmonization of proposals from both
local and national officials, who in any case are partners in the
attainment of national goals, is recognized and addressed.41

Fiscal decentralization emanates from a specific constitutional

mandate that is expressed in several provisions of Article X (Local
Government) of the 1987 Constitution, specifically: Section 5;42
Section 6;43 and Section 7.44

The constitutional authority extended to each and every LGU to create

its own sources of income and revenue has been formalized from
Section 128 to Section 133 of the LGC. To implement the LGUs'
entitlement to the just share in the national taxes, Congress has
enacted Section 284 to Section 288 of the LGC. Congress has further
enacted Section 289 to Section 294 of the LGC to define the share of
the LGUs in the national wealth. Indeed, the requirement for the
automatic release to the LGUs of their just share in the national taxes
is but the consequence of the constitutional mandate for fiscal
decentralization.45

For sure, fiscal decentralization does not signify the absolute freedom
of the LGUs to create their own sources of revenue and to spend their
revenues unrestrictedly or upon their individual whims and caprices.
Congress has subjected the LGUs' power to tax to the guidelines set
in Section 130 of the LGC and to the limitations stated in Section 133
of the LGC. The concept of local fiscal autonomy does not exclude any
manner of intervention by the National Government in the form of
supervision if only to ensure that the local programs, fiscal and
otherwise, are consistent with the national goals.46

Lastly, policy- or decision-making decentralization exists if at least

one sub-national tier of government has exclusive authority to make
decisions on at least one policy issue.47

In fine, certain limitations are and can be imposed by Congress in all

the forms of decentralization, for local autonomy, whether as to power
or as to administration, is not absolute. The LGUs remain to be the
tenants of the will of Congress subject to the guarantees that the
Constitution itself imposes.

IV.
Section 284 of the LGC deviates from
the plain language of Section 6
of Article X of the 1987 Constitution

Section 6, Article X the 1987 Constitution textually commands the

allocation to the LGUs of a just share in the national taxes, viz.:

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 6, when parsed, embodies three mandates, namely: (1) the

LGUs shall have a just share in the national taxes; (2) the just share
shall be determined by law; and (3) the just share shall be
automatically released to the LGUs.48

Congress has sought to carry out the second mandate of Section 6 by

enacting Section 284, Title III (Shares of Local Government Units in
the Proceeds of National Taxes), of the LGC, which is again quoted for
ready reference:

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.

There is no issue as to what constitutes the LGUs' just share

expressed in percentages of the national taxes (i.e., 30%, 35% and
40% stipulated in subparagraphs (a), (b), and (c) of Section 284). 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.

Has not Congress thereby infringed the constitutional provision?

Garcia contends that Congress has exceeded its constitutional

boundary by limiting to the NIRTs the base from which to compute
the just share of the LGUs.

We agree with Garcia's contention.

Although the power of Congress to make laws is plenary in nature,

congressional lawmaking remains subject to the limitations stated in
the 1987 Constitution.49 The phrase national internal revenue
taxesengrafted 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).50 Equally impermissible is that Congress has also thereby
curtailed the guarantee of fiscal autonomy in favor of the LGUs under
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.51 Taxes are classified into national and local.
National taxes are those levied by the National Government, while
local taxes are those levied by the LGUs.52

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;
(c) Value-added tax;
(d) Other percentage taxes;
(e) Excise taxes;
(f) Documentary stamp taxes; and
(g) Such other taxes as are 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,53 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.54 We further note that Section 102(oo) of R.A. No. 10863
(Customs Modernization and Tariff Act) expressly includes all fees and
charges imposed under the Act under the blanket term of taxes.
It is clear from the foregoing clarification that the exclusion of other
national taxes like customs duties from the base for determining the
just share of the LGUs contravened the express constitutional edict in
Section 6, Article X the 1987 Constitution.

Still, the OSG posits that Congress can manipulate, by law, the base of
the allocation of the just share in the national taxes of the LGUs.

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 includes 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.

V.
Congress can validly exclude taxes
that will constitute the base amount
for the computation of the IRA only if
a Constitutional provision allows such exclusion

Garcia submits that even assuming that the present version of Section
284 of the LGC is constitutionally valid, the implementation thereof
has been erroneous because Section 284 does not authorize any
exclusion or deduction from the collections of the NIRTs for purposes
of the computation of the allocations to the LGUs. He further submits
that the exclusion of certain NIRTs diminishes the fiscal autonomy
granted to the LGUs. He claims that the following NIRTs have been
illegally excluded from the base for determining the fair share of the
LGUs in the IRA, to wit:

(1)
NIRTs collected by the cities and provinces and divided exclusively
among the LGUs of the Autonomous Region for Muslim Mindanao
(ARMM), the regional government and the central government,
pursuant to Section 1555 in relation to Section 9,56 Article IX of R.A.
No. 9054 (An Act to Strengthen and Expand the Organic Act for the
Autonomous Region in Muslim Mindanao, amending for the purpose
Republic Act No. 6734, entitled An Act providing for an Organic Act
for the Autonomous Region in Muslim Mindanao);
(2)
The shares in the excise taxes on mineral products of the different
LGUs, as provided in Section 287 of the NIRC57 in relation to Section
290 of the LGC;58
(3)
The shares of the relevant LGUs in the franchise taxes paid by Manila
Jockey Club, Inc.59 and Philippine Racing Club, Inc.;60
(4)
The shares of various municipalities in VAT collections under R.A. No.
7643 (An Act to Empower the Commissioner of Internal Revenue to
Require the Payment of the Value Added Tax Every Month and to
Allow Local Government Units to Share in VAT Revenue, Amending
for this Purpose Certain Sections of the National Internal Revenue
Code) as embodied in Section 283 of the NIRC;61
(5)
The shares of relevant LGUs in the proceeds of the sale and
conversion of former military bases in accordance with R.A. No. 7227
(Bases Conversion and Development Act of 1992);62
(6)
The shares of different LGUs in the excise taxes imposed on locally
manufactured Virginia tobacco products as provided in Section 3 of
R.A. No. 7171 (An Act to Promote the Development of the Farmers in
the Virginia Tobacco Producing Provinces), and as now provided in
Section 289 of the NIRC;63
(7)
The shares of different LGUs in the incremental revenues from Burley
and native tobacco products under Section 8 of R.A. No. 8240 (An Act
Amending Sections 138, 140 and 142 of the National Internal Revenue
Code as Amended and for Other Purposes) and as now provided in
Section 288 of the NIRC;64 and
(8)
The share of the Commission of Audit (COA) in the NIRTs as provided
in Section 24(3) of P.D. No. 1445 (Government Auditing Code of the
Philippines)65 in relation to Section 284 of the NIRC.66

Garcia insists that the foregoing taxes and revenues should have been
included by Congress and, by extension, the BIR in the base for
computing the IRA on the strength of the cited provisions; that the
LGC did not authorize such exclusion; and that the continued
exclusion has undermined the fiscal autonomy guaranteed by the
1987 Constitution.

The insistence of Garcia is valid to an extent.

An examination of the above-enumerated laws confirms that the

following have been excluded from the base for reckoning the just
share of the LGUs as required by Section 6, Article X of the 1987
Constitution, namely:

(a)
The share of the affected LGUs in the proceeds of the sale and
conversion of former military bases in accordance with R.A. No. 7227;
(b)
The share of the different LGUs in the excise taxes imposed on locally
manufactured Virginia tobacco products as provided for in Section 3,
R.A. No. 7171, and as now provided in Section 289of the NIRC;
(c)
The share of the different LGUs in incremental revenues from Burley
and native tobacco products under Section 8 of R.A. No. 8240, and as
now provided for in Section 288 of the NIRC;
(d)
The share of the COA in the NIRTs as provided in Section 24(3) of
P.D. No. 144567 in relation to Section 284 of the NIRC;
(e)
The shares of the different LGUs in the excise taxes on mineral
products, as provided in Section 287 of the NIRC in relation to
Section 290 of the LGC;
(f)
The NIRTs collected by the cities and provinces and divided
exclusively among the LGUs of the ARMM, the regional government
and the central government, pursuant to Section 1568 in relation to
Section 9,69 Article IX of R. A. No. 9054; and
(g)
The shares of the relevant LGUs in the franchise taxes paid by Manila
Jockey Club, Inc., and the Philippine Racing Club, Inc.

Anent the share of the affected LGUs in the proceeds of the sale and
conversion of the former military bases pursuant to R.A. No. 7227, the
exclusion is warranted for the reason that such proceeds do not come
from a tax, fee or exaction imposed on the sale and conversion.

As to the share of the affected LGUs in the excise taxes imposed on

locally manufactured Virginia tobacco products under R.A. No. 7171
(now Section 289 of the NIRC); the share of the affected LGUs in
incremental revenues from Burley and native tobacco products under
Section 8, R.A. No. 8240 (now Section 288 of the NIRC); the share of
the COA in the NIRTs pursuant to Section 24(3) of P.D. No. 1445 in
relation to Section 284 of the NIRC; and the share of the host LGUs in
the franchise taxes paid by the Manila Jockey Club, Inc., and
Philippine Racing Club, Inc., under Section 6 of R.A. No. 6631 and
Section 8 of R.A. No. 6632, respectively, the exclusion is also justified.
Although such shares involved national taxes as defined under the
NIRC, Congress had the authority to exclude them by virtue of their
being taxes imposed for special purposes. A reading of Section 288
and Section 289 of the NIRC and Section 24(3) of P.D. No. 1445 in
relation to Section 284 of the NIRC reveals that all such taxes are
levied and collected for a special purpose.70 The same is true for the
franchise taxes paid under Section 6 of R.A. No. 6631 and Section 8 of
R.A. No. 6632, inasmuch as certain percentages of the franchise taxes
go to different beneficiaries. The exclusion conforms to Section 29(3),
Article VI of the 1987 Constitution, which states:
Section 29. x x x

xxxx

(3) All money collected on any tax levied for a special purpose shall be
treated as a special fund and paid out for such purpose only. If the
purpose for which a special fund was created has been fulfilled or
abandoned, the balance, if any, shall be transferred to the general
funds of the Government. [Bold emphasis supplied]

The exclusion of the share of the different LGUs in the excise taxes
imposed on mineral products pursuant to Section 287 of the NIRC in
relation to Section 290 of the LGC is premised on a different
constitutional provision. Section 7, Article X of the 1987 Constitution
allows affected LGUs to have an equitable share in the proceeds of the
utilization of the nation's national wealth "within their respective
areas," to wit:

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.

This constitutional provision is implemented by Section 287 of the

NIRC and Section 290 of the LGC thusly:

SEC. 287. Shares of Local Government Units in the Proceeds from the
Development and Utilization of the National Wealth. - Local
Government units shall have an equitable share in the proceeds
derived from the utilization and development of the national wealth,
within their respective areas, including sharing the same with the
inhabitants by way of direct benefits.

(A) 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 excise taxes on
mineral products, royalties, 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.

(B) Share of the Local Governments from Any Government Agency or

Government-owned or - 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:

(1) One percent (1%) of the gross sales or receipts of the preceding
calendar year, or

(2) Forty percent (40%) of the excise taxes on mineral products,

royalties, and such other taxes, fees or charges, including related
surcharges, interests or fines the government agency or government
owned or -controlled corporations would have paid if it were not
otherwise exempt. [Bold emphasis supplied]

SEC. 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. [Bold emphasis supplied]

Lastly, the NIRTs collected by the provinces and Cities within the
ARMM whose portions are distributed to the ARMM's provincial, city
and regional governments are also properly excluded for such taxes
are intended to truly enable a sustainable and feasible autonomous
region as guaranteed by the 1987 Constitution. The mandate under
Section 15 to Section 21, Article X of the 1987 Constitution is to allow
the separate development of peoples with distinctive cultures and
traditions in the autonomous areas.71The grant of autonomy to the
autonomous regions includes the right of self determination – which in
turn ensures the right of the peoples residing therein to the necessary
level of autonomy that will guarantee the support of their own cultural
identities, the establishment of priorities by their respective
communities' internal decision-making processes and the
management of collective matters by themselves.72 As such, the
NIRTs collected by the provinces and cities within the ARMM will
ensure local autonomy and their very existence with a continuous
supply of funding sourced from their very own areas. The ARMM will
become self-reliant and dynamic consistent with the dictates of the
1987 Constitution.

The shares of the municipalities in the VATs collected pursuant to R.A.

No. 7643 should be included in determining the base for computing
the just share because such VATs are national taxes, and nothing can
validly justify their exclusion.

In recapitulation, the national taxes to be included in the base for

computing the just share the LGUs shall henceforth be, but shall not
be limited to, the following:
The NIRTs enumerated in Section 21 of the NIRC, as amended, to be
inclusive of the VATs, excise taxes, and DSTs collected by the BIR and
the BOC, and their deputized agents;

Tariff and customs duties collected by the BOC;

50% of the VATs collected in the ARMM, and 30% of all other national
taxes collected in the ARMM; the remaining 50% of the VATs and 70%
of the collections of the other national taxes in the ARMM shall be the
exclusive share of the ARMM pursuant to Section 9 and Section 15 of
R.A. No. 9054;

60% of the national taxes collected from the exploitation and

development of the national wealth; the remaining 40% will
exclusively accrue to the host LGUs pursuant to Section 290 of the
LGC;

85% of the excise taxes collected from locally manufactured Virginia

and other tobacco products; the remaining 15% shall accrue to the
special purpose funds pursuant created in R.A. No. 7171 and R.A. No.
7227;

The entire 50% of the national taxes collected under Section 106,
Section 108 and Section 116 of the NIRC in excess of the increase in
collections for the immediately preceding year; and

5% of the franchise taxes in favor of the national government paid by

franchise holders in accordance with Section 6 of R.A. No. 6631 and
Section 8 of R.A. No. 6632.

VI.
Entitlement to the reliefs sought

The petitioners' prayer for the payment of the arrears of the LGUs'
just share on the theory that the computation of the base amount had
been unconstitutional all along cannot be granted.

It is true that with our declaration today that the IRA is not in
accordance with the constitutional determination of the just share of
the LGUs in the national taxes, logic demands that the LGUs should
receive the difference between the just share they should have
received had the LGC properly reckoned such just share from all
national taxes, on the one hand, and the share – represented by the
IRA – the LGUs have actually received since the effectivity of the IRA
under the LGC, on the other. This puts the National Government in
arrears as to the just share of the LGUs. A legislative or executive act
declared void for being unconstitutional cannot give rise to any right
or obligation.73

Yet, the Court has conceded in Araullo v. Aquino III74 that:

x x x the generality of the rule makes us ponder whether rigidly

applying the rule may at times be impracticable or wasteful. Should
we not recognize the need to except from the rigid application of the
rule the instances in which the void law or executive act produced an
almost irreversible result?

The need is answered by the doctrine of operative fact. The doctrine,

definitely not a novel one, has been exhaustively explained in De
Agbayani v. Philippine National Bank:

The decision now on appeal reflects the orthodox view that an

unconstitutional act, for that matter an executive order or a municipal
ordinance likewise suffering from that infirmity, cannot be the source
of any legal rights or duties. Nor can it justify any official act taken
under it. Its repugnancy to the fundamental law once judicially
declared results in its being to all intents and purposes a mere scrap
of paper. As the new Civil Code puts it: 'When the courts declare a law
to be inconsistent with the Constitution, the former shall be void and
the latter shall govern.' Administrative or executive acts, orders and
regulations shall be valid only when they are not contrary to the laws
of the Constitution. It is understandable why it should be so, the
Constitution being supreme and paramount. Any legislative or
executive act contrary to its terms cannot survive.

Such a view has support in logic and possesses the merit of simplicity.
It may not however be sufficiently realistic. It does not admit of doubt
that prior to the declaration of nullity such challenged legislative or
executive act must have been in force and had to be complied with.
This is so as until after the judiciary, in an appropriate case, declares
its invalidity, it is entitled to obedience and respect. Parties may have
acted under it and may have changed their positions. What could be
more fitting than that in a subsequent litigation regard be had to what
has been done while such legislative or executive act was in operation
and presumed to be valid in all respects. It is now accepted as a
doctrine that prior to its being nullified, its existence as a fact must be
reckoned with. This is merely to reflect awareness that precisely
because the judiciary is the governmental organ which has the final
say on whether or not a legislative or executive measure is valid, a
period of time may have elapsed before it can exercise the power of
judicial review that may lead to a declaration of nullity. It would be to
deprive the law of its quality of fairness and justice then, if there be
no recognition of what had transpired prior to such adjudication.

In the language of an American Supreme Court decision: 'The actual

existence of a statute, prior to such a determination [of
unconstitutionality], is an operative fact and may have consequences
which cannot justly be ignored. The past cannot always be erased by a
new judicial declaration. The effect of the subsequent ruling as to
invalidity may have to be considered in various aspects, with respect
to particular relations, individual and corporate, and particular
conduct, private and official.'

The doctrine of operative fact recognizes the existence of the law or

executive act prior to the determination of its unconstitutionality as
an operative fact that produced consequences that cannot always be
erased, ignored or disregarded. In short, it nullifies the void law or
executive act but sustains its effects. It provides an exception to the
general rule that a void or unconstitutional law produces no effect.75
But its use must be subjected to great scrutiny and circumspection,
and it cannot be invoked to validate an unconstitutional law or
executive act, but is resorted to only as a matter of equity and fair
play.76 It applies only to cases where extraordinary circumstances
exist, and only when the extraordinary circumstances have met the
stringent conditions that will permit its application.

Conformably with the foregoing pronouncements in Araullo v. Aquino

III, the effect of our declaration through this decision of the
unconstitutionality of Section 284 of the LGC and its related laws as
far as they limited the source of the just share of the LGUs to the
NIRTs is prospective. It cannot be otherwise.

VII.
Automatic release of the LGUs'
just share in the National Taxes

Section 6, Article X of the 1987 Constitution commands that the just

share of the LGUs in national taxes shall be automatically released to
them. The term automatic connotes something mechanical,
spontaneous and perfunctory; and, in the context of this case, the
LGUs are not required to perform any act or thing in order to receive
their just share in the national taxes.77

Before anything, we must highlight that the 1987 Constitution

includes several provisions that actually deal with and authorize the
automatic release of funds by the National Government.

To begin with, Section 3 of Article VIII favors the Judiciary with the
automatic and regular release of its appropriations:

Section 3. The Judiciary shall enjoy fiscal autonomy. Appropriations

for the Judiciary may not be reduced by the legislature below the
amount appropriated for the previous year and, after approval, shall
be automatically and regularly released.

Then there is Section 5 of Article IX(A), which contains the common

provision in favor of the Constitutional Commissions:

Section 5. The Commission shall enjoy fiscal autonomy. Their

approved annual appropriations shall be automatically and regularly
released.

Section 14 of Article XI extends to the Office of the Ombudsman a

similar privilege:

Section 14. The Office of the Ombudsman shall enjoy fiscal autonomy.
Its approved annual appropriations shall be automatically and
regularly released.

Section 17(4) of Article XIII replicates the privilege in favour of the

Commission on Human Rights:

Section 17(4) The approved annual appropriations of the Commission

shall be automatically and regularly released.

The foregoing constitutional provisions share two aspects. The first

relates to the grant of fiscal autonomy, and the second concerns the
automatic release of funds.78 The common denominator of the
provisions is that the automatic release of the appropriated amounts
is predicated on the approval of the annual appropriations of the
offices or agencies concerned.

Directly contrasting with the foregoing provisions is Section 6, Article

X of the 1987 Constitution because the latter provision forthrightly
ordains that the "(l)ocal government units shall have a just share, as
determined by law, in the national taxes which shall be automatically
released to them." Section 6 does not mention of appropriation as a
condition for the automatic release of the just share to the LGUs. This
is because Congress not only already determined the just share
through the LGC's fixing the percentage of the collections of the
NIRTs to constitute such fair share subject to the power of the
President to adjust the same in order to manage public sector deficits
subject to limitations on the adjustments, but also explicitly
authorized such just share to be "automatically released" to the LGUs
in the proportions and regularity set under Section 28579 of the LGC
without need of annual appropriation. To operationalize the automatic
release without need of appropriation, Section 286 of the LGC clearly
provides that the automatic release of the just share directly to the
provincial, city, municipal or barangay treasurer, as the case may be,
shall be "without need of any further action," viz.:

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. x x x (Bold emphasis supplied)

The 1987 Constitution is forthright and unequivocal in ordering that

the just share of the LGUs in the national taxes shall be automatically
released to them. With Congress having established the just
sharethrough the LGC, it seems to be beyond debate that the
inclusion of the just share of the LGUs in the annual GAAs is
unnecessary, if not superfluous. Hence, the just share of the LGUs in
the national taxes shall be released to them without need of yearly
appropriation.

WHEREFORE, the petitions in G.R. No. 199802 and G.R. No.

208488 are PARTIALLY GRANTED, and, ACCORDINGLY, the
Court:

1. DECLARES the phrase "internal revenue" appearing in Section

284 of Republic Act No. 7160 (Local Government Code)
UNCONSTITUTIONAL, and DELETES the phrase from Section 284.

Section 284, as hereby modified, shall henceforth read as follows:

Section 284. Allotment of Taxes. – Local government units shall have a

share in the national 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 M
anagement, 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 allotment of local government units but
in no case shall the allotment be less than thirty percent (30%) of the
collection of national 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%) 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.

The phrase "internal revenue" is likewise hereby DELETED from the

related sections of Republic Act No. 7160 (Local Government Code),
specifically Section 285, Section 287, and Section 290, which
provisions shall henceforth read as follows:
Section 285. Allocation to Local Government Units. – The share of
local government units in the allotment shall be collected 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 (P80,000.00) per annum chargeable against the
twenty percent (20%) share of the barangay from the allotment, and
the balance to be a1located 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 (50%)

(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.

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Section 287. Local Development Projects. – Each local government

unit shall appropriate in its annual budget no less than twenty percent
(20%) of its annual allotment for development projects. Copies of the
development plans of local government units shall be furnished the
Department of Interior and Local Government.

xxxx

Section 290. Amount of Share of Local Government Units. – Local

government units shall, in addition to the 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.

Article 378, Article 379, Article 380, Article 382, Article 409, Article
461, and related provisions of the Implementing Rules and
Regulations of R.A. No. 7160 are hereby MODIFIED to reflect the
deletion of the phrase "internal revenue" as directed herein.

Henceforth, any mention of "Internal Revenue Allotment" or "IRA" in

Republic Act No. 7160 (Local Government Code) and its Implementing
Rules and Regulations shall be understood as pertaining to the
allotment of the Local Government Units derived from the national
taxes;

2. ORDERS the SECRETARY OF THE DEPARTMENT OF

FINANCE; the SECRETARY OF THE DEPARTMENT OF BUDGET
AND MANAGEMENT; the COMMISSIONER OF INTERNAL
REVENUE; the COMMISSIONER OF CUSTOMS; and the
NATIONAL TREASURER to include ALL COLLECTIONS OF
NATIONAL TAXES in the computation of the base of the just share of
the Local Government Units according to the ratio provided in the
now-modified Section 284 of Republic Act No. 7160 (Local
Government Code) except those accruing to special purpose funds
and special allotments for the utilization and development of the
national wealth.

For this purpose, the collections of national taxes for inclusion in the
base of the just share the Local Government Units shall include, but
shall not be limited to, the following:

(a) The national internal revenue taxes enumerated in Section 21 of

the National Internal Revenue Code, as amended, collected by the
Bureau of Internal Revenue and the Bureau of Customs;
(b) Tariff and customs duties collected by the Bureau of Customs;
(c) 50% of the value-added taxes collected in the Autonomous Region
in Muslim Mindanao, and 30% of all other national tax collected in the
Autonomous Region in Muslim Mindanao.

The remaining 50% of the collections of value-added taxes and 70% of

the collections of the other national taxes in the Autonomous Region
in Muslim Mindanao shall be the exclusive share of the Autonomous
Region in Muslim Mindanao pursuant to Section 9 and Section 15 of
Republic Act No. 9054.

(d) 60% of the national taxes collected from the exploitation and
development of the national wealth.

The remaining 401% of the national taxes collected from the

exploitation and development of the national wealth shall exclusively
accrue to the host Local Government Units pursuant to Section 290 of
Republic Act No. 7160 (Local Government Code);

(e) 85% of the excise taxes collected from locally manufactured

Virginia and other tobacco products.

The remaining 15% shall accrue to the special purpose funds created
by Republic Act No. 7171 and Republic Act No. 7227;

(f) The entire 50% of the national taxes collected under Sections 106,
108 and 116 of the NIRC as provided under Section 283 of the NIRC;
and
(g) 5% of the 25% franchise taxes given to the National Government
under Section 6 of Republic Act No. 6631 and Section 8 of Republic
Act No. 6632.

3. DECLARES that:

(a) The apportionment of the 25% of the franchise taxes collected

from the Manila Jockey Club and Philippine Racing Club, Inc. – that is,
five percent (5%) to the National Government; five percent (5%) to the
host municipality or city; seven percent (7%) to the Philippine Charity
Sweepstakes Office; six percent (6%) to the Anti-Tuberculosis Society;
and two percent (2%) to the White Cross pursuant to Section 6 of
Republic Act No. 6631 and Section 8 of Republic Act No. 6632 – is
VALID;

(b) Section 8 and Section 12 of Republic Act No. 7227 are VALID; and,
ACCORDINGLY, the proceeds from the sale of the former military
bases converted to alienable lands thereunder are EXCLUDED from
the computation of the national tax allocations of the Local
Government Units; and

(c) Section 24(3) of Presidential Decree No. 1445, in relation to

Section 284 of the National Internal Revenue Code, apportioning one-
half of one percent (1/2 of 1%) of national tax collections as the
auditing fee of the Commission on Audit is VALID;

4. DIRECTS the Bureau of Internal Revenue and the Bureau of

Customs and their deputized collecting agents to certify all national
tax collections, pursuant to Article 378 of the Implementing Rules and
Regulations of R.A. No. 7160;

5. DISMISSES the claims of the Local Government Units for the

settlement by the National Government of arrears in the just share on
the ground that this decision shall have PROSPECTIVE
APPLICATION; and

6. COMMANDS the AUTOMATIC RELEASE WITHOUT NEED OF

FURTHER ACTION of the just shares of the Local Government Units
in the national taxes, through their respective provincial, city,
municipal, or barangay treasurers, as the case may be, on a quarterly
basis but not beyond five (5) days from the end of each quarter, as
directed in Section 6, Article X of the 1987 Constitution and Section
286 of Republic Act No. 7160 (Local Government Code), and
operationalized by Article 383 of the Implementing Rules and
Regulations of RA 7160.

Let a copy of this decision be furnished to the President of the

Republic of the Philippines, the President of the Senate, and the
Speaker of the House of Representatives for their information and
guidance.

SO ORDERED.